Warr-duc: AUS/YEN

[ducati916]

So this will be somewhat of a development system for trading the $Aus and Yen. Now Mr @Warr87 will develop, if possible some systematic way of trading the pair. I on the other hand will only trade the Yen long/short.

So we have the pair trading currently:



Now same pair, different timeframe:



Also the above are single ETFs rather than a straight currency pair. On both charts you would expect to be long AUS currently. Immediately there is a slight issue in that the currency markets are trading, the ETFs are not. From my input therefore, there will be lags.

I on the other hand will be trading (when the markets re-open) the YEN x2 long/short as a market neutral.



So if I were directional, I would be long YEN (as opposed to short YEN) currently.

So from this odd juxtaposition of timeframes, charts, instruments and methodologies, you may/may not glean something of use, assuming there is even something of use here. My rules are really simple: trade in the direction of the trend. When the trend breaks, reverse and follow new trend. The issue is at the point of trend change.

Now on Mr @Skate thread, there is a statement along the lines of: it is difficult, if not impossible, to trade small accounts profitably. Well I'll trade this as a small account of $10K to demonstrate that this is a real possibility for small accounts to grow into big accounts.

Now I'm hoping Mr Warr will be along to add his comments to the thread as it was initially his idea.

jog on
duc

 

[Warr87]

From what I can see it would be a breakout from the trendlines drawn on a daily chart. Are you using long term MA's as resistance/support as well? And anything specific for confirmation? Though if you are always in the market then confirmation wouldn't be needed but I can see those plateau's would be some nasty whipasaw traps.

I haven't coded it before but I'm pretty saw auto-drawn trend lines can be done in MT4. And MT4 makes it easy to use indicators from multiple timelines, so this shouldn't be a problem.

 

[ducati916]

1. From what I can see it would be a breakout from the trendlines drawn on a daily chart.

2. Are you using long term MA's as resistance/support as well?

3. And anything specific for confirmation?

4. Though if you are always in the market then confirmation wouldn't be needed but I can see those plateau's would be some nasty whipasaw traps.

5. I haven't coded it before but I'm pretty saw auto-drawn trend lines can be done in MT4. And MT4 makes it easy to use indicators from multiple timelines, so this shouldn't be a problem.

1. I have added daily charts now. The previous charts being weekly.

2. Simply trend lines. Add anything you like. The point is to try a few things and see how they work out.

3. Again, currently nothing. We can try a few things. Now for example because I am market neutral, I'll rebalance using the Black Scholes Options model. This is a bit of an experiment and I have made some modifications (obviously) so that I can get it to work with non-options. We'll have to see if my maths is up to the task.

4. Essentially I want whipsaws. The more I rebalance, the more profitable will be my position. Now this is not what you are looking for: you want long trends (hence the longer time frame charts initially to demonstrate that currencies give decent trends).



jog on
duc

 

[qldfrog]

Will be an interesting experiment.will follow you gentlemen as i have never done any currency trading, and few swinging systems.
If Mr @Warr87 needs to bounce ideas/help on the system programming side: aka the tool, do not hesitate to ask and i will try to help in my limited capacity.
Good luck?

 

[ducati916]

Will be an interesting experiment.will follow you gentlemen as i have never done any currency trading, and few swinging systems.
If Mr @Warr87 needs to bounce ideas/help on the system programming side: aka the tool, do not hesitate to ask and i will try to help in my limited capacity.
Good luck?

Currency trading has always defeated me in the past. Part of that was going for too high leverage (200:1) and being unable to hold positions. Now, with a revamped methodology, I'd love that higher leverage, but it's not to be. Currencies however definitely offer some diversification, so are worth pursuing as a strategy, particularly if you trade a 'long' only system in stocks. If we can get some sort of system cobbled together, it will offer that diversification as something will always be going up as against something else.

jog on
duc

 

[investtrader]

Duc,
Could you please enlighten me. WTF is the significance of the YCL:YCS chart? It seems like the ratio between long and short ETF's. The ratio is not 1, so I assume the leverage is different for each ETF?

 

[Warr87]

I've had a look at trend lines in MT4. I would like something which can be automatically placed, ideally, so i can also backtest it. Here is a link to the types of lines in MT4: click here. I found a few indicators for MT4 that can be downloaded that do auto draw trendlines. For those who are not aware, you can write a trading bot based on any custom indicators. So if you can find an indicator you like for MT4, you can turn it into an auto trading EA (or an EA that sends email alerts if you prefer discretionary control).

It's been a while since I've had a look at the black scholes formula. Not sure how to modify it for use in sizing just yet.

And with the whipasaws. They will kill a trend following system in most cases. Also depends on the position sizing. If you do a volatility based sizing and its in a tight range whipasawing then you will kill the profitability. Interested to see how we can handle this.

@qldfrog thanks mate. any help would be nice! MT4 coding isn't too bad. When I first saw it, it was intimidating but its ok once you get the hang of it. the benefit of this project is that FX is scalable and the sizes we are going to be trading wont be effecting each other. I just have $1000 in my CFD/FX account. I have more to add to it once it proves itself. My current AUDUSD system typically trades 0.04 to 0.06 lots so manageable and not even close to moving the market if we are all putting on the same size positions at the same time.

 

[ducati916]

Duc,
Could you please enlighten me. WTF is the significance of the YCL:YCS chart? It seems like the ratio between long and short ETF's. The ratio is not 1, so I assume the leverage is different for each ETF?

It is the ratio between the long/short x2 leverage charts. The leverage is the same for both:



jog on
duc

 

[ducati916]

Ok, an issue immediately: volume on the YCS is pretty much non-existent. So I'm going to jump over to the Euro.




Starting capital $10K
ULE (long) 315 shares = $4989.60
EUO (short) 222 shares = $4999.44
Total = $9989.04
Cash $10.96

Now, to make money as a market neutral position, rebalancing is the key. The more often I can rebalance, the better.

jog on
duc

 

[ducati916]

So the currency situation:

The AUS$ looks to be rolling over in a range.



This is confirmed by general EURO strength:



For my position: do nothing currently.

jog on
duc

 

[Warr87]

Agreed. Is the plan to run a EURO strat side by side the AUDYEN?

I still haven't come up with any ideas on how to quantify some rules just yet. Open to some ideas.

 

[ducati916]

Agreed. Is the plan to run a EURO strat side by side the AUDYEN?

I still haven't come up with any ideas on how to quantify some rules just yet. Open to some ideas.

You can run AUD against anything you want. If you run it against AUD/EUR that would be consistent with my Euro position. I changed to the Euro because in the x2 ETF (Yen) there was no volume.



So currently you would be long AUD. However as this is a longer term chart, I would be paying a lot of attention to the range that it has been in. What will be interesting to see is because my trade is Euro (neutral) with (currently) the long side making a move out of a consolidation area, whether that corresponds with other currencies as against the Euro, ie. strength in the Euro on my position (general Euro) converts to turning points as against, in this case, the AUD. I have (currently) no idea.

While I am still waiting to make a first adjustment. Now given that this is a short term BO from a period of consolidation I would expect this to run a bit. As stated, it will be interesting to see whether this has any impact on the AUD/EURO above.



However, when I add the longer term chart, the picture changes:



So now I would be looking at the resistance point just above. This suggests that the Euro could (a) re-enter a consolidation area or (b) break out higher, where in early 2018 it failed badly.

When thinking about currencies, a macro-analysis is so much more important. So I would start with some real basics: for the AUD, it is all about commodities and primarily China. For the EUR, it is about exports to primarily China. So China sits in the centre of our analysis.



So for the moment I would expect the AUD to continue to strengthen as your competitors (Brazil/Canada) are lagging, possibly due to C19 issues.

Then of course, interest rates: Europe is NIRP. Australia is still ZIRP or higher. Therefore outside of an exports based analysis you would have to consider capital flows (stocks/bonds) into each trading area. I would expect that to favour AUD over EUR given interest rates. Imports, deficits and on it goes. This type of analysis is a full-time job. You can go on indefinitely with macro. Alternatively, we just trade the chart, with really broad macro analysis when trying to pick turning points. Probably initially, we try to figure out after the fact, some of the variables. Then, moving forward, they can be applied more on a real time basis.

jog on
duc

 

[Warr87]

Interestingly enough my current AUDUSD system has entered a few times. It's supposed to be a MR system but prob more of a swing. It's 1HR and enters when it breaks a lower BB with a TP at +1std. Was a bit active this week. With your comments it did add up as to why it was active: AUD is ranging/slight trend. On a macro level it may continue to move even higher on a stronger long term trend (though that is good for a MR/swing system).

Your import charts are intersting. From what I gleam from it, Aus is the growing/longer term contributor where the other countries have slowed or at least petered off a bit. The combined tells a similar story.

I also agree with you about how you can go macro indefinitely. A broad and macro view is good but I always like to be careful. Easy to fall into a trap about building a narrative and wanting the market to fit into that narrative. The market rarely behaves how you want, it just simply acts.

It is entirley possible to add other currencies or even comoddities to an EA for MT4. I think caution is needed as simple can be good. I am thinking that a system for us to build here would include some broad analysis/trend info for a higher timeframe (whether that be +1 from the current period or set to Daily) and/or the inclusion of an alternate pair. I.e. could enter long/short depending on the broad trend of the daily or weekly timeframe + movement of a corresponding pair. I can't account for bonds in an EA but commodities can be a thing. But whatever we do, I think K.I.S.S.

Edit: We can also move towards creating a custom indicator too. I haven't coded one yet in MT4 but it is more than possible and can include anything you can think of. Could be good for a quick analysis for you as you can simply drag and drop onto a chart, and it makes it easy to build an EA on it too.

 

[ducati916]

1. Interestingly enough my current AUDUSD system has entered a few times. It's supposed to be a MR system but prob more of a swing. It's 1HR and enters when it breaks a lower BB with a TP at +1std. Was a bit active this week. With your comments it did add up as to why it was active: AUD is ranging/slight trend. On a macro level it may continue to move even higher on a stronger long term trend (though that is good for a MR/swing system).

2. Your import charts are intersting. From what I gleam from it, Aus is the growing/longer term contributor where the other countries have slowed or at least petered off a bit. The combined tells a similar story.

3. I also agree with you about how you can go macro indefinitely. A broad and macro view is good but I always like to be careful. Easy to fall into a trap about building a narrative and wanting the market to fit into that narrative. The market rarely behaves how you want, it just simply acts.

4. It is entirley possible to add other currencies or even comoddities to an EA for MT4. I think caution is needed as simple can be good. I am thinking that a system for us to build here would include some broad analysis/trend info for a higher timeframe (whether that be +1 from the current period or set to Daily) and/or the inclusion of an alternate pair. I.e. could enter long/short depending on the broad trend of the daily or weekly timeframe + movement of a corresponding pair. I can't account for bonds in an EA but commodities can be a thing. But whatever we do, I think K.I.S.S.

5. Edit: We can also move towards creating a custom indicator too. I haven't coded one yet in MT4 but it is more than possible and can include anything you can think of. Could be good for a quick analysis for you as you can simply drag and drop onto a chart, and it makes it easy to build an EA on it too.

First off a chart:



This is a major area of resistance for AUD. I have it to turn lower and fail a BO attempt this time. On a macro basis you could argue the current Aus/China imbroglio as weakening demand for the AUD, which would provide some impetus to the EUR indirectly.

1. The above chart is (obviously) a weekly. I find (currently at least) a weekly chart seems to be more effective (profitable on paper) for currencies because they catch bigger moves. Currencies seem to exhibit good trending characteristics (eye-ball test). Of course the last 2 yrs on the above chart belies this tendancy. Below the daily:



This chart suggests a BO is underway.

In any case, all will be known soon enough. At this point, strategy wise, I would take profits and exit the trade. A really aggressive stance would be to reverse and go short. I would rather wait for confirmation of a short entry, which allows a re-entry should it break resistance. I actually expect it to break resistance prior to breaking down lower. I would however take profits at this point.

2. Which are of course lagging data in real time. The current Aus/China situation could change that data trend moving forward, which is why a straight price chart is to be preferred at potential inflection points.

3. Even more true with currencies. There are simply too many variables.

4. Commodities are interesting. Gold and NG are already on my radar and can easily be added to this thread.



5. We can definitely try a variety of tools and see if any add value. Here are the seasonality charts:



So heading into January, we have the EUR (likely) lower and the AUD coin toss.

jog on
duc

 

[Cam019]

Interesting thread. Why not simply use AUDJPY or EURAUD DMA CFDs instead of illiquid ETFs?

Also, a quick observation. I find it interesting when people say they don't use leverage because they can't hold on to positions. To me, this clearly displays the miss use of leverage. If you are position sizing properly with hard stops in the market, the only thing leverage will change is the amount of margin required to run the position.

$1000 (0.01 lot) AUDUSD position with no leverage requires $1000 margin.

The same position with 100:1 leverage takes $10 margin and with 500:1 leverage takes $2 margin. I always use 500:1 leverage.

I don't understand how the change in leverage makes the position harder to hold on to? Could you elaborate on this?

 

[Warr87]

First off a chart:

View attachment 117519

This is a major area of resistance for AUD. I have it to turn lower and fail a BO attempt this time. On a macro basis you could argue the current Aus/China imbroglio as weakening demand for the AUD, which would provide some impetus to the EUR indirectly.

1. The above chart is (obviously) a weekly. I find (currently at least) a weekly chart seems to be more effective (profitable on paper) for currencies because they catch bigger moves. Currencies seem to exhibit good trending characteristics (eye-ball test). Of course the last 2 yrs on the above chart belies this tendancy. Below the daily:

View attachment 117520

This chart suggests a BO is underway.

In any case, all will be known soon enough. At this point, strategy wise, I would take profits and exit the trade. A really aggressive stance would be to reverse and go short. I would rather wait for confirmation of a short entry, which allows a re-entry should it break resistance. I actually expect it to break resistance prior to breaking down lower. I would however take profits at this point.

2. Which are of course lagging data in real time. The current Aus/China situation could change that data trend moving forward, which is why a straight price chart is to be preferred at potential inflection points.

3. Even more true with currencies. There are simply too many variables.

4. Commodities are interesting. Gold and NG are already on my radar and can easily be added to this thread.

View attachment 117521

5. We can definitely try a variety of tools and see if any add value. Here are the seasonality charts:

View attachment 117522View attachment 117523

So heading into January, we have the EUR (likely) lower and the AUD coin toss.

jog on
duc

I had varrying results with my gold and NG donchian EA. I need to clarify my data sources, but the spot gold, silver, and the NG CFD had amazing results on a simple donchian long only BO. But the fact I was getting dfiferent backtests depending on the system depending on the MT4 terminal made me weary. some data in my history viewer looked a little off so I think I just need to reset it.

If you think there is a serial correlation/non-correlation it is entirely possible to run it together in one indicator. An alternative is to write code for more than 1 EA/indicator and as one turns off the other will likely turn on.

I am traveling this week but next week I will have some time off. I want to start nailing done something more solid if possible.

 

[Warr87]

Interesting thread. Why not simply use AUDJPY or EURAUD DMA CFDs instead of illiquid ETFs?

Also, a quick observation. I find it interesting when people say they don't use leverage because they can't hold on to positions. To me, this clearly displays the miss use of leverage. If you are position sizing properly with hard stops in the market, the only thing leverage will change is the amount of margin required to run the position.

$1000 (0.01 lot) AUDUSD position with no leverage requires $1000 margin.

The same position with 100:1 leverage takes $10 margin and with 500:1 leverage takes $2 margin. I always use 500:1 leverage.

I don't understand how the change in leverage makes the position harder to hold on to? Could you elaborate on this?

With currencies I am just trading normal margin account with an FX broker. My broker also does a 'basket' CFD for a currency, i.e. USD Basket, JPY Basket, etc. Trading those basket CFD's is something I may think about as an alternative to pure FX pair.

As for margin I am with you. I write my EA to calculate how much I am willing to lose and set the lot size according to the distance to the iSL. The margin makes little difference to me because I define my risk. Whether its 200:1 or 500:1, I lose the same amount.

 

[ducati916]

1. Interesting thread. Why not simply use AUDJPY or EURAUD DMA CFDs instead of illiquid ETFs?

2. Also, a quick observation. I find it interesting when people say they don't use leverage because they can't hold on to positions. To me, this clearly displays the miss use of leverage. If you are position sizing properly with hard stops in the market, the only thing leverage will change is the amount of margin required to run the position.

3. I don't understand how the change in leverage makes the position harder to hold on to? Could you elaborate on this?

1. For 1 primary reason: (i) my strategies have largely been developed in stock ETFs. Those strategies have been superimposed upon other asset classes, commodities, bonds and now currencies (experiment). The strategies are all risk management based, which is why they have worked across (to date) the different asset classes. Using a CFD completely changes my risk management and concurrently my ROC. Leverage now, within the ETF framework is not an issue: I would love a 1000:1 leverage, there are 4:1, but generally I have to content myself with 3:1/2:1. However, because I cannot duplicate my strategy onto a CFD instrument, leverage becomes a major issue for me.

2. So 20yrs ago when I started trading, I also adhered to the trader rules, place a stop, position size, etc. I soon realised that SL are a significant drag on profitability. The problem was: how to get rid of them without blowing up your account and trading in tiny size? This was of particular interest when I moved to Prop. trading where (in stocks) I could run 100:1, 1000:1, 10,000:1 pretty much whatever, but of course each penny movement was magnified by the leverage. The advantage of course is that even a 0.01% return on the day, with massive leverage, becomes really significant in dollar terms. It drives a scalping mentality, with a hyper-focus on 1min charts etc. It led me to develop market neutral strategies, allowing the leverage but increasing the % returns through longer holding periods and ignoring the requirement for SL. Now I haven't looked closely at CFDs (their legal construction) but potentially I will, there may be a way to replicate my strategy via CFDs and gain the advantage of all that leverage.

3. Hopefully the above clarifies, but essentially: (i) I don't want and don't run a SL based risk management, (ii) I want as much leverage as I can get, (iii) volatility is a variable that I wish control of and (iv) I want to catch big, multi week trends.

jog on
duc

 

[InsvestoBoy]

Duc,
Could you please enlighten me. WTF is the significance of the YCL:YCS chart? It seems like the ratio between long and short ETF's. The ratio is not 1, so I assume the leverage is different for each ETF?

He can't enlighten you because he has no clue what he is doing.

Look at some of the posts in this thread, like this one https://www.aussiestockforums.com/threads/the-new-bull-market.35707/post-1103995 where he ratios the ten year US note yield to gold price, this one https://www.aussiestockforums.com/threads/the-new-bull-market.35707/post-1104054 where he ratios NYSE % of stocks above 50DMA to NYSE advance decline, or this one https://www.aussiestockforums.com/threads/the-new-bull-market.35707/post-1104289 where he ratios UUP to FXE.

"WTF" is an understatement.

 

[ducati916]

So the Euro.

Longer term: seems to be hitting a resistance point. Does it break through?



Shorter term:

It looks as if we were going lower and then a reverse higher. Last test or BO higher? No idea.



AUD/EUR:

What happens if EUR breaks higher?
What happens if EUR breaks lower?

This will be quite valuable information going forward. Currently I have no idea.

On a macro-level, a weaker USD is bullish for both AUD & EUR due to inflationary pressures. This is why (maybe) we see the trading range/chop as there are only incremental changes in AUD/EUR resulting in pretty much net zero progress over longer periods.



Anyway, I'll continue to monitor. Currently doing nothing. Waiting for (a) BO or (b) BD.

jog on
duc