A while ago I got a bunch of books from Amazon that I’m currently going through. I just finished a real page turner that I definitely recommend to anyone, even vaguely, interested in financial trading. It is the story of Long Term Capital Management (LTCM) and the people behind it, a lot of professors, MIT graduates and even two Nobel price winners (every Swede knows that Alfred Nobel didn’t consider Economics a real science and that the prize in Economics really is given by the Swedish Riksbank in memory of Alfred Nobel, and not by the Nobel Committee itself). What I find the most interesting is the belief that these guys had in their models of the world and that markets are rational and efficient. This lead them to take risks that were hard to understand and quantify. Essentially they never closed positions for loss, they waited til they reversed and showed a profit. They could do this for a long time because they had large sums om money and could get loans from a number of banks.
I find myself in the same situation (but at a much smaller scale of course) with the range trading strategy implemented in my Green EA. The strategy and model was based on a currency (or whatever really) that traded in a defined price range. Both currencies I traded with the strategy, AUDNZD and EURCHF, had been confined in a range for over 10 years when they both broke out at almost the exact same time this spring. AUDNZD reversed back into the range (within safety limits), but EURCHF is currently about 1400 pips outside and really shows no signs of reversing. Had I let this roll all my accounts would have been destroyed now (just like the demo that I haven’t interfered in here).
The same happened to LTCM. They traded a lot of different instruments (focus on bonds) in a lot of different regions, that normally hedged each other. Anyway, I don’t want to give away the ending. Read it yourself 
When Genius Failed: The Rise and Fall of Long-Term Capital Management
I just found that I apparently have a demo account trading Green that actually stretches back to almost the first version (it started trading v1.01). I upgraded it to v1.16 last week which introduces quite a lot of extra bells and whistles, but the main strategy is completely untouched of course. Nice to see that it has been making small but steady gains through out this very difficult time. AUDNZD breached its 10 year historical high with about 250 pips at the same time that EURCHF was around it lowest in 10 years. Since then AUDNZD have backed down, but EURCHF of course kept on falling as the Greek turmoil escalated. When prices where around or out of the extremes it didn’t make much of course, but as you can see it has made up for it as AUDNZD have recovered.
One thing I’ve actually learned here is that you should take time and set up proper demo accounts trading your EAs from the first moment and then make an effort to upgrade them along the way. I’ve traded a lot of demos of course during the development of Green, but most have been experiments with different settings and pairs. Some also have been closed because they were time limited by the Broker (annoying thing). So, for future projects I will focus on setting up proper demos, and also I will setup more on Green using other brokers and other pairs (it trades any pair, but a AUDNZD / AUDCAD / EURCHF combination is what I think is the best).
Oh, and as a side note, I am thinking of selling Green EA somehow. I don’t have a plan ready thou, and I don’t really have time to support it as I’m working a regular job as well as other projects… We’ll see what happens
I’m terribly late with this update. It was a terrible week so I haven’t had any motivation to write about it, but the idea with this blog is to force me to analyze performance and think about past results. So here is the post. The losses are in a great part due to a human mistake (mine). Like I wrote last week I put the wrong stoploss level in a lot of my hedges in AUDNZD, I set 1.3020 instead of 1.3120, losing me 100 pips in quite a few trades.
Also my scalping at JadeFX primarily (my main account for this kind of trading) was not very successful, a first for 2010 actually. Hopefully it recovers the loss in the coming weeks.
Total loss over the week across all accounts: $1775.40. Just terrible.
Read more…
Week 14 was really dominated, for me, by the rate hike decided by RBA which shot the AUDNZD above 1.32 again. This time I hedged my positions thou and closed the hedges on the way down. I had some left too long thou, which cost me dearly in the end. I miss placed the SL on quite a few trades so that they were not closed at 1.3120 as intended. Clumsy me put them at 1.3020. A very costly error (that will show even more in next weeks update). Mea culpa, no one to blame but me.
Total gain over the week was $228.28. Next week won’t be so nice thou, since a lot of the hedges are still open and in the red.
Read more…
I just realized that I didn’t make a weekly update during the Easter holiday. I was extremely busy during the weekend and it was a really welcomed break from work and trading. Because of the Holiday I only let my scalping EAs trade Monday and Tuesday.
The AUDNZD and EURCHF gave me real problems again. Both pairs trended outwards, minimizing my margin once again. One positive action was the massive selling of CHF the SNB shocked the market with on Thursday afternoon, catapulting the EURCHF up 240 pips. The AUDNZD trended higher thou as the market anticipated a rate change of 0.25% from the RBA (which was fulfilled after the Tuesday meeting).
Total gain over the week was a meager $62.69.
Read more…
Another trading week closed. The movement downward in EURCHF is putting some serious strain on my Alpari UK and Forex.com/UK accounts. AUDNZD moved down to, and even below, 1.29 this week which really helped my CFX account. I have some open buy positions caught up there thou, didn’t expect it to reverse quite so quickly. Read more…
This week most of my profits actually come from manual trades, as opposed to automatic ones that usually make up 100% of my trading. I am by no means a manual trader, but I have been making some manual buys in AUDNZD as hedges to my open positions. I still have a few open (that is negative now, but I’ll keep them til we’re at 1.2850, which feels “safe” or hits 1.31 again).
There was no trading on my JadeFX account this week as it has been moved to the new liquidity provider. I’ve gotten a new VPS from Jade, which now sports 2 gig ram instead of 1 gig, and have been demo trading from it during the week. I will keep demo trading only today and start easy with just a few charts live tomorrow. Read more…
… and it really breaks my main accounts right now. I’ve been grid trading this pair with RoboMiner since July 09 and gradually increasing the funds traded because it seemed a solid system. AUDNZD hadn’t been above 1.30 (or 1.2967) for 10-years. During January this year I spent 80-100 hours making my own gridtrading EA based on the same principle (but with quite a few improvements I think). They both break when price moves above ~1.30 thou, and this week it did, with a bang. I put my own EA, called Green, live just one month ago with a safety margin of 200 pips, IE it wouldn’t trade as soon as there wasn’t enough equity to cover a move to 1.2967 + 200 pips = 1.3167. Right now we’re at about 1.31. IE I only have about 70 pips left of margin before the margin calls start.
So, what to do? I can’t do much I think. I won’t fund the accounts with additional funds to cover even more margin. I am contemplating a hedge trade, but I feel that I should already have done this when the range broke, but I didn’t. So I might put in a smaller hedge now (for perhaps just 1/3 of the short positions) just to extend the upper limit I can handle. If we’re lucky NZ have been catching up to AU before my margin is out or at least AU have released some news that shows their growth have declined. The next high impact news out of NZ is scheduled for next Wednesday and Thursday, but analyst doesn’t really anticipate any improvements.
So what was my main fault? I didn’t diversify enough and went in with to much money into the same, somewhat flawed, strategy. Again. Also my timing was awful. Just one month ago I funded my CFX account and started trading the AUDNZD range. Had I waited just one month I wouldn’t have an additional $7000 on the line right now. What I should have done, and really was my original idea, was to trade multiple pairs with low correlation and I should have started out with smaller amounts. But the growth curve of trading the AUDNZD compared to the other pairs was too tempting.
So what does this mean for the future of AUDNZD range trading? I don’t know yet. If NZ catches up quick enough price should move down again and perhaps the cycle will continue for years to come, but with a higher historical high. Perhaps they don’t catch up and price goes up a bit more and starts ranging at a considerable higher range. It really shows that there is a need for more safety margin than 200 pips also, but when simulating with 500 pips the profits really isn’t to impressive anymore. One thing is for sure, next time I will be more careful.
