How the Market Changes Adapting Against Market Conditions Part Two

Yesterday we talked about the definition of a "market condition" and how systems can try to adapt against changes in this conditions my "making themselves ready" for the appearence of an "ideal type" market state. I gave you an explanation based on an analogy with a camera an trees placed at different distances which makes the ability of the camera to focus the systems adaptability and the type of tree the actual result. Today I am going to talk about the "lens" which may allow a trading system to prepare itself for changes in market conditions and the evidence I have found of this actual adaptation technique being simple and valid to adjust our systems to ever-changing markets.

So what does the "lens" actually do ? Imagine that you have a system that trades a very simple entry like a moving average cross with a stop loss value of 50 pips and a take profit value of 50 pips. The perfect setup for the system is when there is a moving average cross and the market moves 50 pips towards the favorable side before moving 50 pips into negative territory. This is what we could call the systems ideal trading condition. However if you analyze any moving average cross for the past 10 years and you determine the mathematical expectancy in terms of pips, youll notice that the actual movement varies greatly as market conditions change. Sometimes the system would be able to capture 100 pips, other times 20, other times 50. In the end, you find that the "ideal" condition for the system is fairly rare and when it appears it seems that it is failing to achieve its true potential. What we want to do is implement some type of adaptation technique such that those 50 pips do not remain constant but that they change with market conditions such that the probability of reaching an "ideal" condition becomes higher.

But how does the market change ? What makes a moving average cross in 2004 give only 20 pips and in 2008 give 300 ? What fundamental characteristic of the market changes ? Of course, this is not an easy question. An analysis of market properties over time related to the extent of movements reveals that the size of movements such as moving average crosses increases as volatility does. This means that if volatility grows, then the extent of our TP and SL should grow too to show us the "ideal" condition under current market conditions. This is the technique used on many of my trading systems which adapts a systems parameters against changes in market volatility. This allows the systems to remain efficient and fit to the current markets ideal trade while maintaining a very good degree of simplicity.

So the "lens" of a trading system can be market volatility, with this tool systems are able to "focus" on current market conditions and get a clear picture of what an ideal trade under the current market status would be. This adaptation proves to be vital for systems to survive to changes in the instruments they are trading as systems which maintain fixed parameters are like a camera with a fixed focus, once the picture changes they arent unable to determine what the image actually is.

It would be naive to say that volatility is the only actual parameter of the market that changes with changing market conditions but it is the easiest parameter we can measure that allows us to generate an adaptability criteria. Of course, other ways of adaptation which measure other aspects of the market such as "pattern shapes", "length of trends/consolidations", etc are also possible but their measurement is far more complex and doesnt necessarily generate better results than those that arise from a simple volatility adapting criteria.

If you would like to learn more about adaptability and how you too can learn to build systems which adapt to changes in market conditions using volatility please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

SPREAD BETTING IMPACT MACROECONOMIC DATA TO THE LIQUIDITY OF CALENDAR SPREAD

         

         Time to enter the macroeconomic data is always an important moment for all market participants. At that time, the market for which the specified concerned, there is a significantly increased volume of orders. On the market there are the banks, hedge funds, corporations, speculation companies and individual traders. During the shows the important data outrights (ie the underlying - for example, oil and S & P500 ) carry significant moves. Not once they reach 100 pips in a matter of seconds or minutes. Sometimes its directional movements - only one way. Other times you can watch the traffic up and for a moment the same downward movement. Scenarios can be different.
     

           For Future Traders on calendar spreads time of economic data is also very important. Frequently at this time on the market begins to significantly increased liquidity. It is very important that, despite the increased liquidity, market volatility has not increased significantly. This is very good information for traders and speculators.
          Experienced trader on the spreads markets during the shows of macroeconomic data puts the orders in the market trying to take advantage of liquidity, which increases at this time.They not running away from the market before the fear that the market will perform big moves up or down. Most movements are small - market is still trading in narrow rang and trader using the using the high volume turns futures bid/offer.
   

            Due to the rise liquitity significantly increases the chance of entry into and exit from the positions. When a calendar spread continues to move in the range of 3 - 4 pips despite the enormous growth in the volume, on the market we can place large orders to turn contract with one pips profit. Frequently during major economic data specific instrument can be turned several times within a few minutes of increased volume. The most favorable situation is when spread trading in the two points. Then the trader places the orders bid / offer and waits when liquidity will allow him to get the bid and offer (or vice versa). Turning the instrument several times a high lots can be very profitable.

           The picture below shows the orders window (without queue).
         

Why I trust the Gods Gift ATR Expert Advisor

I have always said that one of the main requirements to succeed with an automated trading system is to be able to trust the system and trade it through all market conditions with the assurance that the system will be able to recover from temporary loses. Trusting and knowing how a system works also enables you to know your systems strengths and weaknesses, something which makes trading with it much easier.

One of the systems I have been working on and testing for a while is the Gods gift ATR expert advisor which I programmed based on the original Gods Gift 7c programmmed by Matt Edmonds. Now, after being involved and watching this system trade live for more than 2 months I can start to say why I certainly trust this expert advisor. So why do I exactly trust the way the Gods gift ATR expert advisor trades ? Well, because the experts traiding fulfills some of the most important aspects any profitable trading system should (at least in my opinion).

Adjusts itself to the market : This ea uses the ATR indicator in order to adjust its position sizing and market orders to match a certain percentage of market volatility. This somewhat guarantees that the expert will remain profitable under many market conditions since it is able to adjust itself to the different amplitudes of market movements.

The trend is your friend : The gods gift ATR expert advisor is able to follow trends when they develop by using a trailing stop which lets the expert take advantage of very long trending markets without getting stopped out.

Cut your loses short, let your profits run : The ea is able to cut loses by using an internal closing mechanism which follows many different indicators. This lets the ea exit the market before hitting the stop loss either when the price goes against the trade or when the stop loss is trailed after that price has moved in favor of the trader. This has the clear effect of increasing the ability to follow trends while minimizing the loses generated when the market is not with the trader.

Realistic Profit Expectations with Adequate Risk : The gods gift ea is able of producing 50-100% a year with a draw down not exceeding 20-50% (per back and forward testing results), this is a realistic profit expectation which reflects the conservative way in which the expert advisor trades. The equity curve generated by the ea is globally linear with a neat increase in equity under very varied market conditions.

I consider that the above reasons make the gods gift expert advisor a very unique and sound trading system. The ea has up until now proved to be robust and consistent, something which is a must have for a long term automated trading system. If you would like to learn more about this and other free and commercial expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Another Financial Crisis

In 2006 I wrote an article titled “Another Financial Crisis ?” illustrating the possibility of one in the US, and it happened 2 years later. Now I’m writing for the same title but this time the target is CHINA!

In my recent talk in KL, one participant from China came to me and told me that in China there are more real estate investors than stock investors. Indeed the Chinese investors have seen real estate as the best investment because of its spectacular yields in the recent years.

Due to the Chinese government’s capital control, investors must pay a price to invest overseas, which compels them to invest domestically. In addition, the bank deposits and bonds have low to negative real yields, coupled with volatility in the China stock market, many have turn to real estate instead. In fact, China’s increasing inflation rate has helped housing price bubble growing even larger. More and more millionaires and billionaires are created in China every year. Recently The China Daily reported that there are close to one million millionaires in China with a personal wealth of US$1.5 million or more. Of them, 60,000 are considered super rich with 100 million yuan or more. Hence, no doubt they have all the money to drive the property prices in China and the rest of the world!

On the other hand, can this rising property prices be sustainable? According to Time magazine, many gigantic malls in China are virtually empty. One such example is the Kangbashi in Mongolia which is dubbed as the “Ghost Town” with 95% vacancy rate!

Usually the real estate price bubble comes from the artificially made difference between the price and value of housing. Capital competitions bid up prices that in turn induce builders to build more housing. Eventually, prices differ excessively from values of housing and an apparent overproduction will exist. Overproduction of housing relative to the affordable demand forces prices to fall into line with values. The debt-sustained buying would cause precipitous fall in prices and the loan default would make the bubble burst.

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Happy investing,
Pauline Yong

Forex Autopilot Expert Advisor Unbiased Review

A few weeks ago, I started to feel curious about this new expert advisor everyone seemed to be talking about. I went to its cheesy marketing web page filled with marketing tactic ( where they say things like "75% discount, prices will come back to normal in three days!", date which always seems to be the same one after three days) and I took a try for this expert advisor which sells for a mere 89 USD.

At first, let me say the things that attract forex autopilot customers. It is a very cheap expert advisor compared to most of the profitable ones, which usually cost between a 250 one time fee and a 90 dollar monthly subscription. The webpage is also filled with unneeded ways to shove the idea of richness and desire into peoples minds, you see champagne, cars, etc.

When it comes to putting their money where their mouth is, they still have a long way to go. I must say, I still dont have enough testing data to ensure whether it is a profitable system or not, what I can tell you is why I would never trade this expert advisor in my live accounts.

First, there is the way this expert trades. It opens roughly two trades per day, which seems normally selective, and trades on the EUR/USD one minute timeframe. It then opens orders based on some indicators and lets them run after they either hit the take profit or some indicator based exit signals. This is where we have a conflict. Indicator based exit signals ? As I have seen in forward testing, this expert advisor is comfortable with a 400 pip draw down, as seen before last weeks FOMC meeting. If you put a stoploss on the expert advisor, it fails dramatically.

I am very skeptical about expert advisors which tolerate open draw downs like this, specially this ea. It is reasonable when you have pyramiding expert advisor like Pipforia or Pointbreak that close profits at the end of market cycles, and even these expert advisor have never actually seen an open draw down above 20%. The fact that the autopilot expert advisor doesnt use a stoploss and is quiet conformable with a 400 pip draw down without showing exit signals gives me the creeps.

Well, I have given you the facts I have experienced with this expert advisor. An expert which is tolerable to large open draw downs and that also lacks a consistent money management system. I would have to say, I would never trade it in a live account. Would you ?

Dont Trade Alone ! Making Profits in the Forex Market

Almost all the people that start trading forex are aware than more than 90% of all retail traders wipe their first accounts clean. If you have read any web page or book about this market, that statement should not surprise you. Taking a profit in the foreign exchange is like trying to grab a golden coin that sits at the bottom of a pool full of piranhas while a million other people try to do exactly the same thing. It is not easy, not even with the right education. The forex market has wiped clean economists, finance specialists, stock brokers, you name it, they have killed their accounts using forex.

What makes everyone that starts in forex think it is so easy ? Well, human nature for one. You never think that the bad things that happen to other people happen to you, even if chances are highly against you. What makes you better than the other traders ? Another important thing you must think about is that the 90% that lose their accounts are by no means stupid. They are, as or better prepared than you. So again, what makes you so special ?

In fact, nothing. The most important thing in the forex market is knowing how to handle your own psychology and as you know, most traits that make you successful in life, make you wipe accounts in forex. For example, being stubborn and having perseverance, holding on, being ambitious, etc. This personality traits are most certainly going to take you down, sooner or later. That is, until the market baptizes you with your first account loss, then you should have taken a lesson.

But how do those 5% that have managed to make some profits out of the forex market do it ? What in the world made them so different from the rest ? Well, most of them did not trade their first account alone. Of course, if you have someone by your side to tell you "hey, that is stupid", "hey, dont take that position", "hey, stick to the system", then things will look much better for you since you are being walked through your first experience on the market. So for all those forex newbies out there, find someone who has traded for a while and start trading with them, side by side, chances are you will both be profitable.

In my experience, a team of three people is ideal for trading. You get three different analysis plus you get two safes against stupidness. It is much harder for three people to become emotional and act erratically than it is for a single person. When you get more than three, things start to change a little as group emotional factors start to kick in and another type of stupidity arises (like a mob mentality).

So go out there, find a trading buddy and start your profitable forex career. If you would like to learn more about automated trading systems (expert advisors for the metatrader platform) in order to trade without any human intervention please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Weekly Chart Update 23 5 2014

This week we look at the GDP figures across the Asian countries. For the first quarter 2014, while Singapore and Malaysia tops analyst forecast with GDP growth of 4.9% and 6.2% respectively, Indonesia +5.2% slowest growth in 4 years, and Thailand -2.1% qoq.

Analysts at first were worried about the Thai Baht and its stock market earlier this week due to the political unrest in Thailand, but turned out to be quite stable as the military coup was no stranger to its people and the rest of the world. Since 1932, this is the 19th times that the army took over the Thai government! 

Despite so, analysts are still concern about the stability in the Thai Baht and its equity market as they want to see whether the military can eventually hand over power back to its people. Otherwise, the country cannot function well and by next quarter, if the economy continues to contract, then it would be in recession and the neighbouring countries in the South East Asia would be affected in terms of investors sentiments.

US Market

On Friday, S&P 500 closed above the 1890 resistant attempting to breakout from this rectangular chart pattern. Next week we shall see if the US market would test the 1920 resistance level.

STI Market

The STI is likely to move higher next week to test the 3300 resistance level. Technically speaking, the STI is still within the medium term bullish channel. We need to see some consolidation as depicted in the chart before it can move higher. Support at 3225, resistance at 3300 level.

KLCI Market

This week I would like to present a different interpretation of the KLCI chart. There are many ways of interpreting a chart, different people will have different interpretation of the same chart, there is no right or wrong answer to it. To me, chart reading is a form of art, I can be creative in drawing those trend lines.

In the following chart, I drew a step-up trend line pattern on our KLCI. The reason for this is because I notice the KLCI for the past 5 years, there was a repetitive pattern of a series of consolidation phase, then followed by a step up in price. According to my chart, if KLCI successfully steps above 1860, the next level to reach would be 1960 provided if we do not have major bad news such as political unrest, or US stock market crash or war in the Asian region.

For next week, the last week of May, we shall see the KLCI consolidation within the 1860 - 1890 level.