Central Bank of Chile

Central Bank of Chile

Central Bank of Chile

October 19, 2017

Chilean monetary officials once again left the key interest rate at 2.5%. The last reduction in May capped four 25-basis point moves during the first five months of 2017 to the current level. The rate had been at 3.5% throughout the entirety of 2016. Officials run an inflation-stabilization monetary policy, targeting the CPI at 3.0% over the medium term. September’s pace was only half that target, but officials expect to drift higher. Long-term inflation expectations remain consistent with the central bank target, and economic growth seems to be picking up after dragging early in this year.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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Strategy: Trading the Break of the Day

Strategy: Trading the Break of the Day

Last month we discussed a price action strategy (I’m partial to price action strategies using near-“naked” charts) using Pin Bars. While I like that strategy and will continue to use it, it requires the trader to be attentive to every chart, every hour. That doesn’t work well for me, as I like to be “done” by 11 AM NY Time and many of the good trades come after that.

The Daybreak Strategy allows you to look at the charts once a day, set up the trades, and walk away if you want. I actually watch them a little better than that, only because I don’t want to be in the money and then stop out with a loss. 

Find a pair for which there is no red-tagged news anticipated for the remainder of the day. Look at a 15 minute chart of your chosen pair around 9 AM Eastern US Time (GMT – 5). Be sure the “period separators” are enabled to make it easy to find the beginning of the day (Charts/Properties/Common/Show period separators.) The first step with our strategy is to determine if the pair is trending or ranging. If the pair is trending, pass on it for the purposes of the Daybreak Strategy. We’ll discuss a strategy for the trending pairs later.

Daybreak Strategy: AUD/USD Trending

AUD/USD Trending (20 Sep 17)

Daybreak Strategy: EUR/USD Ranging (20 Sep 17)

EUR/USD Ranging (20 Sep 17)

Setting The Daybreak Strategy Orders

Determine your risk and calculate your trade size based upon a 10 pip stop using a position size calculator. (e.g. http://www.myfxbook.com/forex-calculators/position-size) and place a sell stop order one (1) pip below the LOD and a buy stop order one (1) pip plus the spread above the HOD. If you do not include the spread on the buy stop order, the order will trigger before the chart price pushes above the HOD (assuming an MT4 bid-type chart.)

Daybreak Strategy: USDJPY Orders

USDJPY Orders

I set the expiry for the orders at 5 PM NY Time. Use a 10 pip stop loss and a 30 pip take profit for the trade. At this point you can just walk away from the trade and let it run.

Taking Profit

If I’m around, as with most of my strategies, I lock in the trade at +10 pips (take a portion off to cover trading expenses and set the stop loss on the rest to break even.) As always, if the price action nears the take profit level, I will usually close it early.

I use this strategy on all the major US pairs and some of the major crosses. I try to keep the pair count smallish and will only allow a couple of trades to trigger each day. If I risk ½% on each trade, then I can expect 1% to 1.5% profit per trade. That way I can easily hit my goal of 1% gain/day with one winner and come close to my goal with one winner and one loser. If I get 3 losers in a day, I shut the rest of the orders down and don’t trade any more that day.

Standard Trading Advice

As with any trading strategy, remember, never bet the farm. No single trade should be big enough to make or break you as a trader. Protecting your trading account is your first job as a trader. Without it you’re done. The only way you can be a full-time professional trader is to manage your risk like a professional.

Always have a plan. A plan to get in; a plan to get out. A plan for a win; a plan for a loss. Follow your rules. Discipline, discipline, discipline.

I know you regular peeps are probably tired of hearing this. But do it anyway.

Recommended Reading

These books are not about trading strategies, they are about trading psychology – which I believe is MUCH more important.

Trading in the Zone – Mark Douglas

The Disciplined Trader – Mark Douglas

Available at Amazon.

 

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Next Week

Next Week

Next Week

October 13, 2017

Central Banks: Monetary policy reviews are scheduled next week in Israel, South Korea, Indonesia and Chile. Minutes from prior central bank meetings will be published by the Reserve Banks of Australia and India, and the Federal Reserve’s Beige Book of regional economic conditions gets released. Yellen, Kaplan and Dudley of the Fed speak publicly; so will PBoC Governor Zhou, BOJ Governor Kuroda, and ECB Vice President Constancio. It’s possible, too, that President Trump will name his nominee for the chair of the Federal Reserve. Yellen was nominated by former President Obama on October 9, 2013, and Bernanke’s initial nomination in 2005 was announced October 24.

Special Events: IMF/World Bank semi-annual meetings continue on October 14 and 15. Austrian legislative election on October 15. Extraordinary economic summit of the EU Council consisting of members’ political leaders begins Wednesday and runs through Friday.

Scheduled U.S. Statistical Releases: Industrial production, capacity usage, import prices, Philly Fed and Empire State monthly manufacturing surveys, the index of leading economic indicators, existing home sales, the National Association of Home Builders housing index, Treasury-compiled capital flows (TIC), and weekly jobless insurance claims, consumer comfort, energy inventories, chain store sales and mortgage applications.

Chinese Data: Quarterly GDP and monthly CPI, PPI, money and loan growth, retail sales, industrial production and fixed asset investment.

Japan: All industry index, customs trade surplus, revised industrial output, capacity utilization, and machine tool orders.

Selected Other Asian Data: Indian and Indonesia trade figures. Hong Kong and South Korean unemployment. India’s WPI and Malaysian consumer prices.

Euroland: Current account, trade balance, construction output, car sales, and ZEW index of investor sentiment.

Members of the Euro Area: German wholesale prices, consumer prices, ZEW index, and index of leading economic indicators. Current accounts and trade balances for Italy and Belgium. Dutch and Belgian consumer confidence. Spanish GDP, Belgian PPI, Austrian CPI, and France’s index of leading economic indicators.

U.K. and Switzerland: British retail sales, labor market statistics, PPI, CPI, RPI, DCLG house price index, Rightmove house price index, and public sector net borrowing. Swiss money growth and trade surplus.

Eastern Europe: Czech and Polish producer prices. Polish industrial production, retail sales and current account.

Nordic Europe: Danish PPI and index of leading economic indicators. Swedish unemployment and Norwegian trade balance.

Canada and Mexico: Canadian CPI, retail sales, housing starts, building permits, manufacturers survey and existing home sales. Mexican unemployment.

Australia and New Zealand: Australian employment and unemployment, business confidence index, motor vehicle sales and index of leading economic indicators. New Zealand third-quarter CPI and monthly service sector purchasing managers index.

South Africa and Turkey: South African CPI and retail sales. Turkish unemployment.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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How to Setup Breakout & Fibonacci Forex Trades

How to Setup Breakout & Fibonacci Forex Trades

At one time,  AUDUSD downtrend offered an interesting chart to search for short setups. In fact, the price had already approached the 38.2 retracement level, which could have easily become a turning spot for downtrend continuation.

Looking at the 4-hour price action, it becomes clear that several candlesticks were showing struggle at the 38.2 Fibonacci retracement level but bullish engulfing twins could have annulled the bearish signals.

2- 12- 2014 audusd 1

I, therefore, kept a close eye on the upcoming 4-hour candles looking to see if the price showed renewed bearish signals or will it keep retracing higher.

In both cases, I am specifically looked for shorts only because of the downtrend (see blue trend line). Here are the two bearish scenarios I am counting with:

  1. A break of the 4-hour candle low (green circle) for a break out trade to lower levels (orange arrow);
  2. A bounce at the Fibonacci confluence of Fib retracement and Fib target:
    1. The 50% Fib retracement and the -27.2 Fib target (red circle);
    2. The 61.8% Fib retracement and the -61.8 Fib target (dark red circle).

Chart Patterns

In both scenarios, it is useful to wait for a candlestick pattern to confirm that price is bouncing at the resistance spot or pushing through the support level. This helpful tactic has a high rate of ensuring a decent entry at the right time.

setup breakout

The same upside movement could also occur on the NZDUSD. The Kiwi was in a big downtrend as well but recent choppiness has put bearish ambitions in the freezer.

Looking at the Fibonacci Retracement Level

Looking at the upside momentum (green arrow), the break of the downtrend line (blue) and the double bottom (purple circle) at the 61.8 Fibonacci retracement level (light blue), the price could be ready for a bullish breakout (blue arrows) above the resistance line (red).

2- 12- 2014 nzdusd

I was interested in taking a long upon the break of resistance (aft candlestick confirmation) and/or taking a short at the Fibonacci targets. There are two valid options for catching the bullish counter trend breakout setup:

  • One is to look for a daily candle pushing through the trend line;
  • The other is to monitor the same bullish breakout but on a lower time frame such as the 4-hour chart.

The advantage of the H4, in this case, is the potential for an earlier entry and hence more space to targets as well.

When I zoom into the 4-hour chart I am able to see both a bull flag and contracting triangle type of chart pattern forex. The break below support and the break above resistance would indicate the break of the contracting triangle. A break of both the resistance and support levels will be the trigger I am looking for trade setup. Also, in this case, a strong candle is warranted: close near low or high, sizeable candle and the majority of candle outside of trend line.

2- 12- 2014 nzdusd 2

Do not be shy and tell us what you think of the above! Have you traded these pairs in the past? Do you currently trade them? What is YOUR reason for perhaps not trading them?

Let us know down below in the comments section!

 

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National Bank of Serbia

National Bank of Serbia

National Bank of Serbia

October 9, 2017

In cutting Serbia’s monetary policy interest rate to 3.5% from 4.0%, the Executive Board of the National Bank of Serbia claimed to be “guided by the medium-term inflation projection and movements in key inflation factors.” The medium-term inflation target is 3.0%, give or take 1.5 percentage points, and the most recent on-year changes of total and core CPI are 2.5% and 1.5%. A released statement contains several reasons why officials expect in-target inflation to persist. Starting at 12.25%, the key interest rate was reduced by 275 basis points during the final nine months of 2013, 150 basis points in 2014, 350 bps in 2015 and 25 basis points each in February and July of 2016. Today’s reduction is the first change since the one in July 2016.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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Automated Forex Trading Testing … Testing 1, 2, 3

Automated Forex Trading Testing … Testing 1, 2, 3

Automated Forex Trading Testing

Mark Thomas — Trade On Track

An important step in the development of an automated forex trading strategy (trading robot or EA) is the testing phase. Testing should involve back-testing as well as forward-testing and be performed as accurately and extensively as possible. No amount of testing can absolutely assure future results, so the idea is to be as sure as possible!

Why Test?

The answer seems obvious … so that you can be reasonably sure of what you’ll get from your automated trading strategy in future. Testing means you can see how your strategy has reacted in the past to different market conditions. You can gauge whether the strategy has worked against different currency pairs or different time frames. You can test variations of the strategy to see what works best overall, and what should be avoided. Testing a strategy can give you the confidence to keep using the strategy in future if the past results have been profitable and consistent.

How do you test?

To back-test a trading strategy, you first need to obtain some historical data. The historical data contains information about price levels in the past, such as open, high, low and close information. You can get historical data for daily intervals (this is the easiest to get), where each record contains open, high, low, and close prices for each trading day. More detailed data can also be obtained for shorter intervals such as hourly, 5 minute or even 1-minute intervals. Generally, the shorter the time frame, the more accurate you can make your back-testing.

The first place to look for historical data is your broker. Many brokers offer free data downloads if you have a live account open with them, and the data is usually of quite good quality. Your broker’s historical data will also most likely be the same data that is used to draw the charts that you trade off, so it’s easy to look back through your charts and visually check how your strategy plays out.

There are other sources of data too, some are free, some involve a cost. It’s a good idea to obtain good quality data from a number of different sources for your back-testing. Data can vary, so it’s good to be able to test your strategy on the different data sources to see if it holds up. Dukascopy (http://www.dukascopy.com) is a good source of data, and you might also try Gain Capital (http://ratedata.gaincapital.com/)

To actually perform the back-testing, you’ll need a software program which processes the historical data and executes your trading strategy using that data. Trades aren’t actually executed, of course, the execution is just emulated within the software. Based on your strategy, the program can keep track of when the trades would have been taken, how profitable they were, how many winners compared to losers you had, and many other statistics related to the performance of your strategy.

The most accessible automated trading forex software program to do this is Metatrader 4 (MT4). It has a built-in strategy tester and you don’t even need to download any historical data first – it will do it for you automatically. The downside to MT4 is that you first need to write an EA which implements your trading strategy. Writing an EA involves writing a computer program in the MQL4 language – the scripting language that MT4 understands. So, you’ll need to be able to program in MQL4 or get a programmer to do it for you if you want to go down this route.

If you like to get your hands dirty in computer code, you can also just write a program to back-test the strategy using the historical data. There is usually a library available for your favorite language which contains the indicators and other statistics you may need to test the strategy, such as EMAs, SMAs, MACDs, RSIs and so on. For instance, there is a freely available library called “profitpy” for the Python programming language which allows you to build a strategy tester.

For non-programmers, check out http://www.thinkingstuff.com. Their system allows you to develop and back-test strategies using point-and-click technology. What this means is that you don’t have to write any programming code, you just use your mouse to select options and the Thinking Stuff software builds the back-testing code for you.

Other related sites for strategy testing include: http://forextester.com/ and http://forexsb.com/

Testing Pitfalls

Back-testing and getting good results doesn’t necessarily mean that you have a good automated trading strategy. There could be flaws in your back-testing procedure or data which is affecting your results. Some common back-testing problems include:

  • Optimizing (or curve-fitting) the strategy too much. If you tweak and re-tweak your trading strategy to give the best results possible using the data that you have available, then you run the risk of tailoring it too close to that data. If there are too many parameters or filters involved to make the strategy work, then you may have problems in getting that strategy to give satisfactory results in the future. Sometimes you’re better off NOT optimizing so much – give the strategy a little room to breathe, make it a little simpler or more flexible. A lightly curve-fitted strategy is likely to give better results in the future.
  • The data isn’t detailed enough. If you have 15-minute historical data and you’re testing a strategy that works on the 15-minute chart, then the accuracy of back-testing is going to be quite limited. For instance, if in one 15 minute period (one 15 minute bar) price shoots up and reaches a point that would have hit your target and it also reaches down to a place where it would have taken out your stop loss, how do you determine whether your target was hit first or your stop was hit first? The answer is, you can’t. Without going down to a lower time frame or even tick data, there is no way from your historical data that you can tell whether price went up first or down first. You only have open, high, low and close information. So, if your data is limited in detail, your back-testing program should take the worst case scenario in this example and assume that the stop was hit first.
  • Data is bad quality. Some free data sources are terrible quality. There are gaps in the pricing (from the close of one bar to the opening of the next bar), there are incorrect prices, and sometimes there is just no data where there should be some! Try to obtain decent quality data and when in doubt, try to obtain data from a number of sources and get the best results possible from all sources.

Forward-Testing

All of the above has dealt with back-testing, but forward-testing is also important. Forward-testing an automated trading strategy involves running the robot trading software in a live (or demo) trading account and monitoring the results over a period of time. You may be surprised that something that works really well when back-tested, does not perform very well when running on live data. This can be because of the curve-fitting problem mentioned above, or because you’re striking market conditions that haven’t been tested in the past. Forward-testing can also uncover other problems in your back-testing that you weren’t aware of, so it’s essential to forward test, preferably on a demo account before moving to a live account.

Once you’ve back-tested your strategy on a good sample of historical data and you’ve forward-tested it too, you can be confident that your future (or at least, near future) results will be fairly similar to the results you’ve had to date. Never just let a trading robot loose though – always monitor what it’s doing because markets can be unpredictable you want to be ready to pull the plug should something go wrong.

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Reserve Bank of India

Reserve Bank of India

Reserve Bank of India

October 4, 2017

The Indian repo rate was left at 6.0% by a 5-1 vote, with one dissenter favoring a cut of 25 basis points. At the previous meeting in early August, the rate had been sliced by 25 basis points. The rate previously was reduced by 50 basis points in two moves during 2016 and by a total of 125 basis points from 8.0% in 2015. The Monetary Policy Committee did elect to cut the proportion of deposits that lenders must invest in government notes and other specified securities, and projected inflation was bumped a bit upward in spite of a marginal downward revision to the GDP growth forecast. In view of softer-than-expected growth during the first half of this year, some in the market had been hoping for a rate cut.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission. 

Tags: Reserve Bank of India




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