For those of you who are new to my blog, since the end of 2009 I have become a somewhat regular contributor to Currency Trader Magazine. This online free publication features articles published by many well respected people in the field of futures and spot Forex currency trading. The magazine has a collection of both technical and fundamental articles ranging from the comprehensive explanation and evaluation of trading strategies – what I specialize in – to articles dealing with the analysis of overall macro economical trends and such. On today’s post I will talk a little bit about my latest contribution to Currency Trader Magazine and why this is one of my favorite articles up to this moment. If you haven’t got the latest issue, you can download it completely for free at www.currencytradermag.com.
Through the past year I have been very interested in research dealing with strategies which are robust by nature. Generally there are several ways in which you can develop trading strategies and usually the more specific you go into the development of a strategy the more robustness you lose within the process due to excessive focusing on very particular aspects of the market. When developing strategies with inefficiencies that have a good chance of working in the longer term it becomes essential to design strategies with robustness in mind. The most robust approach for such development comes when you consider development of strategies for many different instruments without any optimization at all.
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This has been one of my goals for a while, something which has sprouted systems such as Quimichi which was developed following this exact same scheme. On this month’s currency trader magazine issue I have focused on the development of a Bollinger Band technique for Forex trading which can fulfill these characteristics. While doing my research over all the books and academic literature on the subject I became interested in a few strategies developed for Futures which used Bollinger Bands as triggers for a daily channel breakout type strategy. However it quickly became clear that the strategies devised in the middle of the 90s for the trading of Futures were not in line with what was specifically needed for Forex trading.
After doing a lot of visual analysis over the results of the initial strategies and how they seemed to fail in Forex trading, a few changes that could greatly improve the results became evident. After implementing some of these small changes, the results were very positive. Overall the strategy published on the magazine achieved good outcomes on many different currency pairs over long periods of testing. The fact that no optimizations were done at all and many different currency pairs with the exact same settings were used talks a lot about the inherent robustness of the strategy being used. The strategy is also particularly fit for manual execution since it only needs the user to enter or exit positions once each day.
This has been one of my favorite articles because it shows that there are in fact some characteristics of the market which seem to be widely spread across highly liquid instruments. Systems like this offer us a lot of peace of mind since they are naturally robust and resistant to failure. In order for such a strategy to lose all of its profitability dramatic changes would need to happen on the way in which markets naturally work. Another important issue at hand is that the mentioned strategy only takes a limited number of positions, even on large portfolios like the one studied, something which greatly diminishes trading costs and execution sensibility.
Although I do not consider this type of strategies the “only way to go”, I do consider them an integral part of any serious trading portfolio as they achieve a level of robustness which is simply not achievable with strategies that tackle much more specific market inefficiencies. Although the profitability of strategies like this is bound to be much more reduced than that of strategies which are much more tailored to particular instruments, they are bound to work for longer period of time and withstand change with smaller losses in overall profitability.
Within the next few months I will probably continue to spend part of my time working on the finding and improvement of strategies like these which are able to exploit inefficiencies which seem to require no optimization and work on wide arrays of currency pairs. Certainly if you would like to learn more about my work in automated trading and how you too can develop systems like Quimichi 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)
