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Sabtu, 21 Mei 2016

Predicting SP500 futures using investor sentiment - forex trading system download

Predicting SP500 futures using investor sentiment ~ forex trading system download


Ronald Domingues, an economics graduate student, has done an interesting study of how well a group of qualified investors with superior skills can predict the movement of the SP500 index. This group of qualified investors are selected by their track records of making correct predictions, and as a result of submitting their predictions going forward, they are eligible to be notified of the average predictions of other qualified investors, thus enabling them to make a better informed investment decision.

In other words, the elite will benefit from the collective wisdom of other elites -- sort of like the real world, isnt it?

How well does it work in practice? Well, they correctly predicted whether SP500 index will go up, down, or flat, a whopping 65.2% of the time. The details can be found on his website, where you can also sign up to see if you can join the elite.
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Senin, 09 Mei 2016

Using R to Test for Cointegration - forex volatility trading strategies

Using R to Test for Cointegration ~ forex volatility trading strategies


Paul Teetor, who guest-blogged here about seasonal spreads, recently wrote an article about how to test for cointegration using R. Readers who dont want to pay for a copy of Matlab should find this free alternative with similar syntax quite interesting.
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Sabtu, 07 Mei 2016

Ease of trading using Online Forex commodity trading system - forex hba trading system

Ease of trading using Online Forex commodity trading system ~ forex hba trading system


Off late, online forex commodity trading has become extremely popular on the Internet. Over the million dollars a day changes hand in this online market. To be able to trade online, all you require is a trading account, computer with Internet access, a phone and a fax. The other basic necessities for you to set up trading. Because the start-up costs are low, the likelihood of profitability is high.

With online forex commodity trading, you will bypass the middleman and therefore you have lower transaction fees. You also gain leverage by using this system, because the market is always open. The system, easy to learn and to use. However like all types investment, therell inherent risks, as well as rewards.

The online forex commodity trading system, allows you to make transactions at any time. Because it is online all the information gained is in real time and this allows you to have the latest prices. Furthermore, accessibility to the system is available at all time.

By using the online forex commodity trading account, you will have a big advantage from those who do not have access online. This is because you have lows transactional fees and also access to the latest price allowing you to react faster with respect to price movements.

The online forex commodity trading system, allows you to make transactions at any time. You will not only can check your account and receive signals alerts about" buy and sell positions", but you can also check what is the current rate of exchange, as well as the purchasing price.

When trading online with an online Forex commodity trading system, you will have all the tools available to you to make a successful transaction. You can also see how much of a profit or loss that you currently have on your account.

Therefore, by trading through an online forex commodity trading system, you will not only get price updates immediately,but you will also be able to access the market at any time.But even with the convenience of online systems, you must take steps to research the risks involved in forex trading.

Comparing to regulars stock market is, this market has huge potential for further growth due to its unique characteristics.

By Joel Gardner
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Minggu, 01 Mei 2016

A reader comments on trading using Excel VBA and Factor Model - forex swing trading strategy youtube

A reader comments on trading using Excel VBA and Factor Model ~ forex swing trading strategy youtube


Thoughtful comments from a reader John S. from the UK on his experience with trading technology and models:

"I have been developing my own personal automatic trading systems using Excel VBA and based on rules I have developed over the years as an active private trader investor using both technical and fundamental data analysis.

One of the key merits in adopting an automatic trading system approach that has helped me is to avoid the temptation for manual interference and thereby improving profitability by maintaining consistency. I have found the challenge of developing a successful system very rewarding from a personal perspective as I recognise that there are many that have tried and failed. However one problem I have encountered is my ongoing desire to regularly modify and improve the system which I have found can become counter productive as there is a real danger that system development becomes an end in itself! I just cant seem to stop tinkering as soon as I come up with a new idea or feature!

One advantage of using Excel VBA that I have found is that it is inherently flexible as it facilitates the processing of data which can be important especially when using fundamental data as part of the system. In this respect I recognise that every trader is trying to build in an edge that will make the system more profitable. I have noticed that many traders seem to only focus on price by trying to seek an edge by looking at special indicators or combination of indicators etc. Combining price data analysis with a Factor Model approach is a challenge which is ideally suited Excel VBA as it can be easily used to process both fundamental and macroeconomic data into a form that can be integrated with price data analysis.

I recognise from your book that Matlab is more powerful than Excel VBA and may be just as flexible in integrating fundamental and macroeconomic data but I just wanted to draw your attention to benefits I have found using Excel VBA which may suit those who like myself are more comfortable in using Excel VBA and are reluctant to change. Other features that can be exploited that I have found helpful when back testing are automatically producing Price Charts that incorporate Entry and Exit points which provides visual reassurance that the system is working as intended as well as generating automatic Word reports recording key output for future reference.

I am sorry if I sound too much like an advert for Microsoft!"

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Selasa, 19 April 2016

The Advantages of Using a Forex Robot Trading - forex trading system holy grail

The Advantages of Using a Forex Robot Trading ~ forex trading system holy grail




Trading has been a lucrative profession with many financial professionals and others who want to make a foray into this very profitable source of income. Technology has redefined the way you are doing any type of activity, which gave additional impetus to the world of Forex trading as well. It comes through the intelligently automated trading is known as a forex robot in the financial sector. This is an automated trading software is programmed to function as a strategy that is mechanical, without human interface while it is doing what traders are doing. Let us understand the various benefits of the application of forex robots and how they can help someone to become an ace trader.



1- Volume- negotiation generates higher returns if the volume increases. The launch automatically generates transactions on average more than a human being. One of the most effective in generating higher volumes actually through an arena and vast geographic areas results in real time on the scope of better jobs and possible ways earn higher average.

2. Do not give in FEELINGS- is a machine, software that does not suffer from one of the biggest obstacles to successful negotiations-to get carried away by emotions and feelings. This is something that all human beings are prone to be affected, resulting in a negative change or a significant loss in the markets. The system will not be affected or go into a panic mode just for the giant slide in the market. It will continue to operate rationally, giving more stability than the human element.

3- Make the mask This automated program can work 24/7, 365 days a year without tiring. Thus, contrary to the human element, which does not need to take time for nothing. This feature means that the system can operate on all markets follow the path of the sun model. It will be negotiated during sleep, making use of all the opportunities that are there. This helps to evenly spread risk and leads to a more balanced world trade.

A potentially huge 4- If a trader is strong in its foundations, can program the system to perform well and earn much more than the projected potential. Once a smart trader who studies the signals from the robotic system, and fail to make another avenue of income, there is a possibility of additional revenue generated continuously.

While the above benefits his almost infallible, it is too important to be involved as a trader that the system can perform according to specific instructions given to it as a command. FX Robot can be your best friend if you know how to maximize their capabilities to produce better returns.
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Minggu, 17 April 2016

Learning to Trade Forex Using Price Action - forex hedge trading system

Learning to Trade Forex Using Price Action ~ forex hedge trading system


If youre curious about getting a deeper understanding of how to trade the forex markets, youre going to have forget about all those lagging indicators that youre using.

Indicators such as MACD may look great on the charts, but youd be hard pressed to find anybody who can use it to get a deeper understanding of the markets.

I imagine many people know the rules of how to trade the MACD, but how many can actually proclaim they know what it has to the underlying reason for the price movement? No too many.

While using indicators such as these may seem like a great shortcut for learning the forex market, the real truth is youre just using it as a translator of the market. The indicator translates what it sees to you and shows what it sees through different colors and lines. This may seem like a great idea, but its really not.

YOU should be the translator. The market shouldnt have to be translated for you. Its like going to live in a foreign country for a year. You could probably always find somebody who spoke English, but to really be able to live and enjoy the culture, you are going to have to learn to speak the language. Its the same case with trading forex. Except the language you have to learn is price action.

The first thing you need to do to learn this new language is get rid of all your indicators that you use to trade with. Dont leave a single one. Youre only cheating yourself. Then, pick a currency and just watch it for the day.

I know some of you probably think, that doing some like this will not lead to anything great. Well, if you have that attitude, then it probably wont. However, if you have an open mind youll start to see that price pattern repeat constantly and that can be used to trade the markets.

If you dont really think its possible to do this, then research the name Jesse Livermore. Livermore became rich in the early 20th century by just trading on the market floor. All he used was the price action from the other traders on the floor to base his trading decisions off of.

By Jim Buhs
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Implementing stock strategies using options - forex trading strategies tutorial

Implementing stock strategies using options ~ forex trading strategies tutorial


There are many stock trading strategies that are quite attractive in terms of Sharpe ratios, but not very attractive in terms of returns. (Pairs trading comes to mind. But in general, any market neutral strategy suffers from this problem.)  Certainly, one cannot feed a family with annualized returns in the single or low double digits, unless one already has millions of dollars of capital. One way to solve this dilemma is of course to join a proprietary trading group, where we would have access to perhaps x30 leverage. Another way is to implement a stock trading strategy using options instead, though there are a sizable number of issues to consider. (I recently brushed up on my options know-how by reading the popular "Options as a Strategic Investment".)
  1. Using options will allow you to increase your leverage beyond the Reg T x2 leverage (or even the day trading x4 leverage) only if you buy options only, but not selling them. For example, to implement a pairs trading strategy on 2 different stocks, you would have to buy call options on the long side, and buy put options on the short side (but not sell call options). Otherwise the margin requirement for selling calls is as onerous as shorting the underlying stock itself.
  2. The effective leverage is computed by multiplying the delta of the option by the underlying stock price divided by the option premium. If you buy an out-of-money (OTM) option, the delta will be small (smaller than 0.5), but the option premium is small also. Vice versa for an in-the-money (ITM) option. So you would have to find the optimal strike price so that the effective leverage is maximized. I personally choose to buy an at-the-money (ATM) call or slightly ITM call without actually computing the optimized strike, but perhaps you have reached a different conclusion?
  3. Naturally, the shorter the time-to-expiration, the cheaper the option and higher the effective leverage. Additionally, for ITM options, their deltas increase as we get closer to expiration, which also contributes to higher effective leverage. However, the time-to-expiration must of course be longer than the expected holding period of your position, otherwise you would incur the transaction cost of rolling over to the further-month options.
  4. The discussion of finding the right strike price based on its delta is moot if your brokerages API does not provide you with delta for your automated trading system. In theory, Interactive Brokerss API provide deltas for whole options chains, and quant2ibs MATLAB API will pass these on to your MATLAB exeuction program too. However, I have not been successful in retrieving deltas using quant2ibs API. If you have encountered a similar problem, and perhaps have found the reason/cure for this, please let me know. For now, I am reduced to assuming that all my near ATM calls for different stocks have the same delta, and I increase this common value from 0.5 to close to 1 as time passes.
  5. Options dont have MOO, LOO, MOC or LOC order types. If one uses market orders to buy at the open or close, one would incur significant transaction costs due to the much wider bid-ask spread compared to stocks. I try to use limit orders on options orders as much as possible.
If you have used options to implement stock trading strategies, and have experiences with these or other issues, please do share them here.

====

Reminder: my next pairs trading workshop will take place in New York on October 26-27th.
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Rabu, 13 April 2016

Using Pivots as Secondary Support Resistance - forex trading pro system download

Using Pivots as Secondary Support Resistance ~ forex trading pro system download


Basically, there are three major forms of support and resistance which can be represented specifically by way of horizontal lines drawn from left to right, all of which serve the same basic functions. They include: Old Highs & Lows, Fibonacci retracements and extensions, and pivots.

While it may seem to be a minor technical detail, it may be worth knowing how pivots are actually calculated. Firstly, we input the High/Low/Close (HLC) numbers for the last completed trading session into the calculation of the Central Pivot (CP) value for the following session. Ideally, the calculation is automated, but such is not always the case. This is why it might be handy to know how to do the calculation yourself.

The formula for the Central Pivot is as follows:

Central Pivot (CP) = (High + Low + Close)/3

As you can see from the formula above, the Central Pivot is in effect a simple average of these three parameters of the prior trading range. While you might find some variation among analysts (and charting packages) as to what constitutes a standard pivot set, my approach provides for four Resistance (or R) pivots, and four Support (or S) pivots, each sequentially numbered outwards from the Central Pivot (CP).

These S and R pivots are calculated with reference to the Central Pivot, as follows:

In addition to these major intervals, we can also plot both half and quarter pivots. A convenient method for labelling these levels is to simply add to the respective R or S pivot name, a suffix for 25 corresponding to the first quarter pivot beyond the major interval (again, in the outwards direction from the Central Pivot), 50 for the half pivot (or M level) and 75 for the third quarter pivot. Therefore, as illustrated below, the third quarter pivot up between RI and R2, for example, would be labelled R175; the third quarter pivot down between S1 and S2 would be labelled S175, and so on. This scheme is then repeated through all the remaining whole pivot levels in the set. Once you take a moment to get used to it, this labelling system makes it spontaneously obvious exactly where you are in the spectrum of pivot values from S4 to R4.


The calculation for quarter-pivot levels is straightforward: the half-pivot labelled 150 simply splits the difference between the adjacent whole pivot levels (e.g. Rl and R2); the smaller quarter pivots labelled 125 and 175 split the difference again between the half and two adjacent whole pivots. While the market is less likely to make a major turn on a quarter than on a whole pivot, these levels can be useful and should be watched within a potential confluence of events.

So now that we have figured out how to calculate pivots for different degrees of trend, and plotted them on our charts, what do we do with them? With all three varieties of horizontal support and resistance mentioned above, what we are most interested in is finding a confluence of events suggesting that price should either:
  • Provide an interim take profit opportunity prior to a retracement of some kind; or
  • Conclude the retracement (either at resistance in the downtrend, or support in the uptrend) and continue in the direction of the higher level trend; or 
  • Reverse outright at or near the horizontal line, changing higher level trend direction from down to up, or vice versa. 
In other words, we plot horizontal support and resistance lines on our charts to identify potential levels where price could possibly change direction.

Example 1


In this chart, which plots Daily pivots on a H1 chart, lets say we have a valid reason to go long following a Swing Point Low completing a pullback in the uptrend. The open price for this trade was 1.6628. We see that the trade might have carried through to the next Daily session, as indicated by a second set of pivots painting in to the right. While the Daily Rl pivot (the lowest red line on the right-hand side of the chart) provided a minor take-profit objective, the next higher resistance level at R2 did a better job, in real time underscored by a still bullish confluence of oscillator readings higher up.

Realistically, it would have been prudent to trim a few pips off that target for the sake of safety (i.e. not missing a fill on the exit limit), but putting that issue aside for a moment, we can see price ran up precisely to the R2 pivot, before hitting resistance and commencing a relatively steep retracement. From the open price to the close on this level at 1.6752, the run up was worth 124 pips as a day trade. Holding the trade open beyond that level would have resulted in a disappointing drawdown of 116 pips as price fell almost all the way back down to entry, which would have triggered a stop loss if previously trailed to breakeven. This serves as an excellent example of why booking profit on anticipated support or resistance levels can be a useful tactic.

Example 2




In the above chart, which plots Weekly pivots on a H4 chart over a span of 10 weeks, we see a total of seven instances where retracements in the downtrend ended - sometimes literally to the pip - on either a whole- or half-pivot level. (As denoted by the green arrows underneath price action on this chart, there were also a few instances when a retracement started on a bounce off a support pivot; however, trading with the trend, we would have more likely used these as take-profit targets rather than opportunities to go long against the trend).

If we were poised throughout this downtrend to sell the rallies, these pivot resistance events would have provided an important part of the confluence of events desired to execute a trade to the short side (and bear in mind, this is only one pivot set; it would be interesting to see what kinds of resistance events were  confirmed on the Daily and Monthly time frames as well).

With reference to the chart above, from the open of each candle following the confirmed pivot resistance, and carrying the trade open through to the lowest low on the right-hand side of the chart, this 10-week span offered the possibility of the following gross profit potential:


Example 3


Finally, in this chart, which plots Monthly pivots on the Daily chart over a period of roughly 13 months, we see from left to right that there had been a long uptrend covering a distance of at least 2,242 pips. The final leg of this larger move sub-divided perfectly into a smaller 5-wave impulse pattern, the fifth and final leg of which ended with a high degree of precision at the Monthly R3 pivot (solid red line). As is typical of major reversals, we can recognise a Swing Point High in the area of this resistance pivot, which was followed several weeks later by a so-called Death Cross of the Moving Average pair plotted in blue, which helped to confirm the new downtrend underway.

From this top reversal to the lowest low on the right-hand side of the chart, the resulting down move covered a distance of 1,469 pips. Whether viewed as an important take-profit target on the preceding long move, or a signal to position trade to the short side (or both), this high level pivot event correctly foretold a reversal of major importance.
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Jumat, 08 April 2016

The Power of Trading Forex Using Price Action - intraday forex trading system

The Power of Trading Forex Using Price Action ~ intraday forex trading system


By Jim Buhs

It seems that most forex traders now are looking for the short cut, instead of using the oldest form of technical analysis: trading just using price action. Most traders though dont seem to be interested.

You can tell this is true by looking at any forex forum on the internet. What is it that you normally see on these sites? Usually its people that are talking about some system that has 40 moving averages or some forex expert advisor thats supposed to be the new holy grail.

Do you see whats wrong with this picture?

For one thing, traders must understand that all these kinds of indicators, like RSI or stochastics, are only good for letting you know what has already occured. If you want the ability forecast future movements in prices, then i strongly recommend nor using these indicators.

The other thing that these traders need to understand is that 95% of all forex traders lose money. If thats the case why would you want to be doing the same exact thing that every other struggling trader is doing?

Think about this from a logical perspective. Chances are traders that are on a forum are struggling with their trading. If that wasnt the case why would they even be there? Most truly successful forex traders dont have the time nor the inclination to hang out in a forex forum.

The real popular discussion on these forums are about the Forex Expert Advisors. For anybody that doesnt know what these are, they are basically trading robots. Developers use trading systems with lagging indicators so that this robot trades for you, while youre away.

You can see why this would be right up the alley of a new trader. After all who wouldnt want the ability to come and go as you please. You can go anywhere you want and in the meantime this robot is going to make you rich, right? Actually thats not the way it works.

Remember with expert advisors, youre asking something from a computer that 95% of all the traders in the world cant accomplish. Being that the forex markets are so new driven, do you really think that a computer is going to be able to quantify any kind of breaking economic news that comes out?

If you want to take the time to really understand the market I suggest that you clean out all your charts of indicators and just watch the price action for a day. Pull up a 30 minute chart and just focus on market movement. One thing will start to become real evident: There are patterns in the market that happen every single day. These are the patterns that can be used to predict future price.
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Jumat, 01 April 2016

Elliott Wave Theory Using it In Forex - how does forex trading system work

Elliott Wave Theory Using it In Forex ~ how does forex trading system work


By CFDFXREPORT

Since the beginning of the Foreign Exchange markets, there have been a number of various trading theories regarding the Forex Market and how it moves.

Everyone one of these theories can be used to understand the Forex market a little better and can help improve our hopes and dreams of making us more profitable traders. One of the most popular theories that is used in Forex Trading is the Elliott Wave Theory.

The Elliot Wave theory has been around for many years now, and was first used in the stock market. It was observed that the market movements on charts can be described as waves which reoccur every now and then.

The theory goes that theres five short waves that appear which are caused by different factors with one effect. For example, a group of people suddenly purchases a certain good which results in a gradual increase shown on charts which would look like a series of waves; after this, a series of three more waves follow but going to the opposite direction which is known as the corrective waves.

As we said before this theory was first used for stock market trading, however because it has been so successful in the stock market trading it has since been applicable to the Forex Market too. The Elliott Wave Theory can be used to so that the Forex Market trader can understand what is going on with the market right now in order to help them with making a trading decision. One of the most vital ingredients to being a successful trader is to understand exactly how the market moves and this crucial when it comes to forex trading.

The majority of people will lose their money in the Forex Market because they simply fail to understand how the forex market works and moves. This is the real benefit of the Elliott Wave Theory.
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Selasa, 22 Maret 2016

200 Pip Targets Still Hit During Financial Crisis Using Methodology - 10 pips forex trading system the 3rd candle

200 Pip Targets Still Hit During Financial Crisis Using Methodology ~ 10 pips forex trading system the 3rd candle




During the infamous Financial Crisis of 2007-08 and its aftermath, many trading strategies began losing money because of the dramatic increase in market volatility. Methodologies that functioned with very few hiccups before the Crisis, were no longer profitable and could not adjust to the new scenarios that unfolded over subsequent years. Nevertheless, the methodology outlined in the Trading Manual held firm despite the market turbulence experienced during that time.

The methodology uses Price-Action patterns on the Daily & 4 Hour Charts to identify high probability trades that provide between 100 and 200 Pips. The setups that provide these opportunities exist during normal periods of market activity as well as heightened periods of volatility coinciding with safe-haven investment flows.

The European Sovereign Debt Crisis and the 2007-08 Financial Crisis stand out as strong examples of factors that lead to increased volatility. Since the formation of consolidation tends to characterize these market conditions, we can look at examples of how the strategy would have been applied to this type of setup. In each of these examples, explanations of the technical factors that would justify entry and exit are provided.


CONSOLIDATION BREAKOUTS

Consolidation and breakouts from consolidation are typical market patterns seen throughout the currency market. Consolidations are periods of indecision and low market liquidity in which traders are uncertain as to how a currency pair will be affected by a major, underlying economic factor. The larger the consolidation, the more significant is the underlying scenario that is unfolding. Whenever this issue finally comes to light in the form of a single or series of news releases, a sharp breakout at the Support or the Resistance of the consolidation will take place. The direction of this breakout will be in favour of the currency that benefits from the reaction to the news by investors and traders.


The graph below shows the large Pennant consolidation that was formed for the EURO JPY pair between July and August 2011. The Pennant coincided with one of the periods of the European Sovereign Debt Crisis in which Greece was believed to be on the brink of exiting the eurozone due to its severe fiscal and economic challenges. It was also feared that such an exit would have a ripple effect that led to other countries leaving the Union as well.

FIGURE 1- EURO JPY - DAILY CHART














In July, Greece was eventually provided with the assistance it needed to resolve its crisis and prevent contagion among other European countries. However, the market went back into crisis mode in August when European Commission President Jose Manual Barros warned that the Sovereign Debt Crisis was spreading beyond the periphery of the eurozone. Yields on government bonds from Spainand Italyrose sharply as investors demanded larger returns to lend to these countries. As a result, the European Central Bank said it would buy the government bonds of these countries to reduce their borrowing costs, amid concerns that they would be also be hit by a crisis.

Adding fuel to the fire of market uncertainty were developments taking place in the United States- the epicenter of the 2007-08 Financial Crisis. In August, Standard & Poor’s made a landmark decision to downgrade US sovereign debt from its prized AAA rating amid a political stalemate over the country’s debt ceiling. Citing a lack of confidence in the country’s ability to reach a political solution, S&P lowered its long-term sovereign credit rating and said it was pessimistic about future decision making. The historic move by S&P reflected the rating agencies’ push to become more proactive than they were during the financial crisis.

Within this context, a breakout short from the Pennant to reflect the selling of Euro and the safe-haven buying of the Japanese Yen was inevitable.  This began on September 8, 2011, with a bearish candle signal on the Daily Chart.


FIGURE 2- EURO JPY- DAILY CHART SIGNAL















As the currency pair presented this trading opportunity, entry took place immediately, with the target set for 200 Pips as per the methodology.


FIGURE 3 - EURO JPY - DAILY CHART RESULT














The target was hit after few days for 220 Pips, with slippage taking place to capture a few extra pips. This exit point also coincided with the appearance of Tweezer Bottoms, which are signals that indicate the end of a Breakout.

During this time, a Range had been formed on the Daily Chart of the USD CAD pair that also reflected the pessimistic sentiment of the market.  This Consolidation would also be broken to reflect the safe-haven buying of the US Dollar.

FIGURE 4 - DAILY CHART- USD CAD
















The signal to start the breakout came on September 21, 2011 in the form of a bullish candle breaking Resistance. That signal coincided with statements from the International Monetary Fund in which it forecast slower growth in the UK and the US and warned that the Sovereign debt and banking sector problems in the euro area had proven much more tenacious than expected.


FIGURE 5 - USD CAD - DAILY CHART
















Once again, entry took place on the same day of the signal, with the target of 200 Pips being set. This target was successfully hit a few days later.


FIGURE 6- USD CAD- DAILY CHART RESULT















The exit point for this trade took place at the area where consolidations normally end. This area is referred to as the Breakout Equivalent and is a concept that is applied to all consolidation types. Once this is correctly identified - based on certain parameters related to the consolidation in question- exit points for trades can be more confidently established. This allows the trader to be able to avoid the volatility and the pullbacks that normally follow the end of these breakouts.

The 2008 Financial Crisis also provided opportunities that were clear, strong and in sync with the types of setups that are targeted for trading. These setups formed part of the back-testing of the methodology and confirmed its robustness during these tail risk events. Consolidations were also formed during the early stages of the crisis, but these were much larger given the severity of the situation that was unraveling.

TRADING WITHIN CONSOLIDATION

Trades can also be executed within Consolidation boundaries instead of waiting until they are broken. To justify trading within these volatile setups, however, the distance between Support and Resistance should at least be 300 Pips. The EURO USD provided such a Consolidation, when it formed a 600-Pip Range between March and August of 2008.


FIGURE 7 - EURO USD-DAILY CHART









Senin, 21 Maret 2016

How do you limit drawdown using Kelly formula - forex trading techniques strategies

How do you limit drawdown using Kelly formula ~ forex trading techniques strategies


As many of you know, I am a fan of Kelly formula because it allows us to maximize long-term growth of equity while minimizing the probability of ruin. However, what Kelly formula wont prevent is a deep drawdown, though we are assured that the drawdown wont be as much as 100%! This is unsatisfactory to many traders and especially fund managers, since a deep drawdown is psychologically painful and may cause you to panic and shut down a strategy prematurely.

There is an easy way, though, that you can use Kelly formula to limit your drawdown to be much less than 100%. Suppose the optimal Kelly leverage of your strategy is determined to be K. And suppose you only allow a maximum drawdown (measured from the high watermark, as usual) to be D%. Then you can simply set aside D% of your initial total account equity for trading, and apply a leverage of K to this sub-account to determine your portfolio market value. The other 1-D% of the account will be sitting in cash. You can then be assured that you wont lose all of the equity of this sub-account, or equivalently, you wont suffer a drawdown of more than D% in your total account. If your trading strategy is profitable and the total account equity reaches a new high watermark, then you can reset your sub-account equity so that it is again D% of the total equity, moving some cash back to the "cash" account. Otherwise, you continue to keep the equity in the cash account separate from the equity of the trading sub-account.

Notice that because of this separation of accounts, this scheme is not equivalent to just using a leverage of L=K*D% on your total account equity. Indeed, some of you may be too nervous to use the full K as leverage, and prefer to use a leverage L smaller than K. (In fact, the common wisdom is that, due to estimation errors, it is never advisable to set L to be more than K/2, i.e. half-Kelly.) The problem with using a L that is too small is that, besides not achieving maximum growth, the portfolio market value will be unresponsive to gains or losses and will remain relatively constant. Using the scheme I suggested above will cure this problem as well, because you can apply a higher leverage L_sub to the sub-account (e.g. use L_sub = L/D%) as long as L_sub < K, so that the portfolio market value is much more sensitive to your P&L while still ensuring the drawdown will not exceed D%.

Has anyone tried this scheme in their actual trading? If so, I would be interested in hearing your experience and see if practice is as good as theory.
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Sabtu, 19 Maret 2016

Using Swing Points To Identify Price Reversals - forbi forex trading system download

Using Swing Points To Identify Price Reversals ~ forbi forex trading system download


We know that there is no such thing as a holy grail in Forex trading. However, when it comes to Forex charting, there is something that comes really close, and that is Swing Points. In fact, Swing Points really are the traders best friend as they are so much simpler to spot than complicated candlestick patterns with exotic sounding names, and more consistent in meaning when found at significant confluences of support or resistance. If you train your eyes to see these simple yet powerful chart structures and make them the central point of your analysis, you will be amazed at how much more accurate your trading calls will become. Guaranteed.

So, what exactly are Swing Points? A Swing Point (SP) High is an upside price extreme (ideally, but not necessarily represented by a price rejection wick) both preceded and followed by two lower highs on each side. This means that there needs to be at least five candles in the pattern. On the other hand, a SP Low can be defined as a downside price extreme (again, detected most easily by a price rejection wick) both preceded and followed by two higher lows on each side. The diagram below illustrates this concept.


The relationship of the two candles on either side of the price extreme to one another is not important, except that they have to be above a Low, or below a High. If they equal or exceed the extreme of the middle candle, then the pattern is considered not valid. An acceptable variation of this pattern is when the price extreme is found on two middle candles instead of one, resulting in a pattem consisting of six candles in total.

Now that we know how to identtify them, what is it about Swing Points that makes them so great? I can think of three things.

Firstly, Swing Points are a natural indicator, i.e. they are found within price action itself, and they show you in real time when a potential change is underway. By contrast, technical indicators (at least lagging ones like Moving Averages and MACD), usually need a little time to catch up to the turn.

Secondly, Swing Points relate to the wave structure of price action in a very direct way. In other words, constituent waves of a larger pattern - whether an impulse or a retracement - very often mark both their beginning and end points, on a SP High and Low. Obviously, this can be very helpful in detecting turns in the market.

Thirdly, on a lower level chart (e.g. 15 minutes), Swing Points can provide an effective signal for both entering and exiting a trade with relatively limited risk; and often, right when the market is about to start moving in the direction favorable to the trade. Can you think of any technical indicators that can do all that?

Now, heres the challenge. While SP Highs & Lows do serve extremely useful purposes, they share something in common with conventional indicators (although occurring less often): the potential to yield fake readings. Generally, this is more of the case on lower than on higher timeframes. On a Monthly chart, for example, well-formed SP Highs & Lows are far more likely to channel a turn into a major, many months (or possibly years) long trend than on the 5 minute chart, where they can be overly abundant, sometimes reflecting mere noise. In other words, a fake SP High or Low (as opposed to an invalid SP High or Low) is one that possesses all the characteristics indicated in the diagram above, but without accurately signifying a major price reversal.

Therefore, an important principle to remember is that we need a confluence of events to justify every single trading decision we make. This is because no matter how good the pattern, or the signal, or the measurement, none of them is so consistently reliable that we can safely use it by itself. So, while fake Swing Point readings do occur, so too do fake signals on trendline breaks, Fibonacci levels, Head & Shoulder patterns, oscillator divergences, or anything you can think of. But we dont give up on them because of it. Trading is only a probability, never a certainty. We should only respond to those trading oppotunities where the weight of evidence puts the balance of probabilities in favor of the market moving decisively in one direction or the other. Thus, well always look to confirm a SP High or Low with other things.

1. Start and End of Wave Structure
The following chart shows a market top clearly marked to the left. As we can see, the trend turned down thereafter with lower lows and lower highs, and a clear contrast between those linear looking legs down in line with trend, interrupted briefly by overlapping or flat periods of consolidation or retracement. Within this procession, we can see both SP Highs (marked by red arrows, usually signaling an opportunity to sell the rallies in the downtrend) and SP Lows (marked by green arrows, usually signaling near-term excesses of selling pressure).


While there are other Swing Point formations on this chart which are not marked, we nonetheless see that every single significant wave within the larger formation did start and end with a valid Swing Point. For instance, the third small corrective wave up from the left hand side of the chart (labeled 6) marks the end of a pullback to very near the 38% Fibonacci retracement level of the preceding leg down. That SP High marked both the end of a corrective leg and the start of the continuation down in line with trend.

Selling that rally at 1.4414 and holding it through to the start of the next major corrective pullback at 1.4029 (labeled 11 on the chart) represented an opportunity of 385 pips. You may want to look closely at all the marked portions of this chart example to see how Swing Points confirmed similar reversals, whether with or against the trend.


2. Well-timed Entry Signals with Limited Risk
When we have carefully analyzed all our charts from the higher to lower time frames and concluded that a high-probability setup is unfolding, thats where we can drill down to successively lower timeframes to look for a SP High or Low to trigger into the trade. You may have indicator signals you already like to work with for that purpose - such as a fast Moving Average crossover or a Parabolic SAR reversal - and thats fine. But what a Swing Point entry can do for you is both confirm the indicator signal and get you in, right when the market is turning. Again, it often takes an indicator a few bars to catch up with the Swing Point, so with this method you might actually enjoy a faster entry which can both reduce the size of your stop and increase your profit levels.

As a simple entry trigger, it is on the open of the first candle after the five candles comprising the SP pattern when a market order can be executed. In other words, all five candles in the pattern must have closed before action can be taken. Dont be too excited to jump into the trade that you dont wait for that last candle to close. A SP pattern wouldnt be based on five candle closes if it wasnt for a good reason. Trust the setup and wait patiently for it - it works.

The two charts below show a H4 chart followed by a concurrent M15 chart. On the higher time frame chart, we see a very large-scale corrective pullback against the uptrend, down to the Monthly Central Pivot (the horizontal black dashed line) - a potentially powerful support area. Price eventually pulled up from that area (circled, with green arrow marker), forming a higher degree SP Low. At the exact same point that price was nearing that support, a SP Low was confirmed on the M15 chart (again, on the close of the two following candles with higher lows). As can be seen from this example, once price started to move in the opposite direction, there was virtually no drawdown whatsoever: a very clean entry point with limited risk. Though this is admittedly something of a cherry-picked example, it is fairly representative of price action in conjunction with quality Swing Points that were always on the lookout for.



The above example demonstrates a bit of a dilemma we face, though, looking for Swing Points on different timeframes concurrently. If we want to act on the signal on the M15 chart, how do we know it will be confirmed by a later Swing Point on the H4 chart? If we wait for it on the H4 chart, wont the market have moved off the Swing Point on the M15 chart? In the live edge of trading, we cant know the answers to those questions definitively. The point is, when we execute on a low level timeframe, we are forced to act on incomplete information (the as-yet unconfirmed Swing Point on the higher timeframe, for example). Thats where a confluence of events becomes so important - we need lots of evidence of support on several timeframes when we go long, and similarly, we need lots of evidence of resistance on several timeframes when we go short. Thats the insurance we need to act on the low-level Swing Point.


3. Well-timed Exit Signals for Maximum Profit
Finally, the chart below looks at the closing side of the trade from the two charts above. Entering long where we did, and with a well-informed outlook that had the market rising in a larger 5-wave impulse pattern, a logical place to take profit would have been on or near a retest of the Old High resistance area (from the H4 chart), here marked A. You could have simply set an Exit Limit for a few pips shy of that Old High and left well enough alone. But lets say, you initially decided against that strategy. Then later, watching the live edge of the market as price approached that resistance level, maybe you changed your mind; perhaps the momentum of the move was starting to look questionable, so you decided it was a good place to take profit after all.


In this case, the SP High ending a leg up on a lower timeframe in close proximity to a documented resistance area would provide an excellent place to cover the long, just before price started a pullback, or possibly an outright reversal. In this example (a M30 chart), from the entry point on the third candle after the SP Low, to the exit on the open of the third candle after the SP High near the old resistance level, the total size of the run (excluding spread) was: (1.6970-1.6745) = +225 pips. This example has shown how Swing Points are realistically used in actua1 trading situations, as the logic of the profit target selected was quite typical.

If you are not familiar with Swing Points, the best thing to do is to simply practice, practice, and practice! A useful assignment might be to print off a single hard copy of each of the charts you work with for any Forex pair you like to trade (Monthly on down to M15), and simply circle every single SP High and Low you see, as per the guidelines specified above. Then ask yourself: Where did price go after each Swing Point? What was it about the Swing Points where sharp reversals happened that made them different from less effective Swing Points?

Were there other things going on in the chart at the same time? As you research these issues yourself, in particular by applying some of the other tools of technical analysis, hopefully youll start to develop a sense for which Swing Points are meaningful, and why are not.
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