CableTrader:
My experience has been in stocks for the last 15-20 years. I caught the REIT wave for about 60% of its run and then went on to three nice years in Canadian Trusts before the Halloween massacre created by the Canadian Finance Minister that badly damaged the sector when too many bigcorp competitors were getting too much heat from their investors for not performing as well as the trusts. Though I am completely out of CanTrusts now (leaving the US private equity takeover artists to finish the beheading/carcass cleaning job), the experience was quite instructive. On the year end analyses of the results I found that a little better than half of my returns came from currency gain. So I chucked all the company analysis (80% of my work) for a pure, double up currency play.
(I use IB Ideal for cash forex. The CAD spread varied from 2-8 pips and the AUD only 1 or 2 with much larger liquidity.) I split about half my total equity between CAD and AUD cash forex in early April. That was 10% forethought and 90% luck. On drops, I hedged with futures as an experiment and it worked quite well. I was up about 80K on those two positions and then I didn't pay close enough attention in Nov and ended up with a 35% drawdown. Arguably, October was a spike, but still my inattention and lack of a rigorously formalized system caught me with my pants down. I found that I overtraded/overhedged to boot. I really didn't have the needed amount of time to commit to it since I am wrapping up my job for a March 1 retirement date and really didn't watch it properly. I need to get my plan/act together to do this right in 08.
I like RWK's plan of automating the setup search process, but having the final barrel roll performed by the pilot in the cockpit. Trade timing is also an issue. Many times this year the London market open (3am eastern)produce violent changes (100+) pips in the Aussie. Getting banged with multiple alarm text messages at 3-5am is unhealthy for the long run (and is part of the impetus for my curiosity about 10 consistent pips per day and being flat at the NY or Tokyo close except for rare circumstances.)
Going forward, I am searching to find the breakover in timing that renders the algo/big trader short term trading price noise ineffectual in impacting my gains so I can trade shorter time frames and produce statistically significant, consistant profits while reducing my overall number of trades. To me, trading only within NY/Tokyo mkt hours protects you from thin mkt shenanigans, but to really rack up the pips it seems that you have to go beyond holding during a single session. (Certainly you have to have a much larger tolerance for drawdowns. The danger is not having a formal exit and tanking for weeks like I did in Nov.)
Part of me really likes the interest rate the Aussie yields, but the volatilty in the exchange rate causes some major valuation changes that can make you gulp with 2-4 contracts on or its cash equiv.
Cash Forex also has the tax disadvantage of getting hit at ordinary income rates (except for special circumstances) as well as trade reporting complexity. Futures profits have a 60/40 split for longterm/shortterm capital gains irrespective of hold time as well as not having to report trade by trade events. So I lean to trading futures down the road, (but holding cash in AUD is still rewarding far above the Greenback).
I want to arrive at time/corporate independence by March 1. After 30+ years at bigcorp, I need to do my own thing...and get it right.
Finding a consistant timeframe/automation system to offer me trades to take is my current quest. I have made so good progress, but it seems that I have much farther to go than I realized.
Thus this thread...
Best Regards,
T200K
