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Monday, November 28, 2016

THE MOST IMPORTANT TRADING TABLE


“It’s so bright you’re gonna need sunglasses to handle it!”
Over the long Holiday weekend, I spent a lot of time on a table I’m going to show here in a second; it just might be the most important trading table you’re ever going to see. After I finish the stock indices manual here shortly, I’ll be doing a “manual” and “tutorial” on USDJPY, the only FX pair worth trading in my humble opinion in today’s FX paradigm.

I really needed the time over multiple days to compile and finish this data and put it into a comparison table; I think the results of the data will amaze you at the very least. Directly below is the table, and below the table I will explain the significance of each column as it pertains to our trading.
[CLICK TO ENLARGE]
The first column is all of the “tradeable” markets on the MT4, which according to our statistics, meet the criteria for trading the volatility algorithm on the M1; if you don’t see it on the list, in my opinion it isn’t volatile enough over time to be considered reliable for everyday profits. There simply are better markets to trade and make money, and I don’t trade [and neither should you] because I’m emotionally connected to some market that has a special place in my heart. This biz is about money, nothing more nothing less. There are 3 stock indices, 2 FX, and a single shares CFD; crude oil and the DAX30 are not on the list for 2 reasons; 1) while there are algorithms for both, when they “go dead”, they go dead quickly and can stay that way for a long time. As long as they are volatile, they can be traded, thus both are good “plan B” choices if other markets are slow [not likely but it happens sometimes], and 2) in the case of the DAX30, it is closed overnight and thus the data is “skewed” compared to other markets which basically trade 24/5.
The second column is the number of trading days in the sample set where data was collected and analyzed; the Russell 2000 stock index and the CFD for Amazon have smaller sample sets than the other 4. The Russell 2000 has only been available since June 2016 on the MT4, so I collected all the data for this market, and Amazon only starts at the beginning of 2016 because its share price is so high, you can’t use the same numbers for it when it was half the price it is now and expect volatility to be anywhere near the same level. The other 4 markets all have large enough sample data to reflect a 98% confidence interval over the entire life of the market with ± 3% margin of error; the data here is statistically “rock solid”.
The third column is the MOST IMPORTANT; this gives the “profit ratio” [PR] of the market over time. The higher the PR, the easier it is to make money. When we get a buy/sell signal from the algorithm, in any of these markets, the PR is the probability of success of the signal over and above the 50/50 chance of success given by “random walk theory” and “modern portfolio theory”, which says markets are completely random and can’t be predicted. For example, in USDJPY, the PR is 4.3; what that means is that the buy/sell signal has a 430% better probability of success than a 50/50 chance predicted by “random walk and/or modern portfolio theory”. In essence, when you do the math, it breaks down to having 4 losing days out of 1,000 market days traded; THAT EQUALS ABOUT 1 LOSING DAY PER YEAR WITH A 50/50 CHANCE OF LOSING MONEY. “Thank you! I’ll take that every day of the week for life!”
The fourth column is the PR of the days where algorithm rules prevented you from trading because the market did not meet the threshold for trading that day; in other words, the algorithm identified “chop” and kept you away from the action. As you can see, the PR for each market is significantly less for these days than it is when you are trading via algorithm rules; these are exactly the kinds of days we don’t want to be trading.
The fifth column spells out exactly what this threshold is for each market. For example, in USDJPY it is 40 PIPS and in gold it is $6 per Oz.; from the days open in Asia, the market has to be a minimum of 40 PIPS or $6 per Oz. FROM THE OPEN in order to trade for the day. No matter when you sit down to trade, night or day, if it hasn’t met the minimum set forth in the table, your probability of getting “chopped” and losing money is significantly higher than other days. Know the minimum for the market you are trading!
The sixth column is the actual number of days in the data set where either the daily threshold was not met, or we had a market “one off”. In 2015 and 2016 we had 3 “one offs”; 1) the “flash crash” in August of 2015, 2) “Brexit”, and 3) U.S. elections. The data for these days has been exempted because they abnormally “skew” the data from normal days, and thus give a higher PR number than normal due to abnormally high ranges for the day. In addition, if I had gone back farther than the last few years, the data would also have raised the PR’s for each market. In essence, what you’re looking at is “worst case” profitability over many, many years of data!
Columns 7 and 8 are the percentages of tradeable days either not traded [7] or traded [8], according to the data.
Columns 9 and 10 are the “net” trading cost at either ASSETS FX or LMFX to trade these instruments. Share CFD’s, like Amazon are not offered at ASSETS FX, and the Russell 2000 stock index is not available at LMFX. The “net” costs are pretty close to each other, with a slight edge to ASSETS FX in USDJPY; gold is relatively the same.
The last column is my subjective ranking as to the best market to trade, and the surprise here[as many people have told me] is that USDJPY is clearly the best market to trade; it has the lowest cost of doing business of any market [on a par with exchange membership in the 80’s & 90’s that cost $500,000 +], the highest liquidity[meaning no matter how big you think your account is, it’s small compared to bank trading where the average size trade is approximately $35 million], the best volumes in all 3 major world trading sessions [Asia, Europe, & the U.S.], and one of the very best in terms of long term PR. In short, it’s the best market to trade, and I’ll have the manual and tutorial on it shortly, once the stock indices manual is finished and posted.
Turning to gold … well, what can you say after last Wednesday and Friday … talk about washing out the stops … and if you were around your screen when they took out $1200, once again around the century mark stops can get “ugly”; on Friday, one second it’s trading at $1203 and the next second it’s at $1888 … “thank you, please come again!”
On the back of some Yen strength overnight, this morning sees gold higher after the Asian Chuckleheads bid it higher [“of course they did, it’s their job I think.”] … half hour to the New York open and the market is $7 off the high of the day and only $4 from the low … unless the Yen starts to strengthen aggressively today going forward, look for gold to “chop” or weaken … it’s not as if you don’t know the drill by now … Asia up, New York down …just another day in the “Naked City”.


An hour into the New York session, and gold has slipped from above the white daily calculated horizontal line to now below the line threatening the lows made last night near the open in Asia … how many times do I have to say this to the world … “no matter how far they rally it in Asia, it isn’t far enough for the bullion banks to sell it down later in New York.” Ok, market made us wait, but the wait was worth it … lower exhaustion RM=1 move and then the subsequent bounce yielded about $3 from the low … “thank you, see ya.” Days first trade directly below.




“Seriously, how much more perfect does this thing have to be?”
Here, just before the Chicago Noon hour, market is hanging around the while line; hit my profit goal, I don’t see the need to wait for any kind of afternoon action that might give it back. I’m outta here. Until tomorrow.

Have a great day everybody!
-vegas
OPEN A DEMO AND/OR LIVE ACCOUNT AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”
 

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