moves in the week ahead, favoring Breakout and Momentum trading
strategies in key currency pairs.
DailyFX+ System Trading Signals – It was a solid week of performance
for Breakout2 and Range2 trading strategies, while Momentum1 similarly
posted respectable gains on key US Dollar pairs. The fact that systems
of all three different trading styles held firm underlines recent
market indecision. Volatility expectations continue to drop near their
lowest levels since the onset of the financial crisis in 2008, and
risks of large currency moves are low. That said, 1-week expectations
have jumped noticeably ahead of key economic data and our strategy
bias takes this into account on a per-currency basis.
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.
DailyFX Individual Currency Pair Conditions Synopsis
Small-term volatility expectations have bounced noticeably ahead of
major global consequence risk in the week ahead, but our 3-month
volatility index remains near its lowest levels since the onset of the
global financial crisis in 2008. The weird mix leaves us in somewhat
of an uncomfortable spot as far as trading biases are concerned.
Instead of a market-wide trading bias, it seems more fitting to look
at strategy biases on a per-currency level.
Benchmark Trading Systems
Data and Backtest Results Generated using FXCM Strategy Trader
Mixed market conditions are similarly clear in benchmark strategy
performance, with our RSI, Moving Average, and Channel Breakout
systems registering gains in the past week. Outlook is subsequently
honestly mixed.
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.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME
OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO
THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN
HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY
ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT
THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN
ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO
HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF
FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO
WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE
OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT
ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO
THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.
OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN
THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH
CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news,
research, analyses, prices, or other information contained on this
website is provided as general market commentary, and does not
constitute investment advice. The FXCM group will not accept liability
for any loss or hurt, counting without limitation to, any loss of
profit, which may arise directly or indirectly from use of or reliance
contained in the trading signals, or in any accompanying chart
analyses.
Source: Dailyfx.com
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