Parabolic SAR - that's all!

[dpaterso]

Good morning,

Thanks for posting you thoughts on interest rates Akram and Alan.

To be honest - I'm not quite sure that I understand this whole thing of interest rates and what their long term effect is on a currency pair. All I DO know is that when a country raises their interest rates that country's currency strengthens AT THE TIME OF THE INTEREST RATE ANNOUNCEMENT. What happens AFTER that I've never bothered to follow or analyse so I don't know if that's why it appears that we are talking 'at cross purposes' to each other.

From what I have learned / heard / seen in the past couple of months is that there are certain currencies that are extremely sensistive to interest rate changes and those are the USD, JPY, CHF, and EUR.

Why these currencies?

Because I'm led to believe that they are used for the 'carry trade' e.g. investors will borrow money in Japan at a very low interest rate and invest it in the USA (for example) where interest rates are much higher and, obviously, their profit is made from the difference between the interest earned on their investments in the USA and the interest paid on their loans taken out in Japan. Now - think about it logically - if Japan RAISES interest rates - then the interest rate differential between the USA and Japan narrows i.e. the profits to be made because of the interest rate differential between the two countries are now reduced. So - in the case of the USD - if the US lowers interest rates (which I for one am really hoping that they don't) - then the USD will weaken against the JPY SO - in this case - on that day - you would want to be short USD/JPY (or rather short USD/??? BUT long ???/USD). What happens after that i.e. in the longer term I do not know. What I have also noticed of late is that these huge 'interest rate spikes' of late are not so pronounced of late i.e. when I first started out and, let's say the BOE raised interest rates, the GBP/??? would 'spike' up 'to the moon' (and then come slowly down again - that' trading the news) BUT lately - whenever there has been an interest rate announcement - the 'spike' has not been nearly so pronounced. From what I gather it is because investors / traders have already 'priced in' the expected interest rate change.

I'll tell you that it is something that has always confused me (especially in the beginning). I mean - logically speaking - one would 'think' that the lower the interest rates - the better for the country i.e. lower interest rates - people pay less for their homes on a monthly basis or motor vehicles and spend more and life is good for 'non traders' - but - from what I have seen - this is somehow not the case from a 'forex' point of view.

As I type this message - I find myself asking the question: "Are currencies used for the 'carry trade' affected differently by interest rate changes than currencies not used in the 'carry trade'''? Maybe that's where the confusion is coming from.

Tell you what - I'm going to send a PM to John Forman ('rhodytrader') and ask him to take a look at these last few messages which relate to interest rates and ask him if he would not mind giving us some input on the subject (if there is ANYONE that can clarify these issues it will be him).

Regards,

Dale.

[dpaterso]

By the way - I found this article (a link from the calendar at Forex Factory) - regarding the CHF and what 'might' happen today:

Preview – Brave SNB Expected to Hike Rates

I'm not sure if it will make you 'feel' better or not - at this point it appears that we simply don't know what they (the Swiss) are going to do today but - here's hoping!!!

Regards,

Dale.

[pip huntter]

I know u guys might be waiting for the book i am sorry for not posting it latter as my DSL wasn't working properly.

So i am attaching 2 pic one for the intrest rate the other for the book name and the writer name and what he do!!

Now i can say in forex low intrest rate means good for the currency it will go up and the vise versa have alook and check it and also the biggiest impact always happen when somthing unexpected is happing

[pip huntter]

[quote=dpaterso;21772]Good morning,

Thanks for posting you thoughts on interest rates Akram and Alan.

To be honest - I'm not quite sure that I understand this whole thing of interest rates and what their long term effect is on a currency pair. All I DO know is that when a country raises their interest rates that country's currency strengthens AT THE TIME OF THE INTEREST RATE ANNOUNCEMENT. What happens AFTER that I've never bothered to follow or analyse so I don't know if that's why it appears that we are talking 'at cross purposes' to each other.


Well Dale,


What i was saying is concerning the intrest rate was about forex and there emmediate reflect on the market any ways i think we should invastegate it more deeply coz yes it is very important we have to know it coz it give us the feel for how things is going to go.


Akram

[Hypechic]

Hello People,

Sorry I've been absent for a while. Had go out of town for work. I just now got caught up on the thread. You guys have been pretty busy.

Dale, what kind of moving average did you use to calculate your 'almost' alligator on Delta? I mean, should I use the simple MA or exponential MA? Oh and how exactly did you calculate it? I noticed that Delta uses the close price for calculating MAs and I don't know how to change it.

Forgive me for pestering you with all these Delta questions but fortunately or unfortunately, you have the honour of being my resident Delta platform mentor.

Thanks.

Joan

[rhodytrader]

Normally I don't get involved trading system discussions, but Dale asked me to chime in on the interest rate discussion.

All other things being equal or held the same, an increase in a country's interest rates will be a positive for its currency. If it happens unexpectedly - a surprise rate move - the market will normally rally that currency. If the move was expected, generally the market reaction will be muted and potentially even faded. All of this would be flipped around for a rate decrease, of course.

That said, rates are not isolated things. You have to consider the underlying reason for rate changes. For example, if rates are rising because of rising inflation, that's not going to be a positive for a currency.

Also, falling interest rates are often indicators of economic weakness in a country, which makes the whole currency depreciation that much more.

Keep in mind that in the big picture there are two supply/demand drivers of exchange rates. One is trade. The other is capital flows.

[pip huntter]

did u guys see the book ???Dale u saw the book?I guess u have a hard time now ?


Akram

[dpaterso]

Hello,

Akram: what book? I don't see any attachments or anything like that.

As far as trading is concerned - yup - I'm having a VERY bad time right now!!!

I ended up closing ALL of my positions on anything AUD/CAD/NZD and took a HUGE LOSS on these positions.

Now - I know what you're all thinking - 'See - even HE can't stick with the indicator'!!!

Now - while I ordinarily would agree with you - this time it was done for a GOOD reason - not just on a 'whim'!!!

As you know - I've been questioning the 'validity' of including the 'commdolls' in this 'strategy' and - I've come to the conclusion - that EITHER - you exclude them altogether - OR - you only take positions on them IF the direction being indicated by Parabolic SAR is correctly 'correlated' with the relevant commodity.

In other words:

If the 'Parabolic SAR direction' of Gold is up - then you buy or go long AUD/???, NZD/???, and ZAR/??? and you sell or go short ???/AUD, ???/NZD, and ???/ZAR.

If the 'Parabolic SAR direction' of Gold is down - then you sell or go short AUD/???, NZD/???, and ZAR/??? and you buy or go long ???/AUD, ???/NZD, and ???/ZAR.

If the 'Parabolic SAR direction' of Oil is up - then you buy or go long CAD/??? and you sell or go short ???/CAD.

If the 'Parabolic SAR direction' of Oil is down - then you sell or go short CAD/??? and you buy or go long ???/CAD.

I'm undecided in the case of pairs like AUD/CAD, AUD/NZD, NZD/CAD, etc. etc. i.e. where the 'commdolls' cross so any input would be GREATLY appreciated.

Before opening any of the above positions you still have to wait for a valid Parabolic SAR entry signal on the pair and a 'valid' signal will only be one that is in the 'correspondingly correctly correlated direction' of Parabolic SAR on the commodity (metal).

That's quite a mouthful!!! Make sense???

Now - that's the reason that I closed all of these positions i.e. Gold - although the rally 'looks' like it's run out of steam it has not yet turned according to Parabolic SAR - and the same applies to Crude Oil - and - what has been happening the whole day (since opening these positions in fact) - is that these positions were ALL taken in the wrong direction i.e. false Parabolic SAR entry signals so waiting it out on these positions just for the sake of 'sticking' with the indicator was really futile i.e. the loss was inevitable - it was just a case of how big the loss was going to be at the end.

Now you may say 'well - it should not really matter - as long as you took the signal from Parabolic SAR in the correct direction - then the movement of the pair should still continue as if the pair was moving just like any other pair'. Well - from what I can see - not so. The movement of the other pairs happens because of 'normal' factors (for want of a better description) and 'influences' such as interest rates, supply and demand, that kind of thing. With the 'commdolls' though - because there is a high correlation percentage between them and Gold and Oil - it would appear that the correlation 'overpowers' (again for want of a better description) the 'normal' factors and 'influences' that would affect any other currency pair. In other words - yes the AUD would be affected by interest rate changes in Australia (as one example) but the influence on the AUD of the Gold price is greater - if you know what I mean.

I hope that all makes sense - and I REALLY hope that if I'm posting 's**t' here that somebody will correct me (by the way - at least I think I was right about CHF today).

Because of the above factors - I wrote off a LOT of money today - but it's still less than it would have been had I just waited it out. I'm confident - that WHEN Gold and Oil DO turn around for real - I'll make up the losses and then some on the 'commdolls' if I stick to the above 'strategy'. Of COURSE the possibility exists that Gold and Oil will continue on up 'like there is no tomorrow' and all of the positions that I closed today would have turned into a profit before being reversed - and then I'm going to find another way of making a living!!!

Jean:

I have attached a self-extracting WinZip file. Download it and run it (by double clicking on it - and don't worry - I guarantee it's virus free) and just accept all the default prompts. Then - when you're on a chart - 'Add/Remove overlay indicators', select the 'More' button, move right down the menu until you see the folder 'Native', click on the plus sign to the left of 'Native', and right at the bottom you will see an indicator called 'AMA(Bill Williams' Alligator MA's). Click on this and - hey presto - you now have an Alligator on your chart (well it's not a 'true' Alligator because it is not 'shifted' a couple of bars ahead because I don't know how to do this - yet - but it is nevertheless the same MA's as per Bill Williams books i.e. he does not say whether they should be simple, exponential, smoothed, etc. etc.). They (the MA's) that I used are just simple MA's - but I see that on Metatrader 4 the Alligator consists of 'smoothed' MA's - but from what I can see - there is no 'real' difference i.e. if you change the MA's from 'smoothed' to 'simple' on Metatrader 4 there is such a slight difference in there appearance that I can't see how it would matter.

ONLY EXTRACT THE FILE THAT I HAVE GIVEN YOU IF YOU HAVE NOT MADE ANY CHANGES TO OR ADDED TO THE FORMULAS ON DELTA'S PLATFORM BECAUSE MY FILE WILL OVERWRITE ANYTHING THAT YOU HAVE ADDED OR CHANGED.

ALSO - YOU HAVE TO RENAME THE FILE FROM ALLIGATOR.ZIP TO ALLIGATOR.EXE IN ORDER TO RUN IT (you can't upload executable files to the forum).

If you HAVE added your own formulas or changed stuff there then I'll somehow have to give you instructions on how to create the thing yourself.

Regards,

Dale.

[dpaterso]

By the way - here are the two pages that Akram wanted to upload.

(You could not upload them because when you scanned them you scanned them at too high a resolution i.e. they were to big to upload).

Makes for some interesting reading (and does not look like a bad book to have - maybe I should go into the publishing business instead)!!!

Regards,

Dale.

[dpaterso]

Another 'by the way'!!!

I have just got to tell you all that I'm feeling extremely despondent right about now - about this 'system' and everything.

I mean - I am battling to understand how - in the space of a month or so - I managed to make a 114% capital gain - and now - since the beginning of this month - have pretty much taken loss after loss after loss. I mean - I'm not doing anything different here - so what's changed???

This is EXACTLY what I was afraid of (last month) i.e. was this just 'luck' i.e. being in the right 'Parabolic SAR place' at the right time last month??? Is it because I am not following my own advice and seeing the trades through no matter what??? What is it???

I mean - I find myself looking at each and every chart - all day - looking for reasons WHY this was a good trade and WHY that was a bad trade and WHY WHY WHY!!! It's driving me nuts!!!

I can look at a chart of any of the 44 pairs and say 'well - that was a good place to enter because . . .' or 'there was no conceivable reason for me to not take that trade' and the trade has turned bad. Then I can look at another chart and the reasons for NOT taking that trade (based on Parabolic SAR and MACD and Akram's 'Alligator' and, and and, . . .) are absolutely SCREAMING at me - and yet - somehow - that trade managed to turn a HUGE profit in some cases.

Then I find myself thinking 'this is why I lost interest in forex trading in the first place' i.e. trading the Indices is a whole different world from trading forex pairs.

Then I find myself thinking 'but hang on - you started this all - it was an 'experiment' at first - which just happened to pay off BIG TIME from the 'get go' - so what now'???

I mean - here I thought I'd be winning Delta's competition this month!!! At the moment I'm feeling like I'll be lucky to have an account LEFT let alone winning the competition!!!

Maybe I'm just tired (I do know from past experience that when I get like this the best thing to do is take whatever profit / loss is 'on the table' and walk away - because otherwise - I get into this 'I WILL find a profitable trade even when I don't see one in front of me' mood - and - needless to say - this has ALWAYS turned to disaster). Not only that - but then I would AGAIN - be going against everything I've said in this thread!!!

I mean - although I'm still 'up' on this account - because of my 'windfall' last month . . . Actually - that's the problem i.e. I need to know or be able to prove that last months 'action' was NOT a windfall!!!

That's the problem with this business (for me anyway) i.e. the 'highs' are 'HIGHS' (when you're making a profit) but the 'lows' are 'REALLY LOW' when you're not making money i.e. the 'lows' are not 'proportionate' to the 'highs'!!!

Now I'm leaning on you guys - sorry - but I need a 'reality check' or a 'pep talk' or something like that!!!

I don't mean to depress you - I know it'll pass.

Why am I telling you all of this anyway!!!

Regards,

Dale.