Watukushay No 5 The Aussie and the Kiwi More Encouraging Results ~ forex trading guide for beginners pdf

10:36 AM in 5, and, are, aussie, broker, conspiracy, encouraging, Forex, kiwi, more, no, results, the, theories, they, true, watukushay

During this weekend I released the first official version of Watukushay No.5 coupled with all its 10 year backtesting data showing profitable results on 6 different currency pairs in Asirikuy. From my last post about this EA you might remember that Watukushay No.5 had been tested on the EUR/USD, GBP/USD, USD/JPY and USD/CHF, however at that time I hadnt completed my analysis on two other currency pairs that also show us great results with this strategy despite their overall lack of liquidity, the AUD/USD and the NZD/USD. On todays post I want to share with you some of the results of the EA on these currency pairs and how the EA is able to use a completely different trading technique to profit from the different trading mechanics of these two instruments.

As you may already know, Watukushay No.5 attempts to exploit breakout inefficiencies on the different currency pairs. On the 4 majors this is done by exploiting periods of low volatility when the currency pairs form significant ranges, entering breakouts when important moves develop within the following trading sessions. However, these trading tactics do not work well on the AUD/USD and NZD/USD, not only because they tend not to form areas of compact trading but due to the fact that this areas do not lead to successful or unsuccessful breakouts with any statistical significance. In the end if you try the same tactics as with the majors you will obtain slightly profitable results which are definitely not worth using in live trading.

Upon my analysis of these two instruments it became clear that I needed to think the problem from another perspective if I was going to find any profitable results for this EA on these two pairs. This meant going back to a meticulous analysis of the currency pairs and the way in which the medium and long term trends develop within them. After spending a few days working on this I finally realized that the key was to rely on breakouts of more volatile sessions but aiming at much higher take profit and stop loss targets. The idea was that this large breakouts do allow us to predict long term trend direction with a good statistical edge in the long term.

Backtesting results were indeed very encouraging showing me that my analysis had been right. When you exploit this different and larger breakouts on the AUD/USD and the NZD/USD, you obtain some very profitable results which are achieved as the EA is able to follow long term trends through the periodical entering of this large session breakouts. The effect resembles the accumulation technique used by the turtle trading system, allowing us to follow a trend and greatly profit from its long term direction. Below you can see a picture of how this trading works on the NZD/USD, notice how the EA got a lot of profit from a developing trend.
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The 10 year backtesting results also give us great results for both of these currency pairs. We arrive at results which have average compounded yearly profit to maximum draw down targets better than Watukushay FE and the same as Teyacanani on the EUR/USD in the case of the NZD/USD. Surprisingly, the best trading results for this EA have been found on the NZD/USD, showing us the robustness of this strategy as a portfolio solution. The EA shows us its robustness and its ability to exploit two completely different market inefficiencies based on the same trading mechanics but aiming for entirely different things.
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Later today 3 live accounts with real money will be added to Asirikuy to start the testing of the system on the USD/CHF, NZD/USD and a full portfolio setup. Hopefully within the next year we will be able to gather some very useful information about its trading system, its tactics and its ability to tackle changing market conditions. The ability of this EA to adapt to each particular market situation and its very large set of adaptive parameters will probably lead it to succeed in this quest against market changes.

If you would like to learn more about automated trading and how you too can develop your own likely long term profitable systems 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 !

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Liquidity in Forex Part No 2 Analyzing the Liquidity of Different Pairs ~ forex trading good or bad

5:10 AM in 2, 5, analyzing, and, aussie, different, encouraging, forex, in, kiwi, liquidity, more, no, of, pairs, part, results, the, watukushay

On yesterdays article - which was part No.1 of this post - we talked about the definition of liquidity and the implications of high and low liquidity levels on the forex market. Today we are going to give an in-depth look to liquidity in the forex market, particularly I will talk about recent literature in economics dealing with the evaluation of liquidity on several different currency pairs and what we can conclude and use from this analysis. After reading this article you will have an idea about which are the most liquid and illiquid currency pairs, something which should give you a good idea of what pairs you would want to focus on for the development of mechanical trading strategies.

First of all, it is important to understand that liquidity in forex in simply a pain to research. In order to investigate the liquidity levels of any given market instrument we need to have all transaction information including, type, volume and time. This means that we need access to the "books", the registry where all the transaction information of a given broker is kept. Since there is no central exchange in forex, we cannot get the real liquidity values but if we choose a broker that uses a large array of liquidity providers and we take a look at all their transaction we might be able to draw some general conclusions regarding overall pair liquidity values (at least relative to each other).

The Swiss National bank published a paper a few months ago dealing with the evaluation of liquidity on the FX market (you can access it here). Besides discussing previous literature findings regarding forex liquidity the authors investigated the liquidity levels of several different currency pairs using data from 2007 to 2008. The authors used a daily reversal measurement (explained within the paper) of liquidity in order to get a comparable to number to use between the different currency pairs.
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The studys first findings show us that the EUR/USD and USD/JPY were the most traded instruments during the testing periods while the AUD/USD and USD/CAD had the lowest trading volume. The authors also emphasize on the fact that even though the GBP/USD is an important pair it is very illiquid when compared to the EUR/USD, confirming the findings of previous studies and pointing to the reason why the development of GBP/USD based systems is far more difficult than for the EUR/USD since the lower liquidity makes inefficiencies harder to exploit in a mechanical fashion.

Another interesting conclusion is the high liquidity of the USD/CHF and EUR/CHF during this period which the authors attribute to the safe-heaven status of the frank and the economic crisis during 2007-2008. The study also shows us that liquidity is not constant but changes considerably over time with most currency pairs starting to lose liquidity around August 2007 (carry trade unwinding) rebounding slightly and then resuming the downtrend at the end of this year. This analysis shows that stressful periods in the market are characterized by important drops in liquidity having a very strong relationship with risk sentiment.

Perhaps the most important contribution of this article is the development of ways to measure liquidity and the finding of correlations of FX pairs liquidity with other financial instruments or markets where liquidity is more easily measured. This in turn would allow investors to watch for drops of liquidity, something that could be especially important to those investors looking to shield themselves from crisis periods (investors involved in carry trades for example).

Of course, for us the most important findings are the relative levels of liquidity of the different pairs and their relative relationship. From the above mentioned study we can see that definitely system development should be focused on the EUR/USD and USD/JPY while longer term strategies aimed at "harder" to trade instruments should be used on pairs like the GBP/USD and the USD/CAD.

If you would like to learn more about system development and how you too can develop systems for these currency pairs with sound trading strategies 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 !

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Trading the Noodle Soup Discovering the Power of Guppy MA trading ~ forex trading faq

10:51 AM in 5, and, crosses, discovering, encouraging, first, Forex, guppy, jpy, ma, no, noodle, of, power, results, soup, the, trading, watukushay

I have always believed that the best trading techniques are the simplest ones. I have realized time after time that complexity is not always the key to success in forex trading and system development and that the use of very simple trading techniques that tackle fundamental aspects of market behavior brings us better results and -more importantly- far more robustness than the more "fancy" and complex trading techniques. One such trading technique which I have always found simple and very good at giving us a general picture of overall market behavior was developed by Daryl Guppy, an Australian trader. Within this article I will talk a little bit about the idea behind the GMA technique (Guppy Moving Averages) as well as its application for the development of successful systems.

The Guppy Moving Average method - which is how I believe it should be called - is nothing more than a simple template that puts certain indicators on the chart in the hopes that they will make trending price action much more evident and easier to handle. This method tells us to use the 30, 35, 40, 45, 50 and 60 slow moving averages and the 3, 5, 8, 10, 12 and 15 fast moving averages. The Guppy method teaches that the first group corresponds to the "long term trader behavior" while the short group corresponds to the "short term trader behavior". Guppy seems to have understood these moving averages as the representations of the behavior of short term and long term traders within the currency market.

Obviously when you look at a chart - especially at strong trending periods - through the Guppy lens, things seem to align perfectly with what you would expect and trending price action seems to become crystal clear. Below you can see an example of such a period on the EUR/USD. You can notice perfectly how the fast moving average group "collapses" when we are within the retracement of a long term trend while the slow group remains showing us overall trend direction. Guppy Moving Average charts have always reminded me of noodle soups (because of all the lines and their interactions) reason why when I trade with Guppys indicator setup I like to refer to it as trading the noodle soup.
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However after you spend sometime studying the GMA and its actual use to create a real trading system which succeeds in time you will notice that it is not very straightforward to do. Although many websites on the internet talk about the GMA method, how to setup the charts and the general information given by the interaction of the moving averages none of them describes a real system which allows us to mechanically apply the GMA to obtain long term profitable results. As always it seems that all we have is some pretty noodle soups and no idea of how to interpret this information to arrive at a system that is able to exploit the information shown on the screen to our advantage.

It is fairly obvious that the GMA method is not without its problems and obviously this makes its mechanical application difficult at first. However after analyzing a lot of the characteristics of the GMA and the way the two groups of moving averages interact I was able to come up with a simple yet powerful system that allows us to exploit long term trading behavior within the daily charts in a mechanical way with precise sets of rules on several different currency pairs (ten year backtest of the EUR/USD shown below). This is indeed a fairly simple moving average based system (with the moving averages used by Guppy) that achieves profits in the long term (note that these simulations on daily charts are bound to very live/back testing consistent).
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The specifics of this trading systems rules will however remain hidden for the moment as I believe this idea and its results will form part of a future Currency trader magazine article and they will be further polished to become a future Asirikuy trading system. If you would like to learn more about my automated trading systems and how you too can design and build your own reliable strategies with sound risk and profit targets please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to trading systems. I hope you enjoyed this article ! :o)

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