Caution: Math Geek at Work

April had a +23% ROE. Here's the updated table:

May had a -42% R.O.E. Bleh. These global interest rates can't stay in the cellar forever.

I don't know about that. The trend has been to lower interest rates indefinitely. Even if central banks raise rates that doesn't guarantee brokers will pay out interest proportionately. I'm willing to bet they won't. It's already pretty sh**y (the inverse proportionality that is) and probably going to get worse, IMO. That's another trend going against the retail trader. With that said, I believe you will find the trades themselves to be your bread and butter. The swap will just be something that makes you feel better in the meantime, but it will be pretty negligible in the end. It will be pennies on the dollar by the time we're through. The KEY is to stick with the plan.

Still, all majors on massive contra...

Maybe somebody is just buying/selling cheap.
Or some guys testing line of resistance for CB's?
Or CB's playing?
Or...


capitalist88, how are you protecting yourself?
(you can answer with p.m. if you like)

I just adjust my position sizes when necessary to keep equity between 10% and 15% of position value.
Details on www.market-geeks.com

Huh, looks like I missed June's update. So June's ROE was -22% and July was -3%. Here's the updated table.

There's a bug in the private msgs preventing me from replying to a recent msg, so I'll post the reply here:

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Yes, the Indian economy seems to have many structural obstacles to growth (corruption, infrastructure, regs, etc.) and the gold price drop is hurting the ZAR I imagine. I had to cover between 10%-20% of my open positions during one day last week to keep them under the risk limits.

I'm not a huge fan of these risky emerging economies, and I'm hoping we go back to the good old days soon when the good returns were in Australia, New Zealand, etc.
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Seems I forget to post the updated table every other month or something. August was horrible with a -47% ROI and September is now in the bag with a +37% ROI.

I've suspended the day to day trading on my carry trade account for a strategy review and overhaul. I'm not changing the overall carry trade strategy, just the short term trading piece.

What prompted this you say? Take a look at the eye popping chart below. It shows cumulative cash flow from each source over the past 30+ months during which time this account has been in operation. The sources are of course:

1. Investment, which is the total of deposits less withdrawals,
2. Interest received on the carry, and
3. Booked profits/losses from trading activity (basically profit/loss on each buyback since I'm always net short the USD)

So I've invested a total of about $7150 and received about $2550 in carry interest. This is $9700. But the total cash in the account is only around $3000. So where'd the other $6700 go? Yep, lost in the day to day trading activity. Bad.

So all trading is suspended in the account with the exception of trades required to maintain the position values within the overall strategy's margin boundaries of 10% - 15%. I'm reworking the concept and rules for additional trading activity. More to follow.... keep pipping up!! :nerd:

Ok, this post will start the explanation of the latest upgrade to the trading piece of the overall carry strategy. Nothing else is changing, just the method of trading around the core position, since that's been the big loser so far. Tonight I'll just be posting a couple of illustrations, the first of which is from the analysis table on the front page of my site. The other one is my new trading "cheat sheet" for setups and signals. Following posts (later this week) will refer to these.

Account Position and trade size analysis (from market-geeks.com)




Trading setups and signals

:nerd:

Here's more on the new trading methodology. In a future post I'll provide details on how trade sizes are calculated.


TRADING RULES

1. Always buy or sell at least enough to bring each position inside the risk bounds (10%-15% margin).

2. Never buy back if the position has a current open loss, unless required by rule #1.

3. Never make a trade for less than 1% of the entire account value unless required by rule #1.


ACCOUNT TRADING PRINCIPLES

1. The bias of this account is SHORT the USD.

2. Buys should be harder to trigger and less frequent than sells.

3. Use both daily and weekly charts.

4. Setups on weekly charts are stronger than setups on daily charts.

5. Use oscillator OB/OS levels, standard divergence and hidden divergence for trade setups.

6. Use price action and/or oscillator reversals at extremes as entry signals

7. Divergence is stronger than OB/OS levels alone.

8. Standard divergence indicates reversal, hidden divergence indicates continuation.

9. Bearish setups for either reversal or continuation are tradeable.

10. ONLY bullish reversal setups are tradeable. Don't bother trading bullish continuation.

The ROE for October was +6%. Here's the updated table.

Here is how I determnine the size of trades.

1. The target allocation is based on the interest rate in relation to the other rates. So in the example table in the post above, the 3 interest rates add up to 17.30%, and the rate on USD/INR is 7.00% which is 40.5% of the total. Thus I want 40.5% of my account to be in USD/INR.

2. Minimum and maximum position sizes are based on the target allocation and my leverage rules. I want to stay between 10% and 15% margin in order to balance risk with return. This is my personal "sleeping threshold" so your mileage may vary. So to calculate the max position size of USD/INR for instance, I take my equity of $3289.09 and divide it by the high risk boundary of 10% which gives $32,890.90 for a total max account position size. Then I multiply that by the target allocation of 40.5% to get the max for just USD/INR, which comes out to about $13310 (it's rounded to the nearest $10).

3. The minimum required trade sizes are zero if the actual position size is inside the min/max boundaries. If the postion is too large or too small, then the minimum trade size is the amount required to bring the position back to the boundary.

4. Maximum allowable trade size is the amount that would bring the position right up to a boundary. In the example table, the actual position size of USD/INR is 9870 which is $1000 above the minimum size of $8870. So a buyback of $1000 would bring the position to its minimum boundary, and thus is the maximum allowable buy amount. The maxium allowable trade size for buys is zero if the position is not in profit, unless a buy is required to bring the position inside the risk boundaries. This is trading rule #2 in the post above, and is shown on the table in the Max Trade Adjustment section. Note the max buy for USD/TRY is adjusted to zero because that position has an open loss. I don't want to close at a loss unless necessary to control risk.

5. Once the minimum and maximum trade sizes are known, the only question is where in that range to put the actual trade size. I determine this from the strength of the trading setup, which is based on technical indicators. I use Williams %R and RSI, both set for 14 periods. I look at both of these on daily as well as weekly charts. I look for overbought/oversold levels, standard divergence, and hidden divergence. The presence of any of these adds to the "setup strength" as follows:

SELL SETUPS

Daily chart, %R overbought: 5%
Daily chart, %R bearish standard divergence 5%
Daily chart, %R bearish hidden divergence: 10%
Daily chart, RSI overbought: 5%
Daily chart, RSI bearish standard divergence: 5%
Daily chart, %R bearish hidden divergence: 10%
Weekly chart, %R overbought: 10%
Weekly chart, %R bearish standard divergence 10%
Weekly chart, %R bearish hidden divergence: 15%
Weekly chart, RSI overbought: 10%
Weekly chart, RSI bearish standard divergence: 10%
Weekly chart, %R bearish hidden divergence: 15%

BUY SETUPS

Daily chart, %R oversold: 5%
Daily chart, %R bullish standard divergence 5%
Daily chart, RSI oversold: 5%
Daily chart, RSI bullish standard divergence: 5%
Weekly chart, %R oversold: 10%
Weekly chart, %R bullish standard divergence 10%
Weekly chart, RSI oversold: 10%
Weekly chart, RSI bullish standard divergence: 10%

So for example if %R were overbought and showing standard divergence on the daily chart, and also oversold on the weekly chart, the setup strength would be 5% + 5% + 10% = 20%. If the minimum sell size were zero and the max sell size were 1000, I would set a trade size of 200, which is 20% of the distance from zero to the max.

Standard divergence is a bottom/top reversal indication and hidden divergence is a trend continuation indication. Note that for buys, I only use bottom indications (standard divergence) but I'm not interested buying into possible continuations of uptrends. This is in accordance with the principle that I buy only when necessary for risk control or when there is an exceptionally good buying opportunity. The latter is only the case at possible bottoms.

6. Finally, I filter the trade size by a 1% rule. So if the trade size is less than 1% of the sum of all my position sizes, then I don't bother with it. The total effect of all these rules is to make trades more rare and more likely to result in profit instead of repeated small losses and spread costs.

7. Once there are setup conditions in place, I wait for an actual signal to place the trade. This could either consist of price action (1,2,3,4 pattern for reversals or 1,2,3 pattern for continuation), or oscillator reversals out of OB/OS areas.

The R.O.E. for November was -2% Here's the updated table.

Greetings!!

Here's a set of simplified trading rules for the Carry Trade Account. My goal is push the position sizes up whenever appropriate, but to reduce them only whenever necessary for risk control or when a profit taking opportunity is too attractive to pass up. I've reconstructed the tables on the home page of market-geeks.com to reflect the new simpler system, and it should be fairly self-explanatory. So without further ado....

TRADING RULES
1. Always buy or sell at least enough to bring each position inside the risk bounds (10%-15% margin).
2. Never buy back if the position has a current open loss, unless required by rule #1.
3. Never make a trade for less than 1% of the total position value.

CHART
All indicators and signals are based on the daily chart.

ABBREVIATIONS
MinBound = Minimum Risk Boundary Position Size
MaxBound = Maximum Risk Boundary Position Size
TPV = Total Position Value
%R100 = 100-day Williams %Range
%R14 = 14-day Williams %Range
MinReqTrade = Minimum trade size required to bring position size back within boundaries

POSITION TARGET SIZE
MaxBound + (%R100)*(MaxBound - MinBound)
(Example: Boundaries are 10,000 to 15,000 and %R100 is -70%. The target would be:
15000 + (-0.70)(15000 - 10000) = 15000 - 3500 = 11500.)

TRADE SIZE
Max(1% TPV or MinReqTrade)

SELL CONDITIONS
Actual Size < Target Size

SELL SIGNALS
%R14 moves above then below -20% without breaking above -10% or,
%R14 moves above then below -10% or,
%R14 begins above -20% and declines when price does not decline.

BUY CONDITIONS
Position is in open profit
Actual Size > Target Size + 1% TPV
%R100 < -80%

BUY SIGNALS
%R14 moves below then above -80% without breaking below -90% or,
%R14 moves below then above -90% or,
%R14 begins below -80% and rises when price does not rise.

Just a minor correction on the last post. The changes to the trading calculation tables won't appear on market-geeks.com until sometime Monday night U.S. time.

Another tweak to the trading rules.

One of my aims with the last update was not only to simplify the rules but to take better advantage of the power of compound interest. I should be increasing the position size gradually using the interest income and deposits to maintain the same risk boundaries. However, I haven't been doing that because I spend a lot of time waiting for a signal.

So the new tweak is that if the position size is lower than the target size, I'll add at least the minimum (1% of total positions) trade size to the position, regardless of whether there's a signal. In cases where the position size is above the target, I'll still only add to the position (sell) when there's a signal. The idea is to keep the position size at least as large as the target at all times.

Keep pipping up!!

December is in the bag with a R.O.E. of -18%. Bleh. Here's the updated table.

Second bad month in a row with the emerging markets implosion. Double bleh.

About time for an up month. R.O.E for February was 26%