Well first of all, I am still a novice trader, so this is a learning and strategy discussion thread. I strongly recommend you do not take any of the analysis posted in this thread as trading advice.
This thread is not suitable for those in the quest for a guru/ mentor. However, if you like to think for yourself and discuss trading I will appreciate any questions or contributions you make.
The aim of this strategy is to pit the strongest currency from the previous week against the weakest one. By setting up a date between two polar opposites we will be acting as matchmakers from hell :16:
Theoretically, sparks must fly! By focusing on one or two of the most promising pairs from among 8 currencies (USD, JPY, EUR, GBP, AUD, NZD, CAD, CHF), we will be positioning ourselves to catch the most probable and profitable move for the next week.
Below is my (highly subjective) analysis across 27 currency pairs for the week ended 16-Feb-2013. Based on the analysis NZD and USD look strongly bullish, while GBP looks strongly bearish. Therefore, I will be looking to short GBPNZD or GBPUSD next week.
Of course, an evil matchmaker must pick the worst possible location for the date. So for now I just have a bias entering into the week, and an idea of where I might enter (more on this in the next post or so).
Incidentally, the analysis below also helps me judge which pairs I should be focusing on for my intra-day strategies. Besides GBPNZD and GBPUSD I am interested in USDJPY, AUDNZD and NZDCAD.
Off topic, but I was debating whether to start this discussion online or not and realized I didn’t have a good reason not to. In Forex, the things that work are public knowledge. In fact, the larger the number of traders that are looking at something, like an obvious trend line or a higher time frame Fibonacci ratio, the higher the chance that it will produce a significant reaction. It becomes a self fulfilling prophecy as a large number of traders will enter at the same time in the same direction.
So, retail traders should not worry about their strategy becoming publicly known and ruining their edge. Our edge will come mainly from perfecting our execution. Discussion will help hone the strategy.
There are exceptions to this of course, for example complex arbitrage algorithms. But I doubt anyone on BabyPips has come up with one of those
Ok so just a few explanatory notes on the excel screenshot I posted.
I am looking at 27 currency pairs across 8 currencies as mentioned in the first post. EURCHF is excluded due to central bank manipulations.
Every weekend I intend to go through the H4/ Daily charts for each of the pairs and determine whether the pair is in a strong trend. I have 5 possible ratings according to the legend in the screenshot:
Health of the trend: Formation of higher highs and higher lows or lower highs and lower lows
Speed of the movement: Relative size of up vs down bars
Once all pairs have been ranked I then set a general bias on each of the 8 currencies. This can be done intuitively or by counting the different types of ranks assigned to a currency for each of its pairs.
That’s it. At this point it will be obvious which two or three of the eight currencies have the strongest bias. I am interested in taking a trade on the pairs that put the strongly bullish against the strongly bearish.
Obviously, the rankings will be subjective to the individual.
A bit lonely in my maiden thread at the moment :15:
Well here is what I’m seeing on my GBPNZD chart at the moment.
I would like to short at the nearest resistance if price continues up and looks like a retracement rather than a reversal. If the move continues down without reaching that zone, I may look to enter at a break of this week’s low.
If I enter and am profitable I will trail my stop manually by putting it defensively behind broken support zones. The intention will be to ride the trend for as long as possible. Swing trading baby! :38:
When a trader goes long EURUSD, long AUDUSD and short USDCHF (s)he is effectively multiplying the risk by 3. This happens due to strong correlations between EUR, AUD and CHF. These correlations may be very strong for long periods and if not kept in mind can quickly pile up the risk.
It may be better to evaluate which of these three pairs is likely to perform the best. If EURAUD is in a uptrend and EURCHF is flat, the EURUSD long trade is most probably going to produce the best results. This is because the uptrend shows that EUR is stronger than AUD. EUR is also more liquid and volatile than CHF.
So instead of, perhaps unknowingly, multiplying the risk by 3, we can take the most rewarding trade with a lower risk.
Well this thread doesn’t seem to be very popular :33:. I guess people are still busy debating the finer details of the BabyPips soap opera finale
On another note, analyzing 27 currency pairs on a weekly basis may sound like a big effort, but in fact should take less than half an hour. We want to pick the most obvious trends so if the trend doesn’t jump out at you within a few seconds of looking at a chart it isn’t really that obvious.
I’ve been working on something similar except I’ve used the correlations between the majors to evaluate currency crosses and their potential moves. Crosses tend to move faster and further, hence resulting in more pips. However, predicting those moves is more difficult and that’s where correlations have helped.
Thanks! That will be a very useful tool for quickly assessing risk when opening multiple positions.
Unfortunately, my brain doesn’t work as well with numbers as with patterns so for an overall analysis I have to use the approach I am trying here. For the mathematical minded the correlation figures could provide the answer as well.
…the bearish bar, not my entry. I’m not entirely pleased with my execution, but the correct bias saved the day.
162 pips in profit on the GBPUSD entry (1.3% of account balance).
However, if NZD makes a recovery during the week I am still open for a GBPNZD short. I am going to risk 2% of my account on this strategy every week, and since I only used 1% risk for GBPUSD I am allowed to take another trade if the opportunity arises.
Well that’s a nifty tool…Thanks. Kinda makes me feel redundant lol.
But since it’s something like a RSI indicator it is lagging behind what I can see very clearly on the charts. Even on the 15 min TF it is just starting to show that USD is overtaking NZD:
Haha, now I know why Sweet Pip ‘liked’ my first post and then disappeared. She must have been thinking been there, done that…
But you know what, I don’t like that indicator either. It’s simply based on the 200 SMA on the H4 chart. What if price just made a double bottom at weekly support after a long downtrend and then surged upwards, but is still below the 200 SMA? The indicator would still label this currency weak. Looking at price action is always better than using an indicator in my opinion.
Also, I think honing your ability to make a correct directional bias is the single most important aspect of trading. If your bias is correct and your stop loss is in a good defensive position you will win even if you make a less than optimum entry (Non OTE? :57: lol). But if your bias is wrong you lose. Doesn’t matter how perfect your entry was or how far you placed your stop loss.
So I am more than willing to spend a bit of time getting my directional bias right rather than obsessing over getting half a dozen things to align for my entry.
Well this week went pretty well. I kept a runner when I closed part of my GBPUSD trade earlier in the week, and this worked out nicely as price broke the weekly support i drew in post #12.
Now it can be said that the Moody downgrade on Friday helped, but price was already hesitating after retracing to the weekly resistance (the support that was just broken) and my bias was still bearish. Which brings me to the chicken or the egg question…do technicals come first or the news? I would suspect that institutional traders have good insight into news events before they occur and would position themselves well before the news.
AUD might actually take a tumble this week as it is coming up against opposition from most currencies. However, I have ranked it according to what I can currently see on the charts and will recheck my bias before any entry.
