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Trading these last two weeks have been very ugly to due all the major currency pairs vacillating in a 200 pip whipsaw consolidation range following last month’s correction/recovery from the unprecedented low (and what came to be, psychologically, a major support level) of the US Dollar.
In the middle of March, most the major currency pairs against the Dollar had hit a new high and major resistance (or support for USDJPY & USDCHF), and since then things have been very volatility for the currency markets — for three weeks straight -as buyers and sellers have been waging a battle to see if the new highs and natural resistance/support areas would hold or break.
For Example…
March 16: EURUSD: All time high and major resistance: 1.5900
Note: since that time, EURUSD has attempted to pierce that resistance point five times, each
time dramatically falling backward 100-200 pips, then resuming the attempt.
March 14: GBPUSD, 2008 high and major resistance: 2.040
Note: since that time, GBPUSD has fallen backwards 1000 pips, and during the course of this fall, it has on
three occasions attempted a upward recovery, each one lasting 3 days and 300 pips (before falling backwards 3 days and 300 pips).
Feb 29 & March 13: AUDUSD: All time high and major resistance: 0.95
Note: since that time, AUDUSD had fallen 500 pips, and has struggled under intense volatility to climb back towards that resistance area.
Feb 27 & March 14: NZDUSD: All time high and major resistance: 0.8200
Note: Since that time NZDUSD has fallen 500 pips, and has struggled climb up but still remains at bottom of 200 pip range.
March 17: USDJPY: New 10 year low and major support: 95.7
Note: Since that time, USDJPY has jumped up 500 pips, and has consolidated in a 200 pip whipsaw range of indecision.
March 17: USDCHF: All time low and major support: 0.96474
Note: Since that time, USDCHF had jumped up 500 pips, and has consolidated in a 200 pip whipsaw range of indecision.
As of 4/16/08, the EURUSD has successfully penetrated its 1.5900 resistance area and things and there are signs of a recovery from this month’s draw down. Trades were generated that managed to be on top of this move.
However, prior to 4/16/08, we have a number of long and short strategies firing trades on the above currency pairs
that failed to be successful due to the 200 pip consolidation range manifesting itself on the all time high/low,major resistance/support
of the major pairs these last two weeks. Though we had reduced leverage to the point that the average trade stop loss was 1% of account size, a series of stopped out trades under increased volatility and market consolidation added to our current draw down.
Long and short trades of the above 5 pairs would fire close to middle or edges of the consolidation range hoping for a break through support or resistance in the direction the market was attempting to travel, but when market would reverse 200 pips, that would be enough to trigger a protective exit or stop loss. Things get ugly when this happens again and again 3 to 5 times over 2 weeks.
We have to keep in mind that given the all time new highs and new lows reached on these markets, things are rather more strange than usual, and there is bound to be greater than normal uncertainty (a larger degree of randomness in the markets that compromise technical trading).
If we had been manual discretionary traders trading these pairs at this time we would be technically very hesitant to trade long the
EURUSD, for instance, given its new high (extremely overbought) status. Yet to not attempt to break through the resistance area,
even though some attempts might fail, could cost more in the long run in terms of potential profit.
Our EURUSD strategies made these attempts five times this month, and though we lost many pips (from various forms of protective exits and stop losses) in these attempts, on 04/16/08 we were successful when the EURUSD finally did break through 1.5900 resistance. If the other currency pairs can likewise break out of their present consolidation ranges following the
EURUSD breakthrough, then we will be come back positive this month.
Over the last 24hrs and as of today, 4/17/08, accounts are still down for the month but have made a significant come back.
We are still very confident on our strategies and know that in the big picture, they will turn out a handsome profit for our clients in the long run.
What we are concerned about and are working to improve are the intermonth volatility and draw down during these times. We are currently actively formulating a method to minimize the affect such volatility has on trading accounts while still maintaining the long term profit potential of the overall trading system.
Currently on the table, and soon to be implemented, is a more weighted leverage approach to individual strategies based on relative strength.
We have a clear idea as to which strategies due worse when under increased uncertainty and volatility, and which strategies are more steady and assured. We plan to keep current leverage (or 1% max trade loss) on the stronger strategies and decrease leverage from 20-50% (or 0.8-0.5%max trade loss) from current levels on those displaying less strength during periods of highly increased volatility.
The end result is that we will still have many excellent strategies that are in a nice leverage to return us handsome profits, during good and bad times, while those still good but at times more fragile strategies will have less a negative impact on the account during times of increased uncertainty and randomness. |
