Disclaimer : This article may upset traders and quants and many of those stuck in between. This article reflects my opinion and is in no way meant to be defamatory or critical of any school of thought. If you have a rock solid system that you believe is the secret to trading the markets and need no further guidance, read no further.

What is it?

Over the years, i have always been intrigued by the study of the markets from a mathematical perspective. Indicators, systems, money management and with guidance from the stars and planets even, almost everything these days with the abundance of information and millions of intelligent minds engaged in a myriad of computers called cyberspace, the possibilities are endless.

More often than not, the rationale of numbers can only exist with 2 possible benchmarks;

1) Mathematical validation/justification of the current/proposed study assembled using pre-existing formulas

2) Past Statistics

Ever so often, results in financial trading, with specific focus to retail trading, has always revolved around systems. The composition of a system is often easy. Entry/Exit criteria is defined by a set of rules/filters and perhaps with specific focus towards a currency pair/instrument/timeframe. A more detailed system(note that it need not necessarily be a better system) might include money and order management routines.

Now, what is more difficult is the evaluation of the system. Here is where it gets tricky and perhaps self defeating too at times. Let me explain.

Evaluation of the system will quite naturally require us to test the system against real market data. With strategy backtesting available in MT4 and with many trading platforms giving you easily programmable modular development tools, putting your system to the sword and generating “possible” results of what could have been is achieved within minutes, at most.

In about approximately 45 minutes, we have the much anticipated Cash Rate decision from Australia being released.

I couldn’t make out much pre-news sentiments on this trade even until this 11th hour, which means that we probably won’t have a clear cut unanimous direction with this trade setup, pre or actual trade setup.

On the background to this release, there is much anticipation that RBA will hike another 25bps to increase its interest rates to 4.25% which will bring it up to 175 bps difference from its next nearest competitor, its sister economy, the Kiwi.

However, experts are split on the opinion for such a decision. Bloomberg did a poll on 23 experts and only 14 were expecting a rate hike as of today itself. Though this slightly weighs in favour of a rate hike, there isn’t a clear speculation in unison of such a sentiment. Also, the charts are showing no such signs of pre-news sentiments building up. To the contrary, aud/jpy and aud/usd have both dropped 60 and 30 pips respectively since market open today.

Therefore, we won’t be taking any pre-news positions on this trade. If there is an interest rate hike as expected, by 25 bps or more(highly impossible but never say no) we could buy aud/jpy. If there is a rate cut(not possible) or a decision to hold(most possible), we might see intermediate weakness in Aud and we can sell Aud/Usd.

Hello again folks. Good afternoon from lovely Singapore. We hope you have had an excellent trading week and though last week didn’t quite happen according to plan, we saw some very clear trends which provided for easy trading.

We have had some surprise moves especially with the Sterling, but nevertheless, clear trends were visible and it was  a very profitable ride, particularly on that currency. If you had paired it with the Usd, it might have yielded some pretty nice profits(486 profits). If you had paired it with the Yen, with its seasonal weakness as highlighted in last week’s post, the profits will have been handsome(586 profits).

With our star performer so far, the Cad/Jpy, we have now clocked about 570 pips. Cad/Jpy has now increased about 6.5% since we had opened this position. Based on a single unit, our R:R on this position has now reach about 320%. We have managed this position very carefully since we made a call on this on March 8th and we have added many positions since. Therefore, the ROI on this particular opportunity is now well beyond that level. I hope you did make some profits on this.

So, what happened last week;