Tag Archives: Automated Forex Trading

Modern Portfolio Theory remains a major part of many investment portfolio allocation processes. Basically, the idea of MPT is that one can combine a collection of securities into a portfolio which offers comparable return prospects with reduced risk. This is done by mixing together stocks and other assets which are not well correlated, or perhaps are negatively correlated.

Sounds good, right?

The problem is, as has been discussed, that individual stocks have become extremely highly correlated to the market in recent years. This, by definition, means they have become increasingly correlated to each other as well, reducing the opportunity for diversification in portfolios using the old methods.

Another issue with MPT-based portfolio development is the fact that correlations change over time and in different time frames. The chart below from Oanda shows a recent set of correlations between EUR/USD and other currency pairs (as well as gold and silver).

Notice in the AUD/USD column how the correlations to EUR/USD are strongly positive (darkest red) in the hour, day, and week time frames, but then are uncorrelated in the longer time frames, and even negatively correlated at 3 months. In the case of USD/JPY we can see the correlations are very time frame depended, running the full spectrum over the time frames. Even with silver and gold (XAG/USD and XAU/USD) the correlations aren’t consistently strongly positive.

All this correlation variation creates considerable challenges to standard asset allocation and portfolio development methods and approaches. Imagine creating a portfolio of stocks that have been properly minimally correlated only to have them all become highly correlated? It would totally change the portfolio’s risk dynamics, and likely at the worst possible time.

This is where the importance of considering diversification not just in terms of markets and securities, but also in terms of trading/investing approach becomes clear. This is the approach of fund-of-fund investors. They seek out uncorrelated money managers, exactly the same sort of thing you can do by taking part in the Trade Leaders program.

An article appearing July 30 on LeapRate.com reported a strong jump in retail Forex trading volume, which was up 3% for the month of June - the highest it’s been in 2012. LeapRate, a Forex research and advisory firm, uses a compilation of data collected from various FX brokerage firms to measure monthly and quarterly activity levels.

This aggregate data, referred to as Leaprate’s Retail FX Volume Index, showed an average daily Forex trading volume of $196 billion for the month of June (up $6B from May). The rising volume is attributed primarily to the return of volatility to the currency markets. As Europe’s crisis slowly reaches its denouement, volatility has really started making its ascent back into the markets.

Gerald Segal, Managing Director at LeapRate, reported that most of the volume growth has been taking place in emerging markets, primarily those of the Asia-Pacific region. This week, emerging-market stocks have continued rising with speculation that central banks will attempt to stimulate economic growth. By lessening the borrowing costs in Spain and Italy, investors wary of risk would likely be a bit more apt to look into emerging market investments.

Sources: LeapRate research, monthly and quarterly volume reports of various Forex ECNs and Forex brokerage firms.

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Earlier this week, Sina Corp., the company who provides the Chinese social media service called Weibo, saw a 3.8 percent rise in stock prices. Bloomberg reported that Weibo, a micro blogging platform comparable to that of Twitter, is now offering a premium service for users who are willing to pay a fee of 10 yuan per month. The hope is that they will be able to offer services users will actually really want to use in order for them to oblige to paying a fee.

Recently, Weibo has been appearing in the news due to the role it played in the June 14 Chinese food scandal. It was on this day that Inner Mongolia Yili Industrial Group Co. announced a recall of infant formula that was found to contain mercury. A Wall Street Journal article reports that searches pertaining to the incident were blocked from the social media site. It’s believed that censorship of this sort is done in an effort to control the spread of news on food safety, something that could threaten the stability of that Chinese economic sector.

With the growth of China’s economy currently in question, it makes sense that the Chinese government would want to preserve their strongest industries. Right now, with last years sales reported at $28 billion, one of those industries is dairy. Directly preceding the release of this information, Yili’s shares dropped 10 percent, which is the maximum fall allowed in one session.

This issue gives new perspective to the Chinese internet censorship issue. It is often projected in a negative light, attaching to it a stigmatism of the Chinese government encroaching on the population’s freedom of speech and freedom of access to information. But in situations like this, where negative news spread via social media could potentially wreak serious havoc on an industry integral to economic stability, should regulation be enforced? Also, what about people who might not have otherwise heard about the recall and continued to consume tainted food?

With the sharp rise in popularity of social media services, there very well might be an increasing need for new forms of regulation.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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After a very successful webinar with Adantia LLC, we couldn’t wait to invite co-founder Brad Kuhlin to the Currensee office to find out more about their trading strategy. Brad let us in on a few secrets of Adantia’s stop loss strategy, an impressive three-stop system. The first video includes additional information on Adantia’s trading approach and their special stop loss strategy. In the coming weeks, we will add three additional videos to this post. Adantia trades under the ROCED.A ticker and has outstanding risk adjusted returns since becoming a Currensee Trade Leader.

Adantia LLC Interview Introduction from Team Currensee on Vimeo.


Predictions on volatility in 2012:

What forex strategies will prevail in 2012:

Comments on the Euro breaking up:

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Last Wednesday, Currensee hosted a live webinar with new Trade Leader, Andantia. BarclayHedge ranked Adantia the #1 currency trader managing under $10 million. During this webinar you will learn that Adantia managers are not “swinging for the fences,” but instead they are looking for “a quality steady return over a long period of time.” Also, Adantia’s propriety, automated trading algorithm has been through years of testing and live trading.  Adantia speaks to how their model has worked exceptionally well through volatile market events including the flash crash, Japan tsunami, and the recession of 2008. Find out how Adantia is searching for uncorrelated returns in every market situation.

Please check out the recorded webinar with Adantia LLC. Below are some questions from the presentation. Feel free to jump directly to the answers:

How will current and future market conditions drive strategy adjustments? (25:27)
How did your strategy do during the times of intense market uncertainty? (27:45)
What do you look for in your back testing? (42:55)
What is your risk per trade? (47:05)

 

Live Webinar with Currensee Trade Leader, Adantia from Team Currensee on Vimeo.


Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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A big trend right now in the industry is automated Forex trading of signal providers. Most of the Forex brokers today offer their own proprietary solutions and there are various independent providers like Zulutrade, collective2 and others that offer the ability to automatically execute signals.

I’ve spent some time over the past few months looking at these automated trading solutions and, as a trader I have to tell you, I don't see how anyone will be able to make money with these platforms, as the lack of transparency and accountability is astonishing. I’ve looked at a few leading signal providers and they trade without stops, keep losing positions open forever and hide poor performing months under different names. Also, the lack of properly presented performance information makes it impossible for the educated investor to reach an informed conclusion that will make him money.

The main problems these platforms have, are that they 1) rely on trading signals that are executed in demo accounts and 2) don't rely on a specific trader that manages real money. In these scenarios, replicating a signal lacks the most important components of trading, which are money and risk management and trading on a demo account versus a real account. This simulated trading style relieves the trader from worrying about his losing positions as it's not real money anyway and the market will eventually turn around.

We see a change in this market of traders following with the launch of Covestor’s and Kaching’s new services. Here at Currensee, we're working on an innovative way to give our members the ability to follow real trades made by real people with real names and real performance using a real Forex trading account. We call it full transparency and are seeding this change and will be the first company to offer such capabilities in the Forex space.

If you are a consistently good trader and you are interested in learning more about how you might participate in this new service, we'd love to hear from you!

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

This post is the first in a weekly series of Forex market analysis. As an avid market-watcher and trader, I am always looking back to see what happened and looking forward to consider what might happen. An interesting twist on my market analysis is adding the Currensee social analytics and seeing how the trader network performed and what they'll be thinking about in the week ahead. I welcome your thoughts, comments and suggestions on how to make this unique analysis more valuable to you. So, without further delay, let's talk about this week in Forex trading.

Another big week ahead for traders with many top events to look forward to including Friday’s Employment report out of the US.  There are also a slew of central bank meetings around the globe and although there may not be any major surprises this may present the stage for one or more of the central banks to hint that their ultra low rate policy is nearing an end.

Of course May will be remembered for the continued positive impact from the reflation story as most stock markets turned in positive performances and foreign currencies such as the Euro, Gbp and NZD made sizable gains versus the dollar with Euro/$ closing above 1.40 for the first time since last August.

Though, that doesn’t mean it’s been a one-way move in the markets.  In fact, when I look at the Currensee strategy set-ups, the trading strategies that have produced the best results of late have been more defensive strategies.  One such member strategy is a “Pairs trade” which is a market neutral strategy that places an emphasis on the correlations of currency pairs.  Another successful member strategy is one that focuses on divergence in stochastics with momentum considerations.

Back to the importance of the Employment report, one could argue that the gains in many foreign currencies last month, such as the Euro and Aud, can be attributed to two economic reports:  1) the better than expected NFP report back on May 8th and 2) the more recently released and much improved Consumer Confidence report.  This only lends confidence that the worst of the recession is now behind us and the US consumer is as resilient as ever.

Initial expectations for this Friday’s report are for another loss of 530k jobs with the unemployment rate hitting 9.2%.  Will we see another report that shows a reduction in layoffs, or as some traders expect, will this report disappoint the markets?  Traders at Currensee as of right now are expecting a disappointment as 75% remain short EUR/USD thus not all are convinced that the US economy is improving.

Of course there are plenty of economic events ahead of the NFP that will grab trader’s attention including the latest PMI and Service PMI (or ISM) readings in many of the industrialized countries.

As we previously mentioned, not to be discounted, will be the outcomes of a few central bank meetings this week.  This includes the Bank of England and the ECB on Thursday.  Although expectations will be for an Unchanged outcome from the ECB, comments from Gov. Trichet’s press conference will as always be closely watched for any hints on his and their level of concern of inflation in the Euro zone.

The Bank of England has had its bank rate at 0.5% since March.  Last month they stated that global demand was “weak” but they also were expecting a recovery in due course as they state there is plenty of ‘stimulus in the pipeline’.    Similar to EUR/USD, the vast majority of traders on Currensee remain Short the GBP/USD currency pair.  Cable traders will be certainly be paying close attention to any signs that the Bank of England will not remain in an ultra low rate policy for too much longer.

Not to be outdone on Thursday will be the Bank of Canada interest rate decision.  They cut their repo rate to 0.25% in April thus the duration of their ultra-low rate policy will be in question going forward.

One currency to keep in mind this week will be the Australian Dollar (AUD).  It’s up approximately 30% versus both the USD and JPY this year as the RBA has kept their base rate far above their peers at 3%.  Thus although they have more than halved rates since last summer the currency has exploded this year.  As a country that relies heavily on commodities, which have been flying high of late, will the RBA start to signal that they are becoming uncomfortable with the prospects of higher inflation this week?  Or is it time to take profits on long positions as a strategy that utilizes momentum divergence, such as MACD, signals that this upward move is losing strength?

Either way, look to see how traders react on Currensee this week. Until next time, happy trading.

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Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

1 Comment

Automated Adam, Discretionary Derrick...meet Team-trading Tom.

There are many types of traders on this earth. Regardless of whether you trade forex, futures, or equities, you understand one thing. Your success depends on your long term ability to determine accurately which securities to play in, how much you enter a position with, and when you enter and exit a position.

For automated system traders, the initial parameters of mixed oscillators and indicators can be a large determinant to how you perform even after you've optimized it. You understand the market can be bipolar and act completely irrational and work against your system when you least expect it. You make money from the market largely due to the statistical edge you've gained through proper back testing and scrutinizing the losses far more than your possible winnings. Even then, you realize that not all systems will be forever profitable for the lone reason that the market is essentially human and no mathematical model can accurately and fully describe human behavior.

If you are the discretionary trader, then you realize what the automated trader does but you also see patterns; some may even "feel" them. Profitable intuitive traders can "feel" the current of the market's waves much like a surfer "feels" the ocean's flow. Discretionary traders are also adept with support & resistance, chart patterns, candlestick patterns, Elliot wave theory, and Fibonacci points - on top of risk management theories and the usual list of indicators and oscillators.

Now. There is a third type of trader. One who can be one of the aforementioned types of traders on top of being a team player. This trader is capable of gauging support and resistance without needing to draw a line at all. This trader is capable of connecting to those which are better than them, those who are equal to them, and those who want to be as good as them. This ability to collaborate adds a "whole 'nother way of lookin' at the game." This trader realizes that this information resource is invaluable since they realize that they can see what most others cannot. They may have the insight of a discretionary trader or the discipline of a automated trader. However, with this new level of analysis, traders will have the ability to filter out their methods of trading with social indicators and can see the community bias on the balance of the market.

Years ago when I starting doing forex, since it was all new to me, I spent a lot of time just reading website after website looking for information and learning everything I could get my hands on. It was to the point that I woke up every morning and immediately starting thinking forex. I was not trading live yet, but I learned everything I could. This included risk management involving gambling theory, chart patterns, various indicators, and trading systems. I starting getting into it, digging myself a hole until I was buried. Why was I drawn to it so much? It was a few things: I liked how everything could be visual on graphs, the way money exchanges hands has mesmerized me since I was in elementary school, it involves technology, but most of all it involves people. People watch birds; I watch people. Not in a creepy way but to observe human social interactions and motivations. I think I've always been like this. So, when I had the chance to jump on board with Currensee, I was all over it.

This opportunity lets me see things in a completely new way. If I had to describe myself, I'd be mostly an automated trader. I like developing a mechanical means of reading the market where discipline is absolute and it can work for me non-stop. At Currensee, I'm a bit of all these types of people. I've taken it upon myself to beat my biggest weakness, discretionary trading and discipline. I've narrowed it down to the necessity for me to follow my rules and to learn from my mistakes. And, now, I'm teamed up with other people. I can trade real-time with them while messaging, posting and starting new discussions. I can even make strategies around them if I care to. I can also learn from traders who are better than me and teach traders who don't know as much as me. All while getting information on the community's trades and opinions on fundamental news and currency pairs.

If you asked me a few months ago if I thought I'd mix up my automated trading approach, my answer probably would have been "hell no." It works and why change something that's not broken. I've gotta say that team trading has opened up a whole bunch of new ideas and strategies for me. I've connected with people around the globe - people who trade differently than me. And I'm challenging myself by using several different approaches - something that's hard to do with a machine.

So, that's my take. I'm curious to know what you think. Is your trading style open to some team spirit?

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Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.