We immediately jumped back in after going flat as another opportunity presented itself for a high probability set-up. There were a few additional trades that took a while longer to come to fruition. As the EURUSD approached the critical resistance at 1.3100 price action became increasingly choppy. Once that level was reached I looked for the first opportunity to exit with profit. Today the account is now up 2.3% from the account balance at market open Sunday.

It is my intention to stay out of the market for a few hours at this point because the EURUSD is at a critical level and we have the USD ISM Manufacturing data out soon. In my opinion this report may be more critical than the GDP numbers from this past Friday. It is also worthy to note that we have reached the daily range for most of the currency pairs.

I have enclosed a copy of the updated intraday statement as of the time the most  recent trades were closed today to show the balance, equity and trade history today.

CorrFxGroup Intraday Statement Monday August 2, 2010 14:00 GMT

We continue to tread carefully and cautiously in these market conditions. There were no high probability set ups until we reached the London Session. Within the course of a couple hours we were able to add 1.3% to the account based on the opening equity of the account.

I have enclosed a copy of the intraday statement as of the time the trades were closed today to show the balance, equity and trade history thus far today.

CorrFxGroup Statement Monday August 2, 2010 09:00 GMT

The trades that were opened immediately after we were last flat on Wednesday July 28, 2010 went into an immediate drawdown as price action continues to maintain an unpredictable choppy pattern. Our maximum draw down did approach 10% but we were able to navigate out of the draw down and into profit on the trades prior to the close of the markets. The last investors who activated their accounts were on Thursday July 22, 2010.  As of the date and time of this update (Market Close on Friday July 30, 2010) they are currently up approximately 13.5%. 

Investors who had a draw down after the 'stop loss incident' have now recovered those losses and some have moved into profit. New investors who entered the account in the past 14 days are up between 12-15% depending on the date of entry.  

I did not generate the Intraday statement prior to the rollover so there is no statement for me to post pertaining to this blog entry.

No change in market conditions. The Stress Tests in Europe were relatively uneventful last week and there was no follow through of any kind so far this week. We continue to make up for some of the recent losses while investors who recently joined the fund continue to enjoy additional profits. The last investors who activated their accounts were on Thursday July 22, 2010.  As of the date and time of this update (Wednesday July 28, 2010 - 13:00 GMT) they are currently up 10.6% as we have recently been averaging approximately 2% per day.  

I have enclosed a copy of the intraday statement as of the time the trades were closed today to show the balance, equity and trade history.

CorrFxGroup Intraday Statement Wednesday July 28, 2010 13:00 GMT

We had an exciting week with all the swings in the currency markets due to the European stress test which ended up being rather uneventful.  For those who were caught in last weeks draw down due to the stop loss issues you should have seen a huge recovery. Pre-existing investors are still experiencing some draw down while new investors are enjoying profits. With the much anticipated Stress Tests out of the way we should see some moderate calming in the markets that may afford us some great opportunities to make up the remaining draw down on some accounts and end the month with profits for all investors.We plan on making up the final gains in the coming week and we are still looking to end the month with profits.  

 

Stop Loss Problems:

 

I want to mention a little bit about the stop loss episode that we experienced last week.  It was frustrating and caused us to take an unnecessary hit.  We are thinking of getting rid of the stop loss completely because so far it has only hurt the clients.It is important that we do what is in the best interest of the managed account and the collective majority.  The prior trades that caused some stop losses to be hit came swinging back into profits in the following trade sessions.  We have made some adjustments with clients and continue to modify and adapt the trading for the market conditions but the reality is that the market has been extremely chaotic in recent months and this will likely be the new normal. Our trading, stop losses, lot sizes, correlation strategies used and expected draw down will also be in a state of constant change as long as the markets fail to stabilize. Changes have been made and if an investors stop loss is hit it will not affect the other accounts but investors who decide to set a stop loss against our recommendation have to accept the consequences if the stop loss is hit. Our focus remains on the trading so it is very difficult to also monitor the individual stop losses that are set by investors. Please be careful on your stops because more often then not the markets will stop a client out and then head right back into our favor much like the one last week. In fact it has happened more than once to some investors.   

 

 

Trading

 

As previously stated, adjustments have been made to meet the market conditions.  To many of the investors it may seem like we have been making a lot of adjustments these last couple of months but that is all part of trading. It is unlikely that market participants will unanimously agree any time soon if the USA or Euro Zone is worse off. Until the distinction is made we could continue to swing in both directions throughout the summer as a result of indecision. There is no such thing as a Final answer in the world of FOREX currently we have thousand of so called “gurus” coming up with all different types of predictions which tend to be wrong more often then not.    Trading is not a science it is more of an art that requires a lot of concentration and intuitions for sensing patterns of behavior.  There is always something unknown, undiscerned.  

 

The correlation trades between the GBP and the EUR have been working like a charm and we have not had to take a hit on one of them since back in June except for that blasted stop loss episode last week but we will move forward and put that behind us.

Clearly the new normal in Forex is complete ‘Chaos’, but this is why the Correlation strategy will continue to provide the best avenue for profits.  This past week saw constant swings back and forth from ‘Risk Appetite’ to ‘Risk Aversion’ with a new twist. In recent weeks and months the EURUSD weakened when Risk Aversion was the flavor of the hour as money flowed into the USD; and when Risk Appetite was the flavor of the hour the EURUSD strengthened as traders dumped the USD. This past week saw just the opposite as concerns surfaced over the weak USD data and the Fed’s statement giving doubt that there will be any rate change in the near future. It appears that there is little hope for an increase in USD rates as long as the data continues to print poorly and as a result there is little desire to buy the USD.  The EURUSD climb is still a result of a short squeeze and there is no fundamental news backing the climb so we continue to hold back on our directional trades.  At the end of this post is a paragraph from John Kicklighter (dailyfx) that gives a good explanation of the crazy moves.  

We did have a rough week do to a couple of technical issues.  Dukascopy allows investors to set their own Stop Losses which is new to us and we are not used to keeping an eye on this so we had to make a couple of adjustments.  Part of the draw down of this last week was due to the fact that some Stop Losses were too close and got tagged.  This was our fault because we are new to the stop loss set up with Dukascopy and have since adjusted the platform so we will not have this problem again.   We took an unnecessary hit on the trade because shortly after those same trades made a substantial swing that would have resulted in an attractive profit. No worries all is adjusted and Dukascopy has made the necessary changes for us.  The current system is working great in these market conditions and we are looking to make a couple more changes that will increase our Risk to Reward ratios.  Many of you have noticed we have been taking smaller profits per trade yet we have experienced larger draw down compared to the profits.  We are looking to make the necessary adjustments this coming week to capture the swings on the profit side.  That might not make too much sense to many of you but it is a good thing and it will be beneficial to everyones accounts.
  

Despite the aforementioned, this is Forex. What holds true today can certainly change tomorrow. All markets have increased in complexity, unpredictability and uncertainty and this will not change any time soon.  We love the markets and will be back trading when the Asia Market opens on Monday.  We look to end the Month of July in profits so expect a good week out of us next week.

An additional Market Update will be posted on the weekend after I have an opportunity to further analyze the markets and review the economic releases from this past week in detail.

John Kicklighter (Dailyfx) writes:

Price action is often deceiving. While there is little arguing that the market defines what is fair value for an asset or underlying risk premium itself; this is an assessment that is valid for only that particular point in time. While speculative interests are prevalent in the capital markets, their influence is biased and highly reactive. This is why there are periods of remarkable volatility and aggressive trends. It is important to keep this truism in mind when evaluating the performance of the market’s this past week. It would seem that investor sentiment has improved markedly over this period. Indeed, the Dow Jones Industrial Average, the S&P 500, Europe’s benchmark indexes and others climbed for six consecutive days (a trend broken today). Looking at other risk and growth-sensitive markets, the same advance in yield and increased tolerance for risk was noted. Furthermore, the statistics that are derived from this underlying price action would offer self-fulfilling support. For example, the risk premium priced into volatility indicators and other derivative readings similarly point to a reduction in the threat of future losses.

It should be clear to those traders that have survived the market swings of the past couple of years that trends are not permanently set and that speculative interests can turn rather quickly. If we were to trust what price action is telling us now, we could find the evidence for why this progress is able to develop. One of the most readily available explanations for strength is that the fear of an imminent collapse of the European Union’s financial ties and currency are on the verge of collapse has dissipated. A correction under these bearings is not unusual. In fact, it is a strong sign that speculators were overzealous in pricing in a disaster for the euro; when the full breadth of the problem would not be realized for many months and through many governmental efforts to redefine the rules of the game. This natural correction therefore can be taken as a sign that risk appetite is recovering in earnest across the board; when in fact, it is a reversal of positioning that is natural for capital flows. On the other hand, that does not mean that the capital markets are returning to a structural bull trends. Instead, this can be termed a correction in a larger trend until fundamentals and investor commitment confirms otherwise. We can see this argument in price action itself. Setting the upswing of the past week into context, we can see with both the Dow and DailyFX Carry Trade Index that we could still easily establish another lower peak. 

The open positions I held since yesterday moved well during the Asian session and showed signs of improvement heading into the London session. The draw down on the trades was in the vicinity of 2-3% which was about half of the peak draw down that had accumulated during Monday’s trading session. At 08:23 GMT Moody’s cut Portugal Sovereign rating by 2 notches to A1 from Aa2 and stated the ‘outlook was stable’. The initial knee jerk reaction caused the EURUSD to drop sharply at a very rapid pace.  Shortly thereafter we had GBP news released that was positive for the GBP causing the GBPUSD to rally.

The EURUSD and the GBPUSD correlate positively meaning that they typically move in the same direction. When I trade these pairs together as a correlation trade I trade them in opposite directions so that the USD is hedged. Recent correlation trades have consisted of LONG EURUSD and SHORT GBPUSD trades. Today’s events undermined the correlation between the two currency pairs by causing the pairs to correlate negatively for a short period of time with each pair moving against us. The end result was an increase in draw down from approximately 2% to approximately 9% within minutes.

Looking back at the charts during this time can be very misleading because they give the impression that a very clear directional move was made that should have been easy to capitalize on. The reality of the markets as of lately is that they have been, and continue to be, increasingly choppy with sudden reversals and complete retracements happening quickly without notice and at times without any clear catalyst in the headlines or in absence of any scheduled event on the economic calendar.  For this reason I have no interest or desire to attempt a directional trade and insist on maintaining discipline to execute correlation trades only as the market in my opinion requires a defensive approach to ensure profitability and longevity.

As of the time of writing this, the EURUSD has completely retraced the drop after the Moody’s announcement and that is a testament to just how unpredictable the markets currently are. Moody’s down grade combined with all the negative economic reports released for the EUR Zone today (including the German ZEW) should have put pressure on the EURUSD but that pressure was very short lived.

I continue to hold one correlation trade consisting of a LONG EURUSD and a SHORT GBPUSD. Current Draw Down is in the vicinity of 6-7%.  Any time I refer to draw down the water mark is the balance of the account when it was last flat.

The starting balance of the Managed Account when the market opened this week was $527,484.68. A few correlation trades were taken and at 07:45 GMT today the account was last flat with a balance of $533,706.53. The trades resulted in a profit of $6,221.85 or approximately 1.2%. The aforementioned correlation trades consisted of LONG EURUSD & SHORT GBPUSD. The aforementioned combination has served us well in the past few weeks as a result of the correlation strength and choppy swings.

After the aforementioned trades were closed earlier today I did continue to trade the same pairs in the same direction stated above and we are currently experiencing a draw down that as of the time of this update has been contained to a single digit percentage. The draw down is the result of the abrupt reversal in the GBPUSD combined with a much larger daily range as the reversal in the GBPUSD also saw the currency pair outpace the EURUSD by nearly 2:1. 

It is my intention to hold the current positions at this time without adding additional trades because the daily ranges for the pairs we are trading have been reached and absent today are any significant economic events for the USD. My attention at this point will be directed to the other markets as they will likely be the only influencing factor on the currencies notwithstanding any unforeseen or unscheduled events in the mainstream news.

I have posted the Intraday Statement below showing the trades that were taken and subsequently closed when the account was last flat earlier today at approximately 07:45 GMT.

CorrFxGroup Intraday Statement Monday July 12, 2010 07:45 GMT

The market continues to be choppy, unpredictable and challenging as summer trading proceeds constantly swinging between 'risk appetite' and 'risk aversion'. We continue to make some necessary adjustments for the market behaviors and swings. Last week we were able to yield a return of approximately 4.5% with our draw down staying in the single digits. We continue to tread the waters very carefully in these market conditions waiting for the EURUSD and the GBPUSD to breakout of their respective channels.

According to the CFTC short sale positions on the EURUSD have been cut by 50% which has shaken out most of the short positions. The USD is in a uncomfortable area and will like continue to trade choppy for the upcoming holiday weeks. The overall bias is still short and we will look for a turn around to ride the EURUSD back down, but one never knows for certain when that will take place if it even happens at all. Ultimately the market will decide!!!

I will be diligently working to ensure the blog is updated this week with the specifics on Managed Account Results and Market Commentary.

Shortly after the ECB 3 Month Tender Offer was released I made the decision to close all my positions due to the disruption the release caused to the correlation trades I had open at the time. In my opinion the prudent decision was to close rather than endure any additional losses or unnecessary draw down. I can always look for a better opportunity to get back into the market. More than likely opportunities will exist when the aftermath of the ECB 3 Month Tender Offer passes.

Traders who were in the fund when I started to update it on the blog Sunday June 20, 2010 are currently down approximately 7.3%.

The account balance at the time I closed the trades was $405,041.26. The balance always fluctuates as a result of new investors joining the fund or existing investors withdrawing funds. When I calculate the performance percentages I use one existing account as a control account and base my calculations on that account. Investors will likely have slightly different results depending on the date they joined the account.

I have enclosed a copy of the intraday statement as of the time closed the trades to show the balance, equity and trade history.

CorrFxGroup Intraday Statement Wednesday June 30, 2010 12:00 GMT