This is a snapshot of a strategy I am currently forward testing for the EURO, Pound and Aussie.
I was talking with a friend of mine yesterday. He trades futures for a hedge fund in the UK. As we talked he kept asking me what my trading edge is. This led me to realise that as a trader, if you cannot define your trade edge, then you wont last long in the trading business. By an edge, I mean, what market phenomenon do you wish to exploit whenever you trade? Why are you buying now? And why are you selling now? There are many types of trading edges. I will define a few as I have come to identify them.
1. Market Structure: This has to do basically with mechanics of the market you trade. How are transactions done? Who are the major players? When does the market open? When does the market close? Who are the major players in the market? Whenever they are selling, what are they buying with proceeds? When do you have the major volumes? How do the trades settle? Is there a pattern of price associated with the above? You will need to stare at the charts for a long long time and see if you can observe repeatable patterns around these factors. If you can then you may be able to build an edge around it.
Here are a few random examples.
In the paper Gold/USD markets, does price consolidate close to the time of the morning fixing and afternoon fixing? Can an edge be built around it?
Or, does the Dax consolidate just before the US equity markets open? And can it be used to hint to traders what the S&P500 or the Dow Jones Index will do, since it is also an equity index and opens a few hours before the US markets? Can an edge be built around it?
For me, one of the ways I am trying to apply Market Structure in my trading is in the area of Correlation. INTRAmarket correlations between various currencies in the forex markets as well as INTERmarket correlations between the Bonds markets, global equity markets, commodity markets and currencies markets. The above trade is a snapshot of how I use INTRAmarket correlation in my trading from time to time.
Trading for me is still quite challenging, as the dynamic nature of the markets can affect one’s psychology. So the more edges I can identify and exploit, the more confident and disciplined I will be in my execution.
Remember, your wealth is directly proportional to your wisdom. In all your getting, get wisdom!
Olufukeji Adegbeye CWM