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Kay Van-Petersen
Saxo's global macro strategist Kay Van-Petersen examines the big issues over the next few days for the markets including Mario Draghi's, president of the European Central Bank (ECB), speech on Thursday regarding the bank's stance on interest rates.
Squawk / 04 August 2016 at 9:14 GMT
Hypothesis Testing
United Kingdom
Std dev adjustment for DAX as promised.
Skew for today is -'ve so 0.22 x 112 = 25pts (rounded)
0.27 of range = 30pts (rounded)
0.48 of range = 54pts (rounded)
Again today we see a gap open but if we utilise the 9am (BST) price eg 10,246 value
Thus Buy at 10,276 seeking to cover at 10,300
or
Sell at 10216 seeking to cover at 10,192
Aggressive scalpers would have a sell signal at 10,234 and cover at 10228
and also 10,246 - skew = sell at 10,221 and trail
1y
fxtime fxtime
Chart attached with the time stamp line for reference.
1y
fxtime fxtime
Ignore the number 2 on the charts.....my software counts candles for trade entry points so after 2 candles it applies the scenario orders etc etc instead looking at the time frame but really that is just a minor computing code and irrelevant to the levels described.
1y
zefy zefy
Yes, I have all building blocks in place for calculations but 9am BST time stamp I have not tested.
1y
zefy zefy
What is your default trailing distance at entry (I know you tighten the trail based on time as trade develops)
1y
fxtime fxtime
Those gaps are a pain for end of day settings and they are commonplace with the Dax.
1y
zefy zefy
Yeah, I have experience that and on the other hand, there are other strategies to play those gaps :)
1y
fxtime fxtime
Yeah we both know the gap trades :-)
A basic trail is the range of the prior candle. So if we drop we want the high of the preceding candle as the measure of your trail stop.
1y
fxtime fxtime
Update...probably daft of me to suggest this today considering we were all awaiting Carney at 12...both long and then short orders would have triggered and if you were quick with your stops you would have earned but what is interesting is that the market went within 13pts at each end of the 2nd std devs! It will be interesting to see how the day ends.
1y
fxtime fxtime
FWIW Zefy the old school std dev model was to use the entire range of Monday for a standard dev setting for the entire week....perhaps with the low vols that we may have to have that as the background trade and await tomorrow for the intraday version to prove itself under normal market conditions.
1y
zefy zefy
Yeah, today was easy because BoE announcement provided needed volatility.
1y
fxtime fxtime
When you are bored use Monday range to test for a trade that last for the rest of the week using the parameters determined by Monday and use the close price of Monday as your reference point for setting the 1st and 2nd std devs.....all old school I know.
1y
zefy zefy
Of course provided that we used your suggested 9am BST time stamp :)
1y
fxtime fxtime
Lets test it again tomorrow from the 9am BST...you can back test the other days before if you want...make sure you use bid and ask prices to get true results. :-)
1y
zefy zefy
Okay. This may sound stupid but came to my mind that for EUREX I could also check settlement price, not 10pm CET close price :) Just an idea....
1y
fxtime fxtime
Actually that should work....I haven't tested it but if you regard that as the equivalent YZ markers on Market Profiling and consequent AB in real trading hours etc the overlay would probably hold true. Are you going to test it?
1y
zefy zefy
Perhaps a bit later, the idea just came after your comment about Monday range. There are so many improvements and lessons learned based on live trades ongoing at the moment and I need to prioritize those first...
1y
fxtime fxtime
FWIW this a Monday basic set up. Skew was negative.
Monday range was 106
Close 6677
0.22 skew = 24pts
0.27 (1st dev) = 29pts
0.48 (2nd) = 51pts
Thus BUY at 6677 +29 = 6706
Take profit = 6728
Sell at 6677 - 29 = 6648
Take profit at 6626
Aggressive skew trade sell at 6653
Take profit at 6626
84% rule applies....which I didn't do as the BoE clutters things.
But 81pts banked.
interestingly todays move went through the entire projected range....when you back test this is a boringly reliable trade but as with everything sideways markets can be corrosive.
1y
fxtime fxtime
Zefy todays' DAX....the first tradewas 1.5pips away from a normalised profit your stop would have been at b/e and the second obviously easilly completed but we now have the 84% rule to consider imho...fwiw I have opened a very small stake short at 10343 as per chart seeking 10311...chart attached fwiw
1y
zefy zefy
Apologies for the delayed replies... I am in the middle of rigorous debugging... I have some time suspected there is something wrong in my trade management of this strategy causing the underperformance... Std calculations and entry/target levels and all filters are absolutely right in my system. BUT... "1.5pips away from a normalised profit your stop would have been at b/e" Not in my system...stop is not set/uddated correctly... Luckily it is weekend and I have two days to investigate more!
Luckily direction today was clear and all 4 std dev trades were succesfull.
1y
zefy zefy
Thanks fxtime updates, again those are pointing me to the right direction!
1y
fxtime fxtime
If we see the DAX continue to miss the max profit by a tiddly 1.5pts then we adjust the second dev to 0.45 x yesterdays range to tighten the trade. Remember Monday close value for the Tues-Friday trade too :-)
Have a good weekend.
1y
zefy zefy
Thanks and you too!
1y
zefy zefy
All smiles here 😊. 100% trades today successfull! Great stuff!
1y
fxtime fxtime
LOL.... well done mate. Worked on USDCAD too :-)

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