FXCM/DailyFX Signals and Strategies

DailyFX is forecasting choppy range trading. The SSI data has been giving strong signals as far as positioning, USD/CHF comes to mind, but we haven't seen strong continuations with the trend. Something to watch out for in the short term. Here's what DailyFX has to say:

Forex options and futures markets paint a decidedly mixed picture for the US Dollar, as traders are increasingly unsure of short-term direction. We had been calling for a major US Dollar turnaround for quite some time now, and the EUR/USD’s sharp initial reversal from $1.50 gave us reason to believe that the Greenback could continue higher. Yet the opposite has been true, and it has become increasingly difficult to establish a firm short-term trading bias. Suffice it to say, it will be critical to watch price action and sentiment indicators in the week ahead.

http://img5.imageshack.us/img5/3918/volatility.jpg

Volatility expectations have dropped considerably from recent peaks, but this has not resulted in a slowdown in intraday US Dollar price volatility. Indeed, markets remain extraordinarily choppy on a day-to-day basis, but major currencies remain confined to choppy ranges. Given exceedingly low 1-week volatility expectations, we suspect that this may continue to be the case through near-term trading.

Full Article Found Here

DailyFX released their forecast for gold, and it's an interesting call (at least in the short term).

Look for a break back below 985 over the coming weeks to officially trigger the topping formation and expose deeper setbacks to retest key support at 845–865, which also loosely coincides with the 50% fib retracement off of the major 2008–2009 low-highs. From here, look for the market to enter a period of choppy consolidation in the 800–900’s before potentially considering a resumption of the longer-term bull trend.

http://img101.imageshack.us/img101/4264/dailyfxgold.jpg

There's been a lot of discussion about the role the Fed is playing with money creation and the impact it will have on inflation. DailyFX discussed this as well:

The amount of money actually created by the liquidity injection engineered by Ben Bernanke and company is a function of the money multiplier, a ratio that measures what an initial deposit can expand into as it works through the system of fractional reserve banking through constant lending and borrowing. A crude estimate of what the multiplier ought to be, given the Fed’s reserve requirements of about 5.7% at present, yields a value of 1.75, suggesting that every dollar that the Fed injects into the banking system should produce $1.75 in actual money circulating in the economy. However, data compiled by the Federal Reserve Bank of St. Louis reveals that the current money multiplier is actually much lower than that. Indeed, it stands at the lowest level in over 25 years.

DailyFX then goes on to explain that the current environment is different because personal savings outstrips borrowing by the widest margin in 5 decades. My question is, where are those savings going? The stock market? Gold? Plain vanilla savings accounts?

You can read the full DailyFX Gold Forecast here: http://www.dailyfx.com/files/DailyFX...t_for_Gold.pdf

And while we're on the topic of gold, remember the post made back in early October on a possible target for gold. Bloomberg wrote an article about a $1500 target, and you can see from the chart below by adding fibonacci retracements, you can reasonably come up with a $1500 target.

If you want to trade gold, you can do so through FXCM UK with a CFD account. You can register for a CFD demo through the FXCM UK website here.

For the SSI fans....

We're making historical SSI available for back-testing with your strategy, and it will also be available for live accounts that want to use the data for an automated strategy. See details below:



1. Getting Started: Historical Backtesting with SSI

FXCM is releasing one-minute historical data of our SSI. Information that was previously only available to institutions and in limited updates through the website is now being disclosed to the general public. FXCM is making the data available to help further creativity in your automated trading strategy. This is a great opportunity to strengthen or complement your current strategy.

3 years of SSI data for each of the majors is available for creating and back-testing your own strategy. If you create a strategy that you would like to run on a live account, we can run it for you hosted on our internal servers. The system will run on our proprietary software accessing the SSI in real-time.

Additionally, we are going to be releasing the DailyFX Volatility Indices. The DailyFX Volatility Indices measure the general volatility of the forex market over different time frames (1 week, 1 month and 1 year) and is generally a good indication of market conditions, making it very useful as a filter for forex strategies.


2. How do I get the historical data?

- Send an email to [color=#22229c][email protected][/color] requesting the data. We will email it back in a ZIP file.


3. How do I integrate SSI data into an automated strategy on my live account?

1. The strategy must be fully developed with a basic back-test provided in whichever software your testing is done.
2. Strategies must also come with pseudo code to give the exact rules and flow of the strategy written out.
3. In order to be hosted on our internal servers, one of our developers will need to code your strategy to be hosted on our server, which would involve disclosing the code and the signing of a non-disclosure agreement to protect your intellectual property.
4. Live accounts that run on the systems will need to execute a minimum of $10m notional volume monthly.

Hi Jason,

I have successfully been using the breakout2 signals for several weeks now. When I say successfully I mean I am up 15% in four weeks trading only one micro lot at a time. What I have tried to understand and can never get a complete explanation of is the results posted at the bottom of the page. Breakout2 shows a success rate of 63% and average pips per trade of around 43-44. Forgive me for sounding cynical but if that were true I would be a millionaire in a matter of months.

I understand it may be proprietary and maybe you can't do it but I would very much like to know EXACTLY how the pips are calculated. There should be a written, well defined, set of rules we can use to mirror your trades in Breakout 2. As far s I can tell it is not for public consumption. Why not?

I am happy with 15% per month but if I can average 43 pips per trade I will give you back 30 for each trade and still be worth millions in a couple years. It just does not seem realistic.

Thanks

Hi sloanman,

Thanks for the post, and I'm happy to hear about your success with the Breakout2 signals. I'll work with you as long as it takes to get all of your questions answered.

The Avg Pips measures the average number of pips gained for the entire strategy across all 14 currency pairs listed in the trading signals section. In order to mimic the performance, the breakout2 signal needs to be traded anytime a breakout2 signal is generated on any of the 14 currency pairs.

This makes money management important because Breakout2 opens multiple lots for each signal.

http://img101.imageshack.us/img101/5079/breakout2.jpg

You would have to have 32 positions trading right now opened exactly at the signal price to mimic the P/L. As the positions are closed, they are averaged into the performance numbers. The performance section keeps track of Avg. P/L over the past 60 days. Additionally, the Stops and Limits may be modified over time by the Breakout2 strategy depending on how the market evolves. So it's important to check the signals regularly or watch the Alerts section. We're working on an email alert system for the signals, so this should make life easier if you want to follow the signals as closely as possible.

The P/L is measuring the number of pips profit or loss between the open price and close price. The number of lots traded will be an important factor in the actual % return gain/loss in the account. 32 positions opened at once can get you into a lot of trouble if you don't have enough capital in your account or your position sizes are too large.

The past 60 days performance are not guaranteed to occurr in the future of course. The 43 avg. pips performance will change over time as market conditions change. We limited the performance data to 60 pips because market conditions change over time which will also effect which strategy is doing well in the current environment.

Looking forward to any more questions....

-Jason

Thank you so much for taking the time to answer my post. It does answer almost everything.

One final question. When a trade is marked as "no longer optimal" (red light) I have noticed that the remaining stops are grouped as one and all positions closed when the pair hits that stop. i.e., you open five positions as recommended, the pair hits the first limit so the first stop is removed. Then the trade starts moving against you. The system then usually starts moving the next closest stop closer to the entry price and maybe even beyond so that losses are limited. When that stop is finally hit the trade disappears from the screen even though technically there would still be additional stops behind the stop that closed the trade. I surmise that this means that we should also close our positions.

Does this sound right?

And there will be no time in the near future where I will have the capital to open 32 positions at once. Easy way to wipe out an account that is thinly funded. I will up my lots gradually as my account balance increases. I'm gonna start adding funds now on a weekly basis.

Again thank you, I really am grateful.

That is right. If the stops are grouped as one, then set the same stop level for all the remaining positions. If the trade signal is no longer listed in the trade details section, then the positions should be closed entirely.

For everyone else watching, I'll give some details on what sloanman referred to by the "no longer optimal" red light message. Whenever a signal is generated it will say "Enter Now" and a green light appears next to the signal. Take a look at the picture in my previous post and it will show this information on the left hand side. The green light means it is still acceptable to enter into the trade. The strategy thinks there is still positive upside for the trade considering the risk/reward. If the signal changes from "Enter Now" green light to "Hold" red light, that means if you're not in the trade, don't get in because the risk/reward opportunity is not favorable.

And 32 positions could easily get you into trouble if your account doesn't have enough capital. As a rule of thumb, I suggest not to leverage your balance more than 10 times. And that is probably pushing it. This means if you trade 32 positions of 1k, you are trading a total position size of 32k. Divide 32k (position size) by 10 (balance leverage factor) and you get an account balance of $3,200.

Back to you sloanman...I found out about this the other day. FXCM Micro has a weekly quiz show on Friday's where they ask 10 questions on various topics. The first person to answer a question correctly gets $25 added to their account balance (some rules apply). That's another way to boost your balance. Check Helene's thread tomorrow
http://forexforums.dailyfx.com/chatt...-helene-z.html . I believe it will start at 11am ET.

Jason

I like the New Zealand Dollar forecast DailyFX wrote for this week. In case you missed it, there's been some controversy about changing the RBNZ's role. The NZD/USD has been in a strong uptrend this year, but formed a top mid-October and failed to make a higher high in mid-November. It could be losing steam because of this. Here is what DailyFX has to say:

The New Zealand Dollar was by far the worst performing G10 currency and fell against all major counterparts to end the week’s trade. The antipodean currency languished on similarly lackluster performance in financial market risky asset classes, while fairly bearish interest rate developments likewise sparked NZD losses. New Zealand’s opposition Labour Party leader withdrew his party’s support for an incredibly important facet of Reserve Bank of New Zealand policy. Increased discontent with New Zealand dollar appreciation has led many politicians to question the RBNZ’s inflation-targeting policies—calling for the central bank to control exchange rate fluctuations. It is worth noting that the opposition party currently trails the ruling National Party in opinion polls, but this is nonetheless a legitimate threat to RBNZ independence and could likewise derail confidence in the domestic currency.

A light economic calendar in the week ahead will likely keep FX traders focused on political developments, and it remains critical to watch debate on the RBNZ rolling forward. Thursday’s Trade Balance result is a key exception, and it will likely play a role in the ongoing RBNZ episode. Consensus forecasts call for a sizeable NZ$480 million deficit for the month of October—the second-worst result for the past year. New Zealand exporters have been feeling the pinch from the strong exchange rate, and such untoward effects have only emboldened the political movement against RBNZ inflation targeting. Suffice it to say, an especially large deficit could add further fuel to the political fire, and it will be important to watch markets’ reaction to the data.

The New Zealand Dollar will likely remain volatile in the week ahead—especially as it remains near significant peaks against its US namesake. It is easy to forget that the NZDUSD had rallied by nearly 60 percent off its lows, and such incredible strength leaves it at clear risk of a large correction. It is now a mere 5 percent off of its 2009 highs, but any further news to suggest the RBNZ will target the New Zealand Dollar exchange rate could easily force a much larger drop. - DR

http://www.dailyfx.com/forex/fundame..._at_Clear.html

http://www.dailyfx.com/export/story-...aud/WTFnzd.gif

Take a look at the chart below. If you're a NZD bear, this gives you an idea of a long term retracement. Will that happen? If US equities continue to go up it could provide some support to the NZD/USD with the risk aversion / USD carry trade.

http://img406.imageshack.us/img406/7880/nzdusd.jpg

Take heed...David Rodriguez of DailyFX just sent this message across the DailyFX Forex Stream:

Trading Signals: Breakout2 is having a tough time in extremely choppy price action. I would favor Range strategies for the coming week.

Last weekends software update to the FX Trading Station II also contained updates for the Marketscope chart. The chart will now show the entry point and exit point for your positions, and the information will also appear regarding the open/close and P/L when you scroll over the open or close arrow. A green arrow indicates the trade ended with a profit, and red arrows indicate the trade closed with a loss.

http://img52.imageshack.us/img52/6508/marketscope.jpg

FYI, trading hours at FXCM will continue as normal through the US Thanksgiving holiday. Spreads could be somewhat wider than normal due to less trading volume during the holiday hours.

I will also have more details on the December holiday hours to share next week.

USD/JPY SSI levels are off the chart reading 7.26 with USD/CHF close behind at 5.19. Here's the latest SSI.

http://img267.imageshack.us/img267/7157/ssi.jpg

Both pairs have broken through significant support/resistance. This is a very dangerous game to play considering we are entering the Thanksgiving Day holiday period in the US. Volumes will be low and trading desks understaffed around the world, increasing the chances for the market to be unduly volatile.

USD/JPY is testing the lows made in February/January of 2009. I had to go back to 1995 to find a significant support level past 87. Take a look at this monthly chart:

http://img267.imageshack.us/img267/6131/usdjpychart.jpg

Don't let the USD/JPY spoil your holiday...

Back from a long holiday weekend...

And a sharp move down in the USD/JPY on Friday testing the 85 level. Strong sharp moves are cause for concern for the Bank of Japan, as opposed to stable and steady moves. The last time the BOJ intervened to weaken the JPY was in 2004 when the USD/JPY was trading nearer to 109.

Here's what Daily FX has to say about this week's USD/JPY forecast:

If stocks are to continue lower, the Yen looks well-positioned to build on recent gains as investors dump all manner of risky assets, including FX carry trades funded with borrowing on the cheap in the Japanese unit. The only meaningful threat to such an outcome is an increasingly shrill Japanese government that has apparently resolved to intervene against the Yen if things go too far. However, this would likely require a lot of cooperation between the Ministry of Finance and the Bank of Japan even as the leading economic policy bodies are tied up in a spat of over the central bank’s asset-purchase programs. This means any concrete action will be relatively slow to implement, giving traders an opportunity to push the Yen meaningfully higher still, especially after USDJPY slipped below a major technical and psychological boundary at 87.09.
The Japanese economic calendar is largely uneventful. Industrial Production is set to shrink at a slower pace in October as inventories continue to adjust and fiscal stimulus boosts demand around the world, but this offers nothing new with the underlying themes behind the improvement already thoroughly priced into the exchange rate. The pace of contraction in Housing Starts is also set to moderate, but the outcome is still expected to fall firmly along the downward trajectory that has been in place for over a year.

http://www.dailyfx.com/export/story-...adeJPY1127.gif

FXCM now has free VPS for live MT4 account holders. If you have a live MT4 account and would like a free VPS login, send me a private message or email me at [email protected] with the request. I need to receive your request by Thursday December 3rd in order for you to receive the first VPS logins going out on Friday December 4th.

What is VPS?

VPS lets you run MT4 on a remote server rather than running the platform on your own computer. This means if your computer crashes or you lose internet connection, your MT4 platform is still running. This is very important for traders using Expert Advisors ensuring your trading strategy is running 24 hours a day.

Also, the VPS is housed in the same data center as our trade servers so it can also cut down on any latency in your connection. Very big plus for traders for example for traders in places like Australia.

Here's a good visual of ISM over the past 5 years. It does a good job showing you the manufacturing slowdown during the recession

Mind the gap...

http://www.dailyfx.com/export/sites/...ges/MA1201.gif

The NBER hasn't officially called an end to the recession, but ISM is indicating growth in the manufacturing sector. Readings above 50 indicate growth. Notice how from 2004 through 2008 the general trend in ISM data was down, lower highs and lower lows before dropping off a cliff.

Here's what DailyFX had to say:

Today, the US ISM manufacturing survey for November contracted more than expected on significant declines in production, employment and prices paid figures. The headline figure was expected to slip 0.7 points from October’s 55.7 reading. Instead, the indicator would fall 2.1 points to a reading of 53.6. In years past, this would have been a significant enough surprise for the dollar to produce a significant reaction. However, in current economic conditions and market tastes, this reading is simply a small component in a larger whole. For currency traders today, there are two primary fundamental concerns: an economy’s relative pace of growth and the time frame for a return to hawkish interest rate policy. Having little direct influence on rate hikes, this data does contribute to the growth outlook; but a monthly pull back has to be put into its broader context. In the past year, the activity gauge has steadily climbed from a severely depressed level of 32.9 (anything below a 50 reading denotes a contraction) to three-year highs. This is still reflective of an overall improvement and notable contribution to growth.

Full Report Found Here

Here is DailyFX Powercourse Instructor Sean Hyman's "News in 60 Seconds"

 

1. Biggest % gainers: AUD/JPY up 0.91%, GBP/JPY, USD/JPY, CHF/JPY on JPY weakness

Article on today's yen movement: http://www.dailyfx.com/forex/fundame...ume_after.html

 

1. Biggest % losers: EUR/GBP down 0.34%, EUR/CAD, EUR/USD, EUR/CHF, on EUR weakness

Why the euro is likely weak today: http://www.bloomberg.com/apps/news?p...zOAWRekc&pos=3


US ADP mixed results when revision is considered. actual -169k vs. -149k expected but upwardly revised previous period to -195 (which was an improvement).

AUD Retail Sales m/m comes out tonight at 7:30pm EST.

In addition to the metals and energy commodities strengthening, we now have the agricultural commodities perking up as well. The more this commody rally broadens...the longer it could last. That would be bad for the U.S. dollar and great for commodity currencies: AUD, NZD, CAD, BRL, NOK, RUB etc.


Sean adds this update every morning to his blog here.

Gold (once again) hits a new high and becomes the hot topic of the day.

DailyFX says the Fed [interest rate] outlook is driving the rally in gold rather than a supply/demand factor:

Gold has continued to defy the skeptics (ourselves included), surging past the $1200 level to new record highs. We are in uncharted territory at this point from a technical perspective, but relative strength studies are firmly in overbought territory and speculative long positions are at the highest in at least 16 years, which point to prices that are highly overstretched at this point. Gold prices are now nearly 87% inversely correlated with the spread between March 2010 and December 2010 fed funds futures, suggesting recent gains are a reflection of the US interest rate outlook for next year and thereby a function of expectations of a weaker US Dollar rather than any supply/demand factors...
http://www.dailyfx.com/forex/fundame...en_by_Fed.html

Gold's trend since the beginning of November has accelerated significantly. Here's my chart:

http://img21.imageshack.us/img21/3343/goldchart.jpg

Gold can be traded through FXCM UK (non-US residents only). Details found here.

DailyFX is hosting a live trading room tomorrow morning for the ECB rate decision. The room opens at 7:30am EST and we're also experimenting with live streaming video for tomorrow's coverage. Below is a screenshot of the new live trading site. And you can access the trading room here http://www.dailyfx.com/calendar/trade_the_news

http://img692.imageshack.us/img692/9...henewslive.jpg