5 out of 7 signals were good calls: EURUSD H1
Dear Ropunzel,
thank you for this! I am not sure I quite understand it, but that is mainly because I have not had time to really read it and on a big enough screen to see your charts properly…
Anyway, how is this system working for you?
Oh which one. I am testing 2 at the moment. I am looking at the Carry - still not enough results. and trading with options. I am learning a great deal more about how they work and how to combine them with trade in the underlying currency pair. Starting with Covered Calls and Covered Puts.
So far seems okay, unfortunately I don’t have any potential trades to demonstrate with. I am looking for a new options broker to buy and sell on the central exchange.
Does does appear to be an edge from trading this way, the main way that is introduced from what I gather so far is that the risk rewards for the trade change to more favourable ones; a 1:1 becomes a 1:2 etc…whereas the probability of wining or losing stays essentially the same as simply trading the spot.
2 things to consider would be
- Limited upside potential
- the event that the market does a whipsaw.
If sell get in short on the spot fx and sell a put option lower down, you are paid a premium. If the market goes down then great, you profit from the market movement in the spot (upto the strike price of the option) and also benefit from the premium. That could be say £5k for the spot move and £1.5k for the premium = £6.5k.
If on the other hand the spot trade is wrong and market hits your stop loss on the spot trade, then you would lose -£5k + £1.5k = -£3.5k. But probability of doing either assuming a random market and no edge is 50:50. The assumption in this case is that the market moves against you an does not recover before the expiry of the option - so that the option expires out of the money and has no value for whomever bought it.
If however - the market moves up to knock out your spot trade, then moves back down again to bring the option into the money - then problems. You are now losing money on the option with no reciprocal profit on the spot, the only way u can counter that is to get in on another short position on the spot, so that you are losing money on the option but making the same (usually making more depending on the option delta) on the spot. It is the risk of that eventuality that you really need to consider to determine if there is sustainable edge in the trade or not, in the first 2 cases there is clearly edge.
Maybe there is a way to do it with a random walk between two barriers in the given time period.
for the Covered Put with expiry on 02/03/2018 looking at the H1 handle, there are specific number of steps (hours) between now an expiry.
So you want to work out 3 probabilities:
- that the market moves to your stop loss and beyond in the number of steps
- that the market moves to your take profit and beyond in the number of steps
- most importantly - that market moves to your stop loss then back to the strike price of the option in the number of steps
- any other case is not relevant.
You would need to have a probability value for a move up or a move down on each step - assuming random behaviour we can make that 0.5. You would then need an average (unit) value for each move up or down - you can probably estimate that with the ATR.
First you would need to know if the ATR based estimate of each move is accurate and the error. I am sure you would be able to test the predicted probability of those events versus the reality to see if the model carries any weight or is a complete nonsense.
Wow I am just reading through some material on presenting technical ideas in plain English and looking at few of my posts, I think I am going to fail that paper.
haha yes, I am afraid I did not understand much of what you have written hitherto!
I am trained in music, after all, not finance 
Wow that is interesting, what kind of music.
Interesting. i should read more of these introductions. I want to learn to play the Guitar and I was wondering if you could signpost me to the right tools, literature or otherwise as well as the best introductory piece of equipment.
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Hello Ropunzel,
is it classical, acoustic or electric guitar?
Try a free trial of Yousician for starters…
Tons of online videos too but you have to
know what you are looking for, so maybe this
may help:
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Acoustic…
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