A noteworthy bounce in forex options markets' volatility
expectations raise the risks of sharp US Dollar moves against the
Euro, making breakout-style trading systems attractive in the week
ahead.
DailyFX+ System Trading Signals – An early-week reversal in the US
Dollar sparked initial losses in trend-following Momentum1 and
Momentum2 systems, but the later pullback in the USD left Momentum1
higher on the week while the latter saw more modest losses.
Performance in Breakout2 was similarly mixed amidst sharply choppy
moves, but a subsequent pickup in volatility expectations bodes well
for the frequent outperformer. Said system looks particularly
attractive in Japanese Yen pairs amidst sharp jumps in volatility
expectations.
To gain a greater 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 Summary
Recent market moves have sparked noteworthy bounces in FX Options
market volatility expectations, visible through our 1-week, 1-month,
and 3-month DailyFX Volatility indices. Yet those same implied
volatility levels remain well within their overall downtrend, limiting
our longer-term bullishness for breakout systems. In the shorter-term
watch for sharp currency moves, but we'll need to see a sustained
breakout in our volatility indices to call for a more substantive
shift in market conditions.
Benchmark Trading Systems
Data and Backtest Results Generated using FXCM Strategy Trader
Our range trading strategy continues to outperform amidst the
downtrend in market volatility expectations. The recent jump in
volatility expectations notwithstanding, our outlook remains bullish
for our RSI range trading system.
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 medium-term range.
Trend – This indicator measures trend intensity by telling 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 damage, including 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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