Sunday, August 30, 2015

EZ inflation today | A wild ride in the markets – OmiCronFX Mandelbrot algo system proves its worth

The Summer Bank Holiday takes place today in the UK. London based institutional traders will not be at their desks so trading could be thin.

The market turmoil that started with a melt-down of Chinese equities, and which was exacerbated by thin summer trading conditions, caused a lot of problems for traders in equities, indexes, commodities and currencies over the past week and a half.

The Euro-dollar, in particular, had a wild ride, peaking from a low in the middle of the previous week of close to 1.10 to a spike high on Monday of last week at 1.17. That is a very significant range in so short a time. Then, for the rest of last week, it fought its way, but with many a retrace, back to the 200 period Exponential Moving Average (EMA) on the four-hour chart (see above). This is seen by many traders as an equilibrium level (This fact is of limited value to a trader, as the pair can be ‘out of equilibrium’ for extended periods).

Eurozone inflation is out today

Today, Monday, could see more of the same, as the Eurostat flash Consumer Price Index figures for the Eurozone are due for release at 10:00 London time. The flash outcome, which attempts to anticipate the actual inflation rate which will be released towards the middle of the month, is of high importance because of the previous success on the part of the statisticians in making it a relatively accurate estimate of the real thing. Inflation figures are, of course, of abiding importance in the considerations of the ECB (and of central banks everywhere).

As noted at the top, the UK has a bank holiday today. Institutional traders in London will not be at their desks, and the North American markets will not yet have opened when this report is released. Trading could, as a result, be thin and choppy, especially if the numbers give any cause for surprise.

A wild ride in the markets – OmiCronFX Mandelbrot algo system proves its worth

We were particularly pleased with the behaviour of the OmiCronFX algorithmic trading system during the recent market turmoil. It did very well what is a most important part of its job, of protecting equity during such periods.

And the Mandelbrot system as a whole is an iterative methodology. It relies on real-time trading experience in order to fine-tune its operation. Its strategy has been formulated using historical data but for getting down to the fine detail of trading, nothing beats real-time, tick-by-tick operation of an algorithmic routine (a tick represents a change in the exchange rate of a currency pair. In busy times, hundreds of ticks can come through to the trading platform every second).

And so the market gyrations last week provided another benefit. Under real-time trading conditions we were able to use Mandelbrot to refine its parameters in a manner that would not otherwise have been possible. Taken in conjunction with proof of its risk-management and capital retention capabilities, this was indeed a win-win situation for us.

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