An analysis of December trading

20 Dec, 13.00 hrs

I am now completely flat and will not trade anymore until the first week of January, around 3-4 Jan.

Here’s my analysis of recent trades:

The AUD is being kept down by the rampant EURAUD, and once that pair has reached its top AUD will be free to move. The price action of the AUDUSD pair brings to mind the image of trying to hold a beach ball below water. It gets very hard to keep it down and it eventually pops up – that’s the AUD. On the charts, AUDUSD has formed a symmetrical triangle (or a slightly upward sloping wedge) which has almost reached the apex. Such a formation implies sideways, narrow, range trading until the pair finds a trend. There is no way to anticipate which way the trend will go, only that it will be a long, explosive trend. Or the chart could be interpreted as a large rectangle on the daily chart with the boundary between 1.0150 and 1.0620.

My system just indicated a short in the past hour at around the 1.0505 level, but the system has not worked very well this month in this pair. For December even the system is showing a negative -45 pips in AUDUSD, down from +90 in November and +313 in October. So I’ve learnt a new feature of my system: It doesn’t work when market ranges are compressed. The daily ATR on the AUDUSD has fallen from 95 in July, 73 in Sept, 62 in late Oct, 55 in late Nov and is currently a measly 51 today! I doubt any system can make money in such a market. One way to tackle this drop in volatility is to trade on the daily chart, holding a trade for weeks to make perhaps 100 pips in the month. Or just don’t trade the pair until volatility returns.

EURUSD & EURJPY: These are great pairs for the system. The system is long EURUSD from 1.2910 and shows no signs of being close to an exit signal! Almost +400 pips, and I only got less than 100 pips of that. The reason for me exiting this trade was the uncertainty around the FOMC meeting last week, and after that I didn’t enter again as one of my rules is not to chase a market. The trouble with chasing a market is one can’t find a reasonable level to set the stops, to define risk. The same goes for the EURJPY trade – exit due to the FOMC and the Japanese elections, and missed the big move after that. The system was actually short the EJ on the Friday before the elections and suffered a big -154 pips loss due to the gap up, but it generated a long signal again at 110.35 and is long now with a profit of +200 pips. I didn’t take that signal, perhaps because of the shock of the big loss on the gap up Monday.

So another lesson: The ZenFX system works very well in pairs that have a wide ATR, above 80.

My broad conclusions for the past 6 months trading are:

  • I have a good technical system. I’ll call it the ZenFX system.
  • A total return of 100% in 6 months is pretty good by any standard, especially seeing the number of mistakes I have made. Assuming that I learn from my mistakes (which is my strength) and reduce such mistakes I can expect the same or better results going forward.
  • I could improve my handling of greed / fear / patience by reducing position size, which will also reduce the total return I might generate. That might be a worthwhile compromise.
  • I have high confidence of doing as well or better in 2013 and I look forward to trading in the new year!

In 2013, traders who wish to mirror my trading will be able to follow me on the Tradency Mirror Trader platform from their broker. I will have a bit more to say about this in early January.



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