Cross platform

Statistics and mathematical formula are run in Metatrader platform.
Price feed from Telequote.
Execution on Pro-i platform and MBT Navigator.
What a mess…. LOL !!!

Trading workshop

Thamrin (Jakarta), February 2007.
This suit was bought in Frankfurt, Germany. :p :p

Class dismissed :)

It has been since January, a basic-to-advance training session, delivered for the TGF’s people.
I hope they will be more than ready for the next step, running some of our mechanical trading systems.

(*)

Nice people

Sometimes God gives us the experience of meeting good people.

Less Volatility

I’ve witnessed a decreasing volatility in all forex pairs. This was observed when I put a long term ATR indicator into several forex pairs on all time frames. During the last 7 years, the volatility have been declining by more than 40%. I thought that was only me who observe such a shift in market behavior. But then I found this article on FXCM’s website:

Why the Forex Market Changed

Through the 1980s and 1990s, and even into the new century, the distinctive characteristic of the foreign exchange market was its volatility—a volatility that was a reflection of major imbalances between national economies.
When a country over-spent or over-borrowed, or when its external trade went wildly out of balance, its interest rates were forced up and its economic growth slowed down. In the forex market, the country’s currency also paid the price—usually by sudden and sometimes drastic devaluation. In short, economic imbalance generated currency volatility.

Increasing globalization has changed all that. In today’s world of tightening economic interdependency, it is in every country’s interest to maintain economic and financial stability—even if it costs. And trade surplus countries (in particular China) now effectively underwrite trade deficit countries (in particular the US) in the name of stability and an orderly market. As one result, interest rate differences are compressed. As another, currency volatility is minimized.

The New Range-Bound Forex Market

The forex market has undergone a profound change. In past years, a trade imbalance or an interest rate shift could suddenly move a currency price hundreds of pips. For that reason, success in the forex market followed a traditional formula: Cut your losses short, but let your profits run. Traders took small losses quickly, but rode big trends for big wins. A volatile forex market rewarded breakout traders.

Using that formula, professional traders were disciplined enough (or their black boxes were disciplined enough) to absorb several small losing trades, because their one, very large win more than made up for them. Using a breakout trading system, only 30% of the trades had to be winners, because the payoff on a breakout trade could be six times the total of the losses. The risk/reward ratio and the mathematical probabilities were in their favor.

STS Profile

Overview

STS is Stealth Trader System. STS is a mechanical trading system that employs statistics and mathematical formulas to determine every aspect of trade decisions, which includes:
- Entry points
- Volatility filter
- Predetermined stop loss level
- Pre calculated position sizing
- Adaptability feature

How STS Works

Entry points
The STS internal engine uses statistical formula to determine market’s natural median to be used as an anchor point for further calculation.
From this median, a standard deviation and average true range then added and/or subtracted to determine potential buy/sell area.
A counter-move philosophy is used to take market position.

Volatility filter
Using volatility cyclic detection algorithm, the system determines the proper time to get active. It doesn’t use a rigid time-filtration, but it gauges the cyclic nature of intraday market volatility. It will trade during optimum volatility session of the forex market.

Predetermined Stop Loss level
The system has a strict risk management rules. It will never enter any position without any pre-determined stop loss level. This will ensure the safety of the equity being traded. Any sudden adverse market movement will be anticipated.

Pre-calculated position sizing
The system has an internal ability to determine its position sizing.
The system will take care of how many contracts to trades, when to add more contracts, and when to reduce exposure to manage risk on the occurrence of consecutive losing trades.

Adaptability
Many mechanical systems fail to adapt to the change of behavior of the market, thus making the common disastrous experience where a system that performs extremely well in back testing, then perform very poorly in live trading environment.
This STS system is not a rigid system. It has a built in capability to gauge market’s volatility. This ability thus enhances the durability of the system towards the continuous changes in market behavior.

Risk and Performance Profile

Risk
Using a single standard contract on a $10,000 initial capital, the maximum consecutive losing trades were 3 trades, thus making a roughly 20% risk of relative Draw Downs.
A draw down exceeding 40% of the capital, which brought by a more than 6 consecutive losing trades per currency pairs will trigger a fail-safe decision to stop running the system.

Performance
Using a single standard contract on a $10,000 initial capital, the profit factor is 1.5. 80% of the positions hit its Take Profit levels, indicating that this system has been able to determine a high probability entry point.

Robustness
The system has performed a consistent positive expectancy on a high-resolution historical data (1999-2007), on all tested currency pairs:
- EURUSD
- GBPUSD
- USDJPY
- USDCHF
- AUDUSD
- USDCAD
Forward testing on live price feed environment has performed a behavior consistent to the back test profile.