Caution: Math Geek at Work

Down 5.3% for the week.

Down 1.2% for the week.

Rebuilding a NZD/USD position, this time making sure that I maintain the position using no margin at all.

I guess I'll start posting trading information again, but without as much time-consuming detail.

As I mentioned previously, I'm now trading based on the current relative strengths of the major currencies vs. the "news release pressures" on those currencies (both available on the main page of market-geeks.com). The idea is to compare the actual performance of the currencies with what they "should" eventually be doing based on fundamental information. When I see something start to turn in the expected direction, I begin building a position, trying to latch onto a long term trend pyramiding ride.

Tonight, I started building a long position in GBP/USD. Here's what I've got so far:

Long GBP/USD did well today. The other 5-unit order got filled, and I've added another pending order at new highs. I also moved the stop up. Here's the situation:

The account was up 2.9% this week.

I added 50% to my existing no-margin long NZD/USD carry position today, so its value is up to about 37% of my cash balance.

I'm still holding the long GBP/USD position. Here's that one:



Today I also entered a new trade; long CAD/JPY. This is based on my main fundy vs. technical picture which shows the CAD now very undervalued in relation to its news release performance while the JPY is overvalued. Here's the chart:

I closed my long NZD/USD position, and am now fiddling around with a new carry trade vehicle. I'm short USD/TRY (yes, that's the Turkish Lira) in an amount equal to my cash balance (no leverage) with a fairly tight stop.

If the trade moves my way, I'll add to it while moving the stop forward, but letting the stop distance widen gradually. This will have the effect of keeping the risk fairly constant while continuing to collect daily interest.

If it goes against me, I'm stopped out at a loss of about 2.4% of my account equity not including any interest gained, and I can look for the next shorting opportunity.

I was stopped out of the three trades that I was in; long GBP/USD, long CAD/JPY and short USD/TRY. I re-entered USD/TRY and was stopped out a second time. I'm back in again. All that activity took another 5 or 6% off of my account.

My schedule has changed so that I'm online in the wee hours here, so I can do some short term trading during end of the Asian session and the London open. Last night I had a good day trade on the EUR/JPY that got me about 1.5% of my account equity. Just a basic price action trade on the 1 & 5 minute charts. Not sure how often I'll do that sort of thing.

Thinking of doing another research project involving multiple Williams %R values for price. I'll mess with that this coming weekend.

Just wanted to point something out. You mentioned you watch 8 pairs to trade. This is fine to get an idea of the current correlations in the market and where we may be headed next. As far as trading goes, I hope you are aware each pair has its own personality. GBP/JPY for example is the polar opposite of EUR/USD. while eur/usd is very technical (patterns, candlestick formations, support/resistance levels and so on)...gbp/jpy is extremely volatile...bouncing between the major highs and lows all the time. I've noticed patterns have no significance there so it does not suit my trading style. I trade eur/usd exclusively (when its alive) Anyways...just thought I'd point that out...maybe it would improve your gameplan if you just studied the personality or pa of a few pairs instead of many

I've actually used both approaches.

During the first half of 2008, I was almost exclusively trading the EUR/JPY. I agree that it's good to get a feel for the "personality quirks" of a single pair.

On the other side of the coin, I always felt like I was missing the bigger picture though. Now, by watching all the majors, I get a better overview of the whole market.

It's still a whole lot easier to watch just 8 currencies than it is to watch a hundred NASDAQ/OTC stocks though, LOL! So to me, an old OTCBB trader from years ago, it's not too overwhelming.

Down 11.8% this week.

Did an overhaul and consolidation of my statistical tools today.

Short GBP/JPY.

I don't have the change in my account value yet because Oanda is down until tomorrow night for maintencance. However, I've reached a conclusion on the question of whether to follow just one currency or to keep looking at the entire market, which was the subject of a recent discussion in this journal. So I thought I'd post those thoughts here.

In the last post from several days ago, I mentioned that I was short GBP/JPY. I think I closed that out at either break-even or a slight loss, but since then I've been in a few other trades, mostly in different pairs. I don't post them all here, because they change too frequently. The reason that they change so much is that I've been using a system of statistical analysis to search for the best trading opportunities each day across all pairs. So every time I run the analysis, a different "best trade" will pop out, and I find myself hopping from pair to pair.

While I like the overall market view that I get from this, I don't like the constant pair hopping; I think there is a lot of merit to concentrating on a single pair for a period of time. So I simplified my system to incorporate both of these aims; an overall market view combined with concentration on a single pair for longer periods of time.

For several weeks now, on my site market-geeks.com, I've been publishing the results of two different analyses of the major currencies. One looks at the fundamental picture based on news releases, and shows what "should" be happening to a currency based on FA. The other ranks the ACTUAL performance of each currency based on its buying power. The crux of my method is to look for divergences between these two views.

These FA/TA divergences are not nearly as variable over time as the other statistical analyses I've been using. For example, the CAD/JPY has been flashing a "I should be going UP, not DOWN" signal for at least a couple of weeks now. All during that time though, my other statistical tools have pointed to different pairs each day. So I'm bagging those other tools, and just looking at the FA/TA divergence picture, which is much more constant.

So at the moment, and probably for a while to come, I am looking just at long opportunities in CAD/JPY. That doesn't mean I'm married to that pair forever though. I still have my comprehensive market view of all the major currencies, and when my analysis starts pointing to a different pair then I'll begin concentrating on that one.

Now for the next issue; this is a counter-trend approach. I am always looking at pairs that "should" be going in the opposite direction than that in which they ARE going. I'm fully aware that just because I've performed some analysis that says the CAD/JPY should be rising doesn't mean that it will suddenly start rising for me by magic. I have to wait for the market to turn when it wants to.

My solution to this issue is to take trades in much shorter time frames in my expected direction, cutting losses short and keeping the profits open ended, waiting for that one time when the trade just keeps running into profit over longer and longer time frames because the pair has made a fundamental turn. In the meantime, while waiting for those "big hits", I'll be trying to just make small profits on the lower time frames.

That's the plan for now!

Oanda is back up. The account was up 0.3% last week.

If you really want to pursue the 'counter trend' statistical approach and you are really hot for maths (like me) you should check out 'cointegration', you may have already done so, in which case you may feel free to ignore this post.

My humble opinion on this: the simplest (yet effective) math tool to explore the FX market is the MT4 tester. Maybe I am not enough sofisticated, but it has everything I need. Good trading to all.

Whenever I want to analyze past data, I just go to Dukascopy, download the data into Excel and I'm off and running. The method I'm using now though doesn't even require that. All I need is the oil price off of CNBC.com, some prices from Oanda, and ForexFactory's calendar info exported into Excel.

I've entered long on the CAD/JPY several times this week but have taken small losses on each entry. I currently have a position with an average cost of 73.45 and a stop at 73.00 that looks like it may be taken out as well.

A couple of days ago, my FA/TA divergence tool shifted focus from CAD/JPY to long GBP/CHF. This is obviously a result of the plunge in the Pound and the movement of scared money into Switzerland. Right now I'm not looking to get under this falling knife, but I'm keeping my eyes open for a long opportunity in this pair.

My short TRY/USD carry trade is doing well; 485 pips in profit at the moment. I use an MA cross system for timing on that pair, and I won't buy unless I get a signal on that AND the pair is in profit. I use no margin on this carry position, so taking profits every once in a while is just icing on the cake; my main goal is just to stay in the position.

That's it for now.

I forgot to mention in my last post, I'm reading an online book from the CBOT on a technique called "Market Profile" which I first came across back in the eighties in a TA textbook. This CBOT book is much more detailed and up to date though. Very good stuff! I found it in a post by Rabid (?) here on FF. Do a search for it!

The account was up 0.1% this week. My primary focus is still on long opportunities in the GBP/CHF. I'm currently long from 1.6434 in that pair. Still carrying the short USD/TRY carry position.

Here you go. Good Stuff!

Here's a thread that could be kick started. Comes complete
with a nice CBOT market profile page link to lots of info and
an awesome e-book. Probably the one that you mentioned:

What the heck. I'll throw out a post on the thread. If you are so
inclined to share a thought or two that would be great!

Good Trading!
Brent

I actually saw your posts in that thread before this one, LOL. I'll head back over there.

My overall impression of the e-book was that it had some good info, but the length of the thing was way out of proportion to its utility. My other post was after reading the first chapter. After about getting 200 hundred pages into it though, it seemed like he was just repackaging the same concepts again and again with new terms. That long to tell me that the market alternates between trending and ranging, and that the key is to spot which one you're in? I knew that 20 years ago...yeesh! LOL

I don't use MT4 or anything that I would use to automate an indicator built on MP, but it did revive an idea I had a little while ago regarding %Range in two different time frames. I'll be working on that tonight I think.