Toil and Trouble

Dollar weakness continues to dominate the global currency markets, will the seasonal trend of global accumulation of the greenback pre-election change the course of the decline? The FED printing presses are at full tilt so who knows..?

Pulling back against the weakness

The weeks still continue to test my strategies and resolve as a trader. You either have already developed a mental toughness to survive or you need to. Dealing with the inner turmoil when things aren’t going to plan is where you need to be on high alert to making decisions on the spur of the moment. It is very easy to do and often (if you are lucky) a confirmation that you have made a good decision when in fact all you were was just lucky. If you make that call, get unlucky, then that is when you can spiral out of control.

As a discretionary trader I plan trades based on systematic entries and the statistics of past outcomes to provide a level of probability for the trade idea. The markets in 2020 will be remembered for testing every trading idea I have ever come across and executed.

Working through sustained and deep drawdowns despite all of the macro and fundamental data being in your favour defies the logic, the intelligence and eventually the endurance you have invested in the time putting it all together. Oh and it costs money!

I have been working my plan to pull back into the green and on every occasion of just about getting there the market draws away from me, literally within a few points…. So the evolution continues to play out with my trading plan and strategies are scrutinised as objectively as I can manage under the circumstances. Each time we should continue to chip away and the evidence of growth is beginning to show its tender shoots of promise.

As we move into Quarter 4 my intention is to eliminate direct USD exposure before the crazy lead up to the US Presidential elections and have positions in cross pairs which can be hedged out nearer the time. The investor value at risk for my Darwin WET has been much too high and I will attempt to bring that back down in the next 3 months.

With Covid, US Elections, futile FED and ECB battles of inflation management, potential regional unrest with Turkey(as well as a failed Lira which Europe has exposure) Brexit and more economic/political pressures for the Euro looming on the horizon we will have to be patient for trade ideas to play out long term and mature in our outlook when trading or investing in such an arena.

Dollar Weakness Continues to Test

COT Report Study – Potential Exhaustion Point

August has continued to be a difficult month for me. The dollar weakness has exposed my EURUSD position and the speed of the move up from 1.14 prevented what seemed like an unnecessary hedge at the time.

Part of this reasoning was the extreme exposure of Asset Manager Commitment currently at all time highs. When these extremes get tested it is a reliable sign that a longer term reversal is forming.

We could be at this point at 1.19 or 1.20. The fleeing from USD to Gold and combined with a likely trillion + Euro bailout has maybe contributed to the momentum of the move. I am not convinced that this is a sign of Euro strength and I still feel Euro bearish at least short term.

Comparing EUR with other crosses, especially EURCHF indicates that a EUR bullish outlook isn’t a valid one…yet.

With the Gold rush taking a breather the USD still remains weak as the China trade deal and further Covid stimulus packages are stymied by Washington politics. Although the core fundamentals of the greenback do appear to be strengthening against this bearish backdrop of overall opinion and media consensus.

I am actively re-balancing my USD exposure although whilst we still close below 1.20 currently comfortable managing my position which still has bags of potential for a positive close in August.

July return -4.33%

July return negative 4.33%

July proved to be my most challenging month, not because of the big swing in equity draw down on the underlying strategy (-23%) but because of the speed and momentum in which it happened.

A dual result of CAD and USD weakness during the latter fortnight caused my positions to go against me just at the point where it seemed my take profits were going to hit target and I would be flat for the remainder of July (and showing a healthy profit). This is when trading longer term with discretion becomes an extremely tough endeavour and to be fair, where a trader earns the strength of how to survive and thrive or die.

The timing of the £675 billion package with a struggling dollar seemed to fuel an extraordinary buying of EU vs USD. Some 500 points from where my original area of interest in trading this pair was founded. Theories of the market pricing it in previously proved unfounded.

At 1.19 it seems but be stretched but in the back of my mind I still have the speech of Draghi’s “whatever it takes” in his 2012 ECB announcement about the failing currency. Back then it was bought from 1.20 to 1.37.

We now a very different situation driven by a pandemic stimulation package but paid for by the taxpayers of Germany and Northern Europe which is then distributed to other areas of the EU (including France). It seems that political will is once again rail-roading through constitutional and fiscal common sense to protect the EU experiment to the tune of not Billions but now Trillions… and the fight for a slice of that social pie has begun in earnest with some members lining up for a lions share. I sure am glad I’m no politician!

Plan for August

I have mapped out my areas of attack for the next 10 trading days to balance out of this negative position in EUR and CAD. Also because of ESMA rules I have had to increase my margin account temporarily to cover these positions. Once my review is completed the margin will be returned back to normal.

EURCAD Just Keeps on Giving

Entering 5th month at these levels

Since entering this zone post Covid reaction in March we seem to be in a Pivot zone for the 5th rolling month. Bias is presently neutral for me but I have plenty of scope to continue to trade this pair for the rest of 2020.

From April onwards you can see price settled approximately 60% of the time returning to below 1.5300.

Will we see this gradual squeeze upwards since May continue to find stable support above the 1.5300 level? With levels pegged at 1.5500 and 1.5000 there remains a lot to play with..

June Wrap Up 0.73%

June 0.73% Return

We finished June on a 0.73% return on a fairly flat but stable month. I had 6 trades close for the month and have 7 trades which are rolled over into July so we should see a pick up in volatility for my Darwin asset WET early on in the month of July.

With the VAR 6.5% changed implemented by Darwinex at the beginning of the month I decided to segregate my intra-day trading into another account and focus on building a much higher capacity and scalable asset class to handle bigger investments without slippage issues. I can now easily adapt entries and exits within a reasonable margin to accommodate much larger positions.

The underlying strategy produced 4.36% so the new Darwinex VAR model is having an effect on return is it is good that they are offering 3x leverage to compensate giving investors the option of exposure.

July is looking good and I have quite a few options to trade in the planning phased pending execution probably early next week since we have early NFP tomorrow and the US markets closed on Friday.

Happy Independence Day!

EURUSD Levels Shaping Up For Summer

EURUSD Breaking 1.1250 Crucial Level

I trade EURUSD extensively and the break of 1.12500 level this month positions me well to plot my levels and consolidation areas. I’m expecting a longer term neutral bias now we are at this level between 1.1100 and 1.1400 with a possible stretch to 1.1500 for the summer months.

This pitches us squarely at Pre-Covid levels in Quarter 1 and we can now establish trade set ups with more confidence.

Hedge shorts will be in place to cover the 1.0950 areas and long plays targeting 1.1350 to 1.1400 areas. Hopefully for the next couple of months I can continue to pick off 60 to 120 pip range trades.


Darwinex Updates Management Model

Last month Darwinex re-engineered the risk management calculations of all asset managers. This measure has changed the historical results on my Darwin Asset WET reducing both the drawdown and the return previously reported on my website.

I think the changes are broadly positive for traders and investors. From further studies its does reduce the return for investors but will also help smooth out the risk adjusted return of drawdown from peak to trough. This is mainly advantageous from a psychological point of view from an investor in that the negative return phases should be shallower but the duration is still to be determined by the market.

This is a 3 month period of return. The negative point is -4.07% and the positive point is + 2.15%. I estimate that the previous return would have reported both a higher negative and a higher positive by approximately +/- 2%.

I never exit positions in drawdown until I have positive returns that offset, meaning that my trading style pulls through these troughs to produce profit, so this new calculation will show lower performance and lower volatility to my underlying strategy.

Please be aware that previous posts stating trading history are from the legacy Darwinex 10% VAR model and in future will be reporting using the new 6% VAR model.

May 2020 Close

May return -3.77%

May was a tough month. We had a two trades set up early on in GBPUSD and GBPCAD. The big move short GBP probably attributed to more dire economic news with over £60b additional lending forecast. This of course is relative to the currencies I’m trading against so becomes a cycle of who jumps first and how quickly the country can react to recover the potential slide. This makes for tricky long term trading environments…

Even so, I get my head down and strategise how to recover from the these situations no matter the pressure or how long it takes. I plan for these big moves and wait patiently until it is my turn to take the money back from the markets. Counter trading becomes as important as entries and it is fundamental to my money management plan; this is why I advise potential investors to realise that drawdown is inevitable and must be endured. It is easier to ask if an investor who is already sat on a cushion of profit but is particularly difficult to a new investor to experience this in the early days.

I have part of the GBPCAD trade to manage and have started an EURUSD trade for June. Eyes are also on EURCAD and NZDUSD for possible hedges.

June is going to be an interesting month for me. Darwinex is implementing a wholesale change to the platform which will have a significant effect on the Darwin WET. For now I am open minded about the changes and will update mid month when I have a better understanding of the changes.

April Close +3.4%

April close returning 3.4% for WET

The plan for April was to track and trade EUR crosses which worked out pretty well for the month with some early results in for EURUSD. I traded only a couple of pairs to limit risk exposure while the markets establish obvious zones for me to assess. So margin use for this month has been conservative.

The huge expansion on EURUSD has set my levels further out than I have ever traded within but this presents me with more opportunity to plan set ups. My current level high of 1.12 takes me back right to Sep 2018 and the sell side level at 1.0627 goes way back to Feb 2017. So until these break I have plenty of price lattitude to play with.

April closed as another profitable month returning a 3.4% on my Darwinex Asset WET. Slightly lower than I anticipated given that my underlying strategy returned 7.83% to my account. This is where the risk manager throttles in or out for the investor and I think it could be accountable to the intra day trades I take on mainly GBP. These trades often have a lower take profit and because of the short timing are inherently more volatile compared to my longer term trades.

I am working on the intra day plan to add bigger take profits to hopefully fill in these risk management interventions.

All in all it has been another great month and May is already lining up on my charts for set ups. I’m looking forward to the next 4 weeks of potential.

Investment Portfolio Forward Test

Darwin Asset WET is “tethered” to another pair of Darwin Assets

I have a theory about investing with Darwinex Asset Classes “Darwins”and being the trader of the Darwin Asset WET I am testing a method of identifying other Assets by “tethering” them to WET.

Using my own metrics and performance data I aim to find similar performing Darwins but with limited correlation in parts of the underlying strategies but crucially with correlation in other elements of the strategy.

Additionally I will be using a fractional investment method over a period of time to allocate the $15K demo margin to the three Darwins which will be: WET (mine), SYO and HFD.

Monitoring the performance of the traders will be at high level and light touch, as long as consistency and activity is stable I don’t need to spend too much time on this. Perhaps an hour per week. The Darwin Assets will be changed if my criteria isn’t met but ideally this is a last resort due to the short timespan of the test.

The aim of this test is to achieve a return above inflation on cash held over a minimum 3 months to a maximum 7 month period after costs.

I will update the progress further down the line.

As usual, this post IS NOT financial advice!