First to answer San Miguel’s question, the system named in his honor uses Kijun-sen to set the stop loss, has 1% capital risk and once a trade moves to profitability equal in size to the stop loss, one sets a trailing stop of (stop loss-10 pips) guaranteeing a profitable trade.
And yes, carry trading is turning out to be very important, but more on that later.
First the updates for the day. For the orginal system, closed CHF/JPY short because Kumo has turned bearish, T/K cross and Kumo Breakout indicate the trend reversed. Note due to Chikou Span not being above price curve I did not enter a long trade.
I did enter a EUR/NZD short trade though, which maxes out the original system at 14 trades.
Here is the performance so far:
Closed Trades: 3
Win/Loss Record: 0-3
Realized profit: -10%
Open Trades: 14
Win/Loss Record: 10-4
Unrealized Profit: 23%
Total Performance: 13% gain (including carry trades)/19 days=.65% daily return= 946% annualized returns
San Miguel System:
Closed Trades: 4
Win/Loss Record: 0-4
Realized Profit: -4.2% (including carry trades)
Open Trades: 11
Win/Loss Record: 10-1
Unrealized Profit: 8.8%
Total Return: 4.6% in 14 days= .32% daily return= 219% annualized return
San Miguel Standardization: (if San Miguel were run with same capital risk as Orginal system)
Total Return: 13.8%/14 days= .93% daily= 2,809% annualized returns
Now as to the point that San Miguel made regarding carry trades: its an interesting point for sure, especially since some traders use carry trades exclusivly to make money and using the Ichimoku to due only carry trades that are trending in your favor sounds like a fine idea.
BUT I am a bit hesitant to try this for two reasons.
- The volume of trades is much lower with this system. The main benefit of the current systems is that you can have many trades open at once, so though your individual leverage/trade is low, your overall leverage is high, and so you can earn the kinds of profits that is the entire reason for Forex.
This is especially true if you were risking 1%/trade. If you can only enter a trade who’s carry trade is in your favor then you may only have 1/3 as many trades, which combined with the lower leverage, means your returns will be adversaly effected by any losses, since the Ichimoku is a probability game.
For example, if I only carry trade based on Ichimoku, risking 1%, then I may only be in 4-5 trades at a time, with leverage of .7/trade or 3X leverage overall.
If I get stopped out on 2 of these trades then I am down 2% and may be unable to enter any new trades because the carry trade would be against me.
At the end of the year, I may only have 15 trades done, 7 or 8 of which were losses, and the gains were only at .7-.8 leverage so the actual returns are 15-20%. When accounting for short term capital gains, the net return may only be 10%, which is not competative with the S&P 500 index, which has 11% annualized returns since 1926, (this time period includes the great depression, several sharp recessions and 2 oil crises so it safe to say that 11% is the long term returns in the stock market).
- The daily interest rate for the US changes, from 0-.3% so for example had you recently entered long USD/JPY the past few days the carry trade is against you!
But if you check FX street for international interest rates you see .25% USD and .1% Yen, so you would have entered the trade and now what? Close it?
Of course it may be worth considering trying a carry trade/Ichimoku system with higher capital risk, and using the San Miguel’s TS and SL method.
The logic behind such a system is this:
The smaller SL from using the Kinjen-sen + 3% capital risk = higher leverage.
Now this would limit your max number of trades, BUT since you can only trade in the direction of a profitable carry trade, this dosn’t matter so much AND you can earn a decent return on the carry trade alone. PLUS, through in the Ichimoku being used to give you a probabistic edge in terms of riding trends PLUS the TS locking in profits and minimizing losing trades and you may just have the recipe for a very nice little system that makes most of its money through the carry trade with position trading profits as icing on the cake.
OK San Miguel you have inspired me: I will track this system as well: Using FX street as my source of info for international interest rates, I will use the Ichimoku to enter carry trades that would be profitable based on the daily interest payments and use 3% capital risk and the Kijun-sen to set the SL.
Then when a trade is profitable by the amount of the SL, I set a TS equal to the size of the SL-10 pips, guaranteeing me a profitable trade.
I shall christen this system “San Miguel CT”.