Results of the first survey

Automated Trading Systems - My comments

A reader of my second blog: http://phdmbacfa.blogspot.com/ send me a link to the free book about the famous Turtle Trading System (http://freeforexebooks.com/Other/turtlerules.pdf). From his personal experience is seems however, (he implemented trading rules in C#) that these strategies do not perform very well in the market. The sharp ratio is not superior.

How that can happen that famous trading rules, which are rumored to have brought millions in profits are useless nowadays?

Possible explanations are:

1. Strategies are quite old. Nowadays, market behaves differently than when Turtles were on the market.
2. Modern quantitative strategies of investment banks exploit mispricing so effectively that any old-style strategy will be beaten by IBank computers.
3. Revealed strategy is not complete/accurate.

(If you find another reason just put it in comments)

I think that most probable is the first explanation. Today market works differently than when Turtles traded. Their strategies and tricks are not as efficient as they were 15 years ago.

The role of the trader is to look constantly for superior strategy. It's like the work of the inventor. You need to check hundreds of solutions and ideas to find these that lead to superior returns. That is very nice in this job. You cannot learn it from books, because the facts in books are outdated. What worked years or weeks ago, may be completely useless today. Your task is to look for new ideas and maybe by accident you'll find a rule that will lead you to the Mont Everest of trading.

EURUSD technical analysis for the new week

Technically, it seems that EURUSD will be testing levels 1.3736-1,3813 which were seen in the first week of August. If that happens we should expect FX rate to test these levels on Wendsday or on Thursday. However, due to short term reasons (global flight to quality) I am expecting that USD will NOT depreciate above these levels. In the middle of the week EURUSD will probably stabilize.

What should you trade?

This is an important question that every trader has to answer - which instrument suits her/his trading style best... Where she or he can profit markets most?

Fortunately there are not so many possible options: currencies, bonds, derivatives, equities etc.

Normally, derivatives (like options, swaptions etc) are quite advance instruments when it comes to pricing and trading - beginers and intermediate traders shall not base their strategies on derivatives.
Bonds require very detailed knowledge of monetary economics. If you want to trade bonds (or other FI products) successfully, you need to track FEDs or ECBs policy very carefully. This is not as simple as it may seem. Additionally, not so many trading platforms offer good products for those who want to trade bonds.
After excluding complex derivatives and bonds you are left with stocks and currencies. The decision which instrument to chose should depend on your attitude to trading. If you like tracking hundreds of companies at the same time, and you want to base your investment strategies on fundamentals - stocks should be your prime choice. On the other hand if you prefer technical analysis and you rather want to focus on the price dynamics currency trading is what you should chose.

DJIA Longterm trend still sustained

Although short term dynamics of the stock market is very unfavorable and we should expect further fall in the equity indices, long term prospects don't look so bad. Simple technical analysis shows that DJIA was able to move back into the long term growth channel (indicated by parallel lines on the chart) after large falls touched the market in last weeks.
One of the rules of technical analysis says that when indices move back quickly to support lines this support lines are extremely strong and should be considered to be support in the future. This suggest that in long term we should expect rise in equity indices

EURUSD in a narrow range

For last four days EURUSD is trading in a narrow range. On the one hand this is a good proof of the claim from my previous post (currency market stable when equities turbulent) but on the other hand it seems that the market is awaiting some news that will input a momentum on the market. The currency market is now consolidating and we should expect increased volatility in the days to come. Fundamentaly EURUSD should go up, but in the short term we would rather see further appreciation of the dolar, just because there is a constant flow of investor's money to safe instruments and US T-Bonds are considered to be the safest in the world.

Weak stock market = time for currency trading

As you see, the world stock markets are not robust at all. Even Fed and ECB (European Central Bank) have to act in order to fight with the poor mood on the world equity markets. It seems that it is now a good time for currency trading. Traders, who trade on their own account should move now to more liquid and less turbulent FX markets.
Strategy seems to be extremely easy now. You should have "safe" currencies long (CHF, USD, EUR) and emerging market currencies short (PLN, ZAR etc). Global flight to liquidity should lead to the appreciation of safe currencies in the short to medium term.
Of course, you may argue, that fundamentals of some of these "safe" currencies are quite weak (look at US twin deficit). Yes, that is true, but in fact fears of investors (global equity panic) should lead to the so called flight to liquidity and G7 currencies will become stronger in spite of their structural weaknesses.
Currency trading will give good opportunities especially now, as for example USD has positive carry trade against some of these "riskier" currencies, so not only we will win on the appreciation but also on the greater interest rates in US than in Poland for example.
So my advice for know is to focus on currencies. This is safe heaven when we compare it to the stock markets.

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