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Super Carry Trade Trading System

  • #1
  • First Post: Edited Feb 21, 2008 4:52pm Feb 15, 2008 11:20am | Edited Feb 21, 2008 4:52pm
Super Carry Trade Trading System


Greetings to all. I have posted a few trading systems here before, my reason for doing so is for others to critique and improve them. This is my latest, which I have been using on a live account, in a modified version since the first of 2008. This system has been producing for me between 8 and 10% profits per month, or approximately 100% per year or greater, depending on market conditions. I got the idea from Oanda “beginner” forum from “Knightrider” who has doubled his account yearly for the past 2 years.

I do “average in”, which some people do not like, but the actual trading aspect of this system helps to mitigate against any negative affects of “cost averaging” the entry. Please examine and critique/offer suggestions as able.

GPB/JPY
Long trades only (interest positive)
Use 0.5% of your Net Available Balance on each trade (Oanda does this automatically)

1.Enter at any time with a market order
2.Place limit orders (long) at 10 pips above initial entry
3.Place 10 pip profit targets on all limit orders, up to 200-400 pips above current market
4.If market drops (carry trade unwinds) by 200 pips enter a market order once per day, with no take profit, in an attempt to lower the average price of all orders to within 100-200 of current market. Each additional market order lowers the “average” of your orders.
5.Enter limit orders (long) at 10 pips above this market order, up to the orders already entered.
6.At any time you have more than 1 order open, and the market is above the average price, close all orders (Oanda makes this easy to do).
7.If market continues to drop, continue to place orders (as in numbers 4-6 above), attempting to keep the “average price” within 100-200 pips of current price.

Pros:

·Effective in all market conditions (ranging, trending).
·Provides profits from both trading and interest.
·Only monitor the markets once or twice per day, as desired.

Cons:

·Caution is needed during carry trade unwinds. If need be, during severe unwinds, limit further buying to only 400-500 pip drops.
  • #2
  • Feb 15, 2008 11:31am Feb 15, 2008 11:31am
Quoting Dreamliner
Super Carry Trade Trading System


Greetings to all. I have posted a few trading systems here before, my reason for doing so is for others to critique and improve them. This is my latest, which I have been using on a live account, in a modified version since the first of 2008. This system has been producing for me between 8 and 10% profits per month, or approximately 100% per year or greater, depending on market conditions. I got the idea from Oanda “beginner” forum from “Knightrider” who has doubled his account yearly for the past 2 years.

I do “average in”, which some people do not like, but the actual trading aspect of this system helps to mitigate against any negative affects of “cost averaging” the entry. Please examine and critique/offer suggestions as able.

GPB/JPY
Long trades only (interest positive)
Use .05% of your Net Available Balance on each trade (Oanda does this automatically)

1.Enter at any time with a market order
2.Place limit orders (long) at 10 pips above initial entry
3.Place 10 pip profit targets on all limit orders, up to 200-400 pips above current market
4.If market drops (carry trade unwinds) by 200 pips enter a market order once per day, with no take profit, in an attempt to lower the average price of all orders to within 100-200 of current market. Each additional market order lowers the “average” of your orders.
5.Enter limit orders (long) at 10 pips above this market order, up to the orders already entered.
6.At any time you have more than 1 order open, and the market is above the average price, close all orders (Oanda makes this easy to do).
7.If market continues to drop, continue to place orders (as in numbers 4-6 above), attempting to keep the “average price” within 100-200 pips of current price.

Pros:

·Effective in all market conditions (ranging, trending).
·Provides profits from both trading and interest.
·Only monitor the markets once or twice per day, as desired.

Cons:

·Caution is needed during carry trade unwinds. If need be, during severe unwinds, limit further buying to only 400-500 pip drops.
Could you please elaborate further. What do you mean by :

2.Place limit orders (long) at 10 pips above initial entry
3.Place 10 pip profit targets on all limit orders, up to 200-400 pips above current market

Thanks

Does it mean that you place limit orders in 10 pip increments upto 200-400 pips?
.
  • #3
  • Feb 15, 2008 4:59pm Feb 15, 2008 4:59pm
This looks very interesting. A big change in perspective from most of what we see around here. Thanks for sharing. You give a good overall account of performance over the last couple of years. Could you estimate what are the typical and largest drawdowns you've seen? What was the largest number of open positions you've had to carry? All this assumes you are risking .05 on each position. We've had some super volital negative trending months. If anything was going to kill this system you'd think it would have been that. So if you are keeping head above water even with all of this running on, and you system hasn't foreced you into an over-leveraged position, is sounds great.
  • #4
  • Feb 15, 2008 5:13pm Feb 15, 2008 5:13pm
Quoting bullrock
Could you please elaborate further. What do you mean by :

2.Place limit orders (long) at 10 pips above initial entry
3.Place 10 pip profit targets on all limit orders, up to 200-400 pips above current market

Thanks

Does it mean that you place limit orders in 10 pip increments upto 200-400 pips?
Sure.

This means that you place a limit order to buy at 10 pips above your entry, and you place 10 pip profit targets on each of these orders. You place these orders up to 200-400 pips above the current market price, or even higher if you would like. Your objective is to take profit and lock it in on all these orders as the market moves up.

One time I entered my limit orders up to 200 above the current market price, and when I got home from work discovered that the high went well above the last order, it actually went up nearly 400 before dropping back down. I missed all that profit from my last order at 200 above market price to 400 above. Now I usually place orders up to 400 pips above in case of a nice trend or spike.



Does that answer your question?
  • #5
  • Feb 15, 2008 5:21pm Feb 15, 2008 5:21pm
Quoting Qman
This looks very interesting. A big change in perspective from most of what we see around here. Thanks for sharing. You give a good overall account of performance over the last couple of years. Could you estimate what are the typical and largest drawdowns you've seen? What was the largest number of open positions you've had to carry? All this assumes you are risking .05 on each position. We've had some super volital negative trending months. If anything was going to kill this system you'd think it would have been that. So if you are keeping head above water even with all of this running on, and you system hasn't foreced you into an over-leveraged position, is sounds great.
Hi Qman, thanks for posting. It would be helpful for you to read Knightriders strategy over at the Oanda forums, as he answers your above questions well. For the past 2 years he has had a max drawdown of 11% (if my memory serves me correctly), and that is through all the horrible carry trade unwinds of the past 2 months. He also states his max number of orders has been somewhere around 22.

He also uses this system not just on GBP/JPY but also on USD/JPY, and he does not use .05% he uses 1%. Whereas I utilize only GBP/JPY and .05%, in addition to the profitable trading activity that I have added.

I have gone more conservative as I do not have his experience. Also, I believe he is missing out on all the profit by utilizing a carry-trade only approach. So I have hope to not get as much draw-down as he does, and have quite a bit more profit. This has indeed been the case for these past 2 weeks.
  • #6
  • Feb 15, 2008 5:35pm Feb 15, 2008 5:35pm
Quoting Dreamliner
Super Carry Trade Trading System


Greetings to all. I have posted a few trading systems here before, my reason for doing so is for others to critique and improve them. This is my latest, which I have been using on a live account, in a modified version since the first of 2008. This system has been producing for me between 8 and 10% profits per month, or approximately 100% per year or greater, depending on market conditions. I got the idea from Oanda “beginner” forum from “Knightrider” who has doubled his account yearly for the past 2 years.

I do “average in”, which some people do not like, but the actual trading aspect of this system helps to mitigate against any negative affects of “cost averaging” the entry. Please examine and critique/offer suggestions as able.

GPB/JPY
Long trades only (interest positive)
Use .05% of your Net Available Balance on each trade (Oanda does this automatically)

1.Enter at any time with a market order
2.Place limit orders (long) at 10 pips above initial entry
3.Place 10 pip profit targets on all limit orders, up to 200-400 pips above current market
4.If market drops (carry trade unwinds) by 200 pips enter a market order once per day, with no take profit, in an attempt to lower the average price of all orders to within 100-200 of current market. Each additional market order lowers the “average” of your orders.
5.Enter limit orders (long) at 10 pips above this market order, up to the orders already entered.
6.At any time you have more than 1 order open, and the market is above the average price, close all orders (Oanda makes this easy to do).
7.If market continues to drop, continue to place orders (as in numbers 4-6 above), attempting to keep the “average price” within 100-200 pips of current price.

Pros:

·Effective in all market conditions (ranging, trending).
·Provides profits from both trading and interest.
·Only monitor the markets once or twice per day, as desired.

Cons:

·Caution is needed during carry trade unwinds. If need be, during severe unwinds, limit further buying to only 400-500 pip drops.
Interesting. Have you thought about making this into an EA?
  • #7
  • Feb 15, 2008 5:38pm Feb 15, 2008 5:38pm
Quoting forexmoments
Interesting. Have you thought about making this into an EA?
No, I have not thought of making it into an EA, I guess because I get nervous watching a computer do my trading . Seriously, this is easy enough to do, just watching the charts once or twice a day if you can, that I really don't think an EA is needed, at least for myself.
  • #8
  • Feb 15, 2008 7:42pm Feb 15, 2008 7:42pm
I'm already thinking of a new wrinkle on this. What if you reestablish your limit orders is the price returns to cross your original entry point. So, for example. You place your market order. Price advances to, say, +54. So it gives you 5 clear profit points. Then it retreats and crosses below your original entry. At that point you reestablish all the profit points above. Should the market return to hit those, you stand to make more profit. If it sits in a range you could make profit on your first +10 buy stop repeatedly.

The only thing that spooks me is that for every reversal there is a position left open up near the top. I'm still playing with all of this in my head, but I think my wrinkle does present a problem in that it will tend to leave even more of these stranded opens in place. It could work well if price finally breaks through and allows you to close them. But if you bounce around on the top for a day and then fall off a cliff, I guess I'd strand possibly WAY too many top positions. ... So I might have just talked myself out of this. But maybe it will stimulate thought for someone else.

Meanwhile, I'm PMing an EA programmer to take a look at this. I'd be willing to pay his $50 fee for an EA on this... but maybe he'll find it interesting enough to want to do it pro-bono. We'll see.
  • #9
  • Feb 15, 2008 7:55pm Feb 15, 2008 7:55pm
QMan, this is exactly why I do not do this. You will end up with so many danglers that you could quickly be looking at a margin call. I have designed this to avoid those danglers, and only leave them every couple hundred pips or so in a down trend. Do many danglers left when the carry trade unwinds and you'll lose your account.

Quoting Qman
I'm already thinking of a new wrinkle on this. What if you reestablish your limit orders is the price returns to cross your original entry point. So, for example. You place your market order. Price advances to, say, +54. So it gives you 5 clear profit points. Then it retreats and crosses below your original entry. At that point you reestablish all the profit points above. Should the market return to hit those, you stand to make more profit. If it sits in a range you could make profit on your first +10 buy stop repeatedly.

The only thing that spooks me is that for every reversal there is a position left open up near the top. I'm still playing with all of this in my head, but I think my wrinkle does present a problem in that it will tend to leave even more of these stranded opens in place. It could work well if price finally breaks through and allows you to close them. But if you bounce around on the top for a day and then fall off a cliff, I guess I'd strand possibly WAY too many top positions. ... So I might have just talked myself out of this. But maybe it will stimulate thought for someone else.

Meanwhile, I'm PMing an EA programmer to take a look at this. I'd be willing to pay his $50 fee for an EA on this... but maybe he'll find it interesting enough to want to do it pro-bono. We'll see.
  • #10
  • Feb 15, 2008 7:55pm Feb 15, 2008 7:55pm
QMAN,

I've been beating this around my head also. If you buy at 10 pip intervals with 20 pip profit, if market turns south worse case you would have 2 open positions. If at 200 pip turn south you open 1 or 2 more long positions, depending on how may you have open then start over with 10 pip buys from that point. You average cost has been cut in half, roughly, when overall position moves to break even or small profit dump and start over. On large moves south this could add up. At some point maybe put in hedge trade? I think with all the smart people in this forum this could work.

Thanks
Mombone
  • #11
  • Feb 15, 2008 7:57pm Feb 15, 2008 7:57pm
Just be very very EXTREMELY cautious about leaving danglers. I designed this system to avoid those. they will kill your account.

Quoting Mombone
QMAN,
I've been beating this around my head also. If you buy at 10 pip intervals with 20 pip profit, if market turns south worse case you would have 2 open positions. If at 200 pip turn south you open 1 or 2 more long positions, depending on how may you have open then start over with 10 pip buys from that point. You average cost has been cut in half, roughly, when overall position moves to break even or small profit dump and start over. On large moves south this could add up. At some point maybe put in hedge trade? I think with all the smart people in this forum this could work.

Thanks
Mombone
  • #12
  • Feb 15, 2008 8:05pm Feb 15, 2008 8:05pm
Dreamliner, there is no doubt you were being very SMART when you thought that through.

Out of curiosity, what broker are you running this through, and what is their average spread?
  • #13
  • Feb 15, 2008 8:09pm Feb 15, 2008 8:09pm
Quoting Qman
Dreamliner, there is no doubt you were being very SMART when you thought that through.

Out of curiosity, what broker are you running this through, and what is their average spread?
Oanda is perfect for this system in that they show your "average position" right on the chart; makes it so easy. Additionally they have "one click" to close all positions. Finally they're spreads are very low: GPY/JPY is between 4.5 and 7 most of the time.
  • #14
  • Feb 15, 2008 8:16pm Feb 15, 2008 8:16pm
Hayseed! I see you lurking out there. I thought about asking you to look at this for an EA, but you seemed really busy on another thread, so I invited someone else to take a look at this. But he hasn't shown up yet. If you've got the time to work on this, I think I'll be able to thank you for my early retirement...
  • #15
  • Feb 15, 2008 8:18pm Feb 15, 2008 8:18pm
By the way, here is the original method that I have built mine from: FXKnightRider's post.

The difference of course is that my drawdown is less and profit is more. I did read just now that his max drawdown has been 13%, not 11 like I originally wrote.
  • #16
  • Feb 15, 2008 8:44pm Feb 15, 2008 8:44pm
hey dreamliner.... seems like an easy to code ea, and with the number of orders being placed , a ea might elivate some of the potential in the heat of the moment typing errors....

couple questions..... your mentioning 'limit' orders, many grid style systems use 'stop' orders.... is the buystop what your refering to....

in number 6, you mention close all when the market price is above the average price..... this must only apply after the 200 pip drop, correct......

and just noticed you posted a link while i was typing, i'll take a run over there and scratch around for so answers to other questions.....h
to trade and code, keep both simple... no call to impress....h
  • #17
  • Feb 15, 2008 8:54pm Feb 15, 2008 8:54pm
hayseed, as I said I'm not into EA's but if you'd like to develop one that certainly would be fine.

In answer to your question, I hate to say it but I've been trading for 4 years and I still cannot really understand limit orders/buystop orders, I just can't seem to understand the definition of them and the difference of them. What I am talking about is placing orders ABOVE the current market. On Oanda there are only "market" orders and "limit" orders. So I used the word "limit" to indicate that the order is placed above the market and when the market raises to the price of the limit order the order is triggered.

In answer to your second question: YES! The main reason we are closing out when current market is above the average position is to remove danglers thereby eliminating risk (trust me, you look at those danglers during a carry trade unwind and you can't wait to get rid of them).

One other thing to keep in mind, that I'm not sure you can program an EA to do, is that we are always placing orders with .05% of current NAV. That means that as the market sinks our NAV lowers with it. I don't know much about EAs but that is something to consider.

Quoting hayseed
hey dreamliner.... seems like an easy to code ea, and with the number of orders being placed , a ea might elivate some of the potential in the heat of the moment typing errors....

couple questions..... your mentioning 'limit' orders, many grid style systems use 'stop' orders.... is the buystop what your refering to....

in number 6, you mention close all when the market price is above the average price..... this must only apply after the 200 pip drop, correct......

and just noticed you posted a link while i was typing, i'll take a run over there and scratch around for so answers to other questions.....h
  • #18
  • Feb 15, 2008 8:58pm Feb 15, 2008 8:58pm
Quoting hayseed
hey dreamliner.... seems like an easy to code ea, and with the number of orders being placed , a ea might elivate some of the potential in the heat of the moment typing errors....

couple questions..... your mentioning 'limit' orders, many grid style systems use 'stop' orders.... is the buystop what your refering to....

in number 6, you mention close all when the market price is above the average price..... this must only apply after the 200 pip drop, correct......

and just noticed you posted a link while i was typing, i'll take a run over there and scratch around for so answers to other questions.....h
HURRAY for Hayseed. Thank you man. If you decide to do this, please consider some messages, like the total number of open positions, and the average price. I anticipate that once people start running this there will be speculation about the best time of day to initiate and adjust positions -- So you might want to consider making that user selectable and get ahead of that curve. It may make a difference and is probably worth testing, but in the long run I suspect it is only in the margins... If it isn't though, that will be very interesting indeed.

Thanks Hayseed.
  • #19
  • Feb 15, 2008 9:06pm Feb 15, 2008 9:06pm
Quoting Qman
HURRAY for Hayseed. Thank you man. If you decide to do this, please consider some messages, like the total number of open positions, and the average price. I anticipate that once people start running this there will be speculation about the best time of day to initiate and adjust positions -- So you might want to consider making that user selectable and get ahead of that curve. It may make a difference and is probably worth testing, but in the long run I suspect it is only in the margins... If it isn't though, that will be very interesting indeed.

Thanks Hayseed.
You guys and your EA's, sheesh! Whatever happened to old fashioned trading .

Anyway, you are right that it is all in the margins. In essence, this method is a modified martingale method, and every trader alive ought to hate martingaling. A martinagle is the opposite of a stop loss, it is an "increase loss" method of trading.

However, what I have tried to do is minimize the effect of it, but the reality is that if the carry trade unwound, and I mean really unwound, we would be out. It is just that of all the unwinds I have seen there are always retracements, and that is where we can stay in, depending on margins.
  • #20
  • Feb 15, 2008 11:38pm Feb 15, 2008 11:38pm
The ultimate unwind on these intrest rate extreme pairs is tied exactly to that... the interest rate spread. As long as that is in place I don't think we would see anything dramatic enough to make a complete melt down in our accounts (cross my fingers and pray never to see it...). One should watch the interest rate adjustments between the two (and not necessarily only GJ), and leave when it stops being -- I don't know -- in the top 4? When/if that happens, find whatever is more favorable. Let the interest rates lead you out of the pair and into another. I think if we do that we'll probably be okay. And since those kinds of moves are unlikely to happen literally over night, I think it is pretty safe. But if it happens, a good trader wouldn't be married to the pair just because it has yielded a fortune in the last 2 or 3 or 10 years, ... whatever.

The neatest thing about this method is that it is in keeping with my ideal state. No bias on what the market wants to do. No guessing. Because it really doesn't matter what I think the market SHOULD be doing. The only thing that matters is what is happening. And then just go with it. Don't fight it. The second you say to yourself the market is wrong you just pulled the trigger on the gun you pointed in your mouth. The market is NEVER wrong. It is also NEVER right. It is a market. Lots of influencers, but no single entity controls. And if you doubt it, then remember... The Bank of England vs George Soros. BOE was betting they could control their own currency. Result: Soros meets a billion dollar pay day. He is hardly my hero, but he knew when the other guy got too smart for their own good, and he wasn't afraid to go with the market, even if it put him at odds with the biggest guy on the block. This system helps take the emotion out. Personally, that is exactly what I need.
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