It has been a while since our last detailed update and a lot has been happening since. The below update gets fairly detailed regarding what has been happening on the trading side of things.
It is an unfortunate fact that most of the Dollar cross paired currencies (EURUSD, GBPUSD, AUDUSD, USDCAD, USDCHF) – which make up 55% of our portfolio—and the Swiss cross paired currencies (EURCHF, GBPCHF, AUDCHF) – which make up an additional 15% of our portfolio—have been caught a trading range or channel averaging 300-600 pips for the last 4 months or more (jump to Addendum below for more details).
Usually trading ranges last for 1 or 2 months, and it is much less common (though not exactly rare) to have it go on for 4 months or more in a row, as we seen it go up till now. Since most of our systems are trend based systems, they prefer moments when the markets break out of their trading ranges and do not do as well when markets stay within the range.
Our smaller time interval systems (such as our 240 minute systems) can bite out decent pip wins from the short-lived movements within these ranges, but our larger interval systems (such as the Daily systems) do not have as much time or room within the market range to make as many profitable plays. Since we have had up till now an equal amount of small interval to large interval systems, we have witnessed this past June a near break even (small negative) performance as the gains made by the small interval systems were taken away by the losses of the larger interval systems.
In the bigger picture, we speculate that the Dollar and Swiss cross pairs have been caught in a 4 month range trade of 300- 600 pips because they had previously reached significant percentage gains relative to the dollar within a relatively short period of time; thus, this range period is a prolonged pause of uncertainty (or pause for breath) after the headlong rush into a previously uncharted area of weaker dollar territory. Since the Yen cross pairs had gained in strength faster in early 2008 than the Dollar and Swiss cross pairs, they were due for strong correction instead of channel pause, and so we saw the Yen cross pairs enter into a trend reversal from the middle of March till now (with June having them pause for breath).
On the bright side of things, we do know that the prolonged range period (or consolidation phase) we have witnessed up till now cannot remain forever – and that it is due to crack any day or week now. We may not know for certain in which direction the broad currency market will move – breaking further into weaker dollar territory or making a retreat backwards to a strong dollar.
However, we are looking for that significant directional move, one way or the other, that cracks this prolonged range period and allows both our small interval and large interval systems a chance to power up to their full profit potentials, moving this fund into double digit monthly returns once again. Once the markets decide that dollar can weaken further based on weak fundamentals, or that dollar can rebound into greater strength based on technically oversold levels, then we will have a return to a more trending and profitable period.
On the R&D side of things, we have been hard at work with two developments designed to make our ride in range bound periods more comfortable for now and in the future:
- We have been strengthening our Daily strategies to make them less vulnerable during range bound periods; and
- We have been adding some additional counter-trend strategies to exploit the profit potentials of range bound periods.
We had previously confessed that it has been our Daily strategies that have born the brunt of the damage during this range trading period, and so we have naturally honed in on them as targets for improvement. While it is true that they had each performed very well in the last 25 years of back-testing, it is also true that they do not fare as well during prolonged channel periods. They simply do not have enough degree of opportunity within a range bound period to create a significantly profitable trade.
To remedy this situation we have been combining, as much as possible, multiple daily systems into one. For instance, instead of having 3 separate Daily GBPUSD system/charts, we have fused them all into one Daily GBPUSD system/chart – which, interestingly, has made that one daily GBPUSD system/chart much stronger statistically than its three predecessors.
We believe that the fused or hybrid version is stronger because of two factors:
- Its three separate logic patterns work better in tandem than alone; and
- The exit system deployed for this hybrid version is more statistically robust and adaptable because of the larger number of yearly trades that it has guide to successful fruition.
Not only is this fused system stronger overall, it has also been shown to create less but more accurate trades in choppier, range bound periods than its predecessors.
In order to exploit the profit potentiality of range bound periods, we have outfitted powerful counter-trend strategies on two newly introduced currency pairs – EURGBP and AUDCHF – and on our existing EURCHF and AUDJPY pairs. In a range bound period, the strategies that are the most successful are counter-trend strategies, that is, strategies that attempt to bounce from, instead of break, the support and resistance levels that make up the range or channel.
We have developed some very powerful counter-trend techniques that operate on many different currency pairs, but we have decided to load them up on only the aforementioned pairs because of their own intrinsic, range bound nature. They are meant to generate significant profit during range periods, as we now find ourselves in, and very good profit during all other periods.
In sum, then, we have been trying to deal with this prolonged range bound period by reducing our vulnerabilities, via fusing together our more susceptible, Daily trend systems into fewer but more robust ones, and increasing our strengths, via adding counter-trend strategies to intrinsically range-bound currency pairs in order to give us a profitable edge upon an otherwise difficult period. These developments will help us weather – and hopefully profit from the storm (storm being the aforementioned range bound period), and very shortly the storm or ranges will break and the sunny days of trends and trend reversals, and the powerful profits to earn from them, will return again.
Addendum
Details and Examples of currency price ranges during the last four months of trading
Since the dollar cross paired currencies amount to 55% of our portfolio and the Swiss cross paired currencies amount to an additional 15% of our portfolio, we have had 70% of our portfolio caught in an unusually long range bound period, as you can see in more detail below.
Dollar Cross Paired Currencies:
Percentage of Portfolio: 55%
Dollar Cross Pairs: EURUSD, GBPUSD, USDCAD, AUDUSD, NZDUSD, USDJPY, USDCHF
Most of dollar cross paired currencies have been caught in a 300 to 600 pip range for the last 4 months, and even longer for the GBPUSD (6 months!) and USDCAD (8 months!). The exceptions have been in two dollar cross pairs -- NZDUSD in a 700 pip downtrend for last 4 months, and USDJPY in a 1200 pip uptrend for last 4 months, this latter uptrend leading all Yen cross pairs in a similar 1000+ uptrend.
EURUSD: From March 17 till today, this market has been vacillating in a 600 pip range, from a lower support of 1.5300 to an upper resistance of 1.5900, with current price near the top of this range.
GBPUSD: From January 21 till today, this market has been vacillating in a 600 pip range, form a lower support of 1.9400 to an upper resistance of 2.0000, with current price in the middle of this range.
AUDUSD: From April 10 till today, this market has been vacillating in a 300 pip range, from a lower support of 0.9340 to an upper resistance of 0.9640, with current price near the top of this range.
USDCAD: From Nov 16, 2007 till today (8 months!), this market has been vacillating in a 500 pip range, from a lower support of 0.9800 to an upper resistance of 0.10300, with the current price in the middle of this range.
USDCHF: From March 24 till today, this market has been vacillating in a 500 pip range, from a lower support of 1.0100 to an upper resistance of 1.0600, with current price in the middle of this range.
NZDUSD: From March 14 till today, this market has been in a downward trend of approximately 700 pips, moving from a high of 0.8200 to a low of 0.7500, with the current price 100 pips above this low.
USDJPY: From Marcy 17 till today, this market has been on an upward trend of approximately 1200 pips, moving from a low of approximately 96.00 to a high of 108.00, with the current price 100 pips below this high.
Swiss Cross Paired Currencies:
Percentage of Portfolio: 15%
Swiss Pairs: EURCHF, GBPCHF, AUDCHF.
Following the lead of USDCHF, most of the Swiss cross paired currencies have been caught in a 350 pip range for last 3-4 months (with the exception of GBPCHF, which has been caught in a wider 850 pip range).
EURCHF: From April 18 till today, this market has been vacillating in a 350 pip range, from a lower support of 1.6000 to an upper resistance of 1.6350, with the current price in the middle of the range.
GBPCHF: From March 17 till today, this market has been vacillating in an 800 pip range, from a lower support of 2.0000 to an upper resistance of 2.0800, with the current price in the middle of this range.
AUDCHF: From April 24 till today, this market has been vacillating in a 350 pip range, from a lower support of 0.9700 to an upper resistance of 1.0050, with the current price in the middle of this range.
Yen Paired Currencies:
Percentage of Portfolio: 30%
Yen Pairs: EURJPY, GBPJPY, AUDJPY, CADJPY
Following the lead of USDJPY, most of the Yen paired currencies have been in a strong uptrend of 1000 to 2000 pips for last 4 months.
EURJPY: From March 17 till today, this market has been on an upward trend of approximately 1700 pips, moving from a low of 152 to a high of 169, with the current price close to the high.
GBPJPY: From March 17 till today, this market has been on an upward trend of approximately 2000 pips, moving from a low of approximately 192 to a high of 213, with the current price 100 pips below this high.
AUDJPY: From March 20 till today, this market has been on an upward trend of approximately 1500 pips, from a low of 88.16 to a high of 103.60, with the current price 100 pips below this high.
CADJPY: From March 17 till today, this market has been on an upward trend of approximately 1100 pips, from a low of 96.00 to a high of 107, with the current price 100 pips below this high.
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