I am testing a system in demo for a combination of fundamental analysis and technical analysis based on mean reversion and a few other trend direction indicators including retail trader sentiment. The first two weeks have worked well. Paper trading only the first week and placed trades on a demo account this week just gone.
Early days but the results are going well so far.
4 hour charts - only trade when fundamentals are opposite to the retail trader sentiment
Determine watch list on the weekend after fundamental updates are complete
Trade 1 - enter at start of week with a small position in direction of fundament trend. 0.2% risk per pair. Catches the big move weeks that do not retrace - small trade risk.
Trade 2 - enter with limit orders on retracements against the overarching fundamental trend direction. 0.8% risk per pair. Catches the retracement for better entries when there is a retracement back to a bank/institutional order level - larger trade risk.
Results are as follows:
Week 1 - paper trading +7.9%
Week 2 - demo trading on live markets £1005 profit on £35000 demo account +2.8%
Closed trades
Open trades
Fascinating approach Micheal. I love the creativity of trying to include retail trader sentiment as a contrarian indicator here. The only issue I personally find is that retail clients have such insignificant buying power compared to the other participants, it's hard to justify considering them at all. A quick look at the COT Report at the non-reportable participants really personifies the lack of influence on any currency exchange rate.
It would be interesting to see this strategy without the consideration of retail sentiment, and if it yields better or worse results over a longer sample size (ideally 12 months).
Irrespective of my opinion, it's great to see you sharing your ideas with the community. Keep us updated with the progress of this approach, I look forward to seeing it develop.
Thanks for your feedback Marcus. On the retail trader contrarian view, I am using/trading with COT Large Specs / against Retail Traders so it might be that not much impact from the contrarian view on retail traders but it does help filter opportunities down. My rules are:
Fundamentals align with contrarian view of retail traders net position
AND
Fundamentals align with COT Large Speculators net position
If retail traders net position is long and COT Large Specs net position align, I filter out from my watchlist and similarly if both net short.
It might not necessarily have too much impact with respect to the retail trader position as you say in your feedback but it does help me reduce the watchlist to a smaller number and limit open exposure.
@Michael Still That makes much more sense. Any method that helps eliminate unnecessary losses is always going to beneficial. It's a bit like making coffee... if it's not filtered... eventually it will taste pretty bad 😂
@Marcus Raiyat And nothing worse than bad coffee!!! 😀
Love the contrarian outlook, I've got a slight bias from my own experience too that when retail sentiment is agreeing with my idea then I tend to be wary lol... don't really like having the same outlook as everyone else considering the stats of those losing!
Watchlist updated for the week ahead commencing 15th February 2021. Weekly Watchslist 14th Feb 20201
Selections meeting criteria for the week:
AUDJPY Long - holding from previous week - no new entries
CADJPY Long - new - look for entries this week
CHFJPY Long - new - look for entries this week
EURAUD Short - holding from previous week- no new entries
Selections from previous week - trades open still
GBPJPY Long - holding from previous week
NZDJPY Long - holding from previous week
CHFJPY going well! I didn't wait up to the 11pm market open last night and got in this morning 20 pips worse off but nearly at 1:1 RR already. Same with CADJPY!! Kicking away nicely too!
May not be a retracement entry opportunity in either of them at this rate. Lesson/note to self, put the Sunday eve orders on at 11pm...
Nice volatility today. Mean reversion entry hit beautifully on CADJPY for larger value at risk orders. Retrace down to M30 Imbalance for a pop back up into profit. Stop hunt taking out equal lower lows and previous lower low. Hit liquidity pool on hopefully on the way back up with the direction of the fundamentals now.
And a number of targets hit today as well locking in profits at 3:1 R:R. Remaining trades still open with targets at 5:1 R:R.
Remaining positions running in profit nicely still too.
Love the documentation Michael, CADJPY was the one of my watchlist too from when I posted my idea/ thoughts on it.
Just something to watch out for and it's kind of personal to me is that the ideas above have heavy exposure to JPY. i.e. will be great if idea works as most likely all will go in the direction you want, but if the hypothesis is wrong it can dent gains too as they'll all come back.
My personal preference is trying to diversify across different currency pairs where possible and max exposure of 2 positions per currency quote or base e.g. i may be long USD/JPY and CAD/JPY but that's the max longs I'll take against the JPY quote currency as if it comes back I don't want it hurting my account too much. Then Other positions I'll look to take positions where not correlated to JPY e.g. EUR/CHF long!
Just me blabbering lol...
Agree. @Michael Still as long as you're not breaching your single asset exposure limit on a single currency you'll be okay. It's okay to go slightly over if the assets are slightly correlated, but If you find you are well over, you'll be overexposed. This is bad because it only takes one idea to behave 'unpredictably' and you'll get a drawdown beyond what you expected i.e. 2-3 losing trades, instead of just 1 losing trade. Use the position size calculator if you're not already to keep track of your exposure limits etc... if you already know above, ya good
Hi Matty, Marcus, thanks for the comments and feedback. Yes I fully agree on the overweighting on JPY! It is well and truly in the dumps at the moment and lots of of stronger currencies showing up against it in the fundamental analysis. And as you say, it only takes some very good news out of Japan to turn all positions. The above is trialling using a demo account and 1% per pair to keep the numbers simple.
On my real account I use 0.2% per pair so that maximum exposure on all open trades is still only around 2% even if I have 10 pairs open - where they might be a combination of same base or quote as above and any highly correlated pairs.
Comments and feedback always welcome, so thanks for your notes and I will have a look through the position sizing calculator too.
Results from this week still going strong. The fundamentals are holding up still. Closed trades for the week. 5.4% for the week based on original £35k demo balance. As stated above, exposure to JPY is high and I wouldn't trade at 1% per position in a real account. Stops or targets hit.
And open trades remain nicely positive. Another 6.6% gain on open positions.
Watchlist assessment to complete over the weekend for the week ahead.
Watchlist update completed. No new selections for the week ahead. Some finer open position management for the week ahead.
AUDJPY to the moon? - The stars have aligned for this one 👀
@Marcus Raiyat Certainly looking like it at the moment for AUDJPY!! Nice looking bar on the monthly at the moment. Coming up to some serious resistance in a 100 pips or so though.
Approaching 5:1 RRR target TP2 for EURAUD!! Added to the Watchlist above on the 14th of Feb (held over from entry on the 11th of Feb) using LogikFX assessment and a few additions from my own filtering. 3:1 RRR TP1 hit a while back. Thanks LogikFX!!
Nice work Michael!
Markets continuing to give nicely and fundamental analysis holding up strongly. Profit targets being bowled over today.....
6 TPs hit today for £2800 profit and 2 SLs hit for £66 loss.
On remaining open positions EURAUD hitting the bottom of the ocean and AUDJPY leaving the stratosphere! CADJPY absolutely caning it and approaching 2nd 5:1 RRR TP.
Nice one Micheal! Are you trading on a live account now or demo?
@Kieran Channer I am still trading a demo account with the above at the moment. Still refining but it is looking good. The markets have been trending over the last month so smooth sailing even for any simple trend following technical analysis system. The stress point is when risk sentiment changes which we are seeing now so the next couple of weeks will be interesting to see how it performs.
Watchlist updated for the week. Interesting week ahead. Risk sentiment playing out in opposition of the economic fundamentals. Deeper retracement potentials and better entry possibilities but SL placements will be critical.
Not a bad month for the system testing and trial on Demo. Risk on sentiment throughout though so an easy month. LogikFX tools worked a treat.
Great start to 2021 Michael, nice trading! Equity curve looking juicy.