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Saturday, November 27, 2010

The USDCAD Can Be Tamed

MANAGING ACCOUNTS LIKE MINIATURE HEDGE FUNDS

‘The uncertainty and unpredictability of the markets that produces stress in the novice trader is seen as excitement and opportunity by the skilled, experienced trader.’ – Joe Ross

Hello:

When I introduced the logic behind my GBPJPY strategy, I did mention that the logic fails on other currency pairs except the USDCAD. It can’t work on other pairs, for its success lies in the unpredictability and uncertainties on the market (I remember one day in my novice years, in which I nearly passed water when the USDCAD showed me its true color!). The good news is that, this unruly pair can be tamed. It doesn’t mean that its movements can be controlled; it means that you can make profit on this pair irrespective of its movements. However, unlike the GBPJPY on which profits are closed almost every week (unless the market is ranging for a long period), profits on the USDCAD are mostly closed every fortnight, or 3 or even 4 weeks.

This non-directional trading strategy which entails the opening of long and short positions at opportune times, works regardless of the market direction. It’s based on pure discretion. I’ve experienced crazy price spikes, gaps, extremely serious bullish outbreaks, sustained downtrend movements, plus unpredictably extended sideways movements – only to survive them all. This is evidence that you don’t need to predict the markets before you can make money. Price movement can’t be predicted. Fore example, the candlestick chart can be used to define simple price patterns like Hammer and Shooting Star, however, it’s no longer possible to determine whether the market first reached the high after the first tick of the period or whether it fell to a low right after opening. Nonetheless, the more difficult the markets are, the happier we are.

The strategy is designed for managing portfolios like micro hedge funds – though in a unique way. I hardly spend up to 30 minutes/week on this strategy. The profits are small but consistent. When I first wrote about the GBPJPY, the profit was 600 pips then (in 8 weeks), the profit is now about 900 pips (13 weeks). On the USDCAD, the profit is 450 pips in 8 weeks (because I don’t always close profit on weekly basis). I realized that if the two instruments had been used on the same account, we’d have had a minimum of 1500 pips in 3 months. Based on my present position sizing technique, the combination of the two items would’ve given me at least 28% returns in 3 months – with low risk.

The Issue of Stops: In order to avoid over-leveraging of accounts, I recommend the use of only 0.01for every $500 (thus making it 0.1 lots for $5000 for example). This makes my profit smaller, but ensures my survival on the market. I’d be happy even if I get a consistent 5% on monthly basis. This means I’d have decent returns over several months since my position sizes gradually increase with accumulated profit. Originally this trading logic wasn’t using stops, and it survived the market constantly. (But because of political correctness and the inherent risk of the absence of stops), stop loss has now been incorporated into the strategy, as you can see in the attached results. In order to retain the effectiveness of the strategy, the stop must be wide. The easiest way of doing this is to place the stop far enough for the intra-bar movement to be of any relevance. To do so, I choose to place the stop farther than an average bar is wide. I place a ‘buy’ and a ‘sell’ trades once in a week, so my stop is considered with a weekly candle. For example, if the market moves on average by 400 pips on weekly basis, I’d get poor trading results with a stop of under 300 pips. With a stop, a possibility exists of a considerable drawdown when it’s hit, but the bright side is that a considerable loss is soon recovered (based on my experience). Hedging a trade actually reduces the magnitude of a loss effectively. In addition, the combination of two items on one account makes sure that a possible loss is easily recovered. Indeed, the skilled trader recuperates loss with the factor of time.

NFA Compliance: Although the unlimited risk associated with the absence of stop has been eliminated, the fact that this strategy is against the NFA rules remains. This strategy can only benefit non-US citizens: you can’t use it on trading platforms belonging to NFA-regulated brokers. A good citizen must obey the law of the land. The good news for Americans, however, is that there are many winning strategies out there that are NFA-compliant. One of them is a simple income generation trading system that would be introduced by me next Sunday. I’ll explain how this trading system works. I’m going to make available a login and an investor’s password of an account (using real-time market data) that’ll enable an individual to see how I place short and long pending and sometimes instant orders, use positions sizing, set my stop loss and take profits, close trades, and of course make more money than I lose. Past results would also be displayed that day.

By the same token, you need to understand the reason why most people find the markets very difficult and what you must do differently in order to succeed. There are no hidden secrets to trading Forex and it’s relatively possible to develop a profitable trading system. The difficulty for traders lies not in creating trading rules that work, but in following them. Of course, that a trading system would’ve had success in the past is no guarantee of success in the future, but intelligent and visionary people know from experience that if a method worked well in the past, it’s more likely to succeed in the future than a method that has never worked before.

Please see the attached trading results. Meanwhile, you can take advantage of the GBPJPY/USDCAD swing and hedging strategy by subscribing for one-month free trial through this link: http://www.fxinstructor.com/en/analytics/ituglobal

NB: A future article would discuss specific ways of handling FEAR – the trader’s most dangerous enemy.

This article is concluded by a quote from a marketer:

“You need to stop doubting and take advantage of the strategy that can work for you. Please don’t die in silence.” – Dare Oluwasegun

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu


Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

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