Caution: Math Geek at Work

The account was up 1.0% this week.

On the intraday trading front, I've put together a volume based method and will begin forward testing now.

The account was down a whopping 7.6% this week. About half of that was due to intraday trades on Sunay and Monday nights (still working out the money/trade management) and the other half was an open loss in my short USD/TRY carry position.

The results for the past two weeks were down 5.1% and down 7.6%.

So at this point it's back to the drawing board. I've also totally overhauled www.market-geeks.com to reflect this. More soon.

Happy holidays FF!




I'll be opening up another journal this week and closing this one down because it's become too cluttered. The new journal will concentrate exclusively on carry trading. Stay tuned!

Cap

In order to avoid duplication of effort, I actually won't be opening the carry trade journal on FF, but will continue to update www.market-geeks.com exclusively.

My intention is to run this carry trade strategy over the very long term; a decade or more. Although it's a long term strategy, it involves daily updates to open orders, so there will still be day to day updates.

I'll be starting the strategy with the remnants of one of my smaller accounts (less than $100 ) on the principle that a journey of 1000 miles begins with a single step. Between additional deposits over the years, trading around a core position, and the interest income on the carry positions, my goal is to be able to generate a living "wage" exclusively from interest income in 10 years, while continuing to lower my leverage risk.

So this thread's journey is at an end, but another one begins over at my site (nothing's for sale there; all the info is free). Although I won't be continuing with a FF journal, I certainly WILL remain active here and will probably open up a thread in the general forums on my carry trading strategy.

Cap

Happy New Year!!

I've changed my mind about closing this journal because it's really the only place that I can receive feedback, comments, questions and such. My own site doesn't have any kind of forum capability, so I figured why not just direct my readers here to FF for that? It saves me a lot of work and helps introduce more people to the Factory as well.

So anyway, today is the official kickoff of my long term carry trade project...let the games begin!!

Huge fan of your website Scott, I'm reading about your carry trade with great interest... Is it OandA you're using for this carry trade?

Welcome Davidee,

Yes, I'm using Oanda. There are several reasons I like them, not the least of which is the ability to trade in any number of units. This high granularity allows me to get much closer to the ideal of continuous compounding than I could with any other broker.

That being said, I don't know that I'd recommend Oanda for scalping/daytrading/session trading etc., because they seem to have a high rate of connection issues.

Scott, I am looking for a good backtesting program for forex.
Since you are a stats guy, you may know one.
The primary feature I am looking for is a time and day for any majors to backtest.

For example, what if I buy at a specific time of the day, sell at another specific time or what if I buy at a specific day of the week, time of the week, day and things like that.

Can you recommend a backtesting software that may be capable of such backtesting scenarios. Thanks.

Hi jackm1,

The only software I've ever used for backtesting is Excel, which could actually do the type of analysis you mentioned. But if you're looking for a more dedicated type of commercially available program, I have no idea. Your best bet would be to try the people in the FF MetaTrader forums I suppose. Good luck with your search!

http://www.forextester.com/

try the above if you like and let me know if you like it. I am so not a math person and market is all about math.

Wow, 150 bucks??! I'll stick with DukasCopy data and Excel.

Hi Scott,

Just writing to say that I am impressed by your Market-Geeks site and the massive amount of background work you have done judging by your archive of notes. I don't pretend to have read it all or to even understand the bits I have read, but maybe I will find something I can use in them. I might ask you to expand on some subjects if I find something that is applicable to my trading.

It's an incredible amount of work! I don't know how you found the time or the funding for your research. Just thought I'd stop by and massage your ego a little, not that you need it!

Lim

Thanks!

I did a lot of that research either when I was working as a security officer overnight with a lot of free time, or when I was between jobs. I don't have nearly as much free time these days though.

i just wanted to thank you a lot for your effort and great research!! i'm in a similar situation like you probably have been in some years ago and looking for every little bit of information about how to aproach the market from the geek-side i found it quite difficult to find information and have to tell you, that your webpage is a jewel! thats why i wanted to ask you if you can tell me where to find other people/webpages that have a similar aproach to forex like you?
thanks a lot
programmer b.

Hi lordbranton,

I've also looked around for some good (and understandable) FOREX research on the web but haven't found much either. Most sites seem to be at one extreme or the other; either wayyyyy too academic and abstract to be of any use, or far too basic with just the same old rehash of TA, MM, etc.

For the past year I've concentrated solely on my carry trading strategy, but I haven't found many sites exclusively devoted to that subject either.

So far I guess market-geeks.com is just in its own little niche.
If you happen to find anything good in your search, I hope you come back here and let me know about it!

Hi,
I have do a quick run-through of your strategy.

1. I have noticed that there was a down trending interest rate for ZAR, HUF and TRY. What was the rationale for choosing this 3 pairs for the carry trade strategy.

2. As carry trade is preferably to be use as a medium/long term strategy, will you exit if there is a substantial profit to be earn on current orders as compared to the interest you have received daily?

3. I found out that Brazil has one of the highest interest rate. However, I can't seem to find any brokerage house that offers BRL. Did you also looking at it too?

I have been thinking of developing a proper carry trade strategy which incorporates money management and position sizing. At the moment, my ideas are still quite raw. However, I have started on a small size carry trade on AUD/JPY.

If possible, I hope you can enlighten me on this area.

Thanks and Regards,
Judy

Hi Judy,

I'll try to address each question in turn:


1. Interest rates all over the world have collapsed to historical lows since the economic crisis that started in the U.S. in 2008. The ZAR, HUF and TRY are currently the highest yielding currencies in Oanda's entire list. As a matter of fact, I read in the Budapest Business Journal last night that Hungary has just increased its rate by 25 bps, but that hasn't been reflected in Oanda's system yet.


2. I constantly trade around the core position by trailing exit and entry stop orders. The algorithm I use, as explained on the site, uses the current profitability to speed up or slow down position accumulation rates.

3. I'm not at home now, so I can't look at my Oanda trading application. But I believe that the BRL is listed with Oanda. I'll try to remember to confirm that when I get back home in a few hours.


Thank you for your questions and best wishes to you on your carry trade strategy development!

Hi, Scott.

I finally got your response. ^_^

You have mentioned that you will constant trade around the core position by trailing exit and entry stop. In this case, do you use stop-loss? It would be better if you can show me some illustrations, please.

Reason of concern is because I am still trying to figure out on how to tackle this portion. For example, I opened a position of AUD/JPY yesterday. The next few hours, it drops by more than 100 pips. If I were to hold on to it, I think it will take some time to earn the interest and cover the losing position provided the price remains the same.

I have screened through Oanda again, there is no BRL in its list.

Thanks and Regards,
Judy

Welcome back Judy!

I usually check this journal each weekday, but I had four days off for the Thanksgiving holiday, then for some reason I didn't notice the new post yesterday. I actually came back in to update you on the BRL, but I see you already found the same thing; Oanda doesn't have it either.

One of the problems most people have with carry trading is the situation where the position is going against them, like you experienced with the AUD/JPY. The way I deal with this is:

1. I use much lower leverage than most. About 6:1 or 5:1 at the most.

2. I always use my home currency (the USD for me) as my funding currency, so I'm in the position to "cover" my short by making cash deposits into the account if necessary.

Because of this, I don't exit the position when it goes against me. So no, I don't use stops in order to avoid further loss. I do use trailing stop orders to try to enter and exit a portion of my position at more favorable prices though.

For example, the dollar has been going up all through November, and I've been trailing sell orders (entry) along uptrend lines well below the price. As price goes further and further against me, I'm putting myself in the position to increase my short positions at higher prices. But unlike a normal "averaging down" scenario, the price would have to turn around and start heading my way before these orders fill.

Sometimes it takes days or weeks for such orders to fill though. I only adjust my orders once a day. For a much more in-depth explanation of the entire strategy, click on the "Complete explanation" links on the front page of my site. I have a full page on it there.

Hope it helps. Let me know!