The OmiCronFX Mandelbrot is a software
routine that assists in the trading of Foreign Exchange in conjunction with a programmable
trading platform that is supplied by the Forex broker.
The Mandelbrot has algorithms for calculating
when a favourable trade should be placed, the position size of the trade, the
direction in which the currency pair is most likely to go (long or short trade),
the amount of equity that is put at risk in each trade, the locking in of profit
as a successful trade progresses, and the eventual closing of the trade when conditions
turn against it. As long as it is running, Mandelbrot places the trades, takes
off profit, adjusts stop loss levels and closes the trades automatically.
Mandelbrot must be configured before
it is run. This is necessary in order to define the currency pair to be traded and
the risk tolerance of the user, as well as to incorporate decisions that must
be made about profit retention, such as the level of gain at which a proportion
of the trade position is taken off. It also allows for the selection of time
intervals in which trading can take place. This is important because, for
example, trading at a time of significant market moving news events, such as during
announcements by the central banks of the country whose currencies are being
traded, can involve significantly greater than normal risk (measured by extreme
short term volatility) and is best avoided, even as a general principle.
Research over a long period of historical price data has also shown that
certain times of the day are more favourable than others, depending on the
component currencies of the pair being traded.
The timing element alone dictates
that Mandelbrot cannot be set up and left running without being monitored and reconfigured
from time to time. In this sense it not a “robot”, but rather a tool that responds
to the trade entry trigger, serves to automate routine tasks, provides precise
calculation of position size and other metrics, which with Mandelbrot are based
on well-established optimisation techniques, takes care of risk management, and
imposes discipline.
Several instances of Mandelbrot, each
involving a different currency pair, can be run simultaneously on the same
trading platform and trading account.
Just like all effective trading, Mandelbrot
relies on being able to open positions on a continuous basis while minimising
its losses, both in terms of the number of losing trades and their magnitude,
and maximising its wins.
To
be continued. Coming soon - the Mandelbrot fundamentals: Trading strategy, coding and
debugging, and parameter optimisation
Chinese
interest rate cut
Last Friday, in a surprize announcement,
the People's Bank of China, the country's central bank, announced a cut in its base lending rate, from 6% to
5.6%. The news gave a nice fillip to both the Australian and New Zealand
dollars, both of which countries have a significant interest in Chinese trade.
However, in comparison with other economies, the new Chinese rate is still a
high one.
And that is not the whole story. For
a start, the Chinese central bank is far from enjoying the kind of independence
from government that is common in the West. So the decision will have been made
in the context of other agendas being followed by the regime in Beijing.
The property boom in many parts of
China has resulted in a nigh net cost of borrowing, ranging from about 18% to
as much as 30% per annum. This is brought about by bank charges and loan
insurance, which are applied on top of the interest payment. Only property developers
can afford these effective rates, so they have led to a real squeeze on credit
for smaller, traditional businesses.
Meantime the central government is
concerned about the fact that the very high rates of GDP growth in recent
years, which are needed in order to ensure that the migrant workers in the
large cities are not “forced to return to their villages”, in the words of the
Premier, Mr. Xi, have started to diminish.
China might have performed economic
miracles in recent years but its centralised government system, its population
size and distribution, and its cultural differentiation from that of the
Western world will ensure that it will be some time before the kind of economic
criteria that apply elsewhere will be directly applicable there.
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