Sunday, July 7, 2013

Tech, fundie or algo trading? Long term sustainable profits mean all three

If you are interested in electronic trading you have a few decisions to make. Do you confine yourself to equities or do you concentrate on currencies, futures or commodities, or a mixture of them all? Perhaps you should look at options, or maybe you should confine yourself to regarding these as a hedge, or effective insurance policy, for your other trading activity.


Whatever instruments you choose for trading, you will be immediately presented with another set of choices: Do you study fundamentals, and regard yourself as a discretionary trader or do you use technical analysis and indulge in systematic trading? Will you make use of algorithmic routines?

At Omicron Forex, right now we focus on Foreign Exchange trading. While that takes care of the decision process outlined in the first paragraph above, our answer to the second one, as to whether one should use fundamental analysis, technical analysis or algorithmic trading, is unequivocal: You should make use of them all, to the maximum extent possible.

And even if you are more comfortable with, for example, equities as opposed to currency pairs, the answer is still the same.

Fundamentals: Right now we are long the US dollar. We are very successfully trading it against the Aussie dollar and against gold, but not against the Euro, or at least not at the moment. Our decisions in these matters are based entirely on the fundamental study of the such things as the attitude of the US Federal Reserve to Quantitative Easing, the fact that bond yields seem to be anticipating a recovery in the US economy and, in Australia, the signals from the authorities there that mean they would welcome a reduction in the strength of their local currency. Gold and the Euro are a different story. Stay tuned for our analyses of these.

Technically, we watch a small number of indicators. These are mainly made up of moving averages (we are particularly fond of the 200 day Simple Moving Average (200 SMA)), support and resistance levels, with a nod from time to time to old-fashioned patterns like heads and shoulders, when they occur.

All of our trades are placed and managed using algorithmic routines. The parameters for these are determined by reference to the fundamental and technical analysis that we will have done and continue to monitor. Including these routines in the trading strategy has been invaluable, mainly because they impose the kind of discipline on our trading that we could only have dreamt about prior to their use, but also because they assist in the carrying out of time consuming but nevertheless essential activities, such as stop loss movement and profit taking, and they do it on a 24 hour, seven day a week basis.

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