A Contrarian Approach

I’d like to document an experiment I’ve started

But first, some background - I’ve been involved in Forex for about a year and a half on and off. With various minimal successes trying system after system after system (and so on).

I am not entirely convinced there is an “edge” in technical analysis. I’ve been “Fooled by randomness” perhaps, as the title of Taleb’s book goes.

I’ve tried to find edges on various timeframes, using candles and patterns - realistically, none worked for me. Indicators? Nope - didn’t have much joy with those either.

I was out of FX for some months, and started reading about fundamentals and how they move the markets. How hints of direction of each countries currencies can move with statements and policies of each respective central bank. Perhaps following the direction of “money” moved by fundamentals can tame this beast?

I could go on, but here are the simple rules of my system:

  1. Minimal technical analysis. I am aware of the prices on charts, and how they “move” - but really I’m just using the chart as a guide to whether we’re up or down.

  2. Fundamentals. I’ll pay heed to the underlying fundamental currents moving the market.

  3. I’m betting against retail. I’ve noted that when currencies are rising - retail are short and vice versa. Ill be on the other side of retail.

  4. Position trading. I don’t trust my entries enough to be able to enter with pinpoint accuracy. So, when the conditions are right I’ll enter and with a wide SL allow the market to sort out my entry.

>>

With that in mind, lets do some trading.

Trade 1 - Short EURUSD

Fundamentally, it looks like (or so I’ve read) that the fed are looking to raise rates in the US next year. With that in mind - we’ll continue to see a flow out of Europe’s moribund economy into the US.

Technically - the chart is down (ie. price action is occurring in the bottom right hand side of my chart)

Retail - retail are net long.

Entry rules:

Price has approached or is breaking a decent level (we’ve just broken through 1.2271)

Stop Loss

Position trading - so 5 times the 20 day ATR

So - I’m in - Short EURUSD @ 1.2227 - SL @ 1.2702

[QUOTE=“ArtOfWar;673016”]I’d like to document an experiment I’ve started

But first, some background - I’ve been involved in Forex for about a year and a half on and off. With various minimal successes trying system after system after system (and so on).

I am not entirely convinced there is an “edge” in technical analysis. I’ve been “Fooled by randomness” perhaps, as the title of Taleb’s book goes.

I’ve tried to find edges on various timeframes, using candles and patterns - realistically, none worked for me. Indicators? Nope - didn’t have much joy with those either.

I was out of FX for some months, and started reading about fundamentals and how they move the markets. How hints of direction of each countries currencies can move with statements and policies of each respective central bank. Perhaps following the direction of “money” moved by fundamentals can tame this beast?

I could go on, but here are the simple rules of my system:

  1. Minimal technical analysis. I am aware of the prices on charts, and how they “move” - but really I’m just using the chart as a guide to whether we’re up or down.

  2. Fundamentals. I’ll pay heed to the underlying fundamental currents moving the market.

  3. I’m betting against retail. I’ve noted that when currencies are rising - retail are short and vice versa. Ill be on the other side of retail.

  4. Position trading. I don’t trust my entries enough to be able to enter with pinpoint accuracy. So, when the conditions are right I’ll enter and with a wide SL allow the market to sort out my entry.

>>

With that in mind, lets do some trading.

Trade 1 - Short EURUSD

Fundamentally, it looks like (or so I’ve read) that the fed are looking to raise rates in the US next year. With that in mind - we’ll continue to see a flow out of Europe’s moribund economy into the US.

Technically - the chart is down (ie. price action is occurring in the bottom right hand side of my chart)

Retail - retail are net long.

Entry rules:

Price has approached or is breaking a decent level (we’ve just broken through 1.2271)

Stop Loss

Position trading - so 5 times the 20 day ATR

So - I’m in - Short EURUSD @ 1.2227 - SL @ 1.2702[/QUOTE]

Ah you’ve reached enlightenment. The recognition that their is more to trading then simply prices on a chart is an important step that will take you to a whole new level if you persevere with it.

If you want to discuss forex fundamentals I’d be more then happy to, been doing this for awhile and can happily give you some pointers regarding the subject.

Regarding your point about only trading against retail positioning, be careful with that. I’ve spent some time studying this and the conclusion is that the best use for retail positioning may to look for when retails are pushed to an extreme then enter WITH them in the same direction.

http://fxtrade.oanda.com/analysis/historical-positions

The above link will give you some historical info on open position ratios of retailers.

The logic behind my statement is that retailers love fighting trends, as price goes up, retail short positions grow (as you mentioned I believe). Once you get to an extreme (when retail short positions have reached 75% or more) the trend is usually pretty old, and therefore likely for a substantial pullback. The timing of these pullbacks more often then not coincide with the retailer extreme position ratios.

You can see this occur in the link I gave you.

A more valuable insight into forex position is the COT report. Spend some time researching that, if you aren’t familiar with it, as it provides additional insight that you may find helpful.

Yep, one other thing, think about all the wise sayings you hear about, things like - buy low, sell high, or buy at wholesale prices (whatever they are), or R:R if your TP is 40 your SL MUST be 20, or even you must have an “edge”.

An edge implies a tiny thing, something so small that you would have to cling to it.

None of us need an edge, when you think of it who is the edge on, is it the broker, is it the counter party to the trade, is it the market.

What we need is what Art is setting out on, we need learning, we need understanding, we need practice ,we need experience, we need thinking.

Art, Global is right, your journey will cause you to think a lot more than looking for trend lines or wicks on candles but stick with it.

Now there is another often quoted wise saying, something about price news and fundamentals and all being already in the chart beforehand.

When you encounter that saying think of the most recent fundamental ‘news’, FOMC on Wed past.

Then have a look at a HR1 S&P, see how price was behaving for about 7 days pre Wed, and it’s behaviour in the 3 days since. Then consider again that saying.

Good luck Art in your journey.

Dude, all you need to do is wait for an A+ 5-star Pinbar to form at a key horizontal kill-flip price action zone and enter with a 5 pip break of the nose.

Have you not tried the kool-aide yet?

Bro, wtf?!?! You serious?!?!?

5 pip break of the nose?!?!

Dude, 5 pip break of the knees maybe, hips at best. But NOSE?!?!? Chill.

Global Macro, Peterma, ForexUnlimited and Arbitrager on Acid - thanks for the warm welcome to this thread. It’s a bit contentious perhaps to be actively looking to take the other side against retail, but lets see how this goes.

Global Macro - I had a look at your thread and you are very in-tune with macro flows and fundamentals, very interesting stuff.

I’m looking for 2 things to happen

  1. The ECB launch QE in 2015
  2. The US raise rates next year, and the economy keeps creating jobs

I have been reading some reports that 1.15000 maybe initial target for a short trade. Lets see though.

I plan to stack on more and more positions over the next few months as long as 1 & 2 continue to look viable, keeping an eye on retail sentiment also.

You may have a fantastic system, my comment should not be taken to mean it is not. It should be taken to mean that I cannot understand your system. After all, I am just a dude on acid.

Be careful dropping all those tabs - you may end up on a “permo” :10:

Too late.

I am addicted to

Technical
Analysis
Book
Study

I love

Analysis
Conceived
In
Detail

I finally decided to embrace it publicly and come out of the shadows. This is my therapy. Thank you.

Well, this experiment went a bit wrong :eek:

I went on holiday at the middle of January - then came back to alpari going into administration.

So, a 600 point portion of this ongoing move downwards was closed off by the broker going to the wall :eek:

Let’s take stock of where we are now.

Oanda’s trader sentiment is

Short EURUSD
Long AUDUSD
Long USDJPY

Fundamentally, they’re putting their cash behind Dollar strength - which, for now, seems the right thing.

I will take stock of the situation over the next day or so and look to get back into the market.

What a start to the year!