Archive for July, 2015

Forex Strategies July 2015

Saturday, July 25th, 2015

At the moment I am so focused on my forex that I just use this blog to jot down notes that I can refer back to.

For now I am just a trader learning the ropes but long term I would love to take this further and so here I am providing the beginnings of forex flavoured examinations that will help my SEO over time.

Because I am trying to start the habit of saving screenshots of my trading each week so I can track the developments and see where I went wrong, it has oocured to me I will probably post these up one day when I have moved through the industry to a point I feel confident in this move.

But for now the screenshots are much like this blog, they are simply to help me track my progress since I have definitely had my ups and downs in forex trading this year!

The worst I see is that within a few months I finally crawl my way to $20k equity where I can flirt with $4k margin, and then I must grapple with the spectre of a possible $200k blow out as could possibly be roughly calculated from the idea of having $2 million in positions that take on $200k loss despite being hedged. We’re just talking worst case scenario that you open up to.

But remember it take some time – months – to distribute that extra leverage, and we’re talking about the full range here. The last 10 months have included 2 massive extraordinary moves that took me completely off guard, the USD rising vs the Euro in the beginning of the year, and the rise of the Pound vs. the Aussie more recently, made all the worse by the fact that I didn’t see it ever breaking this high.

What this means is I am running out of sheer drops. very time I retreat from the edge of the hedge, running the risk of the valley effect, as I am experiencing with the EURUSD.

How am I going to avoid that? Tighter hedges. In the future, my hedge size is proportionate to what my equity can support. I only need to build hedges if the equity is low and so I must build them early.

But there will be less on the edge play as time goes by, and those sheer drops from the edge won’t hurt because it’s all territory that’s been covered.

The next big drop we are expecting is the USD’s next move up. The pound is a dark horse? How far will it go? What’s happening now could be the big price in, it may plateau and correct jsut like the USD did, that is why I prepare reasonable rises, but no action stations for continuing, rolling building like the USD.

However there is the AUD, the AUD and euro could still fall some more short term, but correct later when doubt arises.

What would I do with EURUSD if I was in this position without knowing? Trail back the counter hedge until it broke the levels at 1.09 and 1.10 and that’s where I would have big hedges of about $10k, $20k and then come 1.106 then you jump in with the big say $40k.

You got $230 falling, but $200 rising, you are taking an equity drop, but perhaps at this point, only a few hundred dollars.

What happens if you get caught stuck there? Now you’ve got $200k coming down on your head, rolling through to who knows?

Well you still have $230. You still have the bigger number. So the moment it turns, you already have the counter hedge, $20k, in place. both these big hedges are designed to be taken off, in fact it would be hoped the profit from the $20k counter would mop up the loss from the the $40k once the trend kicks back in, then it’s rinse and repeat except you know which level was failed at before, so you wait for the test of the level.

See I’m beginning to learn my levels and it just makes me realise some really cool important stuff.

So what is our plan?

Keep 200k riding til 1.05, watching for the reversal where we might risk our first counter hedge as a test. Otherwise we’re looking for critical breaks under 1.05.

At that point we actually try proper trading. $50k positions, with stops back at 1.06 that cost

Why wait for 1.05 to do the big positions? Well I will take thos opportunities between 1.08 and 1.05 but I want to see the $225 clear out down to $100. Our mission is to keep the other side under 200k and I really think that isn’t hard.

The USD will rise against the euro and more slowly vs AUD, and the GBP will as well – just not as fast, and maybe very little at all vs the AUD and so the USD will also rise against the pound.

But where are the sheer crazed drops that destroy us?

Maybe a strong euro MIGHT can the AUD, the USD we are ready for and the pound on the euro and AUD we will stay ready for.

***

40 AUD/EUR: 88vs 48 – careful of the sheer drop here – I looking out for which pairs could in the future be ones to go off the deep end.

58 AUD/GBP: 120 vs 62 – hard times call for bigger hedges and that is where we have gone, recognising we are ready to go all the way out to 150, but we must keep the hedges in check and in line with the price movement.

51 AUD/USD:107 vs 56 – We are hedged further in again. The big hedge is not just protection, it’s standing opportune here for the australian to go as low as 71 before seeing a correction. The lucky thing about the AUD sides is we still have more room there to work with on the other side. But when the .735 level breaks we have to ramp right up to perhaps 80k so we need some $10k positions in there.

74 EUR/GBP: 122 vs 48 – this surge we actually played pretty well, we are tipping this can’t run more than a few more sense but we have been wrong, wait for the reversal, still room on the other side.

You can see the larger hedge positions and smaller hedge gaps indicate how unprepared I was with $75k gaps – not only was a caught short and put against the wall, but I also missed the opportunity to ride big hedges to a mighty result. Now I believe even $100k gaps can be too dangerous for now.

57 EUR/USD 163 vs 220 – delving into the parity dive, holding both levels as equally as we can going down.

54 GBP/USD: 84 vs 138 – Lower on both sides! Nice work. With EUR/AUD which is the fight for the bottom, this represents the fight for the top, and is therefore also uncertain, although USD strength

***

The opportunity to expand my trading makes me apprehensive about leveling up without any qualifying achievement. Picture myself in 6 months. Double the capital, double the liability. Same equity.

How do I make my money back? Well you wait, and you might make some back, and your equity would full further as you took your hedges back, and then they would recede and you would start to look good. Don’t forget I could simply add $50k to my 1st account and just leave all the hedges to unwind except after a few months, all the old stuff, the forgotten parts of the range, in my case the top of the euro and the aussie, they would never come back.

But why would you waste all that movement? But when will I ever get to a point where I see equity increase? It seems so mad.

The equity never rises, the profit we’re making never catches up with the losses increasing, so there is never anything to reinvest and grow the pace, but what can be considered is that initial target of $2k per week. Once you are no longer under pressure to grow, the $2k will slowly fill the shortfall and build up.

It’s like you’ll never be safe until you’re riding $10k margin risking $300k liability. It would still take me 40 weeks at $5k to build that up, so it would be a sketchy time. But you’d be likely to start achieving your goal.

The thing is by that stage we run no risk, and pushing out further, also not so risky but an exponential point has already been reached, you can potentially be making hundreds of dollars more each week.

We don’t need to 10x to get the

Actual Carry rates

USD/GBP: -1.3
-USD/AUD: -2.934
-USD/EUR: -.576

-GBP/USD: -.709
GBP/AUD -2.644
-GBP/EUR: -.286

AUD/CAD: +.231
AUD/USD: +.880
AUD/GBP: +.578
AUD/EUR +1.304

EUR/AUD: -3.376
EUR/GBP: -1.745
EUR/USD: -1.442

-CAD/USD: -.394
NZD/USD: +2.601
NZD/CAD: +1.951
NZD/GBP +2.298
NZD/JPY +2.745
NZD/EUR +3.024
TRY/USD +9.557
TRY/EUR +9.880

Forex Hedging Notes July 2015

Friday, July 17th, 2015

This is a forex exercise I do to measure my hedges and make sure my hedges are strategic based on reasonable expectations and management.

I was taking screenshots as well but somehow I lost the file when it was on my clipboard, a very good way to track where my trades have been, why I have been constantly jacked by the circumstances of having not predicted.

This latest movement with the GBPAUD totally caught me off guard having jumped 8-9c – another 4%+ in the last few weeks, just after I had started piling on the counter trend, expecting it to reverse. There was no indication that now was the time for GBP strength and Aussie weakness but now I see that the USD has stalled – it had already been in motion for months, and the pound moved to pole position for a short stint, right when the AUD was still absorbing the shock of bad news.

The euro is in bigger trouble than the AUD, but the euro is further down it’s path. Neither have found their bottom. euro is finding it’s way, aud just had a decent plummet. NZD had a plummet, another blow to me, but as it turns out nowhere near as bad as the GBPAUD.

I can’t help but think that now that I am back in a recovery phase, it’s like the last set of nightmares have been like wearing in a pair of shoes. It hurt, but they slip on nicely now.

Every time it gets harder to bring me down. I really don’t think I’ll see 6 again. More even hedges mean more security. More equity means more margin to throw down to make sure we don’t get near the edge.

My feeling now is if we can get to $20k equity and we are rocking q $4k margin, sure, things might get woolly at various stages but we would gain accelerating returns after a few months.

RIght now I want to confront two situations – the situation where we pull up and the situation where we walk the line.

Walking the line would be euro rising and aud falling which is a realisitic scenario. We would have to hedge. But our preferred strategy would be to pull out of any euro hedges as they started to top out, preferring to shovel our commitment onto the USDAUD to combat AUD weakness against the euro.

Buying euros would be a hedging strategy based on the withdrawal method. There is plenty to clear out of my EURUSD side but I must pick my top and I honestly believe 1.15 is impenetrable. If I’m wrong it will be credit card time. We’ve always know this though.

This would create a situation where I was forced to buy big euro positions above 1.13 with the hope of throwing them out before we reverse again. In any case it would be larger US positions going in at the top, that is we should ride in conservatively to EURUSD or EURAUD. EURGBP will fall anyway, but will also be another excellent one to invest in the other side at the top. This means taking a lot of damage, and the credit card coming out before we even think about major hedging moves.

The risk is of course we don’t protect ourselves, and after the initial move up toward 1.15 that returns us to $120k euro, it moves up again and we will have been truly savaged again for grands. A grim scenario.

My belief is after this little jump up of a couple of cents for a week or two will then be followed by the big resumption – people will know whats happening with greece and they will look towards the next determinant and thats when it will be more bad news and the euro will start selling and I will ride it down, probably particularly on the GBPEUR because ive already got too much USDEUR and I don’t want t o get caught on yet another false break out. AUDEUR is too weakany euro strength will always hit the AUD hardest because it’s weakest. The strategy is too hold as few euros as possible so we can at least reduce our long term carry costs and experiment with the technique of waiting for a currency to swing to it lowest and then start buying up madly knowing that the historical upswing can’t be too far away.

The GBPAUD is so hard. The pound is strong but where is it’s limit? We have to play the same strategy because of the historic high. If the monetary policy both point opposite directions we can’t assume it won’t continue to move up. However this looks like a prime candidate for hedge problems like we’ve seen with USDEUR.

By the time it returns to 1.02, we will be carrying a massive hedge, with awful carry terms. This is why we must continue to buy USDAUD and EURAUD at the topside rather than buy GBPAUD

How does it work if we pull up? The euro weakens against all currencies and I buy pounds while i let the aud and the usd gently wind down.

My estimation that a 1% move on the AUDEUR would give me about a $600 equity boost. A move on the USDEUR from 1.114 to 1.092 – which is only the bottom of it’s most recent range, would free me up about $1600. Take me to 1.07 and across both of those, I’ve just reset my equity to $13k. Just at 1.07. The pound being still a little overbought will be forced under the USD seeing them finally return to $5k debt a piece, winding off another $1300 worth of equity, similarly, seeing GBPAUD drop 2% to 2.042 would also allow a good $1100 to slip out.

Piling onto GBPEUR to ride pound strength mainly because we have room in that hedge that we don’t on the US side, whereas the AUD is too soft to back for euro weakness.

AUD we will have to wait for signs of life, to me, the AUD must return above .75 before it heads below .72 – our fear must be that it could again do exactly what the

With USD we can expect more tops, but with GBP we never know if we’re topping or not. With the GBP we must stay neutral. We must assume it will beat on both the AUD and EUR until it doesn’t, at which point we are walking away with some hedge marks.

But what happens is the money thrown in on the other side is nothing. It’s the unwinding of the hedge that suddenly begins to give you all your equity back.

But we have to be realistic about how it doesn’t work out. The AUD can drop further but it does look like it needs a little rest and that’s what we need it to do. The instructions for USD and GBP must be to reload the gun. At least we have that strategy available. We have to be careful if the euro rises because if it then goes to parity and we’ve built a reckless hedge we will either hurt, or be forced to ride a $300k+ hedge down.

So basically the worst case scenario is that the euro goes to 116 and I havent built a proper hedge and I get smacked down

If at 1.13 we put in a $50k trade that we give a $100 stop to, if it rises to 1.14 or 1.15 we could make $400+ just by moving the stop up. This is my last resort when hedging fails. Old fashioned trading, stops and targets. If we hit the stop, at least it saves my equity by $1k.

I think we need to seriously think about this in the USDAUD, and GBPAUD, maybe even the EURAUD if it becomes obvious that the aud is staying weak and the euro is raging strong, it’s all about where we get caught.

Think about how we can see technicial levels developing. Just recently I noticed ranges especially with the USDEUR being so trapped, the levels to buy at were obvious.

73 EUR/USD 159 vs 236 – here you can see already we are forced to hedge to heed off uncertainty. When you reach a risky equity level, you must protect it. This is the one wheer we see big slabs rolling. Until we get to 1.05, then we have to decide where we go with it.

58 AUD/GBP: 102 vs 44 – the GBP could run further but we are betting on this to not run too much further as it seems it’s already played out a 4% move to very high in it’s range. Over time the Aud will catch up with the GBP, but short term, we have to be prepared and the big hedge is a testament to how bad things got.

55 AUD/EUR: 90 vs 35 – Even though the aussie is week, we are positioning this for euro losses as we empty out the bad side of the carry on this and leave it as a place where we can profit from the euro falling even though it won’t likely fall too much.

51 EUR/GBP: 110 vs 59 – leave room for the euro jump, then stack it in for the dip buy.

50 AUD/USD:106 vs 56 — again we are balancing the knowledge that this will continue to head down with our need to wind the equity back by being as unexposed as possible when that windback comes. So far, I have done well on the windback, but have been to slow to wind up when the roll came through. We will push this harder than otherwise because we have nothing else to defend against aussie weakness versus the gbp or euro, so we have to make our gains here, maybe leave some more behind, but hedge ourselves against further aussie losses. The big hedge remains justified but we want to basically not see 75 before -$2000.

36 GBP/USD: 99 vs 135 – This is a critical pair because when the US begins rising, we want to see gains, we want to see our unhedged gaps tip back. this is one we’re waiting for, but it is also tipped to really drop long term, so there will be times where the US will go back to how we’ve seen it, huge hedging moves.

Forex Hedge Projections and Predictions

Thursday, July 9th, 2015

I am just runnign forex notes here at the moment because I have had to accept the model I have been working off that I was so confident in, has not delivered.

I accept this is mainly because I took some massive deviations when presented with challenges, and I was haphazard with my hedging being that I was inexperienced and was still testing my ideas in a challenging live environment.

What have I learnt?

You have to be dispassionate about the market and how your system tackles the inherent uncertainty. You are foolish to not read the news, but you are equally foolish to believe it.

When the Euro dived off what I thought was the map, I was so afraid it would continue to dive that I hedged recklessly, despite knowing that generally the harder the spike, the harder the bounce – however in a spike, you never know where you are on that curve.

My belief that the euro would resume falling was informed by the certainty of the news, and yet, it rose to just about the edge of what I perceived it could realistically bounce too after reading doom and gloom.

I did not think that 3 months later I would have spent weeks and weeks above 1.10. That was not the outcome I was expecting. And yet even if I had played it differently, it only means I would have caught maybe a grand or two profit as it withdrew – marginally better off albeit, I’d still be where I am.

When I began increasing my margins, I bought a lot of australian, especially vs the pound and euro, and those positions got destroyed. Just the AUDGBP alone has cost me thousands – huge reckless position placed only 6 weeks ago are costing me $140 each, they are 4% away now, huge mistakes. These are the testaments to our mistakes now, again we believed the resistance would hold, but when it broke, it fell apart completely.

But what about the numbers? What have we learned here?

We’ve learned that as a margin spreads out and ranges push them further apart, the deficit really grows. We were pushing out new ranges, and seeing new possibilities for worst case debt projections.

Our initial projection was to have 600k on the board and never run more than $60k debt. Now it’s over twice that, but so much of it is hedged, so I assumed I could build up from that base of hedged debt.

But it wasn’t perfectly hedged. I binged on the US dollar when I was in trouble and desperately needed to hedge but then over the course of a couple of months the reversal began and the tide went out on me, and my USD pairs became wedged precariously at a point where they would not fall but hung dangerously on the edge.

Although it’s the falls in the NZD that I have counted in again and again, I think we have to see the AUDGBP disaster as the latest chapter of the process of having my range pushed out again, requiring again more margin to fill out to get the same result, and of course always carrying and extra few grand of debt than I could have expected, however, each time we push out the range, it becomes much less likely it will happen again. It will happen again, but it’s less likely to be sooner, and we may be better prepared to absorb it.

At some point we must get past $15k, at which point we will try to add $100 margin – $50k – with every $1k of equity we add so that we’re somewhere around $3500k

But every $50k probably carries the potential for $3k+ loss even when hedged properly, or $5k+ if the hedges slide to the edge. On my journey to $3500 margin, I could easily find myself flirting with $105k debt. Yet it would clearly take weeks, and this is the move to $2k. Could I make $15k before positions swing 5%? Since it would take weeks to build up an extra $500 margin, and weeks to collapse $10k of equity with decent hedges, we’d have to assume it was possible, and that equally, getting to $25k equity would allow for us to add yet another $500 margin.

at this point we’ve added another $50k to our boards on each side of each pair. $100k to the full spread.

4 out of 6 of them are already under $200k, 2 of them are under $150k, but that margin will still be spread out over a smaller area than the current one is. and placed with more care, and so a doubling, to $1400 – $3400 will happen, and then a tripling, $2100 – $5100 and that’s where we want to be by early next year.

It’s just so hard to project what it will be like until we get out in the clear again, and that’s when we’re solidly touching near $14k equity again.

Here is a breakdown of the pairs and where I see the strategy consolidating.

AUD/EUR: 80 vs 49 – we could push to 75k a piece, but we want to keep the euro side down, the carry is a shocker. So it’s more like 75/65

AUD/GBP: 102 vs 12 – same set up I would say as above, but favour the australian even harder – I don’t think it has as much room to run as the EUR pair.

AUD/USD: 90 vs 87 – so we’re holding the 90 balance hoping we can clear out the australian side and roll the $120k back so we can settle it closer to 79 rather tahn 76.5 where it balances now, but like the euro, it depends on what the aussies does once the US gets stuck in, for theres little chance of it going above and staying above 80 to last long term.

EUR/GBP: 115 vs 40- 100 balance. Having successfully dug out the hedge at this point we are looking to fall back and set things up, we can lean in and se we head out. Good model here.

EUR/USD 155 vs 237 – as described, the euro will be at $200k by 1.05 or 1.15, ready to defend, this is the art of hedging.

GBP/USD: 73 vs 147 – i believe when and if the USD comes back we will do well and this really is about keeping the balance we can do 110, we can do 120. we’re at 1.57 now, between 1.47 and 1.64.

We will now have $15k to add to each pair but where will that go down? I’m not confident on anything really right now, I least confident in AUD and NZD but they have the best carry by far and so it evens out. Euro still has the worst carry and much uncertainty. So I favour hedging first.

It comes down to the model.

If having a $2500 margin spread can get you into $80k+ worth of debt, then a $5k spread, you have to be ready for $150k debt, ready for another $60k debt to carry, so even at $2k a week, that’s 30 weeks before you can take that kind of risk BUT it suggests you run the whole spread, when in reality, those places where the euro is high and the aud is high and the usd is low, well, we’re not going back there. It’s more like $30k debt to carry, because we won’t be carry it all across the range.

***

Another setback. Each of these recent setbacks are just making the hope of clambering ahead to a better position further and further away.

The situation with a number of pairs is that if I continue to be pushed I will have to return to full hedge, which means effectively choosing which side it will swing, and now, having a hard hedge up against it.

More hedging means more money down. More money down means higher carry trade. Risk is bubbling up and I need to ask questions about where the real dangers present themselves to me.

40 AUD/EUR: 87vs 47 – I still don’t want to hedge this. It’s rotten carry. If we support the euro, add to gbp as well.

77 AUD/GBP: 109 vs 32 – On the edge and causing me big problems, I will have to build the hedge while hoping it backs off sooner rather than later.

71 AUD/USD:102 vs 31 – so now we’re on the edge, we have the hard decisions to make, but we know which direction its tipped to take so we must hedge to protect ourselves. Time for bigger numbers

77 EUR/GBP: 114 vs 37 – leave room for the euro jump, then stack it in for the dip buy.

68 EUR/USD 163 vs 231 – here you can see already we are forced to hedge to heed off uncertainty. When you reach a risky equity level, you must protect it.

In fact it becomes indicative – what if EUR jumps to 1.14+, I have to hedge in, jumping above $200k, then i get caught, and it starts heading down? I have to go to $300k on the US side, then it turns again, but the money is closer this time so it’s not so dangerous, but I’m sitting there with $500k on one pair – only $100k more. that’s $200 margin.

We still have to be careful and run a line from 1.11 because with the euro it is important we get out.

But the gap means it’s less of a risk and in itself counters the EUR/GBP they both have a 75k gap.

52 GBP/USD: 92 vs 144 – This is a critical pair because when the US begins rising, we want to see gains, we want to see our unhedged gaps tip back. this is one we’re waiting for, but it is also tipped to really drop long term, so there will be times where the US will go back to how we’ve seen it, huge hedging moves.

Now I can see that 3 of my 6 pairs are on the edge, no wonder I am feeling under so much pressure.

But also I’m seeing how in the last 2-3 weeks I’ve taken on the hedges or big positions that were poorly placed on AUD/USD. EUR/GBP, and the far side of GBP/USD, we are waiting for all those pairs to come back, and other than the last one, they just might not,

The pound rolling over the aussie has caused me a lot of pain, as it has jumped 6c without me really being able to hold onto any big gains the other way. I believed I had the depth to soak up a winding down of exposure on the british side, and I got stung badly.

WHAT WILL HAPPEN?

The euro will continue to drop, the USD will continue to rise in the longer term. At the moment the GBP is stronger and the Aussie the weaker, sometimes even weaker than the euro, but over the months, as we’ve seen, the euro will get weaker and fall into definite last, and then the australian will catch up and overhaul the

We don’t want euros. expensive and going down. We can’t really risk aussie now, but when the signs are there, go in. We can’t really risk GBP, we buy the dips but we’re held here in position. With USD, we can’t buy unless we see the move.

So when euro drops we make money on the usd, but the euro holds against the gbp, and the gbp goes down against the USD, and the Aud has already sold off against the USD, so it hold against the gbp, or even gains some, and teh aud gains against the euro.

But we can’t buy any of this because the USD isn’t rising, the gbp isn’t falling, the aud is still falling and the euro is definitely refusing to budge thats where the problems has been.