The entire structure of financial trading is built upon a dune of sand
… brokerage houses come and go … government regulators are a joke, nothing
but political hacks … so called “markets” go red hot, then die … rules for
trading? … what rules? … there are no rules anymore, as every day is an
excursion into “The Twilight Zone” [TZ] for panic … how you think markets work,
they don’t … what you think is “volatile”, ain’t … and what you think are markets
for widows and orphans turns violent quickly … things that should make a
market go up, see it go down and vice versa … then on top of all of that, we got
the games LP’s play with the spread and how they fill orders and hand out
slippage.
And through all of this horseshit, the key crux of the situation begins and ends
with volatility … cuz once you get a handle on this, profits start flowing
consistently … it’s getting a handle on it that’s the tricky part … and while I don’t
have the time, money, or computing power to code for even the smallest
probability of events a market can go through, even if I did there are still an
infinite number I’m missing … all I can really do is enter the TZ and model
probability zones where in theory the trading algorithm should do well
… version 2 covers below average VIX AND ABOVE … it isn’t gonna help you on
days like this, where we got a quasi Holiday that allows traders worldwide to
take a 3 day weekend … and from the looks of it most of them made it a 4 day
weekend by taking Friday off as well … this VIX is so low, it makes a mockery
of the concept of trading … only FX and gold had the slightest movement, with
FX pairs barely a pulse, and gold surprisingly in Europe actually moved some
… WTF is that all about? … “Stock Bellies” and crude oil deader than dead, and
the end of the European session into the full U.S. session not even worth looking
at … so, while some years see MLK Holiday days with normal and volatile action,
this one ain’t one of ‘em.
Some years back, I wrote and published an article which the basic premise was
you could always make a living as a trader by trading FX crosses … at the time,
the major dollar pairs were quite active with the exception of USDJPY … seems
improbable given what we’ve seen in YEN over the last year, but while it sat and
did NADA, everything else was moving somewhere … and so I highlighted at that
time GBPAUD & GBPNZD … both had large ranges, low spreads, and they moved
beautifully … fast forward to today in the here and now … nothing special about
AUD or NZD, and the crosses I mentioned above are nowhere near the volatility
they were in years past … since the YEN is the denominator in most widely
traded crosses, and the YEN is most definitely moving, my choice for trading any
cross right now would be EURJPY … low spread, decent to excellent range, and
it has the highest volume & liquidity of any cross.
I bring this up cuz over the just completed Holiday period, both the Mrs. &
“Miss Gimpy”, now that I have completed the version 2 trading algorithm, have
asked me to look at some FX pairs and give my opinion about trading them
… crude oil is great when it moves, but when it doesn’t the high spread is a killer
… ditto with gold when it goes into a shell … as for “Stock Bellies”, both have
been stung on occasion by excessive slippage on fills, which pisses them off to
no end … so the question becomes, “when you enter the TZ, and don’t know if
the day is gonna be gangbusters or slow, how does the version 2 algorithm
model price behavior? … is it better than good? … how about “false positives”,
and under which scenarios do they most often appear? … finally, with a very low
cost to trade, where’s the general level of LOW VIX we need to watch out for?
Figuring out LOW VIX levels to avoid is the easiest to solve … that’s handled by
the “Trading Ratio” [TR], which if you’re new to the blog, is the following
… TR = (60 period SMA of high - low M1’s) / (cost to trade [spread]). Since the
cost to trade is relatively stable [hopefully], all you really need to look at is the
range of the M1 60 period SMA’s … simply create another chart on the MT4 and
insert a 60 period high, simple moving average, and then create another 60 period
low, simple moving average … take the difference between the two and that’s the
value you want to see … for FX pairs that have spreads below 1, generally a range
of 2.5 PIPS is sufficient to trade … below that and I would leave the pair alone for
the time being … just check back when conditions pick up.
“False positives” are always a problem in any trading model or algorithm … we
can’t get rid of all scenarios, but we can greatly reduce the number of them by
only trading a pair like EURJPY, when the range of the 60 period high/low SMA’s
is = or > 2.5 PIPS.
Where FX has a big advantage over markets like gold and crude oil, is in terms of
trading volume … you can easily do much bigger orders in FX than you can in the
CFD’s for gold and crude oil, and it isn’t even close by comparison … in addition,
leverage margins are usually much lower for FX … bottom line, is that the
version 2 algorithm works exceptionally well in EURJPY.
From the 20 Day Range MA’s I produce and release every Sunday on the blog
update for the following week, we can all see that values are dropping [almost]
… the Holiday period for 2022 didn’t do anybody any favors … but, I will simply
point out that EURJPY is currently = 179.4 PIPS, and that 3 months ago it was
= 171.8 PIPS [10/14/2022] … basically, it’s been stable to up a couple of percent
… crude oil currently = $2.74 [daily], and 3 months ago = $3.76 [daily] … for the
New York session it’s $2.16 versus $3.02 3 months ago … that’s down about 30%
in terms of volatility … gold is currently $24.07 versus $28.56 3 months ago
… down about 10%.
I’ve traded EURJPY since it came on the electronic platforms at the turn of the
century … it was never traded in the pits cuz it wasn’t dollar dominated … over
the last approximate 20 years, about the lowest 20 Day Range MA was in the high
60’s PIPS … [Yup, that’s low!] … it hasn’t stayed there long before expanding
… now, at some point, another cross will show up and for an extended period of
time trade like EURJPY does now … they all go in long cycles … but, the roadmap
is there for people to follow if they want to stay in FX and not move into gold,
“Stock Bellies”, or energy … it should be obvious, you can be as big as you
wanna be in a pair like EURJPY and as high flying as any crude or gold trader out
there … don’t let what’s on the surface of a market lead you astray! … and when
it comes to trading, don’t never say never!
Turning to today’s fun filled quasi Holiday of bullshit, there isn’t anything you can
take away from this clusterfark that means anything … with the U.S. basically
closed, crude oil was a joke … another day of a little over a buck range … no
trading today cuz I’m not an idiot … I will note, though, I’m gonna add EURJPY to
my list of tradeable markets, right alongside crude oil … I’m not gonna sit here
and watch crude oil volatility go down the drain and do nothing … if it moves
great, but so far everything else is moving and crude is dying … even in today’s
shit environment , EURJPY had a 100 PIP range, which is fine by algorithm
parameters … so if crude wants to stay quiet, I’ll trade EURJPY instead.
Trading is all about choices and being where there’s decent action … if it’s there,
it makes sense to trade it, and if it isn’t why be there? … prior to the 2008
financial crisis, this wasn’t a problem traders encountered very often, if ever
… since then, it’s a nightmare … prior algorithm models were simply too slow for
EURJPY, and they couldn’t handle changes in VIX that sees one day with a 200
PIP range, and the next day it’s 110 PIPS … the v2 algorithm can handle it
… although I’m not sure it could handle a day with something like a 40 PIP range
… no worries, cuz if it happened the TR would be the first thing to tell you to leave
it alone … onto the week.
… OUTTA HERE … “The future’s so bright I need 2 pairs of sunglasses 😎😎,
and my own Brinks armored truck” 💓!! … Onward & Upward!!
-vegas
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