1 trade per pair per year

I decided to start this journal to follow a demo trading attempt I am in right now.

This was started at the beginning of 2011, and the first 2 weeks' results are encouraging, therefore it tempted me to go public with it. If this does work out good, it might give some interesting approach to fellow traders, so it would be good to have a record of it. If it doesn't work out, it would still be a good record as something to avoid . I might then change the title of this thread to "Forget about 1 trade per pair per year"

The main idea is to hold a basket of trades through the whole year and close them at the end (December 31, 2011). The question of course is WHAT is in that basket.

I noticed at the end of last year the following interesting things:

1. AUD, NZD, CAD, CHF and JPY were at/near all-time or multi-year highs against the USD
2. EUR and GBP were 1000's of pips away from their all-time highs against the USD
3. Almost all the crosses between one pair of the first group and one pair of the second group were also at/near all-time or multi-year highs against the EUR or the GBP

Observation (3) above looks like a direct consequence of observations (1) and (2) so you might say, what's the big deal?

Well, this did lead me to conceive a possible trading approach which would offer a very good risk/reward for a yearly trade basket. I would define this as a set of trades with equal lots taken at the beginning of the year and closed at the end of the year.

Why would I be looking for something like that? Well, simply to minimise involvement, stress, anxiety and any other emotion or thing that affects daytrading. I work my (small) live account with an intraday strategy that I am trying to perfect, but I usually find it extremely demanding on my emotional fuel.

And having heard a thousand times that larger timeframes give stronger signals, I thought to give it a go with the yearly one. There are quite a few threads here that work on the Daily, Weekly and Monthly timeframes, so I wanted to add some new perspective, if I can.

In order to give credits where due, I took my long-term trade inspiration from a few places here in FF and more specifically:

 

1. The "Building an equity milllipede" thread, and specifically the posts of PipEasy - http://www.forexfactory.com/showthread.php?t=245149
2. The "No free lunch (DIBS)..." thread, and specifically the posts of Peter Crowns - http://www.forexfactory.com/showthread.php?t=56907
3. Some posts by TheRealThing, both in FF and his blog - http://www.forexfactory.com/therealthing

On January 16, my demo account at Oanda where I am trying this, is already up 50% from the start of the year, with a 3% initial drawdown for the moment. I must admit that the leverage I used is over the top, and I would be much safer trading 1/10th the amount I have now, so the more conservative result would be a 5% account increase inthe first 2 weeks. But THIS IS A DEMO, so I do not mind the end result.

The trades taken on December 31st 2010 were:

 

1. Group 1: Short EURUSD,GBPUSD,AUDUSD,NZDUSD and Long USDJPY,USDCHF,USDCAD
2. Group 2: Long EURAUD,EURCAD,EURCHF,EURJPY,EURNZD
3. Group3: Long GBPAUD,GBPCAD,GBPCHF,GBPJPY,GBPNZD
4. Group 4: Short AUDCAD

Group 1 is obviously a multi-pair USD long. The logic behind it is that since USD is in such a multi-year low point against 5 of the 7 most traded other currencies (AUD,CAD,CHF,JPY and NZD), this year should bring at least some retrace of the last few years' moves. As for the EUR and GBP, there is nothing fundamentally that makes them so strong against the dollar, therefore I would think that if the dollar will actually appreciate in general, EUR and GBP will follow this trend and fall against it.

Group 2 basically says that as the dollar appreciates through 2011, there is probably more upside against the 5 pairs mentioned above (AUD,CAD,CHF,JPY and NZD) than against the Euro, which has already been hit hard in the last 3 years. Add to that some very interesting bottom-side wicks on a YEARLY EURUSD chart for 2008, 2009 and 2010. All in all, I expect the EUR to depreciate LESS against the dollar compared to those 5 currencies.

Group 3 is a similar case for the GBP. Again, the pound has already suffered a huge decline in 2008, and there are some nice bottom-side wicks in the Yearly GBPUSD chart for 2009 and 2010. So again, I expect the GBP to depreciate LESS against the dollar compared to those 5 currencies above.

Group 4 is the misfit trade, I might add to this group during the year if I see something good developing in any other pair. I just saw that AUDCAD was also at its all-time highs, and simply thought to give it a try shorting and see how it goes.

Before you think that the logic of selling at the top and buying at the bottom is flawed, because nobody knows if the market will continue rising or falling respectively, let me say that I've been burned more than enough times trying to pick tops and bottoms in M5,M15 and H1 charts, and you probably know what I am talking about. But in a Yearly chart ??? I am thinking that this should make a difference. There are also several positive things about trying a basket of trades like the one I described which, in my view at least, minimize the risks involved.

I will post more details following, plus charts and frequent account updates.

If you see me stop posting, you will know that the demo account has been blown to ashes . Feel free to embarass me further on such an occasion.

Happy trading to all,
Christos

So, here are a few yearly charts that demonstrate what I described in post 1. They are the current yearly charts for EURUSD, GBPUSD, AUDUSD, EURCAD (an example cross of the Euro) and AUDCAD (the "misfit" trade).










for each chart, the last bar is the currently forming bar of 2011.

The charts for NZDUSD is similar to the AUDUSD, as are the charts for USDJPY,USDCHF and USDCAD (in reverse), all showing extreme historical dollar weakness against these currencies.

In contrast to this extreme dollar weakness, the EURUSD and GBPUSD have plenty of space (a few 1000's pips) both to the upper and the lower limit of the charts.

The chart for EURCAD above is indicative of what occurs also in EURJPY,EURCHF,EURAUD and EURNZD. The Euro is at multi-year lows against these currencies.

Same things as for the EUR crosses apply for the GBP crosses (GBPAUD,GBPCAD,GBPCHF,GBPJPY,GBPNZD).

In order to create these charts, I used the Period converter from this post. Mind you, the instructions are wrong, and I had to work it out. Didn't really work that good for all the pairs mentioned, but the concept should be obvious without showing all the charts.

This is supposed to be a yearly trade, so we're done looking at charts . I saw the formations on the last day of 2010, the idea to trade this popped up and now some more logic behind it. I will look at these charts again on New Years Eve .

I split the possible outcomes in 2 main scenarios:

 

1. Dollar appreciates through 2011
2. Dollar depreciates through 2011

If USD goes up, then my Group 1 trades will do very good. I do expect that the "overstretched" pairs (AUDUSD, NZDUSD, USDCAD, USDCHF and USDJPY) will do better than EURUSD and GBPUSD shorts in this case, as "the higher you go, the harder the fall". Which means essentially that my Group 2 and Group 3 trades will also fare well since EUR and GBP will relatively rise against their cross currencies.

If USD goes down (which seems to be happening today as an example), then Group 1 will not do very well (to say the least !!!). But I do expect that there won't be aggresive dollar selling against the 5 "overstretched" currencies, while the EUR and GBP could have significant upside against the USD. Which means that my Group 2 and Group 3 pairs would shoot up to positive pips as the EUR and GBP relatively rise against their cross currencies.

Worst case combination for this basket of trades, as far as I can imagine: USD goes down, and EUR and GBP move down as well, with worldwide funds moving to JPY,CHF,AUD,NZD,or CAD or a combination of these as the new-found Safe Havens. That to me at least looks like a very distant possibility, and might take world-changing events before it materializes as a scenario.

All in all, the basket described in post 1 looks like a very promising trade combination for 2011. Let's see how it performs....

Please remember this is a demo, nothing to do with real money !!!

I took some screenshots of my OANDA account this morning, where I am trying this out. I would very much wish to put this on myfxbook, but they recently announced that they are stopping support for OANDA for their own reasons, so I guess I'll have to find some other way to present the results easier.





Some explanations follow:

The demo account started with 100,000 USD. A little test trade resulted in the realized loss of -114.00 USD so disregard it. No other trades were taken apart from those active in the second screenshot.

Trades were taken on December 31st (in the afternoon). The exception is EURCAD and GBPCAD. I added these trades on Wednesday, January 5, after seeing that they follow the same pattern as the other crosses (had missed it initially).

Initial stop loss is 1000 pips and take profit is 5000 pips. These are tentative but at the moment I plan to keep them in place until the end. How's that for a tight SL . Average ranges for yearly candles are between 1k and 2k pips so I think I'm safe.

My only trade in danger at the moment might be the GBPUSD, already 500 pips in the red, but the GBP crosses more than make up for it. If the GU gets stopped out, I guess the crosses will be worth more than a few 1000's of pips.

You will promptly notice that I've already lost around 1,800.00 USD which is the interest charges. So far, this is about -100.00$ per day in this demo. Which, for 18 standard lots at play, means around -0.6 pips per day. That is much less than I expect to make. Per day !!!

The trades screenshot is sorted by pip gain/loss. This makes it easy to observe things, such as:

1. GBPUSD is at the bottom (biggest loss) but look at all the GBP crosses at the top (biggest wins, and 4 of them). This plays out like what I described in my second scenario in the previous post.

2. EURUSD is flat more or less for the year, but the EUR crosses are mostly doing much better. Again confirms my thoughts in the previous post.

3. The trades with USD pairs are also fairly flat overall (+31 pips sum) but the EUR and GBP crosse overperform this.

Since I took these shots (8 hours ago), the account is back to +51K unrealized profit. Why, because the EUR and GBP rallied strongly and the dollar fell across the board, but mostly against those two, as per my initial thoughts on this.

I will give some updates daily or weekly at the most, especially after big moves in any currency, as I find this interesting. Well, let me confess, if the demo was losing money, I wouldn't be THAT interested.

I hope this gives some useful food for thought to anyone involved in loooong-term trading. I would gladly welcome comments or further ideas on this, if it is of interest to you.

So far so good.

The week of 17/1/2011 to 21/1/2011 started with the account at +5,200 pips and ended at +6,800 pips.

Against the dollar:

GBP and EUR both moved strongly higher this week.

NZD went down (that makes up most of the gains for the week).

AUD was a weekly inverted hammer slightly down for the week.

CAD was down by around 50 pips.

JPY and CHF went up by less than 60 pips.

All in all, this resulted in most trades (EUR and GBP crosses mainly) producing more positive pips for the week, except for the EURUSD and GBPUSD shorts.

For the coming week, I do expect more pip increases.

If EUR and GBP drop against the USD (there are FOMC statements and US GDP to be announced) then I expect also the rest of the gang to fall even more, thereby the crosses of EUR and GBP will appreciate.

If EUR and GBP continue their strong up movement, I expect that the other currencies will move up against the USD with less force, thereby the crosses will again move higher.

Let's see what happens.

Account Summary and Trades summary on January 22 are below.

I didn't have much time to post or trade the last 2 weeks, however the test basket of trades is still going strong. It lost about 2,000 pips in the meantime, but it is still up 4,735 pips in total since the beginning of the year.

Dividing the groups of trades, I see that the GBP crosses' long trades lost about 400 pips in these 2 weeks, the EUR crosses lost about 900 pips and the Dollar longs lost about 600 pips.

I would take this as a retracement (over the whole of the basket), as the 6,800 pips it made in the fist 20 days was probably too much too soon.

I will keep watching it and provide further updates as the year moves on.

Trades and account status on Sunday, February 6 2011 below.

interesting

keep it up im listening