8th day small profit that helps me to keep going in the competition

After a successful week and most importantly from recovering almost $6k, I wanted to consolidate my positive results. My desire was to build up the account to be able to deal with possible drawdowns.

6B 06/20 future

Monday was a very quiet day in comparison with the previous days. The British Pound jumped 

almost 50 pips early in the morning but after that, the USD recover its strength. This changed again after midday when the price started to rise again.

6B 06/20 trade chart

I realized that I had a notification. My algo bought 5 lots during a retracement. In the beginning, it went against me, but it quickly recovered. It didn’t make a big movement but was more than enough to finish the day with a small profit. I personally don’t like to take positions at that time on the day because the algo closes the positions around 17:00. To be honest, it doesn’t matter if I like it or not, what I need to do is check that it’s statistically significant.  

Profit and new account balance

Trade 13/04/2020

As I said, it was a small profit, but these kinds of days help to build up the account. The maximum adverse excursion was small. The algo closed the position close to the maximum favorable excursion which I’m very happy about. I have the feeling that I’m leaving a lot of money on the table. I am allowed to make one change in the algo during the competition and I’m seriously considering adding a take profit. These will reduce the time in which the algo maintains positions open and more importantly it will secure profits. On the other hand, it won’t let the profits run as much this is why I need to carefully check before I implement the change.

Account balance and realized PnL

The account balance at the end of the day was $1003468.75. Even if it’s not real money, I feel very well because the algo is behaving as I expected and it’s able to recover from drawdowns.

Thanks for reading this post!

6th day, no gain no loss…

As you can imagine after reading the title, it was a flat day. Actually, I made a small profit but it didn’t cover the commissions. Let’s see what happened during that day in the EUR/USD and GBP/USD futures:

British Pound

It was a directional day for the British Pound without any big spike or swings as we saw in the previous days.  This was explained by the increase of COVID-19 cases in the US and the expected approval of further help by the FED.

6B 06/20 

It raised almost without stopping until 14:30 where the price was ranging between 1.2387 and 1.2405. In one of these retracements, the algo was triggered and it sent a buy of 5 lots. I wasn’t sure about opening the position considering its morning trend and range. One of the best aspects of using algos is that we remove discretionary decisions and feelings. After entering in the position, like the most part of the times, the GBP/USD futures fell to 1.2374. After that, it rebounded breaking the highs of the day and it reached the 1.2429 level. It couldn’t breach these levels and it went back to 1.2400 where the algo closed the position.

6B 06/20 trade chart

This chart shows more detailed of what I explained in the previous paragraph.

6B 06/20 trade

In contrast with other days, the MAE ($437.50) is around 1/3 of the MFE ($1281.25) and this shows how well the market behaved for the algo I’m using. One of the problems is that the ETD is still high because the algo is not closing with a signal. Until now, the algo has closed according to the time configured.

Euro FX

The Euro vs the US Dollar didn’t have a clear trend. It was a total swing. It seems that the EUR was stronger in the morning while the USD took its place in the afternoon.

6E 06/20

As you can see, and as it was expected, the algo was triggered in a retracement. It performed well during the first hour. After that, the Euro dropped strongly but seems that the traders didn’t believe in this movement and the buying pressure took the price to the point in which the position was open. At this point, it continued to rise to 1.0909 where the dollar strength came back. The position was closed at 17:08 London Time

Trades and account balance

I didn’t get profit in both trades. I lost $398.75 in the EuroFX trade including commissions and I won $395.75 in the British Pound also including commissions.

08/04/2020 trades

I shouldn’t be upset… I made a profit without considering commissions. At the end of the day is not real money and this is good learning and I would like to remember that in my opinion the commissions and the slippage should be included when you are backtesting a system. In my experience, if the system is not good enough this will make the difference between making profit or loss.

Account Balance

One of the conclusions that I found in the first 6 days is that probably I should implement a fixed take profit or maybe consider a trailing stop. It’s early to say but probably I will run some tests to see if the statistic ratios are better than my current algo.

Thanks for reading this post!

#algorithmic_trading, #Trading, #Euro, #EUR, #GBP, #British Pound, #USD, #EURUSD, #GBPUSD, #Dollar, #performance, #profit, #loss, #FED, #COVID-19, #Robotrader

Day 5, Profit after a hard day

The 5^th day was a positive day. It was the first day in which the algo was triggered in Euro FX future, known as 6E in CME. Until this moment, the algo was executing orders only in the British Pound futures. Let’s have a look at both instruments:

Euro FX

The algo performed very well showing its real purpose. It entered long in a retracement and luckily after that, the Euro went up. It was a very directional day.

6E 06/20 

 

As you can see there were only 2 moments in the day in which the position was losing money.

Orders 6E 06/20

The final profit was $1657.50. 

British Pound

As I said before this currency cross has been recently quite volatile in comparison with the Euro/USD. I believe that the news has a bigger impact on this instrument.

6B 06/20

I was looking at the different parameters when the notification popped up on my screen. At that moment, I had a feeling that this trade couldn’t end up in profit. I saw the P&L falling continuously for an hour. After that, the price went up to the point in which I entered. I felt a little relieved but I knew that it won’t last. It dropped again making a double bottom. Even if I don’t believe or follow the charts, I had a little belief that maybe the price will go up again breaking the confirmation line. I was right. The price went from 1.2292 to 1.2395. As soon as the US trading session started, the USD raised versus other currencies. This pair plunged to 1.2303 from the maximum of the day. I believe that after a big movement the prices always revert to their mean but we need to be careful in the current situation. I was lucky because the price recovered more or less 60% of the last downside movement and at that time, my algo closed the position making a small profit.

Trade 6B 06/20

As you can see the MAE shows that at 1 point I was losing more than $1400. We can also see a big MFE showing almost $1800, that was reached after the double bottom. Sadly, as you know, even if it’s not real money, the final profit was far from the MFE. This is why the End Trading Drawdown shows up as $1373.75 the difference between the maximum favorable excursion and the final profit.

Final Profit

The final result was $2127.50. I was happy to have this profit after the losses from the previous week.

Thanks for reading this post. 

The algo, day 1, 2, 3 and 4

Hi, I would like to start this post introducing the idea behind the algo. Also, I would like to highlight that this is not financial advice because the purpose of this algo is to participate in a simulated algo trading competition.

Current situation

One of the first questions that came to my mind was about the current situation with the Covid-19 and how it would evolve during the competition. At that point, was very tricky because it’s very difficult to forecast the future and to be honest, I don’t know how the markets will react to the help provided by the central banks. I see some similarities with the financial crisis, but I believe that there are more unknowns and the lockdowns extensions can trigger some bankruptcies for small and medium businesses. This will result in a decrease in consumption and the gross domestic products will reflect this as well. The financial situation of some companies and individuals will deteriorate and this will affect the banking sector. This issue can have a domino effect. Luckily, the central banks and the national governments are taking measures to try to avoid the spread of the disease and try to go back to normality (even if it’s done gradually)

The algo

I was considering different types of algos before the competition. As you know, some of the most important algo types are:

• trend following 
• mean reversion
• volatility breakout
• range algos

As I explained in the previous paragraph, the situation was one of my biggest concerns and I was expecting the volatility to continue at least for 3 months. Considering that the central banks were approving measures, I thought that the markets could have some rebounds. This is why I decided to design an algo that is able to catch the trend after a retracement. The main indicators used are two Exponential Moving Averages and a Stochastic.

I chose the Euro FX (6E on CME) future and the British Pound future (6B on CME) and every time that the algo is triggered, it sends a 5 lots order.

Day 1, 2 and 4

The algo was triggered only in the British Pound futures during the first 4 days. I lost $655 in the first trade, as you can see it wasn’t the best day. Its maximum adverse excursion was $875 and the maximum favorable excursion was $500 (this explains that the position was showing $500 profit at a certain time during the position was open) 

The second day was far worse because it hit the stop loss. The similarity with the first trade is the maximum favorable excursion that reached $562.5 at some point during the session.

I didn’t have any entry on the third day.

Finally, I had a small profit on the 6^{th of} April. It was the most volatile day.

Summary

I have introduced a brief opinion of the current situation and I have explained how it was one of the most important facts to choose the algo for the competition. I have shared the idea of the algo and I have reviewed the first 4 days. I will keep posting how the algo is performing and interesting facts that can explain some movements in the Euro and the British Pound futures.

Europe strength, UK inflation

We had a lot of data today. Early in the morning, we have seen an outstanding German GDP. The next big announcement was the UK CPI that surprisingly has shown the same reading as the previous one. Followed by this, the German ZEW economic sentiment and the European GDP.At the same time, the central bank governors from the Fed, BCE, BoE, and BoJ were in a communication event hosted by the European Central Bank. Let’s check more in detail what happened with the British Pound and the Euro.

UK inflation data

As I said before, the UK CPI has been released at 9:30. The reading was 3,00%, the same as the September figure. This makes pressure to the Bank of England. Will they raise rates in December? On the other hand, the uncertainty about getting a Brexit deal is growing. If the policymakers don´t reach a deal focused on trade, the British economy will suffer due to the contingency plans from the private companies. In this theoretical scenario, the BoE will be in trouble because the inflation will peak and they have a limited margin to raise the overnight rate due to the high level of debt held by the households. This scenario has a low probability in my opinion.

GBPUSD December 2017 future

     Source: TradingView, GBPUSD Dec 17 futures, daily

Here we can see a bearish trend in the British Pound vs the US Dollar that seems that it’s consolidating and creating a strong resistance around 1.3070. This trend signals the disappointment of the rate rise in the current situation and the uncertainty of Brexit.

     Source: TradingView, GBPUSD Dec 17 futures, 30 min

The reaction of the strong UK CPI has been negative for the GBP in the first two hours after the release. After that, it has recovered. 

    Source: TradingView, GBPUSD Dec 17 futures, daily

The Pound has broken higher while I was writing this post. Head and shoulders confirmed.

European data

Europe has shown its strength with the macroeconomic data today. This morning Germany has released a strong Gross Domestic Product. The GDP (YoY) was in line with the expectations, but the GBP (QoQ) was better than the forecast.

      Source: ZeroHedge, chart taken from Bloomberg

The Geman ZEW economic sentiment was slightly worse than expected, 18.7 vs 20 expected by the analysts. The European GDP growth was in 2.5% and the industrial production 3.3%. These figures confirm the good moment of the European economy.

EURUSD December 2017 future

     Source: TradingView, EURUSD Dec 17, daily

The USD has been raising vs the Euro since September. The European Central Bank has shown its conservative side while the Fed is clearly hawkish. Today the central banks' governors agreed that the economic policy will take part only if the improvement of the economies continues. 

Source: TradingView, EURUSD Dec 17, 30 min

The Euro has rocketed today with the positive data. The strange thing is that we haven’t seen any retracement.

Conclusion

It’s been a good day for the euro but there are some issues to resolve. The main concern is the European inflation is not as high as the BCE would like it. The strengthening of the euro can lead to keeping the inflation low and Draghi knows about it. In the other side, the Bank of England is raising rates in order to fight the inflation.  This is not well seen by the market participants due to the Brexit uncertainty. In the other side of the Atlantic, Janet Yellen confirmed that the Fed will raise rates according to the economic improvement. Working nowadays in a central bank is not easy, considering that they need to be careful with their language, prepare the markets to avoid repercussions on the real economy and guide consumers about the expected outlook. All of these things shouldn't affect your trading but I think macroeconomics is helpful at least to understand the big movements.
Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

Effects of the Bank of England rate hike

Introduction

The Bank of England raised the overnight rate from 0.25% to 0.50% yesterday. This is quite significant because it’s the first rate hike in a decade. The inflationary pressure was the key point in this decision. Some members were demanding a rate hike a long time ago. However, in the Bank’s policy statement, they cautioned that further increases in the overnight rate will be gradual and related to the performance of the economy.

My opinion

I understand that they raised the base rate in order to offset the growing inflation. Up to this point, everything is clear. But, considering that the Brexit negotiations haven’t progressed enough, I don’t think that is the best decision at this moment. According to Barnier, the European Chief Negotiator for Brexit, the Brexit talks could take months to progress. So, I think the BoE has taken the initiative to hike the rate as a temporary measure and the Bank’s policy statement confirms that it will be gradual. In the case of a hard Brexit, they can lower the overnight rate again or even support the economy in a different way until getting new trade agreements.

What was the market reaction?

I think the big credit traders and the institutionals thought the same as me. The British Pound plunged. The Long Gilt, the equivalent of the 10 T-Note and the Euro-Bund, rose. The UK interest rates, known as Short Sterling Futures, jumped showing the disappointment of this decision. Let’s see the movements more in detail.

GBPUSD December 2017 future

     Source: TradingView, GBPUSD Dec17 Future, daily

This is a daily chart that shows the scale of the movement yesterday. It opened at 1.3266 and it closed at 1.3071, big drop. Early in the morning was rising and it tested the resistance at 1.3318. After that and driven by the disappointment from the market participants it fell. In its way down, the support at 1.3157 was broken and fell to the next support (1.3063)

     Source: TradingView, GBPUSD Dec17 Future, 30 min

Here you can see in more detail the movement. It was falling in the morning, but when the interest rate hike was announced, the volatility came to play. Usually, if the economy is strong and performing well, an interest rate hike boosts the currency. In that case, the market participants thought that was not the best moment to hike rates.

EURGBP 

      Source: TradingView, EURGBP FXCM CFD, 30 min

This is the Euro vs the British Pound. The reaction was the same. The major movement happened in 30 min this is why I’ve chosen this time frame.

Long Gilt 

     Source: TradingView, Long Gilt OANDA CFD, Daily

The UK 10 Year Bond future made a very technical movement because it respected the resistance at 125.756. It’s true that at this point, and considering the importance of the level, the most part of the traders considered to sell or take profits. But let’s check this better in the following chart:

     Source: TradingView, Long Gilt OANDA CFD, 15 min

I’ve chosen 15 minutes because I can explain better each candle. We can see that was barely flat before the announcement. At 12:00 UK time, as soon as the BoE confirmed the rate hike, this bond rose driven by the buying pressure. I consider the next candle as a Doji pattern because the buyers and the sellers were conflicting. At this point, and due to the big movement, I believe that some firms were taking profits. The next candle broke higher but failed to close above the resistance at 125.75. This level was used to take profits and open short positions because the movement since the announcement was big. Around 14:00, the buyers came to the market helping to close at the highs of the day.

As a curiosity, I would like to share this article from Efinancialcareers:

https://news.efinancialcareers.com/uk-en/300035/bankers-london-mortgages/?utm_source=GLOBAL_ENG&utm_medium=SM_LI&utm_campaign=FANS

Conclusion

In normal conditions, an interest rate hike makes the value of the currency going up as well as the interest rate yields. The Brexit shadow appeared after the rate hike and this is why the British Pound and the bond yields plunged. I haven´t focused on the UK short-term interest rate futures, known as short sterling futures,  but they rose significantly showing the disappointment with the decision. I can understand that the Bank of England did it as a temporary measure to try to fight with the high inflation and the high level of personal debt. The future path of the rate hikes in the UK depends on the Brexit negotiations, and I don’t see any significant progress on them.  The market is pricing all of these facts. I like to follow the interest rate markets because you can see what´s going on without reading the news. As always, I hope you like this post.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

#trading #InterestRateHike #macroeconomics #fx #GBP #InterestRates #BoE #RateHike #LongGilt #Brexit

Most important moves of the week

Introduction

We have seen interesting moves this week in the financial markets. The most important was the ECB decision to cut the monthly asset purchases but extend them until September 2019. The market considered this decision very supportive and dovish by the ECB. The euro was hit by this decision and the problems in Spain. The UK released a better than expected product that helped the British Pound to hold its value versus other currencies. On the other hand, the energy markets have moved a lot. The Crude Oil Brent closed the week at 60.44, the 2 year high.

Crude Oil Brent

    Source: TradingView, Crude Oil Brent Dec17 future, daily

The Crude Oil Brent has broken key levels and has risen like a rocket in the last two days. I fell on Monday and I questioned my bullish idea as it could keep raising and break the 58.20 level. On Tuesday it closed at 58.33, above the key level formed the week before.  The selling pressure wasn’t strong enough on Wednesday at this contract closed flat at 58.45. The big movement was in Thursday and Friday. After Wednesday support, it tested the 59.54 on Thursday. It continued the bullish trend on Friday. It closed at 60.44, which represents the 2 year high.

US Dollar Index

      Source: TradingView, US Dollar Index futures, daily

As you can see it’s been a tough year for the USD. In June, and due to the interest rate hike by the Fed, seemed that the US Dollar Index could go up. But it didn’t. The weakness in the energy markets and the geopolitical problems didn’t allow the USD to rise. The market expected more hikes in 2017, unfortunately, with the hurricanes, the Fed officials were obliged to delay this decision. We have seen good economic data this week in the US:

Macroeconomic indicator	Reading	Expected
Core durable goods orders (MoM)	0.7%	0.5%
New home sales	667K	557K
GDP	3.0%	2.5%

The Fed is showing confidence and a hawkish approach because they have confirmed that the interest rate hikes will continue in the next year and they will reduce the asset purchases. 

     Likelihood of December Rate Hike, CNBC, https://www.cnbc.com/2017/09/18/traders-are-getting-ready-for-another-fed-hike.html

       December FED rate hike probability, Bloomberg, http://uk.businessinsider.com/markets-almost-certain-fed-hiking-interest-rates-in-december-2016-11?r=US&IR=T

These charts show how the likelihood of a rate hike in December is increasing, and the dollar has done the same movement since September. Is anyone building a big position?

All of these facts were the key to help the USD. Technically the most important thing is that the downtrend was broken 1 month ago. The most important levels for me are 92.63 (as a key support) and 96.585 (as a resistance)

Another interesting fact is that Janet Yellen won´t continue as a Fed president.

Euro

    Source: TradingView, EURUSD Dec17 future, daily

The Euro has fallen this week due to the dovish speech by the ECB this week and the USD strength. This is always the same if you don’t deliver what the market participants expect, the value of your assets decline. As I said in my last article, I understand that the ECB prefers to be cautious with the QE cuts. Having a weak currency in a growing environment can help the inflation to peak. It has broken 2 key levels this week as you can see in the chart. I think it can keep going down and test the 1.1530 level. In part, the last decrease was due to the issues in Spain.

British Pound

    Source: TradingView, GBPUSD Dec17 future, daily

Surprisingly for me, the GBP is holding its value vs the dollar. We have seen a better than expected GBP in the UK. It’s difficult to know what will happen in the Brexit negotiations. There are a lot of doubts and speculation about what will happen. The biggest investment banks confirmed that thousands of employees will be relocated to Europe. 

    Source: TradingView, GBPUSD Dec17 future, daily

We have seen the same down movement than in the EURUSD. We can see a double top that indicates that the GBP will rise vs the Euro. The 0.8733 level is a very important support that has been tested several times.

I hope you like it.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

#Trading #fx #euro #gbp #USD #energy markets #brent #macroeconomics #UK #US #Europe #fundamentals, #Bloomberg #FED #interestRate #qe #Assetpurchases #ECB

Headlines of the week, British pound, Brent and Economic calendar for the next week

United States

The most important economic releases this week were the US Core CPI (MoM and YoY) and the US retail sales. As you know both were lower than the market expected and the treasury yields and the USD closed lower yesterday. The US inflation data offset the higher gasoline prices.  Robert Kaplan, Dallas Federal Reserve Bank President said that that the Fed should periodically review its inflation target and other frameworks. I think this is interesting but I don´t know how they can apply it. The economic policy takes time to affect the real economy.

UK

In the meantime, crossing the Atlantic, Mark Carney said on Friday that he expects that the BoE will raise interest rates but he declined to comment when. The biggest headline was that there are rumors that Britain is to be offered a two-year Brexit transition deal. The British Pound jumped as soon as this news was published in the media.

Europe

There is a controversy between  Jens Weidmann (Bundesbank president) and the European Central Bank. He said that there is no need for the ECB to continue providing monetary stimulus through bond purchases.  Mario Draghi doesn´t see enough inflation progress. According to Reuters, the ECB is likely to reduce support but continue to buy the asset purchases.

China

Apparently, China´s economy has shown signs of stabilizing and growing more strongly. If it continues in the second half of the year, the commodities will rise.

GBPUSD Dec 17 Futures

    Source: TradingView, GBPUSD Dec17 futures, daily

As I comment before, the last move has been driven by the possibility of the two year transition period between Europe and UK. We can see the bounce back on Thursday when it was published on the news. Apart from that, it's the second time it closes above the 1.3285 resistance I signaled in one of my old posts. 

Brent Dec17 Futures

    Source: TradingView, Brent Dec17 futures, daily

The Brent rose yesterday and tested the resistance at 57.21. I think it can keep rising the next week due to the demand increase. 

Economic Calendar

Own elaboration                                                                           

It´s going to be a busy week for the UK traders as they have CPI, Average Earnings + Bonus, Claimant Count Change and Retail Sales. In the US, we should look forward to seeing Industrial Production, Building Permits and Existing Home Sales. Tuesday is the most important day of the week if you trade European products.

Sum up

This is a little review about the most relevant things of the week. For now, the markets are moving as I expected and shared in other posts. Let's see what happens next week.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverages involved

USD after Non Farm Payrolls

I’ve been talking about the US economy these days. One of the most important figures was released yesterday, the US Non-Farm Payrolls. The market expected a lower figure due to the problems caused by the hurricanes. The expected figure was 80k, which I thought that was a good forecast. My surprise came at 8:30 US time (13:30 in UK, 14:30 in Europe)  when I saw that the NFP was -33K. In contrast, the unemployment rate was 4.2% better than the 4.4% expected. I thought that the US dollar would sell off at this time. I expected a rise in the T-notes futures and the eurodollar (interest rates futures). According to the news, the market should ignore the NFP September figure as external factors have temporarily affected the economy. The unemployment rate is really good, but I thought that I lost my touch with the market when I saw the initial rally in the dollar. Luckily, the rationality appeared after a couple of minutes and the initial movement was reversed.

Let’s check how it affected some currency pairs, 10Y T-Note Futures and the Spread I commented yesterday:

Euro

    Source: TradingView, EURUSD Dec17 futures, 30 min

 As I said before, the initial movement was a sell-off. This is a 30 min chart so you can't see when it started the reversal but you can see the big shade in the candle highlighted in yellow. After a couple of hours, the max of the day was broken.


GBP

    Source: TradingView, GBPUSD Dec17 futures, 30 min

In the case of the British Pound was a bit different. The first reversal was really strong. The buyer's pressure was very high. I guess they shared my thoughts. This movement wasn’t successful at all. In the next hour, he dollar raised vs the pound but it stopped around 1.3060. After that, this contract went up.

JPY

    Source: TradingView (OANDA), USDJPY , 30 min

The USDJPY behaved like the British Pound.  It went up until the buying pressure disappeared. The reversal was bigger than the initial movement.

10Year T-Note Futures

    Source: TradingView, 10 Year T-Note Dec17 futures, 30 min

Here we can see the correlation between different assets. The first movement was a sell-off, and then it reverted back the whole movement after two hours.  If you think about it, trading currency futures and bond futures is the same. You are trading interest rates. (Currency futures: Difference between expected interest rates in two countries or economic areas 

Bond futures: expected interest rates )

Eurodollar Spread

    Source: TradingView, Eurodollar spread GEH18-GEZ18, Daily min

This is a curiosity because yesterday I talked about interest rates. The spread moved up (the market considered that the figures were positive for the economy) but after a while, the spread fell. This spread was trading in 28 once the figure was released. At the final of the day, it closed in 26.5, so three prices movement.

Conclusion

I think the first movement was positive for the dollar because the Fed said that they will ignore September’s employment data because it´s a temporary shock. The ISM Manufacturing PMI and the ISM Non-manufacturing PMI were better than expected.

It´s really difficult to trade economic releases. You can be right, theoretically speaking, but if you have tight stops or a bad risk management, you will lose and it´s frustrating to see the market doing what you thought before after you were stopped out. You need to be right and enter with the order flow. It's not easy. I hope you like this post. 

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverages involved