Multi Strategy Foreign Exchange CORE
13 Aug. 2012
Category: Trading Systems
Multi Strategy
Foreign Exchange
CORE
Preposition:
Since many years i am making autonomous trading decisions as a private trader with many
different trading houses. Most of my trading takes place in Spot Forex, European and US
Indices derivatives - even though I have years of experience in trading of shares. To
deliver and achieve a consistent profitability, my trading system is based on fundamental
and chart technical approach. One of my strength is "event trading", which is focused on
very fast analysis of comments, economical news and other news worldwide. A strict and
clear risk and money management system guarantees the success of my trading activities.
Since I am rather impatient, I do prefer a high recall ratio with low profits and that is
why a 70%, "momentum trading" strategy makes the most sense for me. Based on different
market scenario's I am going to explain my favored strategies in the following.
Analysis:
My focus lies on a very few situations, which I try to capitalize off. Over time of
course, more and more setups will be added, which will allow me to act on other markets as
well. As samples for these setups I want mention "candlestick formations", "chart
formations" and "volatility phases". I am specialized on "momentum trading" in GBP, EUR and
USD because I do appreciate the volatility and it is easy to get information from different
sources. Therefore volatility can be used for "momentum trading" strategies. Short trades
with a high recall ratio and small profits for every trade is the main approach.
Implementation:
When I trade my momentum strategy I really do need a "momentum" - the situation when the
market is moving. At first I try to figure out a market movement, based on my analysis.
This usually happens with strong trend phases on a long term basis and with news. Before I
start the trading, I analyze if the qualifications for my personal trading requirement are
met. For that purposes I research fundamental facts and also "daily/weekly" charts. When I
believe that the majority of all market participants are in favor of one side of the
market, I do have good chances to catch a move. The principle of "the trend is your friend"
comes into play here. If I do not see any kind of indication for a long term market
movement, I do not take any action at this time.
Strategies:
News trading - This is based on the fact that I use extreme momentum for my trading
decisions. Here we are dealing with a market environment where all market participants are
waiting on a specified fundamental result and a specified moment to take money out of each
other's pockets.
If I am acting to slow in such situation or if I am waiting to long, the opportunity to
take a position will be lost. An important difference to conventional "news trading" is,
that I do not speculate if the news is good or bad and how this has impact on the prices ,
but I let the market decide for me in what direction to go.
1.
First of all what I need to identify is a situation, where I can make a decision. This
situation is given by some specific indicators as long term trend changing points and
fundamental "size occurrence", as it is known now in the US economy. The FED is in a
quandary here, they need to decide to either push the US economy by keeping the interests
low or to put pressure on loans by increasing the interest rate. The US economy's
speculation for stabilization in a phase of low interest is degraded by economic market
data. Therefore it is very likely that the market will rather show breakouts on US economic
data. Such "big moves" are privileged to happen during day time, when a high volatility is
given anyhow. News that are being released at for example 14.30 CET or earlier, have a
bigger impact on volatility, because more traders are actively trading during day time in
EUR/USD.
2.
The price chart will be observed on a short time base before the news is released, to find
a clue in what direction the "big players" are building their positions. Normally this
happens very slow and without any "momentum", because if a "market maker" was to open less
bigger positions in the market he would lose his face. Therefore it is not unusual when the
price rate is driven in the opposite direction a few hours before the news are released.
3.
To position myself in the market, I have to look for suspicious candles, bars which have a
more wide range and which develop in direction of the released news. The choice of the
timeframe is very important here, because what looks like a spike on a 15 minutes chart can
indicate a perfect setup on a 1 minute timeframe. Personally I look at 15Min-, 5Min-, 1Min
and Tick - Charts. The market entry takes place about 5-10 Pip above that Bar, the Stop,
if mental or real, will be placed 5-10 Pip below that Bar.
Perfect News setup in 15Min - Chart I observe the suspicious candle, which is bigger than
the previous ones and goes in direction with the news.
Entry: 5-10 Pip above candle, Stop: 5-10 Pip below candle.
Exit: First reversal bar
Here on 1Min. chart the News setup has shown the way, but I was stopped out by the spike in
the news bar.
100% recall ratio: it does not exist.
My bread and butter strategy for trading on daily basis: One is for trend phases and the
other one for sideward markets. The trend setup needs a long term trend, which needs to be
based on fundamentals and evaluated on the daily chart. For example if the EUR/USD daily
chart shows a valid uptrend combined with a fundamental USD weakness(e.g. confirmed through
a high price for gold), I have "green light" for entering the market. I am looking to enter
the market in trend direction only, I do not trade counter trend strategies or sideward
markets here. If there are no news on the schedule, I look for market entries on EUR/USD in
the morning time, when the quite time of night trading switches to a phase of higher
volatility. When the momentum appears in trend directions, I wait for the first market
consolidation and then enter about 5-10 Pip above the consolidation range. Stop loss for
this setup would be the consolidation low.
reversal bar" and bear divergence in MACD indicates a downtrend phase.
I look for short - trades here
The first Short trade after 8.00 o'clock: Outbreak from consolidation. Entry: 5-10 Pip
below the Low (green line), stop: 5-10 points about lower High (blue line) Exit: Closing
price of Reversal bar.
My range setup needs different conditions. Other than my trend setup, here I find entries
at turning points and resistant /support levels. If the price reaches certain levels with
high volatility where many different orders are in place, the market will usually show an
intraday sideward movement. Sell orders are mostly placed above long-term resistance lines
either as a profit target for long positions or as a short positions of contrarians. Below
the resistance lie buy orders, e.g. as target for contrarians, with support lines this
happens exactly vice versa.
Outside Reversal: Since this range has a slight down scale, I only look for short entries
here.
The determining candle (red arrow) opens beyond the BB's and closes below the upper
Bollinger bands.
Entry: 5-10 Pip under the Close (green line) of this candle
Stop: 5-10 Pip about the Open of this candle (blue line), Exit: The stop is adapted to the
Open after every down bar, position is closed after close of Doji bar
The following up trend is not traded in this set-up.
Position dimensions model:
Risk / Equity per Trade +- 1 %,
The position dimensions model determines the amount of lots traded that is needed to not
lose more than the "position size" in worst case. The size of the Stop loss is decisive:
the bigger the stop, the smaller the position.
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