“Who really cares where price is, as long as price gets somewhere..”
What’s that phrase, “only monkeys pick bottoms”? I’m not sure what the equivalent is for “picking tops” but often monkeys are seen grooming each other in their groups by picking out insects in each others head hair. I mean no offence to monkeys, in fact some of them could probably trade better than some traders I’ve met and conversed with.
I’m sure if an experiment was organised, were a reward and punishment schedule was based around taking trades according to plan and exiting likewise, the monkey would fair far better than the human trader. Maybe that’s the key, the ‘Holy Grail’, let’s think like monkeys and substitute our pips, pounds and euros for bananas..
I’m being facetious, firstly the last thing I’d want to see is a wonderful mammal imprisoned and humiliated for the sake of a trading experiment, after all that’s what ‘prop shops’ are for! But secondly (and seriously) there is a degree of discretion involved in trading that no amount of training or ‘banana incentive’ can equip you for..
I’ve been experimenting with a new ‘system’ over the past few weeks by using a small micro account. I’m still using the same strict DNA money management rules which are (as always) in place, I’m using stops on the HH and LL of where I perceive to be the turn in market sentiment and I’m sticking to the revised plan..well actually there’s a slight deviation in terms of discretion which we’ll get into. Overall the MM and mind are sound were this new system and overall strategy is concerned, the change is in the method. I’m using a combination of the four key indicator groups that I’ve mentioned in earlier FXCC articles, they are;
Indicator No.1: A Trend-Following Tool
Indicator No.2: A Trend-Confirmation Tool
Indicator No.3: An Overbought/Oversold Tool
Indicator No.4: A Profit-Taking Tool
Typically you could use any or many of the indicators that fall into these categories as the method part of your 3 Ms, such as;
No.1: Fifty/ Hundred day moving average cross over
No.2: MACD left on its standard settings
No 3: RSI
No 4: Bollinger Bands
Here’s a link to an article I penned in October on the subject of the four key groups.
http://blog.fxcc.com/beware-the-godwins-law-by-proxy-when-discussing-indicators-in-forex-trading/
They key difference with this strategy is that I’m looking for cluster direction on trades by thinking in terms of correlation. Let me explain; rather than taking the EUR/USD trade singularly when the set up occurs and the alert sounds, I’m looking to take correlation trades when all the trades are in my ‘zone of confirmation’. Typically I’ll be long EUR/USD, GBP/USD, EUR/JPY, AUD/USD and short USD/CAD and USD/CHF.
There are obviously issues with the commodity currencies, being long AUS versus USD and short USD versus CAD and as with every strategy there’s the; ‘left field’, ‘outer space’, “I’m not a supreme being so didn’t see that coming” factor to navigate. But overall, having tested this for over two months it’s worked extremely well. The money management is crucial, which is why the system has been in ‘incubator’ using micro lot amounts.
I’m taking all the trades once they reach my zone, but I’m not exceeding a total overall exposure of three percent. Similarly I’m being very careful to bleed the trades in, I’ll generally be pip positive in one or two trades before taking the others. The results have been outstanding, just over a 2:1 win rate. By taking the trades off the one hour chart (with strict MM use of stop loss orders) the losses per trade have been respectable in relation to the HH or LL of the placement.
I’ve been using an arbitrary 50 pip stop on each pair then adjusting it to fit the HH or LL. The stop is not being hit regularly and a big loss is circa 28-35 pips, suggesting that there is an edge to this overall strat. Sods law that I took a full stop hit on the EUR/USD a couple of hours back, but I’m now circa 30 pips up on the long trade.
However, it’s not the micro details of the method or overall strategy/edge that’s important (although at some stage we may discuss these types of strategies in the FXCC FX School) it’s the fact that I’m not looking for tops or bottoms, I’m waiting for multi pair confirmation before pulling the trigger/s, the momentum is already there. There’s also one other key point of difference and that’s in profit taking…
My trend/position trader inner being has needed suppressing, I’m not taking profits individually and according to set criteria, I’m taking the profits by discretion and feel. If I’m in six trades and the cluster is up circa 250 pips then if I sense any slow down in momentum I’ll close, all of the trades.
This may result in hundreds of pips left in the movement, which I may have arrived late to, but I’m not about to see circa six trades being up, some by 70 pips plus, to lose out, so I bank whatever profit is offered. So far I’ve not needed to close out a cluster of all losing positions as I’ve only experienced that event twice in circa 200 trades, which is a good sample of trades to work from, particularly bearing in mind that this experiment has seen some interesting and challenging market conditions take shape over recent months.
So what’s the punchline to fit in with the “forex punches in bunches” headline? No there’s no reference to bunches of bananas it’s this straightforward; if the surf is up in the market then the rip lifts all the boats, rather than look for that micro movement on a particular pair why not look at three-four euro pairs, and the commodity currencies? It’s a better vantage point and once the swell of the surf takes you to shore take a breather, relax and wait for the next surge.
Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/fx-punches-in-bunches/
Daily Forex Market Roundup by FXCC - February 9 am 2012
Cheers! Can Plato’s Logic Solve The Greek Problem?
Is there a beer index? If so find out where it is and go long, very long. No stop loss required as there’ll never be a spike, support will never be tested..
It’s not often that you search for an article title and it comes to you. Whilst searching ‘the wires’ for news items to reference I discovered that global beer sales are up, despite the (receding) global recession folk are drinking more. Makes perfect sense, drink and be happy. And the name of the research company who published the beer report? Plato’s Logic. Now given the current Greek situation that’s quite an irony, or coincidence…
Growth in the world beer market picked up to reach 2.7 percent in 2011, growth continued to strengthen driven by emerging markets, and is predicted to grow at 2.5 percent this year, industry research group Plato Logic said on Wednesday. The researcher upgraded its 2011 figure from its 2.5 percent volume growth estimate made back in September 2011 as the recovery in the global beer market gathered pace.
USA, No Q.E.3.
The lowering of the unemployment rate in the USA has reduced the prospects for more economic stimulus measures from the central bank. San Francisco Fed President John Williams and Richmond Fed President Jeffrey Lacker pointed to better than expected data in recent months that show the U.S. unemployment rate dropped to 8.3 percent, a still-high level that casts doubts on the Fed’s next move to boost the economy, if any. The stronger labor market has investors mulling over whether the Fed will ultimately decide to launch a third round of so-called quantitative easing, or QE3, through more asset purchases.
Lacker said on CNN television, after being asked about a third round of quantitative easing;
I don’t see those prospects as very likely right now at all. If we keep data like we’ve been getting, I don’t see a rationale for further easing at this point at all.
Oops, German Exports Go Into Reverse
There’s always one or two stories that sneak under the wire when there’s big news events waiting to break, the news that Germany’s exports went into reverse was not good news, and the figures were bad. Germany reported the steepest drop in exports in nearly three years for December. Now what’s worrying is that, (for example), if they’re not exporting the finest cars manufactured on the planet, then manufacturing will eventually have a lull, and where’s the demand suddenly gone for the finest Germany has to offer; BMW, Mercedes, Porsche? Which reminds me, we must talk about the Baltic Dry Index at some stage on the blog, a fascinating left field ‘freakenomics’ metric that arguably points to the real level of global trade in future months.
Many Investors Are Keen To Move Past Greece
Amen to that, we’d all like to see a resolution, but can one be found to satisfy all parties? Now we’re at the stage were 70% haircuts with a 3.5% coupon might not be enough to avoid a messy default and the general populous is waking up to the fact that the latest austerity measures will really hit ‘ordinary’ Greeks very hard once again.
The ECB’s provision of nearly half a trillion euros in low-rate, long-term funds to banks in December helped prop up risk appetite. A second tender, expected to be similar in size, is due at the end of the month. That’ll take the rescue fund, which we can’t call Q.E. or monetization as that’s beyond the ECB’s remit and constitution, to €1 trillion.
The ECB and the Bank of England both hold policy meetings on Thursday, with the UK central bank expected to add an extra 50 billion pounds of stimulus via bond purchases. That bond purchase should confuse the public enough, the UK govt. will need decent ‘pr’ on this as “helping Europe” doesn’t go down too well with the UK electorate..
Market Overview
Stocks inched higher in the NY session whilst the euro ended flat on Wednesday as investors focused on whether the latest meeting of Greek political leaders will result in the necessary reforms to help the country avoid a messy default. European markets ended flat or marginally down.
The Dow Jones industrial average gained 5.75 points, or 0.04 percent, at 12,883.95. The Standard & Poor’s 500 Index was up 2.91 points, or 0.22 percent, at 1,349.96. The Nasdaq Composite Index was up 11.78 points, or 0.41 percent, at 2,915.86.
European shares ended lower. The FTSEurofirst 300 index of top European shares was down 0.2 percent. An Italian government source has suggested that Italy’s gross domestic product may have fallen in the fourth quarter of last year, more steeply than the 0.2 percent decline posted in the third. That also put pressure on the euro. Whilst France may suffer a contraction in GDP in the first quarter of 2012 according to the Bank of France.
Crude oil, Canada’s biggest export, pared earlier gains. Futures for March were up 0.3 percent to $99.04 a barrel in New York after climbing earlier as much as 1.4 percent and falling 0.6 percent.
Forex Spot-Lite
The euro fell 0.1 percent to $1.3245 as of 8:36 a.m. in Tokyo from the close in New York yesterday. The European currency declined 0.1 percent to 102.03 yen. The dollar was unchanged at 77.04 yen. The pound was little changed at $1.5811 after losing 0.5 percent yesterday.
Canada’s dollar depreciated 0.2 percent to 99.60 cents per U.S. dollar at 5 p.m. Toronto time, after losing as much as 0.5 percent and gaining 0.1 percent earlier. It has traded this week between 99.29 cents and 99.95 cents, following an advance on Feb. 3 to 99.28 cents, its strongest level since Oct. 31. One Canadian dollar buys $1.0040.
Source: FX Central Clearing Ltd, (FXC BLOG)
http://blog.fxcc.com/february-09-am-2012/
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