Tuesday, January 7, 2014

Extended holidays in the Foreign Exchange market | “Get rich slow”

Yesterday merely illustrated that the holiday season, at least as far as the Foreign Exchange market is concerned, was still with us. Trading was thin and subject to short-term volatility. The Euro, Yen, Gold and the US dollar are all in trading ranges, with any movement there consistent with the idea, cynical as it might be, that the market movers are attempting to bring it to a place that will allow for maximum profitable trading in the direction of the dominant trend when normal service resumes.

Only the Aussie dollar is showing some inclination to head south, which is the direction that is mapped out for it by all the fundamentals and by the technical indicators that have validity when substantial trading volumes are involved. The opening of the Tokyo market at midnight last night (GMT), was followed by a relatively short lived but nevertheless significant sell-off in the AUDUSD pair.

“Get rich slow”

The trading strategy of OmiCronFX involves careful research into the behaviour of the currency pairs we watch. For this, we use quantitative methods that involve elements of chaos theory, the study of probability, and pattern recognition. We are always on the lookout for the “Black Swan” event, or the happening that comes out of the blue to blow away the most cherished expectations of market participants. Fundamental and Technical Analysis is used alongside our algorithmic tools for trade entry and management.

Risk mitigation and profit retention are of paramount importance to us, and we spend a great deal of time studying the factors that are involved in these subjects.

We also apply elements from such as the Kelly Criterion, which is a formula for the optimisation of position sizes in trades to maximise profitability over time. This was developed by John L. Kelly, who worked for Bell Labs in the 1960s. It was put to good use by one Edward Thorpe, who managed one of the very first hedge funds in existence. According to the book, “Fortune’s Formula”, by William Poundstone, Thorpe coined the phrase “Get rich slow”, to describe the methodology with which he became so successful as an investor and trader. This alluded to the fact that his operation applied exceptional care and a great deal of work in research in order to choose the deals he would be involved in. He was also one of the very first to use computer power to assist him in his endeavours.

Here at OmiCronFX, we like to think we are following in this noble tradition.

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