Friday, November 8, 2013

Trading ECB generated Euro volatility

As predicted by OmiCronFX last Monday, low inflation in the Euro zone affected the ECB announcement yesterday, in the form of a reduction in the base rate. The rest of the market called it a surprise. There was serious bi-directional volatility after the surprise announcement by the ECB President, Mario Draghi, of a 25bps drop in the Eurozone base interest rate.

The OmiCronFX Silver Trigger routine had been set up against the Euro / US dollar pair two days before, on the 5th November, in the expectation that there would be some fall in the pair, but not necessarily of the kind that took place. The parameters for the setup are shown below, taken from the activity log of the JForex platform. The criteria for the program have been printed underneath the log extract to make them more readable.

The chart at the top shows what happened. The announcement came, price dropped and the routine triggered. As it was programmed to do, it took off half the position when there was a profit of 2% of equity, and moved the stop loss order to Break-Even.

Later, there was a reaction. Perhaps the initial drop was a short squeeze, and the correction was the market getting back into some kind of equilibrium. In any event, we have banked profit on half the position and ended up with a free trade for the other half.

Now, we would be the first to admit that the initial profit level only just made it to fruition. A little bit of tolerance might be called for. Perhaps the initial profit level would have been better if set to 1% or 1.5% of equity.

But to make consistent profits, “all” one has to do is repeat this sort of procedure, over and over.

1 comment: