With all the talk about the probability of an interest rate rise in the U.S. next month and the ongoing tendency of the ECB to continue with monetary easing, it is clear that there is a marked and growing policy divergence between the U.S. Federal Reserve and the European Central Bank, and that this should feed into a weakening of the Single Currency (EURUSD). Indeed, for some time now, this is exactly what has been happening.
At some stage, however, a sharp move in any direction will come to an end, even if only temporarily, and a retracement will occur. The problem is that it is extremely difficult to time such an eventuality.
One occurred yesterday (Thursday Nov 19th), and the OmicronFX Mandelbrot routine was able to catch it. You can see the successful long trade in EURUSD on the chart above.
Getting out for max profit is also important
It can also be seen that the trade was closed about as near as possible to the top of the cycle as it could be. This happened because under certain conditions Mandelbrot employs an old, often reliable, technique from swing trading. Yesterday it did that on the one-minute time frame. The way it works and the outcome can be seen above: The Stop-Loss order on the trade is moved up to where it is just below the last swing low in a sequence of higher highs and higher lows (or the opposite, of course, in a short trade). Then, when and if the last swing low is breached, the trade is terminated.
This technique does not work under all circumstances, and certainly not on the one-minute chart. However, the research that we have been able to carry out using Mandelbrot has determined the conditions, such as rate of price increase and the time of day, when it will have the best chance of success.
It is all about probabilities.