11 Feb The Algorithms performance during 2015
Even though the RAND was consistently weakening against the DOLLAR during the start of 2015, it was really from May that things started to move very fast with the pair becoming more and more volatile as the months continued. We breached levels that many people truly believed would never be reached. (Or not in our lifetime at least.)
I would like to take a moment and reflect on how the algorithm interpreted this market, and how by using it correctly you could have (and like many of you did), profit greatly from using this proven system for your decision making. Alternatives were trading based on gut-feel, or simply because of fear taking out forward cover for 6 months ahead and locking your price in for better or for worse.
If we step back a bit and look at the chart for the whole year there are 5 clear zones/trends. Let us start with them:
Zone B, D and E were clear up trends. The algorithm caught the start of these runs very well and a Blue Up Arrow warned Importers to deal immediately or even take out forward cover, while the same blue arrows advised Exporters that it would be wise to wait a while as the probability of a higher price is in their favor. Exporters would then have traded at the Blue Optimal Point dots.
Any new exchanges that Importers had to do during these up trends, they would have done the moment they where able to as price was clearly running away from them.
In zones A and C the price is trapped between two key levels and bounces from one wall to the other like a ball. These are the most difficult periods to trade correctly and you can see that the algorithm produced many arrows that did not play out as expected. The difficulty in these type of markets is that as soon as Buyers take control from Sellers and our algorithm picks this us and reports it, immediately Sellers gain back control and the situation reverses. This has nothing to do with our arrows, but simply reflects the way an open market sometimes behaves. If you followed the the algorithm signals here you would have shown some losses – but the system being what it is, would make up for these small losses during the strong trending markets that must always follow these sideways channels. Again it is important to step back and see the bigger picture. Not just measuring the result of one trade or a month of trades, but rather only looking at the result after 20, 30 or even a 100 trades.
Very Strong Trend
Zone C can be defined as a very strong trend. Even once the Blue Optimal Point was plotted, signaling the mathematical optimal point for this trend, price just continued to soar way past this level. But even here Importers had very valuable information: This is a strong market going up. Stay away. Deal immediately. And although Exporters exchanged all the currency they had at the moment when the optimal dot appeared, they could still utilize the medium and short term up trends for any new exchanges that the had to do in the months following. To demonstrate this let us look at a very strong trend in the POUND/RAND:
It is clear that on the Long Term there was only the one Blue Up Arrow at the start of the trend. Exporters would have exchanged their currency when the Blue Optimal Point appeared, a potential 92 cent gain. But now what about the rest of this strong move? Although there are no more opportunities on the Long Term, if we zoom in to the Medium Term we will see that there where Medium Term up arrows and opportunities during all the dark blue zones in the above picture:
And, by at the right time zooming in to the Short Term and Sniper View there would have been even more opportunities.
So we see that the algorithm is much more than just the arrows on the Chart. It is only when the arrows and dots are interpreted using the Decision Flowchart and within the trading window that the trader has for the relevant trade, that the mathematics and probabilities comes to its own.
It is impossible to know what kind of market lies ahead of us going into 2016. A sideways channel, maybe? Or a very strong trend downwards? And that is exactly why we need a proven system to ride the wild waves and at the end of the period, the end of many trades, to see that we have been protected: With profit potential maximized and losses minimized all the while applying strict risk management.
I want to end with a warning: Be careful of having the algorithm but only using it when you agree with the signals that it generates. Or sometimes using it and then other times trading from gut-feel. (Emotional trading.) The logic in the algorithm are set up and tested in all the different market conditions, but the results will only be optimal if ALL trades are done by following the Decision Flowchart in ALL instances and under ALL circumstances. If you haphazardly switch between timeframes and ignore some signals while following others, you are not using the algorithm at all and losing any change you might have to see the mathematical edge of the system play out over time.