Continued declines in forex options market volatility expectations
suggest that major currencies could stick to relatively tight trading
ranges in the week ahead.
The past week of unpredictable and quick-shifting price action made
for a mixed week of performance from our DailyFX+ trading signals and
benchmark trading systems alike. Breakout and Momentum systems
generally benefited from noteworthy US Dollar weakness, and a
continued downtrend would likely favor Momentum systems vacant
forward. Outlook for Breakout strategies is more nuanced; while said
systems would likely pick up gains on continued USD weakness, they
tend to underperform through times of lower market volatility. We will
reluctantly go Breakout systems to "Underweight" and handle them
with a sense of skepticism amidst low volatility expectations..
Forex Trading Automated Systems Outlook
DailyFX+ System Trading Signals – None of our six trading strategies
had a particularly notable week of gains or losses, and overall
performance was exactly average on shifting market conditions.
Continued US Dollar weakness would nonetheless favor Momentum2, which
remains heavily net-small the USD amidst a noteworthy shift in
small-term sentiment. Momentum1 is a trickier proposition given that
said system tends to do well amidst the longer-term trends and is
liable to get chopped out on sudden shifts. Given low volatility
expectations, extended trends seem somewhat less likely. Said
conditions similarly favor Range2 trades in the days ahead. We will
handle Breakout2 trades with a certain degree of skepticism on low
market volatility.
To gain a superior understanding of all six trading systems, view my
recent presentation on SSI and the trading signals on our FXCM Digital
Expo page.
Benchmark Trading Systems
Data and Backtest Results Generated using FXCM Strategy Trader
Benchmark Range, Trend, and Breakout strategies saw quite mixed
performance through the past seven days, and unclear forecasts make it
admittedly hard to favor any one strategy for the week ahead.
DailyFX Individual Currency Pair Conditions Synopsis
Written by David Rodríguez, Quantitative Strategist for DailyFX.com,
drodriguez@dailyfx.com
To be added to this author's distribution list, send an e-mail
subject line "Distribution list" to drodriguez@dailyfx.com
Definitions
Range Strategy – The benchmark range trading system shows the
hypothetical performance of a simple Relative Strength Index strategy
on 60-minute EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD, and
NZDUSD pairs. It sells when the 14-period RSI falls below 70 and buys
when it crosses above 30. No other trading rules are used.
Hypothetical results are generated using FXCM Strategy Trader.
Trend Strategy – The benchmark trend trading system shows the
hypothetical performance of a simple Moving Average Crossover strategy
on 60-minute EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD, and
NZDUSD pairs. It buys the currency pair when the 50-period Simple
Moving Average crosses above the 100-period and 200-period averages.
It sells when the 50-period crosses below the 100-period and
200-period averages. No other trading rules are used.
Breakout Strategy – The benchmark breakout trading system shows the
hypothetical performance of a simple Channel Breakout strategy on
60-minute EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD, and NZDUSD
pairs. It will set a buy order at the highest high of the previous 20
bars plus one pip and a sell order at the lowest low of the previous
20 bars minus one pip. No other trading rules are used.
Volatility Percentile – The higher the number, the more likely we
are to see strong movements in price. This number tells us where
current implied volatility levels stand in relation to the past 90
days of trading. We have found that implied volatilities tend to
remain very high or very low for extended periods of time. As such, it
is helpful to know where the current implied volatility level stands
in relation to its standard-term range.
Trend – This indicator measures trend intensity by telltale us where
price stands in relation to its 90 trading-day range. A very low
number tells us that price is currently at or near monthly lows, while
a higher number tells us that we are near the highs. A value at or
near 50 percent tells us that we are at the middle of the currency
pair's monthly range.
Range High – 90-day closing high.
Range Low – 90-day closing low.
Last – Current market price.
Bias – Based on the above criteria, we assign the more likely
profitable strategy for any given currency pair. A highly volatile
currency pair (Volatility Percentile very high) suggests that we
should look to use Breakout strategies. More moderate volatility
levels and strong Trend values make Momentum trades more attractive,
while the lowest Vol Percentile and Trend indicator figures make Range
Trading the more attractive strategy.
Source: Dailyfx.com
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