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Trading Currencies using Purchasing Power Parity (PPP)

In this post I want to cover one of the factors that enters into the creation of the benchmark index outlined in my Trading Approach. This factor is called Value, and provides an underlying fundamental reason for trading various currencies. To explain value let’s assume that the water company Evian sells an identical bottle of […]

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BEOB_MT4
As discussed in the articles on Bullish and Bearish Engulfing Bars, this indicator highlights the bars, and allows you to implement those trading strategies. The only input is an offset as to where to put the arrows indicating the bars in pips. This is best placed on an hourly chart.  The indicator will loot at the previous 8 bars, and check to see if the first group of four hourly bars engulfs the previous four hourly bars.  This is then rolled over with every new hourly bar.
Bullish and Bearish Engulfing Bars
Backtesting and Over-Leverage are the bane of any systematic trader. A shout out to Peter who raised both these points on the previous article in the series: Trading Numbers So, what are the two issues we’ll address in this week’s article:
  • Look ahead bias, and is it really that bad?
  • Kelly is always touted as optimal. Is it really that optimal?
And to all those who don’t like spoilers: (2) will be covered in more detail later in this article series, so close your eyes; but foll…
Dangers of Backtesting, Over-Leverage and the Need for a Protective Stop
This is the third article in the series on trading the Bullish and Bearish Engulfing candle stick patterns. Following on from Part I and Part II, we will look at trading the short signals for AUDUSD, EURUSD, GBPUSD, USDJPY, and USDCAD. Let’s recap the results for the long side:
  • We used hourly rolling bars to identify the appropriate four-hourly patterns
  • Trading in the direction of the breakout was profitable
  • There was a sweet-spot for holding the trade for roughly 12 hours
  • After usi…
Bullish & Bearish Engulfing Bars (Part III)
Taking control of your trading numbers is very important.  Here is an example of how straight forward it can be to run backtests in Excel. If you want to follow along in the article series, follow the link: Taking Control of Your Trading Numbers
SPY 12 Month Momentum Filtered Backtest in Excel
This is the second article in the series of trading the Bullish and Bearish Engulfing candle stick patterns. Following on from Part I, we will actually perform some backtests using the results we found in Part I. In Part I, we split up the analysis for long and short trades separately. Here we will keep to this approach. The justification is that there need be no symmetry between the long & short approach. This is especially true for equity systems, where bear markets have distinct dynamics f…
Bullish & Bearish Engulfing Bars (Part II)
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This spreadsheet goes in tandem with the article on Trading Like a Hedge Fund Manager.  The charts are replicated in here, as well as the calculations, so you can follow along. The data is taken from finance.yahoo.com for the ETF products SPY, AGG, and GSG. Kelly betting is applied to maximize the returns.
Trading Like a Hedge Fund Manager Spreadsheet
For a lot of people day trading represents the attainment of their trading prowess.  However, you need markets to move to capture profit, especially if you have to cross the bid/ask spread.  It therefore makes sense to trade only during those times in which you have a range-expansion. The indicator Range.mq4 measures exactly that.  If you place it on a 1M (minutely) chart, and set its LookBack period to 15 (that is the last 15 minutes), the indicator will show you the height of the range of …
Expanding and Contracting Ranges
Kelly betting is an optimal approach to allocating capital to your system. In this article I want to show you how to apply this approach to your trading, and more importantly what kind of interesting questions you can answer using the ideas behind Kelly betting, in particular: “How long does it take to double my money?” First let’s start out with a simple example and progress to actual markets and trading systems. The example is as follows, and tends to be an interview question for a…
Kelly - What Is It and How to Use It