Coatl’s First Serious Test of Robustness: Facing the JPY During a Week of Intervention and Disaster

Last Friday Japan was hit with the largest earthquake in its recorded seismic history plus a huge tsunami which destroyed significant areas of the country. To add insult to injury several of Japan’s nuclear reactors were damaged by the event and the imminent danger of radioactive leakage continues to cause worries amongst the world’s population.  All of these events have caused significant turmoil in the financial markets as Japan is a very important world exporter – particularly in the auto and silicon industries – reason why the short and long term consequences of this disaster will be very significant for the world economy. In the short term Japan has faced losses on its stock market and very heavy capital flows in favor of the Yen caused by both insurance payers and speculators.

In the Forex market the short term consequences have been exactly as you would expect from such an event. An extremely high volatility coupled with very large moves on JPY currency pairs across the board. The USD/JPY faced its lowest level in the past 30 years and faced the prospect of imminent revaluation, putting Japanese exporters “against the ropes” in a time of extreme crisis. For this reason – and probably to calm the markets – the G20 has decided to do a coordinated intervention in order to save the Yen from its otherwise seemingly inevitable fate. On the charts all these rapid fundamental developments have meant more than 500 pip half hour moves on currency pairs like the GBP/JPY.

This week is a true challenge for any JPY based system as it constitutes very volatile market conditions in which hundred pip moves can happen within just a few minutes. Any system which would be considered a stable trader for the JPY pairs should be able to make limited losses or even a profit from these type of circumstances. In the Asirikuy arsenal our main JPY trading tool is our Coatl JPY centered portfolio which trades across 7 different JPY pairs, having to face the entire power of this week’s turmoil. Many people who trade JPY systems chose to “stop trading” this week while I decided to let the JPY Coatl portfolio run as it was precisely built to withstand this type of market circumstances. Any person who develops a system for long term trading and decides to “switch it off” when this type of market conditions strike isn’t simply sure about the reliability of their trading implementation.

The big question – how did Coatl face these circumstances ? – can be answered with a simple word: beautifully. The Coatl JPY centered portfolio made something which very few JPY systems are able to do, it not only survived but it made a lot of money from the week’s trading characteristics. The trading tactics within the different JPY instruments aligned almost perfectly, bringing the portfolio significant profits from both trend following and mean reversion strategies on JPY instruments. The JPY pairs in fact behaves much in line with what Coatl expected from each one of them. The strategy made more than +15% during the week and – even better – now stands at an almost +3300 pip floating profit.

I have to say that this was the first true “fire test” for Coatl as it hadn’t seen a period of similar disaster within the time range used to create the different genetically generated strategies (2000-2009). The genetic programming and careful guidelines taken into account to develop Coatl have proved to have worked successfully generating a robust set of strategies which were able to withstand one of the most difficult JPY markets of the past 20 years. Coatl didn’t make profitable trades on all instruments but profitable outcomes were more numerous than those which were not and hedging strategies within several of the instruments contributed to the portfolio’s overall profitability.

With this first week Coatl’s JPY portfolio has passed a significant stress test showing that it can withstand sharp changes in market conditions which can cause the “typical” extreme moves JPY instruments have under high pressure circumstances. It is important however to say that the Coatl JPY portfolio is no holy grail and inevitably long and deep draw down periods – as with all long term profitable strategies – will happen. Nonetheless this week shows that “extreme market events” will not cause the portfolio to lose money rapidly and that the trading techniques used are sound and within the expected behavioral patterns of a large group of JPY instruments.

If you would like to learn more about Coatl and how you too can learn how to use and understand our MQL4 based genetic framework 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)

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2 Responses to “Coatl’s First Serious Test of Robustness: Facing the JPY During a Week of Intervention and Disaster”

  1. Bruno says:

    Hi Daniel,

    this is quite unbelievable, as I think the vast majority of traders lost money this week and only a handful of them managed to make money…

    I cannot wait for Coatl to be available on brokers that have sunday bars, I hope it will be available very soon :)

    Thanks for your incredible and steady work

  2. Daniel-

    Awesome week for the Coatl EUR centered portfolio! I was going to blog about it a little later.

    Thanks and keep up the great work!

    Chris

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