Forex Factory user @Obiwandax asked me about patterns in the market. Here's an example of one or maybe five?
Yohay Elam in the article above claims to show us 'predictable' currencies but he offers no actual proof of the predictability. He claims EU makes a lot of false breaks, but there's no quantitative analysis. No numbers. He doesn't even really explain which TA can be used to predict these, beyond saying they're trendy.
In any case, if AU is so predictable, it means more traders will start trading it, which means it's more interesting to deviation traders to counter those traders, and guess what, by a self-fulfilling prophecy, AU will become less predictable. How fast will this happen? It will happen in proportion to the new flow that results from the 'pattern' that's observed. I don't know how many readers Elam has but if this becomes a bit of 'trader lore' it will become false all the faster.
Another thing is that most of the currencies cited are USD pairs, so it really comes down to how predictable the US dollar is. Is it predictable? To some extent depending on your macro timeframe, maybe, but there's more than enough uncertainty to make it as risky as anything else in trading.
Looking at the chart
Attached Image (click to enlarge)
AUD is either going to chop sideways for a time, possibly bouncing up into the channel or it's going to continue to drop with USD strength. Does that help me make an accurate forecast? In my opinion, no. It's going to do the opposite of what the majority of traders do next year. So ask yourself what do you see when you look at this chart, and then do the opposite of that, and you have as good a chance of being right as anyone.
So what is predictable??
There are some things that have a very high probability that can be traded with near certainty. In the book club thread we saw Donnelly's analysis of gaps, and they do seem to be fairly predictable. There was one in the Dow/S&P just over the weekend, (the Dow gap was huge!) where price gapped up and stayed up for a day and then closed. If you had an inkling that it would do that then it was worth putting a big trade on, but sadly these don't happen often.
Currency collapses of failing governments. The USDTRY, in my opinion, is the most certain one direction trade you can make right now, as president Erdogan is simply unable to convince anyone that he knows what he's doing, and the market has lost all faith in the value of the Turkish Lira.
Attached Image (click to enlarge)
You can see there's been some volatility as the realization that this cannot ever go down begins to dawn on the market (and the influx of new traders, ironically, makes it go down) but basically this will hit 20, 30, 60, pick a number before the Turkish government collapses and/or replaces the Lira with ...Bitcoin??? I dunno.
Why is it going to be hard to make money with this?
Two reasons - one, because this trade is so obvious and 'safe', brokers and liquidity providers must protect themselves by charging huge spreads and swaps (and margin - they can ensure you can't do much damage unless your account is already huge). You can go broke even if the chart keeps rising if it doesn't rise fast enough. For a while Bitcoin was like this.
The other reason is that some brokers don't even want this action. My broker has disabled USDTRY for trading. Spoilsports!
There's a third reason actually. Unstable economics and unstable governments mean anything can happen. Imagine if Erdogan did force Bitcoin adoption - instant loss of your entire trade.
So I guess the lesson is, you can't avoid risk if you want to make money, because no one can predict the future.
I basically entered as soon as I could get the account verified, opened and funded.
You can see from the chart that almost immediately (less than 2 hours) after I entered it provoked another down spike. A reaction to incoming flow. However it was the last one. I did not do any other analysis.
You can see some turbulence as the S&P has begun to get quite choppy but the system has adjusted and is now gobbling up whatever volatility the market throws at it. Still, on track for at least 30% return, with that low 4% DD. The dominant feature remains stable, safe growth. After 8 months I'm convinced there isn't much that can scupper this unless things get very apocalyptic. The only adjustment I've made is to demand slightly more profit per trade resolution which may explain the slightly higher, but still modest, profit factor. I would trust this with even very conservative retirement funds, but I've also developed and will begin testing, a version 2 that is more aggressive when times are good (trending), and less aggressive when they are flat.
Can I use this to sell signals? I'm not sure. It requires nimble responses, and I don't know if signals will slow things down too much.