Mid-day update

Closed the losing side of my short position once the overall profit of the position was above my threshold. Still holding 1 short USD/CHF with a stop placed at my minimum profit target of 1.1387. The price could move right back to that stop and that will be it, or it could keep moving south and make this trade quite profitable.

Trading results 4/13

Opened 1 long position yesterday at a daily divergence of -.25%. Price moved down past that level and all 3 positions were held overnight. The E/C is hovering around 1.5130 at this writing which puts my short quite close to being profitable, it was opened at 1.5141.

Reserve Currency Madness

China, for at least the 2nd time this month, has made it known they think that the U.S. Dollar should be replaced as the world's reserve currency. Why is this madness? Well for one thing they are holding a lot of both U.S. Dollars and U.S. government debt, both of which would plummet in value if the reserve currency status ended. Much more research on my part needs to be completed to get an accurate view on this whole issue but suffice it to say that I don't think anything will come of it, but if it does watch out.

Trading results 4/10

Only took 3 trades this past week which is lower than usual. However, it was a profitable week which is all I can ask for. After 12pm on Thursday there wasn't much trading going on as Europe and the U.S. were closed for Good Friday. I'm still holding the 1 long and 1 short position that have been open for a while. This does limit my ability to enter new positions but its better than taking the large loss that would come with closing either or both of those at this point. This week should be business as usual looking for both long and short entries and booking profits when possible. I still think the the SNB, Swiss National Bank, will step in as a buyer if the E/C goes to far down. 2 weeks ago it pushed all the way down under 1.5100 which put it as close as 2.5% to the point where they intervened the last time. The question is how many traders want to take the risk and sell as it drifts down because if they guess wrong it would be costly.

Today's tight range = US Employment numbers

The BLS (Bureau of Labor Statistics) is releasing the non-farm payroll report this morning. This is the initial read on March unemployment in the U.S. along with probable revisions to the last 2 month's reports. This news event is specifically why the market is in a tight range throughout the European session. Traders don't want to be on the wrong side of this report when is released at 8:30AM EST.
Last month it came in at -651k. The consensus, or expectation, for this month is -659k. If the report is close to that number on either side the response will be fairly muted. However, if it is very weak the dollar with get hammered. If it is a lot better than expected the dollar will probably rally. The way I setup positions to be relatively dollar neutral this could be a non-event either way for the portfolio. It still has to be watched because if one side or the other moves at a greater velocity it might create opportunities to close positions at higher then normal profit.

Trading results 4/2

I've been trading but since each position is a larger percentage of the balance I have to be more conservative with my entries. Still holding a long at E/C 1.5350 and a short at 1.5140. These positions might be held a while but I can still take positions as opportunities arise. Opened another short yesterday after the strong run from 1.5174 all the way up to 1.5283. My entry was at 1.5274. The E/C seems to be hanging around this area with typically weak volume this morning so the position is still open. Right now its a profitable position so I'll decide later in the day whether or not to close before the weekend. The rationale for this is that Sunday opens often bring gaps and the risk is that the price could gap up on some action by the SNB, EU, or US Fed and not come back to these levels for a while.

Trading results 3/26

Opened a short position at +.25% divergence and patiently waited for it to come back down to the starting price where I closed for a nice profit. Still holding the long position from the 19th but I'm not worried at all.

Trading results 3/25

Over the past 4 days I've opened and closed a couple trades successfully. I closed a long well below my target because the correlation of the E/U and U/C netted me a nice profit without the movement of the E/C. I'm still holding a long at 1.5347 but that position has been open since the 19th.

Trading results 3/19

Opened 2 long positions that were both closed for a profit. Opened a third long at 1.5352 that is still open. The SNB announced today that there could or will be future foreign exchange interventions on their part to make sure that the Franc doesn't appreciate against the Euro. My reading is that this puts a floor under the EUR/CHF pair but at what point no one knows. I'm not sure if that will lead traders to push downward to find that level or if greed will take over and everyone will buy the dips and sell the rips regardless of what the SNB does. Either way there should be plenty of opportunities to open based on the daily divergence.

Trading results 3/18

Another crazy day in the currency markets. The Federal Reserve crushed the dollar by announcing that they will buy $300 Billion in U.S. Treasury notes as part of a quantitative easing. This event would've been a non-starter for the account but for some reason I decided to take winning sides of positions off the table. This was categorically the worst strategic decision I could have made, unfortunately I didn't realize this until a couple of minutes later. Once I started to comprehend that I was now in possession of large, losing trades without anything to offset them it came down to watching my account drift its way into a margin call with nothing I could do to stop it but hope. Net result, loss of most of my capital. Bright side, no more losing positions to try and trade around. Luckily tomorrow is another day.

Trading results 3/17

Closed the 2nd long position for a profit. Still sitting on the 1st long opened but not worried at all since the closing price of the day is only a few pips away. Total portfolio return to date is 11.36% in 7 trading days. However, I'm still holding 4 losing positions that will have to be reconciled at some point.

Mid-day update 3/17

Closed the other short position this morning. Opened 1 long position yesterday 1.5390, and another this morning 1.5342. The first one I opened to have some long exposure, that's why it doesn't fit in with the schedule posted earlier. The second long position is right at -.25% divergence from last night's close.

Mid-day update 3/16

Opened 2 more short positions early this morning. One at EUR/CHF 1.5365 and 1.5402. It ran up to 1.5450 before coming back down. Closed the 2nd position for a profit and let the EUR/USD side run for a little extra. I have taken 2 positions outside of the strategy to provide some upside protection, essentially one leg in the EUR/USD and USD/CHF long, since my portfolio is so far "out of the money" if you will in the short side because I fear running into a margin call. Going forward I'm going to be a little more aggressive on opening long side positions, and more conservative on opening on the short side.

Mid-day update 3/13

I opened a short position this morning at 1.5380. I know, another short? I would've opened closer to 1.5400 but this entry was good enough. The pair reacted as expected and crept down until I closed for a profit around 1.5340.
Actually this is a good time to mention my exit strategy. When the pair reaches my targeted exit I close the side of the trade that is at a loss and put a trailing stop on the side in profit to see if I can catch a move on that one pair. It doesn't run every time, or even most of the time, but when it does it can multiply what would've been a nice gain by 2 or 3 times.
Its reassuring to see that absent the craziness from yesterday the premise is sound. Not expecting much for the rest of the day, Friday afternoons tend to be very quiet since the rest of the work is already enjoying their weekend.

Trading Results 3/12

Added 3 more short positions that are going to be quite problematic. Again carried positions past 5pm so took another negative roll hit to the balance, this is probably going to be the trend for a while. The plan is to leave the open positions aside to be closed later and start from scratch. 1.5312 looks to be the starting point for tomorrow's trades.

Wow! Bad Day.

Today, suffice it to say, was not a good day for me in the market. I started the day still holding my short position from yesterday and missed an exit due to sleep. The position could have still been closed for a profit but I didn't see a reason to leave money on the table so I waited for it to creep back down again. Unfortunately I didn't foresee the Swiss National Bank making the decision to forcibly depreciate their currency so as the EUR/CHF started to rise I opened 2 more short positions at 1.4837 and 1.4877 expecting to catch a strong retracement back down. Then it happened. The price went to 1.5157 with a quickness where I decided to put on yet another short because, seriously, how high could it go in 1 day? Anyone who paid attention to the currency market today will know that it peaked above 1.5300! So the 3% of the time that the EUR/USD and USD/CHF are not inversely correlated happened in a big way today because of the actions of the Swiss.

Trading Results 3/11

Still holding the short position opened this morning. Since it was open past 5pm my account was charged the roll over amount which for this trade was .28% of the portfolio. I'll describe what roll is and why its important at a later date. Looks like the start point for any upcoming trades will be EUR/CHF 1.4801. This works because its higher than the entry of my current position, if the close had been lower than my entry I would then use my entry point as the start for the next days trades. Basically this is to make sure I'm letting the pair move enough between positions to create the opportunity for profit and to limit risk. If the EUR/CHF moves higher I will look to enter a second short position at 1.4838, if it goes lower I'll close the current short position out at 1.4760 (entry -.25% or 37 pips).

Mid-day update 3/11

Opened a short position this morning. Entered at +44% from the 7pm EST open because I missed it at the target entry. The price has been hovering around the entry point most of the day, but did get within 5 pips of my planned exit. The position is still open.

The trading plan

Simultaneously, or as close to as humanly possible, either buy or sell 2 separate currency pairs. A successful entry should result in being either long both pairs or short both pairs. Why? The 2 pairs I am trading are among the most negatively correlated pairs meaning they tend to move in opposite directions more often than most other pairs. The level of correlation between any 2 pairs can be seen in these tables at forexhit.com. If I am long or short both pairs then one will be positive and one will be negative most of the time. The benefit is that my downside risk is limited by the fact that if one moves strongly against me there is a high probability that the other is moving similarly in my favor. While this is by no means a guarantee to not lose money on a trade it is quite comforting. The challenges are two fold. First, the size of the trade that is profitable is lower than if I was only taking a position in 1 pair at a time so there are potentially lower profits per trade. Second, since they are not 100% negatively correlated (only 97%) there is a small possibility that they could move in the same direction the wrong way and make the position very unprofitable. The 2 traded pairs are chosen specifically because of the negative correlation, but also because they provide a few other very important benefits. They are both "majors" which means they are very heavily traded so the liquidity is better than most, we can "hedge" out most of the U.S. Dollar risk by the size of positions taken, and there is a pair that combines the non-Dollar portions of both pairs to use as a trigger.
A third pair is chosen as the trigger for entries and exits because it is a combination of the two traded pairs. I watch this pair for movements of a minimum size to enter a position. If the trigger moves up the required amount I will enter a short position in both traded pairs, if it moves down instead I will enter a long position. When/if after my entry the trigger pair moves back towards the starting price I will close the position. That is the main theory of the strategy, the price will revert to the mean over time.

What is being traded?
EUR/USD and USD/CHF pairs.
Trigger for entries/exits?
EUR/CHF.

Schedule for entries/exits?

1lot -0.25( or +0.25 of course)

lot 2 -0.25

lot 3 -0.25

lot 4 -0.50 exit 0.25 pull back (pb)

lot 5 -0.50 exit 0.25pb

lot 6 -1 exit 0.50 pb

lot 7 -1 exit 0.50 pb

lot 8 -2 exit 1 pb

lot 9 -2 exit 1 pb

lot10 -3% double lots exit 2pb.
A lot is also referred to as a position and consists of the combination of both traded pairs entered at a specific time. The -.25 is referring to a percentage move so I'm looking for the EUR/CHF to move +/- .25% from the closing price before entering the first position and so on. Unless otherwise specified above I close a position when it retraces .25% in the direction of the trade.

Ratio of EUR/USD to USD/CHF?

The goal is to be as close to U.S. Dollar neutral as possible because that helps to eliminate one more risk to the portfolio. When entering a trade I check to see what the EUR/USD is trading at because this is used as a quick reference on the ratio I want to maintain. As an example if the EUR/USD is trading at 1.50 then every position is long/short 100,000 Euros and short/long 150,000 Dollars. I want to cover these 150,000 Dollars so I will buy 1.5 units of USD/CHF for every 1 unit of EUR/USD. This means my effective trade could be long 100,000 Euros, short 150,000 Dollars and long 150,000 Dollars, short 116,000 Swiss Francs (assuming the USD/CHF is trading at 1.16). It isn't important how many more or less Euros or Francs are in each position, just that as much of the Dollar risk is hedged out as possible.

Size of each position?

I stay between 3 and 3.5% of the total portfolio value for each position. So for each $100.00 in the account I only want to start with $3.00 to $3.50 total between both pairs. The reason for this is that the price doesn't always revert back to the mean immediately, sometimes it can move against me for quite a while so I need to have the capacity to open more positions and not get a margin call. The second important fact that impacts the size is the ratio mentioned above.

Time frame and what to use as a starting point?
I only use a 1 hour chart of the EUR/CHF but it doesn't really matter much. As far as a starting point to determine how far away from the mean the price moves I use the GMT 0:00 opening price as my starting point (this is the open of the bar at 7pm EST).

When I trade?
I try and watch the market as much as possible but the best times seem to be from the opening of the London session to mid-afternoon in the U.S.

Trading Results 3/10

Even though I woke up at 1:30 am I missed 2 trades this morning. The first was missed because the price of the EUR/CHF stopped 2 pips short of my entry target. The second because I went back to sleep. The day, and the entire adventure for that matter, finally got started later this morning with the first of 2 short positions opened. #1 closed for a small profit. #2 for quite a bit more. Total return for the day was 4.6% of the portfolio value.