Calling all GU and EU Traders!

Beginner Questions
1

[U]Background:[/U]

For those of you that don’t know my personal trading style, which I think would be most as I tend to keep my own trading private, I focus on GBP/USD only. I have always used this pair and I have become acquainted with its various characteristics and ‘typical’ behavioural cycles. You’ll see in the title of this thread that I have mentioned EUR/USD also, this is simply since GU and EU are [in most instances] strongly correlated.

I have probably tested around five different trading approaches for GBP/USD over the past 6 to 8 years and I always experience an issue from September 2008 to February 2009. Now for those of you that are ‘on the ball’; you will know that this date refers to the financial crash. The daily range of both GU and EU exploded during this six-month period, with GU making 600+pip moves several times a week without even battering an eyelid. On the 24th October 2008 GU reached a daily range of around 950 pips – to put that into prospective, the average daily range of GU since 2005 to today’s date is about 160pips.

There was uncertainty and panic in the markets, this was clearly reflected as key price levels were not significant anymore and week after week new lows were being formed. Overall GU dropped around 7,500 pips, a 40% devaluation from its peak at £1.00/$2.11 [GBP/USD].

[U]Question:[/U]

Every system I test [regardless of them being able to adapt to the market or not] underperforms in the six-month period mentioned above. I am now curious to ask the experienced traders here who trade GU or EU and whom HAVE tested this six month time period if they have also experienced the same encounter. It really is a difficult time period to trade [U]if you are using a trading approach that works today.[/U]

For those of you that have the time, or perhaps already have the statistics from previous testing

“How well does your current trading system perform when tested from September 2008 to February 2009 - do you see a significant change in your ‘expected’ results"?

Remember, I’m only talking about a trading system that works now [or has worked after 2009] to be tested on the above six month ‘financial crash period’.

Hopefully the results, if any are offered, will make an interesting observation.

[U]Why is this relevant[/U]

If you’re trading successfully now and have a trading system with a positive expectancy which generates profit then clearly it’s time to think ahead. A market crash will happen again [at some point in the future], this is totally natural and part of the market cycle process. So by testing the most recent market crash you can at the very least provide a benchmark (or expectation) of how well your current trading system will cope - an approach that I always follow to ascertain the worst case scenario.

As the saying goes, “failing to plan is planning to fail”

2

I wasn’t trading forex at this time but its an important question. Using TA alone, the GBP/USD chart it seems dramatic extended plunges in price occur about once each decade: as we’re now 8 years from the last such crash, you can argue another is overdue and we may have to face it sooner rather than later.

I am currently trading by trend-following using daily charts only. Maybe this isn’t very ambitious and not at all what you do. But my approach would have given me different issues to what you found.

A nice sell signal shows for me on 01/08/08: but, Issue No.1, this was so long (13 sessions) after a swing high I may probably not have taken it. Issue No.2 is that from here price falls far and fast and I don’t get another chance to enter short until 22/08. So I would probably have missed a very safe and quick 5.5% fall in price.

Through to March '09 there were repeated opportunities for me to re-enter short as necessary but then Issue No.3 comes into play which is that I won’t enter short while the 50 is rising towards the 200, which it is from March to July, so no trades there for me for 4 months.

I can though say that as I have never traded only one pair, I would have traded something else and, subject to usual trade rules that would be true.

3

I absolutely agree with you, it’s certainly something that I think needs thinking about - perhaps a ticking time bomb. At the end of the day where is the benefit to perhaps making great returns for a few years to then see sh*t hit the fan when the market enters a crash period.

Personally I build trading systems around the 2008 crash and move them forward in time from 2008 into the current time period. I actually developed a fantastic system that made profit for 42 consecutive months, from October 2008 it shattered by encountering 4 consecutive losing months.

It seems that any trading system really does need to have a trend following element as a filter. It’s fair to say that the 2008 crash would have seen sell signals in every opportunity should you follow the trend.

4

Interesting question!

I was not trading the same method back in 2008/9 as I do now, but I have taken my present method that I use on 3-4 hour charts and laid it over the 4H charts for EU for last quarter of 2008 (couldnt fit more than that in one pic!) and is shown below.

I believe the method would have worked ok in theory when taking positions whenever the red/black ribbon was crossed in the same direction as the green band trend. But I must emphasise the words “in theory” because, as you say, the moves were enormous at that time and I seriously doubt that I would have personally performed well in that environment in spite of the chart!!!

I am sure that in practice my trading then would have been characterised by seriously premature exits and excessive stopouts through not being able to afford, or have the courage, to put sensible stops so far from the price!

Just out of curiosity, I also made the daily chart below (which i don’t normally use) with the same settings for the period 07.2008 - 03.2009 and that also looks like it would have captured some nice moves - although February 2009 looks a bit wobbly and could have been a disaster! Having said that, by using the daily and 4H together, it could have been consistently on the plus side even in Feb.

Hopefully the charts below are clear enough to give some indication:

2008 4H.jpg700×328 30.6 KB

2008 D.jpg700×325 30.1 KB

5

Hey Jezz, I wasnt trading back then, but Im confident to say, I think my system would be perfectly fine in that situation, and any situation for that matter.

I strictly trade GU, and I think Ive just about mastered its method of operation.

6

Technical analysis works only in combo with correct fundamental outlook, i reiterated many times price has 50/50 chances to move up or down in any time and on any timeframe, because too much factors affects it (traders). That’s why my primary way to figure out my next trading action is to understand what’s traders expect on political or economic arena.

7

Price can move up or price can move down. There are indeed two choices. But the probability of price doing one rather than the other isn’t inherently therefore 50% at every given moment.

8

You may have [I]reiterated[/I] it many times, but that doesn’t make it true.

And it [U]isn’t[/U] true.

9

So good to see this joker has been banned at last.

It’s an interesting observation you have made on the GU bro. I trade EU exclusively but have observed something similar. Since last updating my thread i have run over a 100+ backtests on my box patterns using BRA from Jan 2005 to current. I used a fixed % risk on a fix balance. Without fail, the equity curve slope changed during Sept 2008. Not one exception. Some patterns where even profitable as an unfiltered stand alone system prior to Sept.

It would be nice if the lords of the underworld could shed some light on this matter. But I suspect they’ll stick to scented candles and old cars.

This has been a concern also to myself as it indicates a fundamental aproach change in how the big 12 manage their inventry. I can’t say I really care how they do it but in order for my strategy to work in its current format they need to keep doing it.

10

bobbillbrowne’s i message you