Exponential moving averages (EMAs) have
an important place in the toolbox of Forex and other traders. The OmiCronFX Mandelbrot
algorithmic routine uses moving averages too, among many other things, in order
to do its work. Apart from their utility in clarifying price action, and the
ability of software to calculate and interpret them, they are also observed and
acted upon by other traders, the ones that move the market. It is important to
respect this fact.
Here at OmiCronFX , we pay particular
attention to the downside of any trade that is taken on. Considerable care is
devoted by the software to shepherding the trade through the period between
when it is taken on and when it reaches the break-even point, that exchange rate
at which the stop-loss is set on the same level, or slightly better, than the
entry rate. At that point, at least, we are looking at a trade that will not
lose us money. The other, very important consequence of this practice is the
fact that, when losses do occur, they are relatively small compared to those trades
that are successful. These are optimised for the maximum profit possible.
How
the OmiCronFX Mandelbrot algo routine handles it
On march 16 th last, the market in
EURUSD behaved as illustrated in the chart at top. From the open of the London
session through to the time when the New York traders go to their desks, the
battle for the breakthrough of the 200 period Exponential Moving Average (EMA)
on the 10 minute chart took place. It was, as described in the headline, a real
war of attrition. Time and again the Euro bulls attempted to push the rate
through to the upside, and time and again they were repulsed by the Euro bears
(and/or the US dollar bulls). Because Mandebrot (or anyone) is unable to tell
the future, it cannot be sure that a breakthrough will even happen at all. Price
could reverse and the eventual move could be to the downside. In truth, Mandelbrot
does not care. It will be there for that eventuality too.
All in all, on that day Mandelbrot
took on no less than six trades that were losses, and three that broke even,
with one sizeable win. However, the loss reduction techniques it employs were
such that the sum total of all these losses was only marginally below the
amount in which the successful trade in the afternoon was in profit. The
eventual outcome was an average loss per trade for the losers of -0.27% of
equity, for a total of -1.61%, while the profitable trade returned 1.54% of
equity. Total loss for the day: 0.07%. Miniscule compared to our normal risk
tolerance, and an excellent outcome given the terrible trading conditions for
most of the day.
No comments:
Post a Comment