Why EURDKK so funny? | Forex Factory

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Why EURDKK so funny?

  • #1
  • First Post: Apr 28, 2011 7:39am Apr 28, 2011 7:39am
Hello, may I know why EURDKK 4HR candlestick chart always have long tails or long head?
  • #2
  • Apr 28, 2011 8:31am Apr 28, 2011 8:31am
DKK is is pegged with horizontal bands to the euro, meaning there is a lot of central bank intervention. Any significant deviation from the specified rate (which is set at 7.45, with a maximum bandwith of a some percents) will be offset by the Danish central bank. Because there is this extreme tendency for mean reversion, this could possibly explain the long wicks.

Also, low liquidity of this pair might explain strange behavior on retail brokers' charts.
The nail that sticks out gets hammered back in
  • #3
  • Apr 28, 2011 8:51am Apr 28, 2011 8:51am
Quoting Noloqy
DKK is is pegged with horizontal bands to the euro, meaning there is a lot of central bank intervention. Any significant deviation from the specified rate (which is set at 7.45, with a maximum bandwith of a some percents) will be offset by the Danish central bank. Because there is this extreme tendency for mean reversion, this could possibly explain the long wicks.

Also, low liquidity of this pair might explain strange behavior on retail brokers' charts.
Thank you for your explanation. Then we can easily earn money from this pair?
  • #4
  • Apr 28, 2011 8:55am Apr 28, 2011 8:55am
Quoting klhh
Thank you for your explanation. Then we can easily earn money from this pair?
That would depend on the spread costs for transaction both opened and closed and whether the average price fluctuations from the mean are greater than the spread, plus accounting for slippage and other outside factors means that trading an exotic pair such as this will have severe limitations provided you can find a suitable broker.

Nothing is easy in forex, nothing
  • #5
  • Apr 28, 2011 8:57am Apr 28, 2011 8:57am
Quoting Razor_trader
That would depend on the spread costs for transaction both opened and closed and whether the average price fluctuations from the mean are greater than the spread, plus accounting for slippage and other outside factors means that trading an exotic pair such as this will have severe limitations provided you can find a suitable broker.

Nothing is easy in forex, nothing
Yes I think so, IBFX Australia only 5 pips spread.
  • #6
  • Apr 28, 2011 9:03am Apr 28, 2011 9:03am
Quoting Razor_trader
That would depend on the spread costs for transaction both opened and closed and whether the average price fluctuations from the mean are greater than the spread, plus accounting for slippage and other outside factors means that trading an exotic pair such as this will have severe limitations provided you can find a suitable broker.

Nothing is easy in forex, nothing
i just had a look at the Oanda charts for it. From what I can see the average daily range for this pair looks tiny, in most case less than 30 pips with a 6 pip spread and it has been range bound for the past few months which makes profiting almost impossible. Even with a phenomenal edge you would find this pair an extremely expensive pair to extract any long term profits.

RT
  • #7
  • Apr 28, 2011 9:10am Apr 28, 2011 9:10am
Quoting Razor_trader
That would depend on the spread costs for transaction both opened and closed and whether the average price fluctuations from the mean are greater than the spread, plus accounting for slippage and other outside factors means that trading an exotic pair such as this will have severe limitations provided you can find a suitable broker.

Nothing is easy in forex, nothing
If your looking for an all out action pair with slightly better spread vs daily range then look at the GBP/NZD. Spread cost of around 10 pip but can move easily 400 pips or more a day.

This is by no means easier, in most cases it is probably more difficult.

RT
  • #8
  • Apr 28, 2011 9:12am Apr 28, 2011 9:12am
Quoting Razor_trader
i just had a look at the Oanda charts for it. From what I can see the average daily range for this pair looks tiny, in most case less than 30 pips with a 6 pip spread and it has been range bound for the past few months which makes profiting almost impossible. Even with a phenomenal edge you would find this pair an extremely expensive pair to extract any long term profits.

RT
I have checked 4hr EURDKK chart in IBFX AUstralia, once the candlestick differ from open price for 30 pips, then you could buy or sell in order to go back open price direction.
  • #9
  • Edited 9:32am Apr 28, 2011 9:30am | Edited 9:32am
Quoting klhh
I have checked 4hr EURDKK chart in IBFX AUstralia, once the candlestick differ from open price for 30 pips, then you could buy or sell in order to go back open price direction.
The average range for the day might be 30 pips but thats from high to low so in your case you would be waiting along time for the range to open at a price and move the entire range or more in your favour before getting an order in. This limits you because you have only 1 trade every now and then, there is no guarentee that you will get the move back in your direction and therefore if it is the only cross you are going to trade then if you get a lost trade it will become difficult to make back depending on the parameters you employ.

Too little SL means you run the risk of early stop out and too big means you are aiming for possibly 1:1 or worse. The other side of the coin is the time. Will you be present when the market moves that 30 pips, what will the spread be at that time (tokyo's spread is different to london in pairs that have less volitility) and do the outside moves occur during news rendering extreme spreads and slippage. Also what is the swap rate for buys and sells. This has a huge impact because of the ranging nature meaning you will need to hold trades for longer to reach maturity in some cases and therefore negative swaps can have an impact on overall profit over a long horizon.

Testing it will be the only true measure as too whether your onto something but dont think it is easy. I am sure many in the past have thought the same thing. Nothing (not even short term luck) replaces a viable edge and without one you are swimming against a strong current.

RT
  • #10
  • Apr 28, 2011 9:51am Apr 28, 2011 9:51am
Quoting Razor_trader
The average range for the day might be 30 pips but thats from high to low so in your case you would be waiting along time for the range to open at a price and move the entire range or more in your favour before getting an order in. This limits you because you have only 1 trade every now and then, there is no guarentee that you will get the move back in your direction and therefore if it is the only cross you are going to trade then if you get a lost trade it will become difficult to make back depending on the parameters you employ.

Too little...
Thank you for your advice
  • #11
  • Apr 28, 2011 10:08am Apr 28, 2011 10:08am
I donīt know if what you guys are talking about can be traded profitably. Despite the 6 pip spread mentioned, I think slippage might be a problem here. Nevertheless, pegged exchange rate regimes are interesting for traders to study.

Theoretically, exchange rate bounds can be traded profitably by shorting when prices approach the upper barrier, and going long when it reaches the lower barrier. However, don't expect there to be a free lunch.

The probability of the exchange rate encountering the upper or lower barrier is so small as to be negligible. This is because the market engages in arbitrage in anticipation of a central bank intervention when the exchange rate approaches this boundary. This is called the "honeymoon effect", and I question whether it can be traded profitably in practice.

When the exchange rate does approach a barrier, this could be a sign of the market rationally questioning the ability of the central bank in maintaining the barrier, thus engaging in a speculative attack.
The nail that sticks out gets hammered back in
  • #12
  • Apr 28, 2011 11:48am Apr 28, 2011 11:48am
Quoting Noloqy
Theoretically, exchange rate bounds can be traded profitably by shorting when prices approach the upper barrier, and going long when it reaches the lower barrier. However, don't expect there to be a free lunch.
Indeed.

True story about the italian lira breaking out of the central bank "bounds":

http://i.imgur.com/AfoFX.png

On the previous page, which is not online available, they tried buying the same options from another bank, but that bank refused to sell options outside the band.
  • #13
  • Apr 28, 2011 12:21pm Apr 28, 2011 12:21pm
Quoting Adal
Indeed.

True story about the italian lira breaking out of the central bank "bounds":
Interesting story. Breaking pegs is probably the most non-linear situation you can encounter in the Forex market. There's a large probability of the central bank being able to enforce the peg, but if the bank has to give in, there will be an immense devaluation or revaluation of the exchange rate.

I visited the Danish Central Bank a year ago, and they told me they encountered one serious speculative attack as well some years ago. They managed to withstand it.

I'm not surprised by the banker's reaction that they can't sell option with strike prices beyond the bounds, provided the trader lacked understanding of economics and the instruments he was selling. Let's be honest, many market makers just provide some inputs for their proprietary pricing models, and the computer spits out the option's value. The common models that these banks employed probably weren't capable of estimating these virtually impossible (and thus highly improbable) events.
The nail that sticks out gets hammered back in
  • #14
  • Apr 28, 2011 12:27pm Apr 28, 2011 12:27pm
Quoting Noloqy
I'm not surprised by the banker's reaction that they can't sell option with strike prices beyond the bounds, provided the trader lacked understanding of economics and the instruments he was selling. Let's be honest, many market makers just provide some inputs for their proprietary pricing models, and the computer spits out the option's value. The common models that these banks employed probably weren't capable of estimating these virtually impossible (and thus highly improbable) events.
Actually the other bank refused to sell outside the band because it said that if the peg is broken, all hell will break loose and there's no telling how high/low it will go, and they do not want to be bag holders. Smart bank.
  • #15
  • Mar 28, 2012 5:04pm Mar 28, 2012 5:04pm
it's really strange pair on chart indeed
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  • #16
  • Last Post: Mar 28, 2012 5:24pm Mar 28, 2012 5:24pm
EUR/DKK is not a "standard" or major pair (of course).The pip value is about 1/20th (or so) as that of EUR/USD. Yet the margin required is the same.

The ADR is 10 to 14 pips. I don't care to trade that.
When the Joker is in the deck.. fear not and play it well
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