I’ve begun increasing position sizes based on account balance and NAV, and should start to see a slight acceleration in the equity curve going forward. This accounts for the above average returns in February, although it is difficult to calculate just how much. There were several short term trades contributing to gains this month. Long term positions are under water at the moment — at about -1.8%. I expect further movement to the downside, and in keeping with the Knotty Warhol, will add to my positions in higher yielding pairs at key price levels over time, capturing more yield and adjusting my cost basis to take advantage of the inevitable retracements.
Trades taken this month have been in the following currency pairs:
On the blog generally, I’ve found it difficult to keep up. Plans to include the futures and options models are on hold for now, as I’ve just started a new assignment. I will probably be posting more over the weekend on longer term chart structure and stats for futures and some equities.
EURAUD short order triggered overnight at 1.5363. First target is a little optimistic, at 1.4664. I’ve been playing around with this pair for a few weeks — moving entry orders around to find the right price. It looks like there is some potential with this one, but that’s what I thought about my CAD trades…
An emerging triangle on the daily charts has me thinking this pattern will break. This is a continuation pattern in my judgment, given that the high and low sides are roughly symmetrical, and given that volatility remains low.
I’ve entered one unit long at 1.3962 in anticipation of a choppy move higher. The bandwidth of that chop in the first few days to two weeks after completion of the current pattern should see opportunities to take profit in the 142.xx to 143.xx range, with opportunities to add at 133.xx if the first break is to the short side. The alternative scenario, if the pair breaks below and continues lower, is to scale in with the Knotty method, and wait for a return to balance in the next distribution.
This conversion from a directional play to a range play is possible because of the long term chart structure — EURJPY is currently sitting at an inflection point. If the pair falls to last summer’s range (128.xx to 134.xx), and the Knotty is fully deployed at levels within that range, I will have an average cost basis of 135.15, which should be achievable. Total risk would be roughly 7-8% on a long term position, which the Knotty is designed to handle comfortably.
So let’s see how this plays out.
Short CADJPY 93.10
Long USDCAD 1.0966
Long EURJPY 139.62
Short EURUSD 1.3529
January proved to be a little volatile. I have a gift for stating the obvious, I know.
I’m staying with yield trading strategies for now. AUD was the single greatest contributor there. Anyone trading currencies — or any asset class that offers premium, for that matter — should definitely take advantage of yield. 12% of my gains this month were from trading in the direction of higher interest rate differentials. This makes a huge impact.
My largest trade was an AUDUSD position with an average cost basis of around 89.15. Quick gains were made from EURNZD and GBPCAD crosses as well. I am staying away from the USDJPY for now. Currently short EURUSD, long AUD via USD and JPY, and long CAD via both USD and JPY. These are all very long term positions, with significant possibility for directional moves against my initial entries.
I released some AUD longs in January which contributed to about half of my gains, and anticipate holding (and building) a core position for the long term depending on the interest rate outlook. If data out of China take a turn for the worse — which is entirely likely — I’ll have to reassess. The outcome of that assessment will probably mean that I add more at lower price levels, consistent with the Knotty Warhol method.
I’ve known Beezer, the man behind ETFMosaic for nearly five years. Some may know him from his old blog, BZBTrader — which he has generously left online for us. There are still some great ideas there, so it’s worth checking out. He has moved his blog posts to ETFProphet, a join venture started by Jeff Pietsch, and which now consists of a brilliant group. Much of what I try to do in modeling futures, currencies and now ETFs and equities is inspired by what Bob, Jeff and the people at ETFProphet have already been doing for a few years now.
And then there is ETFMosaic. Beezer has developed one of the most elegant, accessible models for active investing that I have ever seen. (I am by no means an expert — the fact that I can grasp the ideas underpinning the model is really saying something.) The returns produced by this model have consistently outperformed the market — while keeping risk very low. In a month or two, I’ll be posting my own results with two of his models, which I manage from the IB account. You can read up on the model at the sister blog, ETF Mosaic Solutions.
Take a look at what Bob has cooked up — be sure to read all of the posts before emailing questions. (He’s had to gently remind me to do this several times…so I bribe him with lunch on occasion.) And if you subscribe, prepare to be impressed.
December offered excellent opportunities to trade, but my heart wasn’t in it. Despite having a little more time to spend in front of the charts these days, I still struggle to devote enough time to this model. The Knotty Warhol has been a loyal but under-appreciated friend. I have missed so many great signals because I simply wasn’t paying attention. This must stop.
The coming year will be busy, but I must commit to my research program. Every day. What is that old Woody Allen quote? “Eighty percent of life is showing up,” or some such thing.
It seems that, among other large players, JPM is again at the center of a scandal. They have their dirty, greasy hands in just about everything and would make Robber Baron Morgan himself very proud. UBS, Barclays, RBS, and the big daddy, Deutsche Bank, among others, are all alleged to be involved in collusion.
Alleged? I think I’m safe in saying that it is a fact. Anyone who has known professional currency traders — not the lads who describe themselves as such on StockTwits and FXStreet, but the lads at large trading desks at which hundreds of millions of currency units change hands every hour — also knows that these lads have a myriad of ways to beat the game. Some play honestly — some do not.
This story just keeps getting better. Or worse, depending on how you look at it. The unfortunate outcome of this will be over-broad regulations that will probably hurt honest traders rather than help them. As everyone knows already, regulators are usually as harmful as crooked traders, despite having the best intentions.
Damn arrogant assholes ruin everything. It’s wonder we have open markets at all.
Exited the EURJPY, EURUSD and GBPUSD to bring the month to a close. My feeling is that next week will be mixed from a trading standpoint. I don’t anticipate any new signals. There are too many “risk balls” in the air right now. Too many good news stories being hyped and too many scary stories lurking.