Buffing for Market Dropoff - Monitoring Market Rate Oscillations and Market Volume

Observing that there may be a lot of sweeping transitions occurring in the market rate – for any single currency pair – and too, that there may be a lot of reversals in the very short-term market trends* as at times approximate to when there are high volumes being traded in a market, I think it’s possible to bid as to “Buff the reversals,” for the most part. As a manner of a trading methodology, I think it seems to need a lot of constant attention to the realtime market data - that it may seem fairly stressful, as so - and it may not seem to result in any impressive profit at any low rate of leverage**.

In reverting to paper trading on ECN, this morning, I’ve developed a “Risk limit” policy of not bidding any more than 0.1% of total balance in opening any one position, and not having any more than two positions open at most times - three, at most. I’d seen a nice little albeit paper-trading profit over a short time, with that strategy, but then “This happened”

At around 17:31 local market time, the market rate suddenly dropped out of the region I’d been bidding in. I did not have any helpful ‘sell’ orders open at the time - I had been, at the time, waiting for the next peak in the market rate before planning any ‘sell’ bid. I did have two buy’ bids open, my hoping that the market was going to go through another short reversal. It did not. I closed both of those buy bids at a loss, on seeing where the market rate had shifted to.

Such a similar “Dropoff” had - so to speak - it had tanked my open positions, yesterday. Had I been conducting this study in any live-trading, this morning, then the similar would’ve happened again.

Believing that it is possible to develop a strategy for limiting the risk of possible dropoffs in this “Reversal buffing” strategy, I now wish that I’d had at least one ‘sell’ order open at the time, ideally at somewhere as could have been placed above the rate that the market rate then dropped from. That would’ve at least served to pad the loss from any open “Buy” orders at the time.

I wouldn’t want to misguide anyone to my own naive perspective about this trading strategy or any others. I just thought I’d like to share the observation – such as that when the market price drops as so, it can affect any open ‘buy’ orders negatively, but that there may be a way to limit the risk of that, as by keeping at least one ‘sell’ order open, at somewhere above the bottom of the “Going oscillation”. Alternately, if the market was trending generally upwards at the time, any open ‘sell’ orders would be negatively affected to a possible loss of equity, on event of any sudden peak in the market rate.

So, maybe I should think to modify this “Buffing the margins” strategy, so as to to open positions with – ideally – one ‘buy’ at the bottom and one ‘sell’ at the top of any single momentarily stable oscillation in the market rate, but also to have one “buy” or “Sell” in the offset mean/middle/average of the oscillation. Whether it would be a “Buy” or a “Sell” in the median, it could be determined as on an estimation of whether the market is trending generally downwards or generally upwards at the time.

I believe that there may be an analogy developed, as in comparing a pattern of an an oscillating market rate to a continuous sine wave. However, there are instances in which an oscillating market rate “Breaks the pattern” – such as, in the instance of a steep market dropoff as pictured, or in any instance of a steep market climb, as a kind of fairly dramatic way in which the market may shift to any new, subsequent pattern in the market rate reversals.

Looking at the volume graph on the bottom of the chart, one can see that a peak amount of volume was closed over in the market, at approximate to the time of the market rate “Dropoff,” pictured. I don’t know immediately if there may be any possibly accurate way to predict market volume change, over a time-frame. I think that I would like to start factoring an analysis of the patterns of market volume rates into a manner of a methodology for technical analysis, though.

Thus, I’m trying out a strategy as illustrated in the following, with more paper trading this morning.

The chart illustrates one open position - the midline area position - and two “Limit” orders set to activate when the respective buy/sell rate reaches the illustrate price point.

After the “Top-line sell” position opens, I’ll set a “Take-profit” limit at somewhere above the “Baseline Buy” line. Thus, that position should close before the “Baseline Buy” position opens. Similarlly, once the “Baseline Buy” position opens, I’ll set a “Take-profit” limit at somewhere just below the previous topline bid.

If the market shifts around to break the periodic pattern that may seem to be taking form - such that may seem to happen more often than not, despite this ideal model - I can adjust the take-profit, stop-loss, and position entry prices accordingly.

I’m using one-click ordering, in this paper-trading session. Thus, I can manually click and drag the stop-profit limits - or the bid limits either - once set, if I should think it may be well to adjust for any new realtime market trend.

After the day’s heavy trading closes, it may be possible to analyze the market as for whether it’s continuing any recent longer-term trend. Then, I’ll probably place an overnight bid as per the directionality of the longer trend.

  • Trading on an ECN network and keeping a close observation of the ECN realtime data, in this short-period trading

** Of course, at any numerically high rate of leverage, one must be very careful to not overbid the available equity/margin balance, or the broker’s computer business system may automatically close-out any open positions going immediately at loss

Graphics created with MetaTrader 4