As you know through 2010 I became a frequent contributor to Currency Trader Magazine, sharing several interesting strategies and statistical analysis with the global online trading community. This year my goal is to contribute with one article to this magazine every month, most likley increasing my contribution of basket-wide statistical analysis and daily-based basket trading strategies (not unlike Ayotl and Quimichi). On today’s post I want to share with you some information about my January Currency Trader Magazine, what it is about, why I had this idea and why this article might be very useful for all forex traders out there.
For those of you who are unfamiliar with the magazine, Currency Trader Magazine is one of the most important monthly online publications dealing exclusively with forex and futures currency trading. The magazine’s last two issues are absolutely free to download (here), packed with not only articles about fundamental market aspects but also strategy development, strategy results and other topics dealing with technical analysis. The magazine also contains some important general information such as the performance of the top Barclay index traders which is located within the last few pages.
On the latest issue of this magazine I have published what I consider to be a very interesting and fundamental article dealing with the results of the “classic” indicators within the 4 forex major pairs. My objective with this article was to study the quality of entries amongst several typical indicator entry rules to assess whether or not these rules hold any long term statistical edge. I thought this would be a very interesting contribution since most traders – on their first approach to trading – are confronted with this rules and their general interpretations.
The article uses an Edge Ratio Analysis (as described on several classic literature trading books) and shows the edge ratio results for 6 different indicator logic sets for both long and short trades on the daily charts through a 10 year period of backtesting. The article then shows you in a very graphic way how the results look for the different pairs and how they change throughout the currency pair set. This allows you to locate the differences between the general trading behavior of the different pairs through the use of a simple color map.
The article does a great job at showing that currency pairs are extremely different from each other and that finding global inefficiencies for a basket of the four majors is actually quite hard. The article shows that this happens to such a large extent that while a given logic might have a positive long term edge within a certain pair, that edge might be totally reversed within another — with the opposite logic giving statistically meaningful results.
After reading this article you should be able to get answers to questions you might have had for a long time such as “is there a long term edge to entering a long after the RSI crosses above 30 ?” and “is trading a 50 moving average cross profitable?”. As you may think the actual answers are not that straightforward and they depend – not only on the currency pair examined – but on the period you look at since some trading techniques are successful on some pairs in the short term and in the long term on others.
Although the article does not share any specific full trading strategy it gives an overall “color map” of what classic entries may be used for the creation of long term successful trading strategies. By using the map provided within the article and matching the appropiate entry logic sets a trader could easily create a successful trading strategy using the basic logic information and a simple ATR money management adaptive logic (or a similar adaptive criteria). Obviously the success of any created strategy will also depend on the creation of good exits and the use of appropiate TP and SL values but the article provides what I believe to be invaluable information regarding the behavior of the 4 majors and the indicators treated.
Overall I believe this is one of my best articles, examining a very vital aspect of forex trading and answering some doubts which most – if not all – new traders have when they begin their journey in forex mechanical trading, showing that classic indicator logic sets DO have merit under certain circumstances and that forex pairs, if anything, are very different overall. Please feel free to leave any comments or opinions about this article :o)
Of course if you would like to learn more about my work in mechanical trading and how you too can learn to design and accurately evaluate your own automated trading strategies please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach towards automated trading in general . I hope you enjoyed this article ! :o)