The
Forex market fixation with very short-term news persists, with the single
number reported for US Non Farm payrolls last Friday causing a pull-back in US
dollar rates. This is despite the fact that the Federal Reserve has made it
clear that it uses the trend in payroll
rises over a period, combined with the results from many other indicators, to
determine its policy.
The
market was “expecting” a Non-Farm payroll number of 230k. It got 209k. In the
meantime the, already stellar, outturn for last month was revised upward, to
298k. This means that the average for both periods is 253k (of course this
month’s figure is also subject to revision).
And
the results for two other key US economic measures were in advance of
expectations last week. Annual Gross Domestic Product (GDP) was 4%, a significant
absolute number under any circumstances, and the Institute of Supply Managers’ (ISM)
Purchasing Managers’ Index (PMI) was also ahead, coming in at 57.10 as against
56.00 expected.
One
currency pair that well reflects US dollar prospects is the Dollar-Yen (USDJPY). Prior to the
NFP report on Friday it was showing good strength, but took a sharp reversal on
the release. We believe that this was an overreaction by the market and, sure
enough, this morning it is clear that this pair rose again during the Asian
session last night.
Our focus on risk of loss
We
have often written about how we at OmiCronFX focus on the potential for losses
and how to avoid them. It is a fundamental part of our strategy to never risk
more than 2% of equity on any one trade, and this is one factor that is
programmed into our Mandelbrot algorithmic routine. Of course, it is necessary to
risk some amount in order to have the profits we expect.
We
are always seeking to improve the software, and we have now developed an enhancement
which allows us to take even less risk, while retaining exactly the same
potential for profit as before.
After
extensive testing on historical data it has been established that, under normal
trading conditions, the improved routine never loses more than 1% of equity on
a trade. This was borne out in one live trade last Friday, on the USDJPY when
it went against our expectations, as discussed above. Instead of taking a loss
of 2% of equity, the amount lost on the reversal was confined to half that.
We
have now set Mandelbrot to re-enter USDJPY on the long side, when it gets a new
signal.
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