RESEARCH: Morning breakouts on the AUDJPY

I spent this afternoon backtesting morning breakouts on the AUDJPY. 

This is based on the 4H timeframe. Basically, I looked for candles at 00:00, with a range less than 1*ATR(6). I use ATR(6) as this gives me the average candle size for the last 6 candles, or the last 24 hours (6*4 = 24 hours). 00:00 = NY Close. 

I looked for small candles as this is based on my observation that small candles tend to precede large candles. I entered on the break of the high or low of the small 00:00 candle, with my stop loss located at the opposite end of the candle. Example is below:

(click to enlarge)

Results after 100 sample trades (from early to mid 2013):

It showed promise of profitability, especially with bigger reward-to-risk ratios.

I did a bit of optimisation, and looked at which weekdays performed better. The backtest showed good results, except for Wednesday. If I omitted trades on Wednesday, I get the following results (from 76 sample trades):

This is a significant improvement. 

This isn't a trading system (yet), but it's showing some promise. 

RESEARCH: AUDUSD Decisiveness on the 4H timeframe

I spent the last few days researching the behaviour of the AUDUSD on the 4H timeframe. Specifically, I was looking at how "decisive" price movement was throughout the day. 

I measure "decisiveness" by dividing the size of the candle's body by the candle's range (so decisiveness = candle body / candle range). Price movement on a full-bodied candle is more decisive than a doji, as price moved in one direction in the full-bodied candle, while it moved up and down in the doji. Examples are below:

Using the formula [decisiveness = candle body / candle range], I tried to measure the average "decisiveness" for every 4H block of time (00:00, 04:00. 08:00 etc), with 00:00 being the NY Close. My data stemmed back to August 2011, and was sourced from IC Markets.

The results:

My interpretation

We see that the average range increases throughout the day, until it hits 20:00, which is after London closes. However, it will tend to move decisively (i.e. in one direction) most often during 04:00 and 08:00, during the Sydney and Tokyo sessions, but only by a bit. My guess is that this is where Australian news will often be released. Decisiveness also increases marginally at 16:00, which I assume is also when most US news is also released. 

Can the info above be used to develop a system? By itself, probably not. But I think it can be useful as a component of intra-day trading. So, for example, you may prefer to use stop entries during 04:00 and 08:00, and limit entries during 12:00 and 20:00. But those are just my thoughts.

WEEK IN REVIEW: 21 Sept to 27 Sept 2015

Time to regularly update my blog, I think.

This week hasn't been too great. I incurred two losses and one breakeven this week. However, I've been profitable for the three weeks prior to that, so I guess my winning streak had to end.

I also shorted the GBPSGD on Thursday, which is still open.

GBPCAD

I spotted a low volatility bullish pinbar around 2.05000 on Monday. I saw plenty of room for price to break upwards (at least 1.75R), but the trade didn't work out. Price promptly reversed after triggering my entry.

(click to enlarge)

EURNZD

It's a similar story on the EURNZD. I saw a bearish pinbar on Monday, which offered a shorting opportunity to win 1R, but it didn't work. I was stopped out a few days later.

(click to enlarge)

CHFJPY

I prematurely exited this trade at breakeven due to emotions. My entry was a small bearish pinbar on Monday. I was aiming for a small reward of 0.67R. Price was progressing towards my TP, and then Draghi gave a presentation on Wednesday, causing price to retrace to my entry. Facing losses on the EURNZD and GBPCAD, I decided to end this trade at breakeven. This provided an emotional cushion, I guess. I was also watching the chart live while Draghi spoke. I found that the more time I spent watching a trade, the more emotionally invested I become.

Price resumed moving in my favour, and would've hit my TP on Thursday. 

(click to enlarge)

GBPSGD

I went short on Thursday after seeing a bearish pinbar on Wednesday. Reward is 1R. Price came really close to my TP on Friday but reversed as traders exited for the weekend. I hope to hit my TP on Monday or Tuesday.

(click to enlarge)

Thoughts

I need to stay away from live charts while a trade is open. Less chart time = less emotional investment. 

And RIP Mark Douglas. "Trading in the Zone" is one of the best trading psychology books I've read. 

New broker / dealer? (IC Markets = rip off)

I got burned by IC Markets last week over some ridiculous overnight swap. I ended up paying $85 to hold a SEKJPY position overnight, while risking $200. Granted, it was a Wednesday night so overnight swap gets tripled, but even under normal circumstances, paying $25+ to hold a 0.8 lot position is absurd.

Here's a swap comparison with other brokers. As you can see, IC Markets charges a hundred times more than most of the other brokers / dealers offering SEKJPY.

Ridiculous. 

It's a pity, as I've been with IC Markets for a few years now. I e-mailed them and hoped for a rational explanation, but nope, they blamed it on their "liquidity providers". All I can say is, find better liquidity providers! Your competition did! 

I exited my SEKPJY position to stop the bleeding. Unfortunately, if I held it open, it would've won. I was forced to close a profitable trade. Not happy. 

So... I've spent this weekend looking at other brokers / dealers to trade with. My shortlist:

- Pepperstone

- FXCM

- CMC Markets

I'll continue trading with IC Markets, but I will split my money with different brokers, and trade with whoever provides the cheapest fees + best overnight swap.