This edition of the column will be dedicated to a trading technique. As you will surely have understood this column is used to touch from week to week a very “soft” issue, an interview, a book or software review, and a trading technique. This is the turn of a trading technique.
Trading techniques are the backbone of Traders’ magazine. I have always been fond of reading articles about trading techniques since, even if the author does not want to disclose much about a winning trading technique, if the author is a good trader then it will be impossible you will not grasp a hint to some aspect that will help you to improve your trading. But most of the trading technique’ articles are useless after some years because markets change and so I esteem it is absolutely a non sense to delve into deeper details since after some years they will be without any value. Much more value is concentrated in analyzing the concept the underlies the trading techniques.
The basics of this trading techniques come from the Joe Krutsinger’ book “Trading systems toolkit”, McGraw Hill, 1993, where they were illustrated, as far as I know, for the first time. The trading strategy lies on the premise that on Friday important macroeconomic news are released so that forex markets are prone to move. The strategy buys or sells the breakout of the highest high or the lowest low of the week only if it happens on Friday and then it closes the position on the opening of the Sunday night.
Here the first problem arises: on the CME markets the opening time of the Sunday night is different from the other during the week openings so that many platform miss this important point and they offer to the customers the same opening than during the week. But the strategy will make money even if you close the trade at the closing price of the Friday night so that this problem is easily overcome.
If you add some smart initial stop points, maybe a target point to exit from the first contract at one average true range from the entry point and then to close the second contract at the close, a clever trend detector and volatility filter, then all these rules sum up to become a viable trading strategies, with different results according to the different price series you are applying them. For example it works very well on USD / YEN, Australian Dollar, Canadian, not so perfectly on Euro / Dollar and very harmfully on Swiss Franc. Try it if you want to believe.
With Portfolio Maestro I tried to optimize the whole portfolio of currencies but results were mixed indicating that there is no sure path for success through portfolio optimization. So better to adopt some parameters that will fit to the robustness criteria in each individual currency.
This example is clear about how it is possible to extrapolate a good working system from an idea which is public. And this example explains also how you can publish a trading system’ code on the Wall Street Journal and nobody will follow it, or at least just a few will follow a modified version of it. Trading systems exist, good systematic trader do not exist. This is a quote from Larry Williams, but nothing more true than this.
Will you apply this trading systems ? I doubt …