Joey's MP Journal

Mean Trade

Sold @ 765.1
Bought @ 768.4
P/L = -3.3

Price moved into the balance area, stalled at the upper edge and retraced back towards the mean. It would therefore appear that the market has "accepted" this balance area.

Since the odds favour choppy price action around this mean (characteristic of a market in balance), I won't be trading the S&P tomorrow.

I plan to place a number of trades tonight according to the following rules:

Pairs to be traded

The "majors":

USDCHF, GBPUSD, EURUSD, USDJPY, AUDUSD and USDCAD

Trades to be taken

Limit orders at the edge and at the mean in markets which are "out of balance".

Portfolio Assumptions

(i) For simplicity, capital is allocated as if a position is taken in each pair.
(ii) Independence is assumed (i.e no covariance).
(iii) Dollar-funded account.


I have calculated the following risk-adjusted weights for use tonight, with Yen normalised to $1000 risk:

USDJPY $1000
AUDUSD $479
USDCHF $433
EURUSD $425
USDCAD $339
GBPUSD $336

In practical terms, this means that if 1 standard lot is traded for USDJPY, then 2 lots are traded for AUDUSD and 3 lots are traded for GBPUSD etc.

The sum of the risks can then be set to x% of account size.

This is very much "experimental", and is still using a demo FX account.

I've put in orders for 4 of the pairs as follows:

GBPUSD

Sell 1.5 lots Limit @ 1.4476
Sell 1.5 lots Limit @ 1.4553

USDCHF

Buy 1.2 lots Limit @ 1.1673
Buy 1.2 lots Limit @ 1.1597

USDJPY

Buy 0.5 lots Limit @ 95.668
Buy 0.5 lots Limit @ 94.568

USDCAD

Buy 1.5 lots Limit @ 1.2503
Buy 1.5 lots Limit @ 1.2455

I got complete fills in USDCHF and USDCAD.

USDCAD passed through and closed beyond the balance area, leading to TPs set at a pullback to the mean.
This occurred for (-23 + 25) = +2 pips.

USDCHF was a success, but midway through the afternoon I closed the position at the mean. The level of work required to prepare these profiles (especially with Mickey Mouse money) is too time consuming.

Instead, I'll be experimenting with fades at areas of Minus Development (see post #14) for FX, which at a glance appears to work well.

For the live account (S&P500 futures), I'll stick with the Balance Area approach, which is working fine.

Good, I've been filled in a USDJPY trade:

Sold 1.5 lots Limit @ 98.11
Exit 1.0 lots Limit @ 97.78
Exit 0.5 lots @ "runner"

The first target has been filled for 1.0 x 33 pips profit.

The chart illustrates the Minus Development - 2 areas of congestion separated by a spike bar.

Same setup in AUDUSD:

Sold 1.5 lots Limit @ 0.6424
Exit 1.0 lots @ 0.6396
Exit 0.5 lots @ "runner"

Have been filled at the first target for +1.0 x 28 pips.

Sold 1.5 lots Limit @ 1.2690
Exit 1.0 lots @ 1.2653
Exit 0.5 lots @ "runner"

Have been filled at the first target for +1.0 x 37 = 37 pips

These all worked well, except a poor GBPUSD trade which lost 105 pips.

It appears that historical levels are more potent than intraday levels, and attention needs to be paid to optimal exits. This one is a real headache, because if an exhaustion approach or a trailing approach is used, the exits or trails could well get triggered in the Asian session.

With this in mind, I've decided to start on the Daily chart (which is probably easier anyway) and address the following problems:

(1) Volatility or Technical stop?

(2) Exits: all-in / all-out or scaled out?

(2ii) Exits: target based, exhaustion based etc. ?

This really calls for an extensive study, and so I'll be doing 5 years of testing on the Majors. I know from having done this painful and laborious process with index options trading that not only do the results give you the confidence to pull the trigger with real confidence, but they also give you a good idea for appropriate leverage, risk of ruin, and so on.