EURO USD TO FORM CONSOLIDATION SETUP IN THE NEXT FEW DAYS - forex millionaire trading system

EURO USD TO FORM CONSOLIDATION SETUP IN THE NEXT FEW DAYS ~ forex millionaire trading system

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The EURO USD may be in the early stages of forming a Consolidation Setup based on the nature of the sharp rally that has taken place over the last few days. If we see this play out over the course of the next few weeks, there may be an opportunity for us to trade within the boundaries of Support and Resistance until a breakout takes place.

As we can see in the chart below, the pair has finally broken the Large Pennant Consolidation that was formed between 2008 and 2014.

DAILY CHART - PENNANT BREAKOUT

Given the size of this Consolidation, we should expect this breakout to continue in favour of the USD for the Medium to Long-Term heading into 2016. However, as we can appreciate more clearly from the chart below, the EURO has started to rally in defiance of this overall outlook.

DAILY CHART - BREAK OF INNER TREND LINE 

  

The Inner Uptrend Line was broken with a pair of Double Bottoms. This has been followed by a sharp rally that appears to be taking the pair to the Outer Downtrend Line. If that barrier is hit, the pair could continue even higher towards the Long-Term Downtrend Line before breaking back inside of the Pennant.

On the other hand, it could also U-Turn bearish to resume the overall direction of the Consolidation Breakout at either the Outer or Long-Term Downtrend Line.

  

DAILY CHART - FORECAST SCENARIOS

Despite the possibility of a bullish scenario that takes us back inside of the Pennant, the current strength of the Downtrend makes a bearish U-Turn the more likely outcome over the next few weeks. Another reason for this bearish outlook has to do with the nature of the candles that have led to the current rally taking place. The sharp movement, the small candles and the fact that the reversal follows a very long trend, are some of the signs of the start of a Consolidation Setup (Section 4, Part 2).

This means that we could see a pullback at either of those two Trend Lines to form the 1st Resistance point of a Consolidation Setup.

DAILY CHART - PROJECTED CONSOLIDATION 

If this materializes, then we will have opportunities to trade between Support and Resistance until the breakout takes place. We will do this by firstly determining the time frame that is controlling the signals and then analyze and trade accordingly for our 100 to 200 Pip Targets.

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What are we to do with Sharpe ratio - forex trading strategies today

What are we to do with Sharpe ratio ~ forex trading strategies today

I wrote several times before how useless Sharpe ratio is for certain types of strategies: see here and here. Not only is a high Sharpe ratio quite useless in telling you what damage extreme events can do to your equity, a low Sharpe ratio is also quite useless in telling you what spectacular gain your strategy might enjoy in the event of a catastrophe. I came across another brilliant example of the latter category in the best-selling book "The Big Short", where the author tells of the story of the fund manager Mike Burry.

Mike Burry started buying credit default swaps in 2005, essentially an insurance policy on mortgage-backed securities, betting that there will be widespread defaults on mortgages. Of course, we now know how this story would turn out: Mike Burry made $750 million in 2007 alone.  But there was nothing but pain for the fund manager and his investors in 2005-2006, since they had to pay an annual premium of 8% of the portfolio.  Investors who measured the performance of this strategy using Sharpe ratio, without knowing the details of the strategy itself, would be quite justified to think that it was an utter disaster prior to 2007. And indeed, many of them lost no time in trying to pull out their investments.

So what are we to do with Sharpe ratio, with its inherent reliance on Gaussian distributions? Clearly, it is useful for measuring high frequency strategies which you can count on to generate consistent returns every day, but which has limited catastrophic risks. But it is less useful for measuring statistical arbitrage strategies that hold positions over multiple days, since there may well be substantial hidden catastrophic risks in these strategies that would not be revealed by their track record and standard deviation of returns alone. As for strategies that are designed to benefit from catastrophes, such as Mike Burrys CDS purchases or Nassim Talebs options purchases, it is completely useless. If I were to allocate my assets over different hedge funds, I would be sure to include some funds in the first category to generate cash flows for my daily needs, as well as funds in the last category to benefit from the infrequent black-swan events. As for the funds in the middle category, I am increasingly losing my enthusiasm.
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Public service announcements for quants - forex trading strategies uk

Public service announcements for quants ~ forex trading strategies uk

   1.  Conference on Computational Topics in Finance, February 19/20, 2010, National University of Singapore. The topics will include using R/Rmetrics in finance, but the conference is by no means confined to R. See http://www.rmetrics.org/.

   2.  Consulting position (6-month renewable contract) available at a major Canadian bank in Toronto:  research in  various mathematical algorithms used for pricing of interest rate derivative instruments like swaps, caps, swaptions, FRAs. Please contact their recruiter at http://www.linkedin.com/pub/kevin-p-w-wang/6/899/29a.

   3.  A free copy of Chapter 8 of "High Probability ETF Trading" which I mentioned here is now available for download.
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Picking up nickels in front of steamrollers - forex trading eur usd strategies

Picking up nickels in front of steamrollers ~ forex trading eur usd strategies

When I was growing up in the trading world, high Sharpe ratio was the holy grail. People kept forgetting the possibility of "black swan" events, only recently popularized by Nassim Taleb, which can wipe out years of steady gains in one disastrous stroke. (For a fascinating interview of Taleb by the famous Malcolm Gladwell, see this old New Yorker article. It includes a contrast with Victor Niederhoffers trading style, plus a rare close-up view of the painful daily operations of Talebs hedge fund.)

Now, however, the pendulum seems to have swung a little too far in the other direction. Whenever I mention a high Sharpe-ratio strategy to some experienced investor, I am often confronted with dark musings of "picking up nickels in front of steamrollers", as if all high Sharpe-ratio strategies consist of shorting out-of-the-money call options.

But many high Sharpe-ratio strategies are not akin to shorting out-of-the-money calls. My favorite example is that of short-term mean-reverting strategies. These strategies not only provide consistent small gains under normal market conditions, but in contrast to shorting calls, they make out-size gains especially when disasters struck. Indeed, they give us the best of both worlds. (Proof? Just backtest any short-term mean-reverting strategies over 2008 data.) How can that be?

There are multiple reasons why short-term mean-reverting strategies have such delightful properties:

1. Typically, we enter into positions only after the disaster has struck, not before.
   
2. If you believe a certain market is mean-reverting, and your strategy buy low and sell high, then of course you will make much more money when the market is abnormally depressed.
3. Even in the rare occasion when the market does not mean-revert after a disaster, the market is unlikely to go down much further during the short time period when we are holding the position.

"Short-term" is indeed the key to the success of these strategies. In contrast to the LTCM debacle, where they would keep piling on to a losing position day after day hoping it would mean-revert some day, short-term traders liquidate their positions at the end of a fixed time period, whether they win or lose. This greatly limits the possibility of ruin and leaves our equity intact to fight another day in the statistical game.

So, call me old-fashioned, but I still love high Sharpe-ratio strategies.
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EURO USD TRADING GAIN AHEAD OF STRONG REVERSAL - forex lines 7 trading system review

EURO USD TRADING GAIN AHEAD OF STRONG REVERSAL ~ forex lines 7 trading system review

The EURO USD provided us with a small trading gain of 46 Pips on Thursday as we took advantage of the sharp Bullish Reversal that was predicted in December 2015. The original trading target was 165 Pips but by the end of the Holding Period established for this trade this had not been hit, obligating us to close our trade for the smaller profit. During this trade, a sharp bearish pullback had threatened our Stop Loss, coming within 5 Pips of taking out our trade. 

This pullback would have tempted many to exit the trade for fear of being stopped out. However, thanks to the rule that we have of never looking at our trades while they are open, we were able to capture this trading gain as the market u-turned and rallied once more. As a result, this trade, combined with the 138 Pips from the GBP USD, has now given us a good start to 2016 with a Rate of Return of 9.4%.

The screenshot below is taken from the Private Video Analysis we did for the EURO USD in December which predicted the sharp rally. 

As can be seen from the current patterns for this pair, this was exactly what occurred in the last few days. This provided us with the trading gain as we entered at one of the Bullish Candlestick Signals.

The chart below shows our Entry Setup on the 4 Hour Chart, including the original target that was set at the Resistance Boundary of the Range.

Entry and our Stop Loss placement were done using this ABC setup - a setup that was predicted a few days earlier...

Now this is where it got interesting. For traders who choose to follow their trades, the pullback that took place after entry would have led many to close the trade as the market began reversing towards the Stop Loss.

This would have led to an unnecessary loss instead of the trading gains offered by the rally that eventually took place. The temptation to monitor our trades while they are in motion is very common. It is very natural to want to ensure that our trades are heading towards our targets without any pullbacks that threaten our Stops. While this can prevent some losses, it is a habit that can affect our long-term profitability. 

The Forex, like all markets, has a natural tendency to move in waves towards its daily, weekly, monthly and yearly targets. This reflects the changing value of currency pairs in response to changes in economic fundamentals and investor sentiment. It is therefore necessary for us to expect this for all our trades and not interfere. This is why it is crucial to adjust your platform so that you do not see the chart of the trade open nor the balance but only the tab that shows you whether the trade is still open.

Another important issue related to this trade was the Holding Period. Keeping our trades open for too short a period can curtail our profitability while having them open for too long can expose us open to unnecessary volatility. It is for this reason why a specific time period is used for each type of trade to establish a balance between these two extremes. 

When the Holding Period for this trade had ended, we had to close the trade regardless of the floating profit/loss at the time. This decision was later proven to be accurate as you can see from the pullback now taking place.

This trade highlighted many of the important things we need to succeed at trading over the long-term. These relate to the technical factors that determine our decision to execute a trade but more importantly the emotional aspects of trading - the traders Achilles Heel. 

Watching our trades can feel like the right thing to do to ensure profitability given the volatility of this market. However, this can be a serious hindrance to success if this leads to the habit of constantly closing trades before they have a chance to hit our targets. By adhering to the rule of not watching your trades and obeying the Holding Period, you will be assured of maximum gains for each trade ahead of sharp market reversals.

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100 RETURN ONLY 9 TRADES AWAY - one percent daily forex trading system

100 RETURN ONLY 9 TRADES AWAY ~ one percent daily forex trading system

Between January and September of this year, several trades were made using my Price Action Methodology to generate gains of 150 Pips on average per trade. The most recent of these came from the AUD NZD and the AUD USD at the start of September which together provided a total of 218 Pips. If an investor or trader with an initial capital of US$100,000 were to use this Methodology as a means of accumulating large rates of return within a few months, he is likely to be able double his capital within 6 months with only a handful of High Probability Trades.

The table below shows some of the trades made earlier this year which represented a sample of those made over the last 6 years (see Past Trades). On average, they required a risk of 105 Pips and provided an average gain of 150 Pips.


TABLE 1 - JANUARY 10 TO SEPTEMBER 17, 2014

The Methodology is such that these trades arise an average of 2 times per month. They rely on the Daily and 4 Hour Charts for entry and exit signals and were held for a pre-determined number of days until their targets were hit. With that initial capital of US$100,000 and starting with the last 2 trades closed in September, the investor or trader would be just 4 months and 9 trades away from generating a 106% return.


AUD NZD TRADE- DAILY CHART

AUD USD TRADE- DAILY CHART

TABLE 2 - TRADES NEEDED IN 4 MONTHS

Assumptions - 5% Risk Per Trade, 2-3 Trades/Month, 105 Pips Risk, 150 Pip Reward, No Losses

 

The risk per trade would be 5% and only one trade would be executed at a time. Naturally, with all Methodologies, losses can be expected along the way as shown in Table 1. However, given the accuracy of the strategy in picking winners, these losses would only temporarily delay the attainment of this 100% return.

These figures reflect the past and expected accuracy of the Methodology in identifying the best trading opportunities. Trades throughout the Forex can be divided between those with a high probability of success and those with average to low probabilities of success. Smaller Time Frames generally provide the latter while trading strategies based on the Larger Time Frames will always give higher-paying trades for larger returns.

As you would have noticed, the last two trades shown here on the AUD USD and AUD NZD were breakouts from Consolidation boundaries. These setups have become the most common pattern in the Forex market due to the extraordinarily low levels of volatility in 2014. In fact, most of the trades since January have also come from Consolidation breakouts. This requires a strategy that not only delivers in normal trending markets, but also during periods of low volatility that require trading between Support and Resistance as well as breakouts when they finally take place.

Although these results are possible within a fairly short period, they require a lot more discipline and patience relative to Day Trading. They are not as frequent as the trades that are seen on the Smaller Time Frames, but when they do present themselves, the Pips that they offer to traders more than compensate for the wait. The high probability that these trades will be successful when certain criteria are met, also justifies the use of this Methodology by Portfolio Managers dedicated to achieving the short-term and long-term goals of their clients.

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Duane Shepherd 

(M.Sc. Economics, B.Sc. Management and Economics)

Currency Analyst/Trader

Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

Facebook: DRFXTRADING 

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70 PIP TRADE DAY TRADING STRESS VS SWING TRADING BLISS - forex turtle trading system pdf

70 PIP TRADE DAY TRADING STRESS VS SWING TRADING BLISS ~ forex turtle trading system pdf

The recent 70-Pip trade made on the AUD NZD highlighted the main challenges faced by the typical Day Traders using the Lower Time Frames. This trade required entry at the Bullish Candle Signal that started a breakout from a Range and a large Pennant Consolidation on the Daily Chart. However, Day Traders would have encountered a more volatile picture on the smaller charts that would have severely limited their profitability during this Bullish breakout.

The charts below show the breakout that started the trend that provided the trading gain. Entry took place immediately at the close of the Bull Candle with the Stop Loss and Profit Targets set according to the rules of the strategy.

DAILY CHART - SIGNAL

DAILY CHART - TRADE RESULT

This was a simultaneous breakout from a large Pennant Consolidation and a Range setup at its Resistance.


DAILY CHART- TRADE SETUP

In contrast to this fairly straightforward setup, many Day-Traders on the 30 Minute Chart would have faced a more challenging scenario. As we can see in the chart below, the Bullish Candle on the Daily Chart was actually formed by a Range breakout on the 30 Minute Chart.

30 MINUTE CHART

Many Day Traders would have avoided entry here, however, given the size and volatile nature of the candle. The large wick on that candle would also have suggested the end of the breakout, while the subsequent reversal and sideways pattern limited any possibility of a profitable trade. 

  
Nevertheless, a trading possibility eventually appeared on this time frame in the form of another Consolidation breakout.


30 MINUTE CHART- PENNANT TRADE 

Entry could have taken place at the Bullish Candle that broke Resistance with the Stop Loss at the Support area. Unfortunately, the breakout for this would have been limited to only 15 Pips ahead of the reversal a few hours later. For scalpers, this 15-Pip gain would have been a good trade, but for others holding out for more, breaking even or incurring a small loss would have been the result. Yet for others who may have held out in hopes of a turnaround, a total loss on the trade would have been suffered.

Following this period, the currency began to move sideways in a volatile pattern, offering very little in the way of tradeable setups. 

30 MINUTE CHART - VOLATILITY

Those aiming for small Pips may have been able to scrape out a few more to add on to the 15 Pips. However, the sharp reversals and spikes would have made this a very stressful, losing endeavor. Others aiming for more would also have been left without any opportunity to compensate for the previous losses.

The results from this type of trading over the long-run are often lower than expectations despite the attraction of the smaller charts. The greater volatility and the need to continuously monitor the market at all hours of the day can take their toll on a trader. For Swing Traders on the other hand, only a few hours are spent trading and analyzing the market prior to entry. Instead of aggressively battling a large number of candles at a time, only a few candles stand in the way between entry and profitability.

DAILY CHART - STRESS FREE TRADING

Trading can be a lot more enjoyable and profitable than what many are led to believe. If this is done using the higher time frames that reward the trader rather than the smaller time frames that reward the broker, long-term gains will be made.  Spikes that come out of no where to take out our Stop Losses and unexplained pullbacks that reduce our profits can all be avoided.

By using my Methodology and emailing the Code at the end of the Manual and you will also benefit from;

• Detailed Trade Setups sent 30 Minutes before Entry;
• Daily Analysis of Currency Pairs;
• Weekly Technical Analysis on Specific Topics;
• A Currency Trading Experience focused entirely on Making Money;

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RECENT EMAIL FROM CLIENT

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SUBSCRIBE TODAY

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US$120.00

Free 

 ___________________________________________

Duane Shepherd 

(M.Sc. Economics, B.Sc. Management and Economics)

Currency Analyst/Trader

Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

Facebook: DRFXTRADING 

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