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Trading a single currency basket

  • #1
  • First Post: Feb 2, 2016 2:17am Feb 2, 2016 2:17am
I developed a system last year that buys or sells a single currency basket.

For example, if I wanted to buy NZD as a basket, I would place the following trades-

Buy NZDUSD
Sell EURNZD
Sell GBPNZD
Buy NZDJPY
Buy NZDCAD
Sell AUDNZD

I only trade USD, EUR, GBP, JPY, CAD, AUD and NZD (not CHF)

You may ask why I would want to trade a single currency basket rather than just a normal pair?

Well I played around with different currency demand indicators and found I could often pick whether a particular currency would either rise all fall, but what to match it against? It was actually very hard to pick another currency to match it against as some pairs made lots of positive pips and others made only a few or even negative pips. So I started to experiment with trading ALL the pairs as a single currency basket.

I have studied the behaviour of each currency (except CHF) and have found that they move in their own unique repeatable cycles.
I simply wait for the currency to reach an extreme in its cycle and then trade it the other way. It is quite a profitable system (about 70% accurate).

However it takes quite a long time for my system to generate a trade. Sometimes only one trade in two weeks!

I was wondering if anyone out there in ForexFactoryLand traded single currency baskets and if they could give a few clues to how they trade, or perhaps there are a few people with a number of ideas we could try out?

I have attached a demo trade explorer to this thread so you can see how I trade. I look forward to any replies.
  • #2
  • Feb 2, 2016 4:06pm Feb 2, 2016 4:06pm
Hi Zondervan,

I have startet experimenting with currency baskets just recently, I'm mostly watching the Dollar Index which is easy since it is a product you can trade with one mouse click. I find that the Dollar index often gives "cleaner" signals than the different pairs it contains.

How do you enter your basket trades ? Do you enter the orders for each pair one after the other ? And how do you create the chart of the basket ?
  • #3
  • Feb 3, 2016 4:35am Feb 3, 2016 4:35am
Quoting Traderlarry
Hi Zondervan, I have startet experimenting with currency baskets just recently, I'm mostly watching the Dollar Index which is easy since it is a product you can trade with one mouse click. I find that the Dollar index often gives "cleaner" signals than the different pairs it contains. How do you enter your basket trades ? Do you enter the orders for each pair one after the other ? And how do you create the chart of the basket ?
Hi Traderlarry, thanks for your reply. It would be good to have an EA to open all 6 trades at the same time but at the moment I manually open trades one after the other as quickly as possible using the one click setting. I open a 1 hour chart on all six traded pairs if I want to monitor my trade, but usually I just set my EA to take profit or loss at a predetermined basket price, (At the moment using 0.1 lots at $340 profit and $180 loss) and then just check in 3 to 6 hours later to see whats happening. I don't need to set a SL or TP on each trade as the EA is monitoring the entire basket for me.

How do you trade the Dollar Index? Using fundamental analysis? Or something else?

I have a simple indicator that I programmed in excel that gives me a snapshot of the current market using daily ATR levels for each currency I monitor. So right now demand for kiwi is SUPER strong which often means demand for USD (and EUR) is weak.
  • #4
  • Feb 5, 2016 6:16pm Feb 5, 2016 6:16pm
According to my system JPY is coming to the end of its demand cycle. So one hour after the market opens next week I will place the following trade:

Buy USDJPY 0.1 lot
Buy EURJPY 0.1 lot
Buy GBPJPY 0.1 lot
Buy CADJPY 0.1 lot
Buy AUDJPY 0.1 lot
Buy NZDJPY 0.1 lot

(In other words I'm selling JPY as a single currency basket)

I will set my Basket EA take profit at $340 and stop loss at $180. If neither level is hit I will manually close the trade before the end of the trading day. (17:00 EST)

Trade progress and results will be on the Trade Explorer
  • #5
  • Feb 6, 2016 1:30am Feb 6, 2016 1:30am
Hi Zondervan, I'm new on this forum. I'm following your thread and your strategy seems very interesting. I hope you will give us more informations about it .... good job Zondervan, have a nice weekend
  • #6
  • Feb 6, 2016 5:15pm Feb 6, 2016 5:15pm
Learning to analyze and think of currencies individually, instead of trying to analyze a pair of currencies, is a big step in the right direction IMO, and shows that
you understand the forex market on a level that most traders don't.

I use FA and central bank sentiment to try to forecast the future direction of individual currencies then trade them in that direction - for example if I am bullish USD, I will buy USD against all the currencies I am bearish on. I never trade a pair where I feel both currencies are moving in the same direction - eg. if I am bearish on both EUR and GBP, I cannot trade EUR/GBP. Basically I make two lists - one list of bearish currencies and one of bullish, and I trade all the pairs which involve one from each list ... so every trade I take means I am buying a currency that I am bullish on and selling one I am bearish on.

Trading baskets is an excellent way of reducing the risk from the other side of your trades. If you think NZD is overvalued you can sell NZD/USD, but if USD falls you will lose the trade even if your analysis was correct. On the other hand selling NZD against all the other currencies, or even a few strong currencies, means NZD just has to trade lower against the average of all the other currencies for you to profit.
si hoc legere scis nimium eruditionis habes
  • #7
  • Feb 6, 2016 9:48pm Feb 6, 2016 9:48pm
I also watch all major Currencies, Oil, Gold and Silver against the Dollar to make trade decisions.

But I don't trade the whole basket.

I pick the pairs where the music plays.

Everything without charts.

http://s14.postimg.org/x21e195up/action.png
  • #8
  • Feb 6, 2016 11:37pm Feb 6, 2016 11:37pm
Quoting numbnuts
Learning to analyze and think of currencies individually, instead of trying to analyze a pair of currencies, is a big step in the right direction IMO, and shows that you understand the forex market on a level that most traders don't. I use FA and central bank sentiment to try to forecast the future direction of individual currencies then trade them in that direction - for example if I am bullish USD, I will buy USD against all the currencies I am bearish on. I never trade a pair where I feel both currencies are moving in the same direction - eg....


Thanks for your input it is greatly appreciated! Great idea to create bullish and bearish currency lists. I'm afraid my fundamental knowledge is only very rudimentary. My favourite website is http://www.tradingeconomics.com/ it is an amazing resource.

Regarding trading baskets- at the moment I am simply trading 0.1 lot on each pair. However I think to really trade the single currency basket correctly I would need to take into account both the volatility and pip cost to average out each pair. So if I was buying a NZD basket I would possibly trade the basket like this...

NZDUSD buy 0.1 lot
NZDCAD buy 0.11 lot
NZDJPY buy 0.1 lot
EURNZD sell 0.8 lot
GBPNZD sell 0.7 lot
AUDNZD sell 0.1 lot

This would then average out each pair rather than having the basket weighted toward GBP and EUR. Something I will look at in the future perhaps.

What is your opinion on USD at the moment?? When I look at USDCAD, USDJPY and XAUUSD in fact any major USD pair- all I can see is demand for USD diminishing. I'm terrible at predicting what the market will do medium or long term, but to me looks like commodity prices may begin to rebound, and I might be tempted to look for a few longer term carry trades with NZD.
  • #9
  • Feb 7, 2016 12:08am Feb 7, 2016 12:08am
Quoting The-Flipper
I also watch all major Currencies, Oil, Gold and Silver against the Dollar to make trade decisions. But I don't trade the whole basket. I pick the pairs where the music plays. Everything without charts. {image}
Thanks Flipper- wow you must be very much in tune with the market if you are hearing music!!

I have found that I am not that good at picking exactly the right currency to trade against. I might think the market is risk adverse and sell NZD against USD only to make a few pips, when I could have gained 100's if I sold NZD against GBP. So I just decided one day to try selling NZD against everything and to my surprise I gained pips on pairs I didn't think were going to be profitable.

Obviously every day there is one currency that has the MOST demand for that day. If you were able to pick that one currency and trade it against every other currency you could make a lot of money. The problem is everyone is trying to pick both the currency that has the most demand and the currency that has the least demand and match them up. That is mathematically much harder to do than picking just one currency in my opinion.

I try to look for currency exhaustion. Currencies move in cycles. You never have a currency that stays at the top for very long. It's quite rare for any currency to stay on top for more than 2 days- perhaps 3 days max. Eventually all currencies move away from the top demand spot. (Same for the bottom demand spot).

Also each currency has a slightly unique demand cycle. For instance demand for CAD is usually about the middle of the seven currencies I monitor. When it reaches the top demand spot on a particular day, the next day it will often be one of the least demand currencies. Same goes if CAD is the least demanded currency, it will often be one of the most demanded currencies the next trading day. However the other currencies don't work in this way.

I too look at Oil, Gold and stock indices to help me get an overall picture- but personally I am pretty terrible at using the information to trade profitably on an intraday basis.
  • #10
  • Feb 7, 2016 5:09am Feb 7, 2016 5:09am
Basically if correlation rates are the same you can but you have to keep track on correlation rates between them to make sure you are not killing yourself with the basket
  • #11
  • Feb 7, 2016 8:16am Feb 7, 2016 8:16am
Quoting numbnuts
Learning to analyze and think of currencies individually, instead of trying to analyze a pair of currencies, is a big step in the right direction IMO, and shows that you understand the forex market on a level that most traders don't. I use FA and central bank sentiment to try to forecast the future direction of individual currencies then trade them in that direction - for example if I am bullish USD, I will buy USD against all the currencies I am bearish on. I never trade a pair where I feel both currencies are moving in the same direction - eg....
+1

If anyone is struggling to make money trading FX, then read this post till you get it.
rgds
S
  • #12
  • Feb 7, 2016 8:58am Feb 7, 2016 8:58am
Quoting Zondervan
According to my system JPY is coming to the end of its demand cycle. So one hour after the market opens next week I will place the following trade: Buy USDJPY 0.1 lot Buy EURJPY 0.1 lot Buy GBPJPY 0.1 lot Buy CADJPY 0.1 lot Buy AUDJPY 0.1 lot Buy NZDJPY 0.1 lot (In other words I'm selling JPY as a single currency basket) I will set my Basket EA take profit at $340 and stop loss at $180. If neither level is hit I will manually close the trade before the end of the trading day. (17:00 EST) Trade progress and results will be on the Trade Explorer

Very interesting thread but I presume you're going to only open those trades on a demo account? I do hope so!
  • #13
  • Feb 7, 2016 12:19pm Feb 7, 2016 12:19pm
Quoting Zondervan
{quote} Thanks for your input it is greatly appreciated! Great idea to create bullish and bearish currency lists. I'm afraid my fundamental knowledge is only very rudimentary. My favourite website is http://www.tradingeconomics.com/ it is an amazing resource. Regarding trading baskets- at the moment I am simply trading 0.1 lot on each pair. However I think to really trade the single currency basket correctly I would need to take into account both the volatility and pip cost to average out each pair. So if I was buying a NZD basket I would...

thanks Zondervan.. this is one of the efficient approach to trade in FX. would you mind explaining how you do your analysis to determine a currency is now ready to short or long against other currencies? also what are all the inputs you check for this please?
  • #14
  • Feb 7, 2016 12:31pm Feb 7, 2016 12:31pm
Quoting Zondervan
According to my system JPY is coming to the end of its demand cycle. So one hour after the market opens next week I will place the following trade: Buy USDJPY 0.1 lot Buy EURJPY 0.1 lot Buy GBPJPY 0.1 lot Buy CADJPY 0.1 lot Buy AUDJPY 0.1 lot Buy NZDJPY 0.1 lot (In other words I'm selling JPY as a single currency basket) I will set my Basket EA take profit at $340 and stop loss at $180. If neither level is hit I will manually close the trade before the end of the trading day. (17:00 EST) Trade progress and results will be on the Trade Explorer
Also, Could you please share the EA you use for closing the trades once it reach a certain TP or SL?
  • #15
  • Feb 7, 2016 1:25pm Feb 7, 2016 1:25pm
Quoting jmtini
{quote} Very interesting thread but I presume you're going to only open those trades on a demo account? I do hope so!

Hi jmtini, thanks for your concern re live trading. Yes at the moment I am only testing on demo. However this is my final month of testing. I have back tested this system over the past couple of years and forward tested it for a number of months on demo. (I realise two years isn't really enough time, but I am limited to back testing manually which takes ages!!).

On back testing and forward testing, the system generates about 70% profitable trades. So I know on average 3 out of 10 basket trades WILL be losers.

If I can generate another profitable month in February (15% or more account again), I will go live in March with a small account (US$400) and trade using 0.01 lots. Then I will compare the live and demo results and take it from there.
  • #16
  • Feb 7, 2016 1:59pm Feb 7, 2016 1:59pm
Quoting tradeforlife
{quote} thanks Zondervan.. this is one of the efficient approach to trade in FX. would you mind explaining how you do your analysis to determine a currency is now ready to short or long against other currencies? also what are all the inputs you check for this please?
Hi tradeforlife, I use daily close prices on each pair (21 pairs) which are put into an excel spread sheet. I have set excel to calculate the winners and losers of each currency against the other 6 currencies. This gives me a currency demand order list for the previous day ending 17:00 EST

So the list might end up like this
1) USD
2) JPY
3) EUR
4) GBP
5) CAD
6) NZD
7) AUD

So this means if you look on a daily chart you will find that AUD lost to every other currency and USD beat every other currency.

Now if you plot this list over a few days and weeks (or years!) and take time to analyse it, you find all sorts of useful information. Averages are what you are looking for!! Something that gets repeated on a consistent basis. Nothing is ever 100%, but if you can find something that happens 70% or more- you have found a trading edge.
  • #17
  • Feb 7, 2016 2:03pm Feb 7, 2016 2:03pm
Quoting tradeforlife
{quote} Also, Could you please share the EA you use for closing the trades once it reach a certain TP or SL?
The EA I use is called equity sentry. I just found it by searching google. However there are a number of dashboards here on forex factory that do the same thing. You can set an equity SL and TP (plus a million other things!)
  • #18
  • Feb 7, 2016 2:45pm Feb 7, 2016 2:45pm
Quoting Zondervan
{quote} Hi tradeforlife, I use daily close prices on each pair (21 pairs) which are put into an excel spread sheet. I have set excel to calculate the winners and losers of each currency against the other 6 currencies. This gives me a currency demand order list for the previous day ending 17:00 EST So the list might end up like this 1) USD 2) JPY 3) EUR 4) GBP 5) CAD 6) NZD 7) AUD So this means if you look on a daily chart you will find that AUD lost to every other currency and USD beat every other currency. Now if you plot this list over a few days...

thanks Zondervan, appreciate the immediate response...
So, do you analyse this daily and place trades on a daily basis or you change the bias of a currency only once in a week? Also, once your TP is hit and all trades are closed, then you will look for another opportunity immediately or you wait for a daily close?

And what made you to choose the TP as 340 and SL as 180? any reason or some random number?

And as you mentioned, the lot size for each pair should be unique based on that particular pair's qualities as each pair is different...
  • #19
  • Feb 7, 2016 2:46pm Feb 7, 2016 2:46pm
Quoting Zondervan
{quote} The EA I use is called equity sentry. I just found it by searching google. However there are a number of dashboards here on forex factory that do the same thing. You can set an equity SL and TP (plus a million other things!)
thanks Zondervan...
  • #20
  • Feb 7, 2016 3:14pm Feb 7, 2016 3:14pm
Quoting Zondervan
{quote} The EA I use is called equity sentry. I just found it by searching google. However there are a number of dashboards here on forex factory that do the same thing. You can set an equity SL and TP (plus a million other things!)
I got the EA, does it have to run in all the charts or only one chart is enough?
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