My multi-currency trade journal

Hi Dave,

very clear!!!

So you do indeed use individual indexes for "direction guessing" (even if it is not exact science), and then use your composite index to dictate the aggression or not of the adding.

I understand that the adding is not "hedged", and so you need to be super careful with it, and balance it at least with your composite index, and how you feel the market for that period.

Clever, very clever!

The more I think about it from a "common sense" point of view, the more I feel that a plan well in place (and obviously that the trader can respect!) + small leverage and/or hedging strategy (which in my case would definitely help a lot to respect the plan!!! ), is one way to enhance the chances to make it within the market.

Yes so far, it does make sense to me at least :o)

This, really, feels so far away from the "is it going up, or is it going down" approach that I had in my mind when I discovered Forex.

Thanks a lot for your posts,
Cheers,
J-F

Update as of 8:00pm EST, 8/20/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 2

Account balance (8/19/14 AM): $213.60
Account balance (8/20/14): $214.32
%gain = 0.34%
Floating P/L = -$35.55
Net Asset Value = $178.77
% Floating DD = 16.6%
Positions open: 41
Average No. units per position = 51
Margin used = $49.18
Margin Available = $129.60
% Margin used = 38%
RISK = ~$2.55 per 500 pips draw down per position (= ~$105 for all open positions)
%RISK = $105/$214.32 = 49%

Update as of 9:00pm EST, 8/21/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 3

Account balance (8/19/14 AM): $213.60
Account balance (8/21/14): $214.93
%gain = 0.62%
Floating P/L = -$35.66
Net Asset Value = $179.27
% Floating DD = 16.6%
Positions open: 34
Average No. units per position = 50
Margin used = $41.47
Margin Available = $137.80
% Margin used = 30%
RISK = ~$2.50 per 500 pips draw down per position (= ~$85 for all open positions)
%RISK = $85/$214.93 = 40%

Update as of 4:00pm EST, 8/22/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 4

Account balance (8/19/14 AM): $213.60
Account balance (8/22/14): $215.04
%gain = 0.67%
Floating P/L = -$36.93
Net Asset Value = $179.27
% Floating DD = 17.2%
Positions open: 33
Average No. units per position = 50
Margin used = $40.24
Margin Available = $137.87
% Margin used = 29%
RISK = ~$2.50 per 500 pips draw down per position (= ~$83 for all open positions)
%RISK = $83/$215.04= 39%

Hi Dave,

It looks like things are going well for you so far. Remember that trading this way isn't "risk proof" - you'll still have your bad days, just like any other trading method. I've been away coding an EA to do my inventory management for me and just started running it on a demo account to ensure proper functionality. I'll let you guys know how it turns out. Preliminary back-tests on individual pairs (8 years of trading, no stop losses) look pretty good so, we'll see I suppose. I was always afraid to venture into the automated trading world because I lacked confidence in my ability to code but I must say, learning a programming language is an adventure in itself!

Remember not to pray for your losing positions to come back, manage them with confidence; know when to cut 'em off. As time goes on, you'll learn different ways to manage your inventory without having to worry about "heavy news days" and adverse market activity. Everything you work for can be taken away (and then some) if you lose focus, get lazy, or get overconfident. One thing I will tell you, in my testing and experience is that trading this way has a crux and it's reversals. I primarily determine the buy/sell decision based on the direction of the monthly candle:

If yesterday's close is above the monthly open->buy
If yesterday's close is below the monthly open->sell
(Not a recommendation, that's just how I do it)

As such, ranging months will result in some minor, but controllable draw-down. Reversals on the month can be a bite in the ass but are also manageable so long as your position size is adequate and you're quick to adapt to change. As with any system, good trends typically result in some great day-to-day profits. Limiting your exposure to a certain amount of days and a percentage of equity is helpful when the "bad times" come. But manage it right, stay humble, and adapt to change in market conditions and you won't "blow your account" like everyone says you will. Remember, when you're holding 30+ pairs in your inventory, you're really only managing one big position that you can cut the bad parts out slowly. In doing so, you'll give yourself the time to re-evaluate each "leg" of the "position" (inventory) and re-position as needed.

The toughest part about programming it into an EA is the adaptability. As I mentioned before, always being in the market is a challenge to manage manually as well as challenging for your brain, lol. You'll have times where the market does virtually nothing for weeks on end and you'll have reversals and big trends. But I'd imagine if you're into automated trading, you never really code the same robot once given that the market doesn't stay the same forever. Simplicity is key; take profits at the end of each day, set limits on losers - no matter what those limits are - and don't be afraid to re-evaluate them and change directions if needed. But I'll be around. I'm going to subscribe to your thread to watch how it goes for you, hopefully well! I don't post so much because the conflict(s) disinterests me so please, forgive me for that.

Update as of 8:00pm EST, 8/25/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 6

Account balance (8/19/14 AM): $213.60
Account balance (8/23/14): $215.28
%gain = 0.77%
Floating P/L = -$38.39
Net Asset Value = $176.89
% Floating DD = 17.8%
Positions open: 38
Average No. units per position = 51
Margin used = $47.55
Margin Available = $129.34
% Margin used = 38%
RISK = ~$2.55 per 500 pips draw down per position (= ~$97 for all open positions)
%RISK = $97/$215.28= 45%

Update as of 9:00pm EST, 8/26/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 7

Account balance (8/19/14 AM): $213.60
Account balance (8/26/14): $215.67
%gain = 0.97%
Floating P/L = -$42.79
Net Asset Value = $172.88
% Floating DD = 19.8%
Positions open: 38
Average No. units per position = 51
Margin used = $47.73
Margin Available = $125.15
% Margin used = 38%
RISK = ~$2.55 per 500 pips draw down per position (= ~$97 for all open positions)
%RISK = $97/$215.67= 45%

Thank you for checking in and for your much valuable advice Bilstein...especially about the management of the inventory...as usual, I've copied your post into my "Trading Notes" and will be studying it intently. And I completely understand your reason for your limited posting activity. As I've written repeatedly, reading your posts from the "Trading without a stoploss" thread was really an "ah-ah" experience. As an aside, I described my inventory management approach in posts 136 & 140 of this thread...within a week or so, maybe earlier, I'll start posting graphs of my "All Pairs" Composite Index as well as the index for each major pair. This way it might make what I'm doing a bit more clear...

Dave

I really like Bilstein's method:
If yesterday's close is above the monthly open->buy
If yesterday's close is below the monthly open->sell

Checking it with my own indicators (a set of Moving averages) They have yet to disagree.

I thought until now that my method was simplest. I was wrong. When (not often) his method of indicators disagrees with mine-- that should be interesting.

Yeah, like I mentioned though, when you trade that way, things get a little hairy when the month reverses of it's high or low. From a manual trading perspective, it's pretty easy to look at it yourself and shuffle some inventory so you don't get punched on the reversals. I'm still trying to get that into my EA, lol.

Update as of 10:00pm EST, 8/27/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 8

Account balance (8/19/14 AM): $213.60
Account balance (8/27/14): $215.80
%gain = 1.02%
Floating P/L = -$42.26
Net Asset Value = $172.88
% Floating DD = 19.6%
Positions open: 37
Average No. units per position = 50
Margin used = $47.00
Margin Available = $126.54
% Margin used = 37%
RISK = ~$2.50 per 500 pips draw down per position (= ~$93 for all open positions)
%RISK = $93/$215.80= 43%

Update as of 10:00pm EST, 8/28/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 9

Account balance (8/19/14 AM): $213.60
Account balance (8/28/14): $215.80
%gain = 1.02%
Floating P/L = -$44.39
Net Asset Value = $171.42
% Floating DD = 20.6%
Positions open: 35
Average No. units per position = 50
Margin used = $44.67
Margin Available = $126.75
% Margin used = 35%
RISK = ~$2.50 per 500 pips draw down per position (= ~$88 for all open positions)
%RISK = $88/$215.80= 41%

Update as of 5:00pm EST, 8/29/14
Current month start date: 8/19/14
Current month end date: 9/16/14
Month 4, Day 10

Account balance (8/19/14 AM): $213.60
Account balance (8/29/14): $215.80
%gain = 1.02%
Floating P/L = -$44.14
Net Asset Value = $171.66
% Floating DD = 20.6%
Positions open: 35
Average No. units per position = 50
Margin used = $44.61
Margin Available = $127.05
% Margin used = 35%
RISK = ~$2.50 per 500 pips draw down per position (= ~$88 for all open positions)
%RISK = $88/$215.80= 41%

This is my “Price Direction Similarity” algorithm. The currency pair highlighted in blue is the “Reference Pair” , and I can input any currency pair as the reference pair. This simple binary algorithm calculates a week-to-week directional similarity of exchange rate movement of the Reference Pair relative to each of the other currency pairs in the list (referred to as the “base" pairs), and then calculates a "percent of directional similarity" for each base pair based on a rolling look-back period of 52 weeks. The calculator answers the following question: How many weeks during the 52-week look-back period did the week-to-week exchange rate of the reference pair move in the same direction as the base pair? It’s not “correlation” since the statistical parameters used for correlation are much more comprehensive than the calculations used in my simple algorithm. But this calculator does allow me to determine the currency pairs that should be hedged based on their historical similarity of price direction (from 2008-2014). The chart window above the calculator window is a visual representation of the calculator for any given two pairs; weekly directional similarity is indicated by the vertical white lines. A “positive” vertical line indicates that the weekly closing exchange rate of both pairs moved “up” from the prior week; a “negative” vertical line indicates that the weekly closing exchange rate of both pairs moved “down” from the prior week. “Blank” spaces are weeks where the directional movement of the two pairs were counter to one another; currency pairs that have a Directional Similarity of less than 30% will predominately have blank spaces in the graph (as seen for the EURUSD vs. USDCHF comparison shown in the upper chart window). Pairs that have a high percentage of directional similarity will graphically show an extensive number of vertical lines (as seen in the lower chart for the EURAUD vs. EURNZD comparison. NOTE: The “D3 Sum” is the cumulative number of weeks when the price direction of both pairs were the same, either up or down, i.e. A D3 Sum = 33 means that during the past 52 week look-back period, the two pairs matched weekly direction 33 of those weeks).

Note: the "green" vertical line in each index window simply marks the reference week when the close is taken for each base currency in order to calculate, for each base currency, the number of pips gained (green) or lost (red) from the reference week to the close of the current week. The vertical green line can actually be placed anywhere on the graph; it is not used in any decision making process.

These indices gives me an idea where the money is flowing among the major currencies, and as described in posts 136 & 140, these indices are used in my decision tree to determine whether or not I can add to existing hedge positions that are in drawdown...

This algorithm calculates the number of units needed to hedge pairs (either buy/buy or buy/sell based on their % Directional Similarity) taking into account differences in their weekly volatility...