Tuesday, December 15, 2009

AUDJPY: Technical Analysis

Well, my posts are few and far between these days.

In case anyone else is still following long here is some good information on the 3hr AUDJPY.

We have a nice symmetric triangle going all the way back to November 25th.

See?


I'm expecting this to break (upward) and then run into a downward sloping resistance line on the 1d AUDJPY. However, we'll have to wait and see. I've been wrong (more than a few times) before.

UPDATE: Here we have the price dropping, on the 1hr, giving us a good entry point. We can easily set a stop loss relatively close while targeting the upper boundary for profit. However, as there was news earlier, we may find that the support line yields to changed market expectations.


UPDATE: The bar isn't closed on the 1hr but it's almost 11:00pm ET and it looks like we are breaking downward at the moment.

Monday, November 30, 2009

Challenging Times

While I realize the world went through a bit of an unwind, before and after the Dubai incident, I've been busy with work and family issues instead.

Things have just been incredibly busy!

In any case, what with the volatility and unwinding that has been going on it's probably a good time to be inactive. I did manage to blow up my small discretionary account (my robots are far better traders than I am) but that's insignificant.

However, the big news, from my own point of view, is that I have some tweaks for my up-and-coming robot. Basically, I need it to detect a downward slide quickly and then decide not to waste it's risk capital on redundant positions.

Maybe I'll have some time to do some blogging and tweaking this week?

Friday, November 13, 2009

Trading Week Recap

I've been leery of letting BREAD (my primary trading robot) trade too much. I suspect prior tweaks have it taking too much risk. As such I kept it on a short leash and it only earned 0.9% for the week. Perhaps I'll have time to make some adjustments over the weekend.

On the discretionary front I was back down to a more reasonable 13% this week. Last week's 34% was probably some type of market movement vs trading style confluence. These thing happen.

In other news I have a new Bollinger Band based robot in the works. An early version of it was trading this week -- earning almost %1 as well. More trials and adjustments to look forward to!

UPDATE: No time to do anything Forex related this weekend.

Wednesday, November 11, 2009

AUDJPY: Ominously Flat

I'm looking at a short term chart, but the lack of volatility suggests that something is in the air.

Even with the recent good news from China things have been relatively lethargic.

The daily chart is also showing the potential to have a few down days.

This seems like a good time to manage risk.

UPDATE: This evening, while I was on the road, I see that we had a nice spike upwards, hitting my take-profit points and leaving me flat. Nice.

Tuesday, November 10, 2009

AUDJPY: Support Becomes Resistance

My last post showed a profitable overnight setup based on a week long support line on the 1hr chart.

Here, I've got an example of a support becoming resistance once it has been violated.

Take a look at the following 15min chart:


See the violation around 9:00pm last night? As an aside, this was a good point to try a well protected short. Overnight we tested a longer term support line (see my previous two posts) which held.

Finally, notice that recently this previous support line held as resistance just before 6:00am. I do expect it to be violated as the longer term support held -- but obviously we'll have to wait and see.

AUDJPY: Price Alert

Since I'm awake I thought I'd point out a price alert.

The AUDJPY currency pair is testing a support line.

A long tail break (closing on or above the support line) would still be a bullish sign.

Anywhere, here's a recent 1hr chart snip.


This is a good place to look for a trade. Good luck.

NOTE: See the previous post... it shows the support line valid since November 1st.

UPDATE: Upon waking this morning I see my take profit was hit and I managed to add 2% to my NAV while sleeping. Honestly, this is quite rare, but a good trendline (one that has been and does get honored again) gives you a well defined opportunity.


See how the violations are "tailed" and the line provides support? I got in at 83.21 at 12:38am and took profit at 83.70 at 5:35am. If I had of been awake I probably would have been nervous during the second testing after 3:00am.

Sunday, November 8, 2009

AUDJPY Forecast

What the heck, I may as well jump out on a limb and let you know what I'm seeing with the AUDJPY.

Basically, if you look at the chart, we've had a good support line since the beginning of November.

Now, if I've got the right chart uploaded, take a look below:


Personally, I'd suggest taking a long position when the price approaches the support line. You can set a nearby stop and protect yourself from much by way of downside risk.

The only issue, for me, is that Sunday trading seems a bit wild at times.

UPDATE: Well, I hope somebody played the bounce...


It was worth it.

Friday, November 6, 2009

Trading Week Recap

Since the trading robot, BREAD, was predominantly sidelined for the last couple of weeks I felt the need to do more discretionary trading.

While the capital used wasn't very large it felt great to pull in a 34% increase over the course of the week. If I could scalp like this all the time it would definitely spell the end of the day job. I have dreams of setting up a trading office with spacious rental cubes available for other traders. Rookie's trading pit.

Back to reality, BREAD on the other hand snailed along earning 2.4% and 1.7% over the last two weeks. Sometimes I think I live in Bizarro world when I have disdain for a 100% annualized rate of return...

In any case, I think the long tail of H1N1 recovery has finally come about. I should be able to concentrate both on my day job and on creating new robot strategies during evenings.

Thursday, November 5, 2009

Da Signals

It takes a lot of fortitude to use them but I think the signals blog is proving itself useful.

For example, right now we seem to have established a bottom in the recent AUDJPY downward movement.

So, especially under such a condition, we get good results if we see a signal and then look for confirming behavior. Basically, the signals are great lead-ins to a period of analysis.

No, they aren't all useful. As you would expect there will often be signals that are simply useless. The key point is that you don't have to be watching the markets all day long to take advantage of signals. You can simply fire up the charts and issue a yes or no decision several bars after they arrive.

Friday, October 30, 2009

Tough Week All Around

With the recent downward move in the AUDJPY my robot has been sidelined.

No big deal really but it does point to a possible correlation as I'd noted earlier. After a very good robot week, perhaps with behavior characteristic of a local top and massive robot profit, the market takes a downturn. There are only two data points so far but I'm definitely staying on the lookout for this. Above average robot profits... be skeptical.

On another note, I contacted someone concerning proprietary trading last week. While I had suspected as much, the fact that my robot is willing to be a carry trader during downturns relegates it to the world of personal trading. So, sadly, my dreams of leaving the standard workforce have been delayed.

The biggest negative event is H1N1 making the rounds through my household. It's bad enough when I feel like crap but it's a lot tougher watching my son cough, wheeze and shiver.

Hopefully we'll be back to normal by Monday. I need to get around to making a better robot -- or at least one with different characteristics.

Tuesday, October 27, 2009

Signals Blog Online

Just a short note to let you know that my new signals blog is online. Obviously this is a use at your own risk situation.

Anyway, when my robots notice various conditions they will post a message concerning the event in question.

The only notice type currently active may identify a situation that will either have a short term AUDJPY price rise offering a scalping opportunity or a longer term bottom situation if the pair is continuing an upward trend.

Sunday, October 25, 2009

Minor BREAD Adjustments

The BREAD trading robot has had a minor tweak during this last weekend.

To make a long story short, another risk modification metric has been defined. If things work as planned this will give the robot the ability to trade over a wider currency pair price move.

Obviously, the plan is to simultaneously maintain the same level of profitability.

My initial readings on quantitative analysis, via forums, seem to indicate another insular pool of thinking. Unfortunately, it seems that ego often persuades people that their own area of expertise is the right area while other areas have nothing to offer.

Advice to any that will take it...

Find the important or valuable information without consideration of the source. Often, combining a few great insights from various fields (validly) will provide greater value than being very proficient at all the skills of a particular field. The real world often is not as simple as the assumptions made in order to perform calculations at the edge of the envelope.

Quantitative Analysis?

It has been more than a few years since I've had to apply any serious math skills towards my work. However, I have noticed some discussion of quantitative analysis in a few forex forums as well as job listings posted for quants.

For a very general introduction to this concept here are some links from Wikipedia:

To be honest, I don't know which of these might be most applicable at this point. These are just some general pointers for investigative purposes.

Some other places to look:So far, I've been satisfied to determine a long term fundamental direction, presumably with relatively low risk, and then develop a trading strategy that tries to take advantage of variations against that trend. However, I'm not against brushing off the old math skills to see if there is any way to integrate them into future trading strategies.

The biggest issue is time. Until I can get to the point that I'm a full time trader, I can't sit around all day rediscovering my math skills in order to develop complex software systems. However, I might be able to spend some time looking into these ideas -- perhaps getting a book or two on the subject -- to see how they may fit into future trading efforts.

Friday, October 23, 2009

Robot Trading: Six Weeks In

Things are going well. As you can see BREAD (Basic Robot Earning All Day) is starting to look like a winner.

   Return   Day
0.1900% Sun 13 September
3.2339% Mon 14
3.1616% Tue 15
3.2615% Wed 16
2.1510% Thu 17
0.4442% Fri 18
--------------- 13.05%

0.1850% Sun 20
2.0259% Mon 21
0.9016% Tue 22
1.1536% Wed 23
0.2460% Thu 24
0.1338% Fri 25
--------------- 4.72%

0.0000% Sun 27
0.1900% Mon 28
0.6862% Tue 29
2.3444% Wed 30
0.3317% Thu 01 October
0.7376% Fri 02
--------------- 4.44%

0.7311% Sun 04
1.0346% Mon 05
1.0587% Tue 06
1.9310% Wed 07
1.6854% Thu 08
0.9897% Fri 09
--------------- 7.75%

0.0915% Sun 11
1.2179% Mon 12
1.4263% Tue 13
1.9298% Wed 14
1.3023% Thu 15
1.2064% Fri 16
--------------- 7.38%

0.2985% Sun 18
1.6787% Mon 19
2.1774% Tue 20
2.3200% Wed 21
2.3552% Thu 22
1.2715% Fri 23
--------------- 10.52%
Looking back, this system was too aggressive during the first week. Later tweaks reduced this aggressiveness to some degree but also lead to lower earnings. At the moment aggression is scaled based on market factors so that in some situations it will take a larger slice.

Although the last week of earnings was great it's really too early to know how this robot will perform in the long term. As mentioned in a recent post I know that BREAD will earn the most during a consolidation period with prices confined in a range that ends in an upward break. I do expect the AUDJPY to exhibit this behavior a lot but it certainly won't do this all the time.

Now what?

This thing has been trading live for a while now. The only thing I plan to do is keep on letting it run until I'm able to create something better. ARTFAB (A Rising Tide Floats All Boats) is the latest attempt...

UPDATE: Something I'm curious about is if I'll notice a longer term cycle in robot behavior. For example, the last time BREAD earned more than 10% in a week there were a couple of weeks that then underperformed. It is possible that the market will exhibit behavior that is clearly visible through trading profits.

UPDATE: I have discovered this very good blog... Hack the market. From there I've noted the following graph:


This suggest to me that I can gauge my daily returns against that of the bigger players to see whether not I'm doing well. Notice that the smallest group seems to have much better returns -- and thus is where I should be comparing my results. Perhaps my stretch goal of 2.5% is a little two low? Regardless, I'll be happy to up my goal when I reach it.

Wednesday, October 21, 2009

Forex Robot Wars: BREAD vs ARTFAB

Two titans of the forex robot trading industry are squaring off in the search for higher profits.

In the green corner we have BREAD (Basic Robot Earning All Day) with consistent earnings of approximately 1.2% per day. In the other green corner we have the relatively new ARTFAB (A Rising Tide Floats All Boats) with very promising early results. Already today ARTFAB has locked in over 3.0% returns.

Wait, before you change the channel, neither of these robots is for sale and I do not want to manage your money. Relax, it's safe here.

In a macro sense BREAD and ARTFAB work using very different concepts. BREAD attempts to time the market and move money in and out during cyclical movements. This allows a small amount of risk to be taken, hopefully profited from, and then put back to work during another apparent down cycle.

ARTFAB, on the other hand, doesn't care about cycles when opening positions. It accumulates small positions and releases them when larger price moves have made them significantly profitable. However, cycles are examined with respect to determining when it may be a good time to close a position.

Both of these strategies appear to be working reasonably well. I'm hoping that ARTFAB will prove to consistently earn more than BREAD, such that I am enticed to move capital from one robot sub-account to the other. However, I have to keep in mind that BREAD functions best during a consolidation while ARTFAB's best earnings occur during a market move.

Of course, as I trade the AUDJPY currency pair almost exclusively both of these robots are trading it. As I have mentioned from time to time my trading account is with Oanda (which let's me scale trade sizes down to the unit level) and I'm using the FxSpyder platform to create and run robots. I prefer Oanda's platform for discretionary trading.

Tuesday, October 20, 2009

AUDJPY: Market Call

The AUDJPY has done a whole lot of nothing for the last few days.

Can you blame it? It must be tired after the recent climb.

More seriously, with the RBA considering whether to raise rates another 25 or perhaps even 50 basis points, I don't expect any type of calamitous drop.

I think we might see a drop down to 83.00 again but if it does stop in that region I'd consider the range between there and 84.30 to be a consolidation zone. Again, given the interest rate decision in the near term future I'd eventually expect more upward movement as long as there is not an RBA based negative surprise.

Your mileage may vary.

UPDATE: Wednesday after 10:00am, we have an apparent AUDJPY breakout... currently at 84.50 and testing the underside of our previous support channel. I'm hoping that we reject 84.50 a few times before crossing -- as that will help my trading robot better take advantage of the movement.


See what I'm talking about? You can go back through a few previous posts to get a wider view of recent events.

Sunday, October 18, 2009

Possible AUDJPY Reversal Point

I obviously have no guarantees but, according to my own proprietary reversal indicator, this is a potential reversal point.

Again, do your own homework, but this is the "signal" I'll be posting to my alerts blog...

UPDATE: It's about 9:49pm and the AUDJPY 1hr chart is showing a potential twin tail.

UPDATE: It's 10:03pm and here's the 1hr chart right now...


And here's the chart from my last post showing the 3hr trend channel.


I don't know if we are going to stay in trend, but I wouldn't expect a straight drop through a support line that has been in effect for so long.

AUDJPY: October Trend

The AUDJPY has been on an upward trajectory for a while now.

There is no telling, at least not in advance, whether we'll see more massive upward movement due to hawkish statements from the RBA or not.

However, here is a 3hr chart showing recent movements:


Obviously, clear support and resistance helps identify some lower risk entry points.

Saturday, October 17, 2009

New Robot Rules Fermenting

It's late Friday night, the markets are closed, and all through the house not a creature is stirring. Well, nobody but the scheming trader hatching up another robotic system.

As someone who designs software systems for a living I can assure you that, in terms of making improvements, nothing is more helpful than watching a system in action. The key point here is the concept of "seeing" the results. While this arena is a bit of a different animal I've always been proud to claim that if I could see the problem I could fix it. You see, no matter how complex the problem there is usually something along the lines of a paradigm shift which greatly changes the nature of available solutions.

So, at the end of the week, when I'm not at work, I can review charts, apply various indicators, and see how various changes might affect trading and earnings. During the week I can see or hear positions open and close and watch the daily results tally up. Simple but powerful stuff.

Anyway, the thing that is keeping me awake at night, in a good way, is a relatively easy way to increase the profit per trade. I believe so anyway. Hopefully we'll find out next week... as I'll be developing this new ARTFAB robot pronto.

I do already have a robot trading at an average return of 1.2% per day over the last five weeks (BREAD - basic robot earning all day) but I've set an aggressive stretch goal of averaging 2.5% per day. BREAD just isn't going to get there. Assuming that other people have done much better than my paltry goal really gets the creativity flowing -- as you simply know it's possible if others have done it. There must be a way to get there while strictly controlling risk levels.

I'm sure there are many ways. I intend to find one of them.

Friday, October 16, 2009

Meteoric AUDJPY Rise

I'm starting to get more than a little cautious about the stellar increase in the AUDJPY over the last several days.

While it's true that markets can continue to move higher or lower for long periods of time it's important not to get too caught up in recent events. In fact, though we all react to these things at different rates, you can consider it a warning whenever there is something to get caught up in.

Insidiously, it is often those things that happen over a very long period of time that we forget to take notice of. For example, the smart phone has been growing in leaps and bounds and will probably do so for years, but at some point it is likely to turn into the next PC. If you haven't noticed PC's are now relatively cheap commodity products which leaves PC makers turning to the service sector in an attempt to fuel continued growth.

In any case, this is a point at which I have to resist ramping up the aggression factor in my trading robot... and the notion that it might be a good idea to take a bigger bite out of upward movement needs to serve as a warning to me.

Wednesday, October 14, 2009

Recent Forex Results

I've had some success analyzing the AUDJPY over the last few days. In particular, whether by luck or otherwise I managed to spot some channels, one of them an apparent bull flag, a wedge leading to 82.00 and then predicting a breakthrough beyond that level.

It's very rewarding to make an observation and then have results conform to your expectations.

Anyway, I'm still letting my robot do my trading for me. It's earning north of 1% per day and I continue to make minor tweaks in an attempt to push the appreciation rate closer to 2% if I can.

Recent tweaks involve looking at various stochastic values in order to adjust position entry scale to some degree. Obviously, as the robot only opens long positions, the idea is to open less positions during periods of strength and more positions during periods of weakness.

It's never as simple as it sounds.

For more radical tweaks or outright departures from the main trading robot I'll strike out with a small amount of capital in a new account. I have one of these experimental robots running right now. It's very heavily tweaked.

I've got another radical, but simple, idea in the wings. It will have to wait until next weekend so that I'll have time to implement it.

Tuesday, October 13, 2009

AUDJPY: Possible Bull Flag

My last post focused on a short term channel.

This time I'm looking at a longer term trend -- though still on the 1hr AUDJPY chart. This one looks like it might be a bull flag.

It's always hard to tell. However, with future interest rate hikes expected, it's likely we'll continue our upward movement if signs of an Australian recovery remain strong.

Here's the chart:


Play safe.

UPDATE: It's 7:00am the next morning... and our chart now looks like this:


Any other AUDJPY traders out there? If we pull back near the top of the possible bull flag channel that would potentially be a good entry point. I'd expect a bounce off of 82.00 as it's a recent and long term high as well as a psychological point.

UPDATE: Pennant? Flag? It's still bull... ;)

AUDJPY: Channel on the 1hr

There's a channel on the AUDJPY 1hr chart.

For as long as the channel decides to last we have an opportunity at either the top or bottom levels.

Notice it going back and forth?

This is perfect for my custom trading robot...


Unfortunately, predictability never lasts.

Well, that was nice. It's about an hour and half later... see the bounce? Click the image to get a larger version...


Are we going to make it back to the top?

UPDATE: It's approaching 9:15pm. Here's a 15min chart showing the latest action and a channel support challenge:


I'm guessing we break downward. I'm not betting on it though.

UPDATE: Around 9:40pm... and we are out!

Monday, October 12, 2009

AUDJPY: 3hr A/D Trend

Here's a snip showing the accumulation distribution on the AUDJPY since the 2nd of October.

The recent test of the support line happened today near 2:30pm. Obviously, the fact that the RBA appears to be ready to continue a series of interest rate hikes appears to be driving this.

AUDJPY 3hr A/D
I'm looking for this line to break.

UPDATE: It's just after 6:30pm and I figured it might be nice to get a larger look at the situation (so it's easier to tell whats happening).



Notice the last minute downward motion on the A/D? I'd like it to hold and continue upward... but I continue to watch for the break.

UPDATE: It's almost 7:00pm. It looks like a break may be in progress. We'll have to see what happens prior to the end of the bar.


This may presage a correction in the AUDJPY. I'm putting my AUDJPY trading robot on a short leash.

UPDATE: It's approaching 7:30 and we get a different look right now.


The robot is staying on that short leash for now...

UPDATE: It's now 3:00am on the 13th of October. We're still treading just above the A/D support line.


I've noticed people tweeting about opening short positions. It might be best to wait until the A/D support line provides a signal.

Robot Upgrades: Preliminary Results

On weekends I like to either tweak existing robots or create new ones. While it's very early in the process I think the most recent tweaks are going to have a noticeable positive effect.

I woke up around 4:00am this morning and thought I'd check on the computer. What did I see? A nice AUDJPY move from 81.10 to 81.50 for now. Anyhow, this weekend's tweaks were operating on the dip and return.

Returns are clearly higher over this move than they would have been without recent changes. This is great news. Something as apparently minor as pushing average daily returns from 1.2% to 1.4% would have a huge effect on compounding.

Anyhow... let's wait and see how things look by light of day.

Friday, October 9, 2009

BREAD's Trading Results

Yes, for lack of a better name I am calling my robot BREAD. This is short for Basic Robot Earning All Day. It has been given minor tweaks from time to time but it still continues to follow the same system and strategy... taking advantage of constant price oscillations in the AUDJPY.

While the results don't look all that spectacular I invite you to investigate how this ends up in a compound interest calculator. And, finally, the results for the last four weeks are:

    ReturnDay
    0.1900%Sun 13 September
    3.2339%Mon 14
    3.1616%Tue 15
    3.2615%Wed 16
    2.1510%Thu 17
    0.4442%Fri 18
     
    0.1850%Sun 20
    2.0259%Mon 21
    0.9016%Tue 22
    1.1536%Wed 23
    0.2460%Thu 24
    0.1338%Fri 25
     
    0.0000%Sun 27
    0.1900%Mon 28
    0.6862%Tue 29
    2.3444%Wed 30
    0.3317%Thu 01 October
    0.7376%Fri 02
     
    0.7311%Sun 04
    1.0346%Mon 05
    1.0587%Tue 06
    1.9310%Wed 07
    1.6854%Thu 08
    0.9897%Fri 09
So far the average rate of return over the life of the robot is ~7.20% per week. I'd like to make improvements but it is difficult to make changes that don't have unintended consequences.

Thursday, October 8, 2009

Skeptical About The AUDJPY?

I'm sorry you feel that way. Perhaps after looking at the following chart snip you'll think that you may have missed the boat.

See how the daily chart shows solid support since March? March! Hello, it's a little too late to be skeptical. The question you have to ask yourself is why has the AUDJPY been performing so well and how long will it continue to do so.


On another note, I'm going to start posting "signals" to a companion blog soon... perhaps as early as next week. I've already created the blog. These won't quite be signals but they will be alerts suggesting points of opportunity.

Wednesday, October 7, 2009

Beating The AUD Drum

Did anyone notice this AUD tidbit?

Unemployment fell to 5.7% from 6.0% against expectations of no change. The extremely strong job number will cement expectations that the RBA will continue to hike rates and perhaps be more aggressive in doing so.
If you been following my blog this isn't going to be a surprise.

As my last post said... buy on dips.

Tuesday, October 6, 2009

Buy AUDJPY On Dips?

It's very plausible that the RBA (Reserve Bank of Australia) has started the slow process of moving interest rates from emergency levels to normal.

We'll want to see what happens over the next couple of months in order to confirm this analysis. However, from now on whenever the markets are panicked about the latest downward surprise, it might be time to dip your toes in.

We're staring at the bottom of a long term AUDJPY carry trade cycle.

I know that Japan has made some noise about not wanting a weak dollar -- but you have to look at the size of their debt load before you start to worry about them being willing or able to withstand high interest rates.

The recently touted alternate carry trade, consisting of the AUDUSD, is much more precarious in my opinion. It's great in the short term. However, in the longer term, perhaps a year or more, I think you'll find the greenback starts to get supported by higher interest rates. How else will the USA entice foreign entities to continue to buy and hold debt once the worldwide spate of risk aversion fades?

Personally, I think this is a good time to raise capital and slowly work on getting carry trades protected by an in-profit stop loss. Presumably, over the course of months and years, we should find that 80.00 represents resistance, then perhaps 85.00, 90.00, 95.00 or more. We'll probably have Yen intervention from time to time as well and language designed to scare us out... but if you keep an eye on the fundamentals you can probably view these as opportunities to place more capital into stop loss protected profitable trades.

Also, if I was managing a countries financial reserves I think I'd be looking for currency trading opportunities involving countries that are both economically sound and likely to continue to raise interest rates over the years as inflation gathers steam. The general business cycle is probably not going to disappear this time around either... regardless of all the hyperbole in the mainstream media.

US Economy Heads Up

If you are wondering what is going on with the US economy, this puzzle piece from CNBC will fit in very nicely.

What this is saying is that there probably is not a small business collapse in the works due to credit issues. Smaller businesses will simply wait until they see consumer spending before they bother to access credit.

Personally, I am going to suggest that old habits die hard. For all those that did not suffer unemployment, which will be the majority of consumers, the lure of credit and consumption will be waiting for them once confidence returns. As well, they will have fattened their bank accounts to the point that they won't know how to resist putting some of it to use.

While we do perhaps have a lot of reasons to fear gloom and doom, we also have a consumer tinderbox waiting for a spark. I don't know which one will win out nor do I know how long it will do so. For example, I don't know if the tinderbox can be lit before housing prices start to rise. What is the ratio of renters vs owners?

I do know that the nuggets of information regarding real people, real habits, and their likely actions are few and far between. Too much of the material we read (on CNBC) is very biased by political viewpoints... and you need to find a way to see past that barrier to the good information the partisan baloney conceals.

UPDATE: Wednesday 7-Oct-2009

As a counterpoint, here is another article talking about problems caused by the ongoing lack of various debt-securitization markets.However, I will point out that the title seems a bit broad for the issue at hand. It seems that the article is pointing to the idea of a systemic inability for large lenders to resell their lending in order to enable more lending.

Perhaps the fact that these institutions, and their rating agency cohorts, have just burned half the planet with their prior recklessness is one reason that purchasers of these products are a bit gun shy?

Monday, October 5, 2009

Robot Strategy / Development

Without getting into detailed specifics I thought I'd try to answer a recent question about the strategies I'm trying with my various robots.

First, a bit of background in case this is the first post you see on this blog:

  • I design software and systems for a living
  • I've been trading for years -- learning through the heart of the downturn.
With that out of the way I'd suggest looking at one of my posts about microtrading.

You may also want to consider the fact that the Australian economy seems to be doing very well with respect to the rest of the world. I've been pointing that out on my blog from time to time. Also, if you follow AUDJPY as I do, you may notice that the RBA just hiked interest rates by 25 basis points. This bears out a previous post about the long term carry trade prognosis dated September 2008.

Anyway, what this all means is that I'm happy to open long positions in AUDJPY, to some pre-defined level of risk, and then wait for this currency pair to give me some profits. To get down to brass tacks, the AUDJPY trading robot looks for what appears to be decent entry points, perhaps via stochastics and/or moving average crossovers, and then opens up micro-positions.

Sure, often the robot is wrong for some period of time. Who cares? With confidence that the AUDJPY will eventually rebound, and/or pay decent carry trade rates, it doesn't hurt to wait. Besides, when the robot is wrong, trades entered at even lower levels can often be closed for a profit, repeatedly, prior to a later price rise allowing the short-term carry trade to be closed for a profit.

In case you are thinking this sounds like throwing darts here are a few of the strategic points that guide this strategy:
  • The fundamentals over the next period of years points to a rising AUDJPY.
  • A future period of panic is unlikely to exceed the unwind that occurred during the recent financial crisis.
  • A rising AUDJPY will eventually allow any position to be exited profitably during a new high.
  • Using microtrades allows frequent trading within precise levels of accumulated risk.
  • Adding logic to enter positions at what will often be an opportune time greatly improves the odds of taking profit from a position quickly.
Another robot, currently experimental, trades the EURCHF. The idea here is that this currency pair is relatively stable compared to some others. Here I'm basically trying to play a mathematical game. If one were to open a very small long or short position every few moments the price would eventually make at least one trade direction profitable.

The reason this is interesting is that you can define the rate of return you want. Trade N positions at size S per hour at P pips profit and you will earn $D. Of course, it isn't so simple, but that's where the challenge lies. How do you keep from accumulating all your long positions at a recent top and all your short positions at a recent bottom? How do you keep from accumulating positions during a lull in price movement? How can you goose profits during active periods to make up for price movement lulls?

This thing is a work in progress, is not significantly capitalized, and probably is a pure dart throwing exercise. However, it does keep me busy. This is important. If I don't keep busy I'll worry too much about what's happening in my AUDJPY sub-account and either make discretionary trades or tinker with something that is already working well enough.

Anyway, all strategies face the same basic issues. These include:
  • Prices will eventually move up and down in varying amounts.
  • Accumulation of positions incurs increasing levels of risk.
  • Avoidance of risk decreases maximum theoretical gains.
  • Carry trades have long term pressure supporting the carry trade.
  • Carry trade pairs have periodic unwinds.
  • Long term economic fundamentals are plainly visible to all but very often misunderstood.
Traditional robot development is based on the same concepts as discretionary trading. Find a high probability entry point, based on risk versus reward, set an appropriate stop-loss, and then wait to see the result.

In a nutshell -- my current robot strategy is to look for long term predictability and then try to take advantage of that predictability as often as possible using small individual units of risk.

A final word of advice. If I'm wrong about the AUDJPY, and it doesn't have a long term rising trajectory, then I'll have an unproductive robot sitting on some carry trades. Similarly, if you decide to take advantage of a longer term trend, make sure you have a solid basis for your predictions.

Saturday, October 3, 2009

AUDJPY Roller Coaster

Generally, I follow and prefer to trade the AUDJPY. It goes through unwinds from time to time as the bigger players suffer fits of risk aversion.

For the last few weeks we've been bouncing back and forth between 77 and 80. On the way down, with all the gloom and doom blaring in the media, it feels like we must be about to fall off a cliff.

It's difficult not to be scared. After all, anyone who was trading during the last couple years knows very well what it feels like to fall off a cliff. Ouch.

However, it's precisely when everyone is scared that prices adjust too much. How do you know when to get in without trying to pick the bottom? You get in when you have a strong resistance point. You can enter your trade, conditions permitting, and set your stop at a safe distance below the resistance point. You get in when you know there is a large potential upside and a low potential downside.

With all my work on robots I haven't been doing much discretionary trading lately. In a strange way, this is helping me develop patience.

My personal take is that we're going to have variability in the global economic recovery. Some portions of the world will contract while others expand, and then we'll probably get oscillations between those regions. This means that the roller coaster may be the main mode of the markets until everyone starts to settle down and stop pressing the panic button. This could take a very long time.

However, this is great news!

The roller coaster is a great place to trade. As long as you are only trading appropriate amounts of capital per position you have the ability to earn every time we get another cycle of exuberance and fear.

As long as we have people in both camps, gloom and doom vs surprising growth and strength, then the markets will be a great place to be. Just keep an eye out for anything that truly is a disaster in waiting.

In particular, I think we are at a point where different segments of the trading world exhibit different behavior. For example, Australia and Japan exist in a different economic climate than the USA. It's quite possible that traders in these regions, especially those not too tied to US events, won't be feeling risk aversion.

Similarly, sections of Europe seem to be recovering nicely. I can see that many regional traders would not be overly risk averse, in general, and that carry trade strategies might be entertained. For example, China and India are becoming more important in terms of world trade and they don't seem to be necessarily synchronized with the US.

This is another reason for our roller coaster. We may get different directions on the risk trades (carry trades) based on which financial center is generating most of the trading activity. Yet another reason to expect a choppy ride.

Related reading... yahoo finance.

Saturday, September 26, 2009

Forex Robot Mania

As suggested in my last post...

As a side note, I'm planning to make opposing robots this weekend. They will trade long and short positions in different sub-accounts.
I've put together yet another robot. It will trade the same currency both long and short in separate sub-accounts. I'll have to wait until Monday or Tuesday to activate it.

A few points I feel are worth mentioning:
  • I've been developing software and systems for my entire career -- I don't expect everyone can just snap together trading robots.
  • There are rate limitations, position size limitations and margin use limitations built into a common framework used by all the robots I'm putting together.
Anyway, each robot I make has customizations in several areas. Basically these all involve trade entry and exit conditions -- which can range from very simple to very complex.

Here is a chunk of common code used in each of my robots. Basically, I call the set of information relating a sub-account and a currency pair a trading context. Here is part of a function that gathers this context:

// ***************************************************
// Given strings representing the account to trade and
// the pair to be traded generate a trading context.
// ***************************************************
function getTradingContext(useacct,usepair)
{
// Determine account ID from it's name
// -----------------------------------
var acctid = 0;
for (id in accounts)
{
if ( accounts[id].name == useacct )
acctid = id;
}

if ( acctid == 0 )
{
write("Account name '" + useacct + "' not found!");
return null;
}

// Capture sub-account details in the trading context
// --------------------------------------------------
var myContext = accounts[acctid];

Once we have the account details we can determine various trading limitations. Here I use the account balance as well as manually controlled "reserve" and "release" values that determine default lot size and margin limit values:

   // Calculate various balance values for various purposes
// -----------------------------------------------------
reserve = 0.00;
release = 0.00;
bal = myContext.balance;

// Avoid silly mistakes
// --------------------
if ( release > reserve )
release = reserve;

lsbal = bal - reserve; // lot balance
trbal = bal - reserve + release; // margin balance

ls = (lsbal/20) / 100000; // lots size
ml = trbal * 0.099; // margin limit

myContext.reserve = reserve;
myContext.release = release;
myContext.lsbal = lsbal;
myContext.lotsize = ls.toFixed(5);
myContext.trbal = trbal;
myContext.marginlimit = trbal * 0.095;

Before a trade can be made the current account margin usage will be compared to the margin limit determined above. When a trade is made the default size of the trade is the lot size determined above. Some other items loaded into the context are shown here:

   // Capture currency pair details
// -------------------------------
myContext.usepair = usepair;
myContext.pair = pairs[usepair];
myContext.pipsize = pairs[usepair].pip;
myContext.spread = pairs[usepair].ask-pairs[usepair].bid;

// Set a spread limit for various currencies
// -----------------------------------------
myContext.spreadlimit = (4.26 * myContext.pipsize);
if ( usepair == "CHFJPY" )
myContext.spreadlimit = (2.26 * myContext.pipsize);
if ( usepair == "USDJPY" )
myContext.spreadlimit = (2.26 * myContext.pipsize);
if ( usepair == "EURUSD" )
myContext.spreadlimit = (2.01 * myContext.pipsize);

Including the currency pair information, especially the spread, is significant. For example, I do not let my robots trade when the spread is above certain values. This is because higher spreads are generally present when significant news events occur.

Later in my robots, in a function that is called when price changes are detected, I'll have something like the following:

   longctx = getTradingContext("sub1",currentPair);
if ( longctx )
tradeLong(longctx);

shortctx = getTradingContext("sub2",currentPair);
if ( shortctx )
tradeShort(shortctx);

Generally, I'll use short term charts and limit robot operations to the opening of a new candle. This avoids needless processing but how you activate your trading functions is up to you. Notice how I can simply pass the context, as developed above, into a trading function? The trading functions have the job of deciding whether or not to open a position in a sub-account that it controls. It may or may not use all the details available to it.

There you go. While this isn't complete it is by far the majority of a basic robot framework. If you are a programmer you simply have to figure out the trading rules to apply and write one or more functions that embodies those rules. For example, you may want to apply indicators to a chart, examine previously opened orders, or even trigger an email signal.

Hey, as a bonus for reading this far, here is a function that examines current open orders to see how many fall within a price range. Basically, I use this function to make sure that my robots aren't able to accumulate positions around any particular price point. Notice that one of the parameters is the trading context developed above.

// ***************************************************
// How many orders are open between min an max prices?
// ***************************************************
function rangeOrderQty(ctx,min,max)
{
var qty=0;

for (ticket in activeOrders)
{
if ( activeOrders[ticket].accountId != ctx.id )
continue;
if ( activeOrders[ticket].pair != ctx.usepair )
continue;

if ( activeOrders[ticket].price >= min
&& activeOrders[ticket].price <= max )
qty++;
}
return qty;
}

Finally, the previous code is for the FxSpyder trading platform. This is what I'm using to write robots these days. I continue to trade via Oanada.

Friday, September 25, 2009

Friday Market Analysis

I am following CNBC regularly (via their web site) these days. I see many of the pundits advocating panic and doom. I suspect they all want to be able to claim they were right when we finally do experience some type of pullback.

However, these braying naysayers of doom really don't have much of import to say. All they really do is act as large forces on the emotions of market players. Everyone is appropriately skittish due to the massive bear movements over the last year or more. It's only natural.

All of these fools who only imagine one direction for the markets will be right from time to time. What they say is not important. What's important is to understand the volatility, or level of price fluctuation, and the amount of risk that this implies when you are trading.

For example, the odd negative number here and there doesn't mean all that much. This doesn't mean the market won't throw a tantrum, but it does mean that there could be a spate of good numbers in another week or two. These trends have variations in them as well. Perhaps because the media jumps on whichever bandwagon has the most passengers the market sentiment gets rapidly overblown.

So, sure, we could see some type of sell-off coming soon. So what? So, don't risk all your money on the notion that the markets, carry trades, risk appetite, GDP growth, corporate profits or whatever will only go up. In fact, cushion yourself by assuming a mini-panic could be right around the corner. Seriously, hasn't everyone been hiding under their sheets due solely to the fact that we're in September?

What am I going to do? I'm going to move more capital into my account. Any serious downtown represents a good opportunity to scale in. So, let it rain, I'm going to wait until all the overextended or panicked fools get forced out, then I'm going to take a peck at an opportunity here and there. Again, just make sure to nibble your way in at appropriate times.

Remember, fear and downward movement provides opportunity, but only if you don't assume you can predict the bottom and thus assume too much risk. When you aren't being pushed into making decisions by market movements you can make much better decisions.

So, early next week, fresh capital into my account. I can apportion this to my robot trading army (I know, but it sounds more fun this way) in small chunks as we come up to significant resistance levels. Unless the world collapses, and if it does my trading account will be the least of my worries, there will eventually be another upturn.

As a side note, I'm planning to make opposing robots this weekend. They will trade long and short positions in different sub-accounts. I expect that one of the two will be earning during up or down movements. I expect both of them will earn during periods that the market is moving sideways. You can't see it but I'm rubbing my hands together in a greedy manner -- think Mr Burns.

Good luck out there.

Thursday Robot Recap

Thursday was a very slow day.

The market was down. The yen crosses took a dive. Everyone is getting antsy about stocks, news reports, and the month of September. OMG, the risk! My robot snoozed for much of the day and had little chance to earn anything useful.

However, amidst all the whining I have to realize that being up about 4.5% for the week isn't so bad.

Regardless, I did tweak things a tiny amount. Basically, the idea is to keep the robot trading for a while longer during downturns. This can be done by shaving a little bit off of positions and forcing a little bit more space between trades.

It seems like a good trade-off. Earn a small fraction less during good days but enable more trading on poorer days. If things don't work out it will be very easy to reverse these minor tweaks.

I also created a new robot this evening. Of course, it's based on the current system, but somewhat simplified. It's running on it's own sub-account with a tiny amount of capital. So, rather than attempting major adjustments on something that is already proven, I'll once again get into an A/B situation and see if there is a clear winner between the two.

On another note, I'm wondering how simple a robot can be and still be effective. Something to ponder as I drift off this evening.

Thursday, September 24, 2009

Wednesday Status

Wednesday was a slow day.

The AUDJPY was very quiet, which left little opportunity for my robot to extract revenue. In fact, with the DOW drop at the end of the trading day today we may be looking at a bit of a downward correction over the next little while.

My robot is not very active during downward movements. So, I'll get bored, worry about long term profitability, and otherwise be motivated to "do something" or "fix something" when I shouldn't. I must resist!

Anyway, while today was very slow, my currency trading robot did pull in 1.1% with over 4.3% for the week.

On a different note, I need to name my trading system. It would be nice to call it something other than "robot" every day. I could name it ARTFAB (A Rising Tide Floats All Boats) or something? Hmm, maybe FARTBAD or BADSINE?

Hey, BREAD might work... Basic Robot Earning All Day. Okay, tentatively, BREAD v1.0 is on the job. Unfortunately, bread is pretty passive, getting sliced, diced and toasted regularly. Zzzzz. I'll sleep on it.

Tuesday, September 22, 2009

Monday Robot Review

If you are a new visitor I should let you know I'm reviewing my own proprietary forex robot -- I'm not providing a general review of robots.

The Good
Profitability continues. Sunday evening the robot earned 0.2% and over the course of Monday it earned 2.0% return. It's not obvious, but when capital is added to the robot old smaller positions provide less return when closed profitably. This means that it will take a little while to flush out those old trades and get accurate profitability numbers.

The Bad
The newly added meta-trading aspect didn't work. Well, I was able to get meta-trades to open in a separate account, but the platform hung after each purchase. I don't know if it's a platform issue or if I did something inappropriate with my code. Perhaps next weekend I'll have a chance to ferret out the details.

The Pending
The robot hasn't yet been in a situation where it has had to stop trading due to accumulated risk. So, at this point, I haven't had a chance to test the notification system under live conditions.

Sunday, September 20, 2009

Weekend Robot Development II

While not fully tested, as the market isn't open for trading, I have also completed both the meta-robot concept and a notification system.

The meta-robot will look at the trades made via the current profitable robot and impose rules that require trades to open at a better price. The required difference, in pips, will be divided in two and added to the meta-robot's take profit point. For example, if the existing robot makes 6 pips on a position then the new meta-robot may open two pips lower and require a take profit of 7 pips.

The combination of a lower entry point and a lower take profit point imply that the meta-robot will always get a better deal. It will also have a higher chance of getting out of it's positions faster. Heh, nothing wrong with making pips faster! Of course, this also implies that the meta-robot may have less ability to open positions as better priced positions may not always be available. There is a bit more complexity to it but I won't bore you with the details.

Anyway, as usual, real life trading will tell the real story.

Finally, the notification system is implemented as a request to a web site. The web site will be able to look at the request parameters and decide what to do. For now, the web site does nothing interesting. Once I've seen the system in action for a while, and I decide it's working well and that it's useful, I'll see about putting more effort into a delivery system.

Saturday, September 19, 2009

Weekend Robot Development

Now that the weekend is here it's time to put on the thinking cap and figure out how to increase earnings, reduce risk or both.

As mentioned in a reply to a comment on the previous post I've reallocated funds, put in a reserve amount and added a manual release amount.

The reserve amount holds back capital from the lot size calculation and the total margin available calculation. This capital is ignored such that the robot acts as if it only has balance - reserve under management.

The release amount, if any, adds capital into the margin available calculation but does not change the lot size calculation. The purpose of this is allow a series of discretionary actions to reactivate the robot once it has stopped trading due to an extended period of unhelpful price movement without adjusting the risk per trade.

The amount of capital released can be reduced as the price moves in a profitable direction. I'm also hoping that the robot will earn above it's target rate so that some capital can be painlessly shifted to reserved status each week.

Unfortunately, all of this might make it harder to report standard profitability numbers. Whether rightly or wrongly I'm going to use the unreserved capital balance as the measurement value of the account. It's what the lot size is based on and I intend to grow that amount X% per week. I'll also be using that value for my theoretical compounding calculations.

Remaining on the burner are concepts such as the meta-robot and email notifications to be issued when the meta-robot identifies various conditions suitable for discretionary decisions. If these turn out to be useful I might even set up some type of free mailing list.

Wednesday, September 16, 2009

Forex Robot Wars

As you can see by my last few posts I've had a couple of trading robots slugging it out for the last few days.

I'm happy to announce that the latest robot has absolutely thrashed my initial robot. Here are the recent earnings for this week:

    Sun 0.19%
    Mon 3.23%
    Tue 3.16%
    Wed 3.26%
Obviously, I'm going to retire the previous robot, which earned at an average pace of approximately 0.5% per day, and allocate it's funds to the newer robot.

The next question is... can I find ways to improve this robot's operation? I'll have to think about that.

UPDATE:

I do have an improvement idea. Basically, use the trading and positions of one account to act as signals for another account. This way you can spot the inefficiencies in one and adjust for them with another -- while coding for them directly might require much more effort.

I foresee a second robot that would open less positions but at a higher rate of risk. It could potentially have better performance characteristics based on what I'm seeing happen on my charts.

Maybe I'll dub this concept "meta-robot" in the event that I eventually build it and post about it.

Monday, September 14, 2009

Two Live Robots

Sunday evening I unleashed another trading robot.

Here's how I set up my sub-accounts to do this in a reasonably safe manner.

  • My initial or primary account is used to add or remove funds.
  • Each robot trades in it's own sub-account
This let's me track the returns for each robot in a trivial manner. It also means that each robot is 100% independent.

If you do this be sure to name your sub-accounts in a neutral manner. Personally, I'd be tweaked if I ended up with names related to robots that were eventually no longer in use.

Now that I have multiple robots I can do A/B testing between robots, under various conditions, and then scale funds into the robot that seems to be working best.

What are the results?

Currently, since last night, my new robot has about five times the return of my older robot. It's already over 2% for today. However, I do expect that this robot to be unable to trade in conditions that the slower robot is able to exploit. I have a turtle vs hare experiment here.

For those of you who may be new to my blog I trade with Oanda. I haven't purchased their API since I am using the FxSpyder platform for that instead. The FxSpyder software still has a few rough edges but I am comfortable with it. Finally, for discretionary trading I still prefer the Oanda platform.

Update: This robot finished up over 3.2% today!

Saturday, September 12, 2009

Oanda Robot Trading -- Cost Efficiently

If you are trading with Oanda, as I am, you are probably aware that you have to trade a fair amount before their monthly API fees are waived.

However, there is an alternative. The first time I tried their platform, probably shortly after it was released, I didn't find it very inviting. However, about a month ago I tried again. Guess what? While I might not use the platform for discretionary trading it seems like a good option for robot trading.

Which platform am I talking about? FxSpyder of course. While using FxSpyder with Oanda isn't free the cost is much less than Oanda's API fee.

FxSpyder connects to your Oanda account and can be used as a manual trading platform. While you won't find it exactly the same as what you are used to, that has no bearing on whether or not you'll be able to use it for robot trading.

Now, don't get all excited, robot trading doesn't seem to be the way to instant riches. Well, at least not with the robot that I've written and am trading with. At the moment my average return is about 0.5% per trading day -- this includes the partial trading days on Sunday and Friday.

Compared to traditional investments this represents a ridiculous rate of return. Assuming 20 trading days a month that would equate to 10% per month, compounded. I'm working on improving this but find that it's harder than it sounds. This is partially because my work and family duties keep me far busier than I am used to.

In short, I've got ideas but little time to implement them. Some day I hope I'll be able to transition to trading, or at least tweaking my robots, as my full time job. It would certainly give me back a lot of my time.

Thursday, August 20, 2009

Robot Trading

I'm finally trading my own proprietary forex robot.

The best part is that I have the sound of money chiming on my computer at work every time I have a position closed due to reaching it's take profit price.

Anyway, no, I have no other hype to push.

What I do have is the power of the robot mind to watch the market 24 hours a day. What do I mean? I mean that as long as my computer stays on and connected I have a trading system that has no emotion, does not tire, and never misses a single moment of opportunity.

It's late... I'll post again in the next few days and provide more details.

Tuesday, July 14, 2009

Recent Forex Efforts

Since the recent yen cross meltdown started I've been trying to keep from getting caught on the wrong side of any massive downward moves.

As I generally trade only the AUDJPY, mostly on the long side, things have been pretty quiet!

However, we are now facing some resistance at 74.50 on the 1hr -- which should be illustrative. We have done what might be a triple bounce off of support in the vicinity of 70.90 or so too. I'm thinking we may have another downturn to confirm support but we could certainly get right back to business without it.

In any case, as the market is starting to act rational, I'm just about ready to start trading according to my own particular style.

Tuesday, June 30, 2009

Monster Scalps With AUDJPY

I've been shamelessly scalping the AUDJPY this week (via Oanda). It may be hard to fathom, at least when you see the numbers, but I'm not entirely happy with my results.

Jun 28: 00.28% NAV+
Jun 29: 06.65% NAV+
Jun 30: 11.66% NAV+

So far this week, if I can hang onto it, I'm up over 19% on my trading account.

Now, you may be wondering why I'm not satisfied with my trading. Basically, I've made too many mistakes. From time to time my discipline is lacking and I jump into a position at what is realistically an unwise entry point.

This keeps me from capitalizing on later opportunities until I've extracted myself from the position foolishly entered. It also subjects me to a lot more stress while I wait out moves on a larger timeframe.

Anyhow, I've decided to quit fooling around, scalp myself a decent stake, and get serious about trading. Now, if I can just work out my discipline issues I'll be set.

Monday, June 29, 2009

Alert: AUDJPY Head And Shoulders?

I've spent most of today scalping the AUDJPY (on the long side).

Jumping up to my 3hr and 4hr charts, as I have two platforms running, I see an upside down head and shoulders.

You may want to take a look at this and see what you think.

Saturday, June 27, 2009

Back From A Trading Break

Well, it's been a while since I posted. Things have been hectic, but I did just take a short vacation. No running water. No cell phones. No internet. No trading. There were, however, lakes and fish.

I think I'm ready to do some serious speculation at this point... as long as the market behaves.

Hopefully I'll soon be posting and tweeting up a storm!

We'll see.

Thursday, May 28, 2009

Long Term Carry Trade Fundamentals

While reading a recent CNBC article about current events something clicked for me.

Here is the passage:

The dollar rose broadly on Thursday as yields on 10-year U.S. government bonds jumped more than 50 basis points in the last two weeks, drawing Japanese investors into overseas assets like global semi-conductor stocks, banks and U.S. junk bonds, according to Reuters.
Do you remember the massive unwinds that occurred during the past year? Do you remember all the talk about money heading towards Japan due to risk aversion?

Pay attention, this is significant. It's also backs up my much touted long term notion that carry trade currency pairs are in for a recovery.

Given the quote above what do you think will happen once the jobs numbers start to turn around in the US economy? I'll tell you what I think. I think interest rates and yields will start to rise. What do you think all that money sitting in Japan will do if there is a hot US economy paying good yields? I suspect that it will leave Japan in order to earn good returns.

Guess what that will do to the Yen? That's right, it will drop like a stone. When that happens you'll see carry trading pairs rise massively.

Okay, I realize this may be a year to two away, but as long as we do eventually get a worldwide economic stabilization this is what is in store for us. Anyway, if you are a rookie, be careful, as you can't simply make long term bets willy-nilly. The market can always move against future expectations long enough to blow up your account and it often does so as soon as you throw caution to the wind.

What this means for me is that I may be more willing to accumulate carry trade positions at moments of opportunity. Keep an eye out for fundamentals and watch leading economic indicators such as the Baltic Dry Index or the price of copper.

As you can see these indexes are rising. However, they are still at historically low levels. Are we just in a bounce with respect to worldwide economic activity or are we simply coming up from a recent bottom? You decide.

Twitter Forex Tweet Strategy

Have you been following people involved in fx trading on twitter?

Have you noticed how many people are happy to tell you what happened? While macroeconomic news and previous day post analysis can be useful, it certainly doesn't help you make a trading decision based on current charts.

I have a little proposal to make.

Instead of tweeting that you've opened a long or short position provide some information that other people can use to apply their own strategies. Frankly, I don't care what crappy decisions others are making. I care what the charts are saying. I'll do my own technical analysis and decide on my own trades.

So, tell me that a pattern is forming on a named pair's chart in a certain timeframe. For example, right now the AUDJPY is retesting May highs of 76.00 and obviously this is true on any chart -- though you may need a longer chart to actually see it.

Then, I can whip open my chart, draw some lines, figure out a strategy, and trade on the opportunity.

To summarize, we need to tweet about opportunities that are shaping up. We need to just drop each other a note that something is happening. Anybody who has traded for any length of time can figure out what to do -- but unless we have the luxury of trading full time we just can't spot all the opportunities.

In short. Smarten up and stop trying to show the world how damned smart you are. We don't care!

How about we call this the Useful Forex Tweet Agreement (UFTA).

UPDATE: I've tweeted the AUDJPY information (again) using the #ufta tag...

Forex Tips - Microtrading

The AUDJPY currency pair is currently trading around the 76.00 mark.

Over the last twenty days, from May 7 through May 27, I've been experimenting with a concept I've been calling microtrading.

I don't intend to close all of my positions at the moment, but if I did my account NAV would increase by more than 10% over that period.

While I realize that active trading can return spectacular results compared to a paltry 10% it does require a lot more effort and time. Personally, my full time job and other issues have my complete attention. I don't have the luxury of time or the mindset to take larger risks at the moment.

Anyway, open up your trading platform and I'll walk you through the process of trading this strategy.

1) On May 10 we topped out around 76.00 on the AUDJPY pair.

2) Based on my account size I could safely open long positions for every fall of 20 pips. This isn't the goal but it is the maximum density of trades I'd allow.

3) As the price of this currency pair dropped to around 70.50 on May 15 I would accumulate positions based on the previous point. Basically, when you see what looks like a support point or if the price moved down a lot while you were at work or sleeping, then you open another micro trade.

4) When any one trade has more than 200% profit with respect to margin committed and you believe you are at a resistance point, consider unloading it.

5) Be patient when the market moves sideways. In terms of serious monetary strategies a week or a month is not a long period of time. Keep in mind that you are trading a carry trade pair so you will be paid to wait.

6) I firmly believe that eventually the AUDJPY pair will recover strongly. I'm willing to hold positions for long periods of time as I wait for this. If you don't believe this or you aren't willing to wait, then this strategy may not be useful for you.

Using the above method, with almost zero stress except for impatience during several weeks of sluggish movements, my trading account never committed more than 6% of it's NAV (using 50:1 leverage which is the maximum at my fx broker -- Oanda). However, this morning, as I've stated above, I could close out all my positions at a 10% NAV gain.

This is a simple trading system, though purists may balk at calling it a "system" due to its loose definition. Wait for a drop and buy tiny positions. Capture large profits when they present themselves. Be patient and don't accumulate too large a portion of your NAV. I'd definitely recommend using Oanda due to the ability to trade any size positions and the fact that you can't trade with extreme leverage.

Tuesday, May 26, 2009

FX Trading And Analysis

I've become a little frustrated with most of news sources out there. If you've been an active forex trader for any length of time you'll notice that talking heads are always trying to tell you why something happened.

That's really nice, and might possibly help you learn about various financial interactions, but it's absolutely useless from a trading point of view. If you are trading you need to figure out what's going to happen -- not what just happened. Check out this video (complete with atrociously low audio levels).


This type of analysis is unlikely to help you with your fx trading tomorrow. Generally, how the markets will move tomorrow, based on tomorrow's news, is not something you'll get from any of the gurus and talking heads.

On the other hand useful analysis will be too slow to be meaningful. For example, I'm very confident the world economy will eventually recover. When that happens we'll have a period of high interest rates as rising commodity prices drive inflation. Guess what? This will mean that carry trades pairs will end up at much higher prices. Unfortunately, I can't tell you when the world is going to focus on this. Generally, not before the money moves from wherever it is to wherever it is finally going to end up.

The closest thing to predictive analysis, or something you can really use to drive your forex trades, is technical analysis. Charting. Something which gets very little respect in some circles. Many people don't understand it and many others discount it because it isn't able to make perfectly accurate predictions. Technical analysis does not have to be a perfect tool for prediction. It merely has to increase the odds that your fx positions end up earning you a profit.

Tuesday, May 19, 2009

Microtrading: Decent Returns?

I blogged about this idea not too long ago. The concept is to use very small trades relative to your available margin and net asset value (NAV). I'm doing this with the AUDJPY pair so that when I accumulate positions I am earning a positive carry trade return.

My trade size over the last week has been such that the margin involved in each trade is 0.2% of my NAV. That's tiny. Twenty five trades in and you are looking at using 5% of your available margin.

However, the carry trade interest would represent approximately a 3.65% return if annualized. At the same time my unrealized profits had me up almost 4% earlier this morning. This 4% unrealized profit is due to only the last 10 days of trading. We've had a downturn, I've accumulated positions, and the AUDJPY has jumped just recently.

Anyway, I hope this demonstrates that short term scalping is not the only way to earn money using forex. While this concept won't make you rich overnight the risk is very low and the returns can be good compared to currently available financial instruments.

Wednesday, May 6, 2009

Theory: Trading With Little To No Margin

As I often do, especially when the markets are excruciatingly slow in determining when to make the next significant move, I've been thinking about Forex.

Take a mental walk with me...

The DOW falls from 10,000 to 5,0000 and loses 50% of it's value. It returns from 5,000 to 10,000 and gains 100% of it's value.

Wait, think about that for a minute. In the normal world having the ability to gain double digit gains, per year, is considered excellent.

If you are confident that an upward cycle will eventually happen, in a suitable time frame of course, then movement is valuable. If you aren't trading on margin, and you don't have the associated risk, then you can afford to look at each dip in price as an opportunity.

While this may be applicable to the DOW, it is ever more applicable to the Forex markets. If you are trading with little or no margin it's simply a matter of scaling your entry and exit based on price moves. This is very similar to the gridding concept that I posted recently.

However, when the margin is gone the risk is gone. You choose the price range you expect and scale your entry and exit points within it. If you must, you leave some positions in place while you recapitalize to attack another range. In fact, perhaps you simply allocate a set number of dollars per thousand pip trading range. If the price falls into a lower range you simple ante up and play within a lower range -- while your higher range positions provide interest income.

However, keep in mind, it's possible that currency pairs adjust interest rate differential. This could erode or reverse the suitability of holding a pair over a long period of time.

MT4 EA: Average Position Based Trading

While I don't have any pictures to show, yet, I am working on an EA that trades AUDJPY based on the market price relative to the average price of positions held.

The first few passes at this type of system were pitiful. My testing starts from September of last year to now while only opening long positions. As you can imagine this is a difficult period of time for a long only system!

However, late last night I was able to complete a test that showed profits.

The strategy behind this EA is basically as follows:

  • If you've just seen a recent downward movement open an initial position.
  • If the price is high enough above or below your average order open price, open another.
  • If the current price is above your average price close your lowest and most profitable position.
  • Try not to open any position while in a downward movement regardless of the above rules.
Obviously, the last item mentioned is not simple, but it is the key to account survival. If you open too many positions and the market falls too far you will get a margin call.

As ever, I'm basically using the AUDJPY for this. I am interested in strategies that can accumulate a safe quantity of long positions such that they pay me to wait for the eventual upturn.

I'll provide updates once/if I'm able to get appropriate results.

... continuing ...

Here's a chart showing this:


Notice the wicked looking draw down during challenging periods of AUDJPY decline?

Friday, May 1, 2009

Theory: Gridding Microtrades

I've been thinking about grid based strategies designed to take advantage of volatility without incurring great risk.

The idea is that the strategy be followed using a carry trade pair in the event that you do inevitably end up holding some positions. You'll want a platform with a decent spread. Oanda often has about a 3.0 pip spread on the AUDJPY pair -- my current pair of choice.

So, let's start with these parameters:

  • Every 20 pips have a limit order with a take profit of 20 pips.
  • Each order is for 125 units (not lots).
What does this mean? It means that we will earn approximately a penny per pip of movement. It also means that a sustained downturn will accumulate positions at a very slow rate.

Note: I'll be throwing around numbers very loosely, if you want to consider this type of strategy seriously you'll want to account for spreads and other issues very accurately.

However, as I'm sure you can imagine, not all currency moves are for 23 pips or more. There are a lot of small moves that would be contained within a 20 pip range. There are a lot of moves that would rise and fall above the purchase price without being sold for a profit. This is missed opportunity.

You can easily calculate your risk... just assume a straight fall to some absolute low with a position acquired every N pips. Don't forget to account for the losses as purchases at higher levels will be suffering losses as well. How much capital do you need to sustain all of that?

What if you placed limit orders every ten pips and maintained a 20 point take profit stance? You'd double the theoretical maximum at risk and earn 2 cents per pip (over larger distances) if you kept the position sizes the same. It get's interesting when you decrease the size of the positions to reduce risk. Once you do that you can increase the density of your positions.

The interesting question is how much movement can you profit from as you increase position density, to catch smaller moves, given the spread on the pair you are trading? How many pips can you catch in a day without being in danger of accumulating more than you can handle in a downturn?

Practical risk reduction steps could be taken...
  • You could place limit orders above the current price to avoid buying positions on the way down.
  • You might also decide to trade only during periods that certain conditions are met.
  • You might stop trading if you accumulated a large net position
  • You should eventually make some profits which has the result of increasing your capital and adding to your total risk capacity.
This again gets interesting. If you assume you stop accumulating positions at a safe point you could easily recapitalize your account to start trading again within a lower range. While you trade with this new capital, within safe limits, you'll have a carry trade position which should have a reasonable average price in the bigger picture measured in months and years.

Wednesday, April 29, 2009

Oanda FXTrade On Ubuntu Dell Mini 12

Okay, it's working.

I have Oanda running a single FXTrade window while I'm open in another browser typing this blog post.

Here is what I did to get this working:

  1. Close down extra charts -- only the basic platform window is running.
  2. Eliminate extra currency pairs -- only follow two or three active pairs
  3. Shrink the window -- show everything but in as small a footprint as it practical.
With these steps I was able to launch, sync, open a trade box and watch the graph update in real time.

This means you can trade using the Mini 12. However, if you want to do serious analysis or chart work you'll probably have to use a different platform. However, once you have your chart set up, or otherwise have a trading plan to follow, you can run FXTrade.

Excellent!

UPDATE: It's several months later. I don't know if a Java update, an Ubuntu update, or if an FXTrade update made the difference, but the Mini 12 is much more capable of running this application than it was originally. I can keep multiple charts open and I no longer have only a single currency in the quote panel.

Dell Mini 12 -- Ubuntu

I recently bought the Dell Mini 12 thinking it would be noiseless, so that I could leave it on overnight while I slept. I tend to wake up from time to time so that would be an easy way to check for Forex opportunities during the night.

Unfortunately, running the Oanda FxTrade application causes the system to grind to a halt. Right now my profile automatically opens multiple charts (1 min, 15 min and 1 hr) -- which if I'm very lucky is part of the problem. On launch I see the base chart and trading platform open up but it hangs after trying to display the additional material. If I have any success with future experiments I'll let you know.

Anyway, the Ubuntu Mini 12 is great. No, I don't mean you want to do massive computing tasks, but for high availability wireless web access this thing is great. The screen is very bright. The size and quality of the display is very nice. I've added a "cookie swapping" add-on to Firefox so I can switch user profiles on the fly.

In all, even though I bought this thing hoping I'd be able to trade Forex with it, I still love it even though it seems that I won't be able to. There will surely be upgrades in the future, better processors and more memory, which might make it available. I'll probably upgrade and continue the quest for a long battery life wireless trading platform.

UPDATE: It does work. Read this post to find out what I did...

Tuesday, April 28, 2009

MT4 EA: Stupid Programming Mistakes

Well, I spent last evening tracking down some problems in my next foray into programming expert advisers.

It turns our that a simple logical test was using an '&' instead of an '&&' between two terms.

This little horseshoe nail caused some position closing attempts to fail with an error 138 -- meaning that the price being used to close the position was too far away from the market price.

I also ran into the example code for iHighest() again. The example shows it implemented with High[iHighest()] when you generally may want iHigh(...,...iHighest()) instead.

In all, I find programming in MT4 a bit frustrating. Sure, sure, hard core programmers may blame me for being imperfect, but it's time programmers realized that humans are imperfect. I know -- I program for a living.

Sunday, April 26, 2009

MT4 EA: Moving Towards Sustainability

Yesterday's experiments with creating an expert advisor to scalp the 5 minute chart show great profits and great risk.

I've been working to reduce the level of risk without taking away the reasonable chance of making reasonable profits.

Here is the most recent chart:


This is running from 01-Feb-2009 to 25-Apr-2009 and obviously surviving any ups and downs during that period.

I'm still not happy with the relative size of the larger draw downs. I believe I can tune it but I'll want to add back aggressiveness or the growth will start to drop more than I'd like.

... continuing ...

Alright, I'm in danger of curve fitting, but I've tuned the advisor to take less risk and earn less profit. However, right now, the earnings curve is getting near ideal. The draw down is acceptable and the profits are around $4,000 per month. Of course, remember that this is all somewhat theoretical and running in a test environment.


The question on my mind is whether or not I can somehow turn up profits without creating larger draw down. It's not easy but I'll fool around some more and see where I end up.

... continuing ...

Increasing aggressiveness did not help. Various other modifications were also unsuccessful.

I've run this starting 01-Nov-2008 and it dies a horrible death. This is not surprising, but it does imply you'd need to know when things were going horribly and stop it. If you are able to manually ascertain that the market should only be moving upwards then this EA should do okay. It only opens long positions.


Is it (ea 2009-04-m5-6.mq4) worth a try?