Edge: Should it work on them all

[tomorton]

A genuine edge based on price movements will work anywhere, but not equally well everywhere at the same time.

The forex pairs are not traded by the big banks in the same way. This means for example that EUR/USD trends are short-lived and reverse without warning, while GBP/JPY is known for monster dramatic moves, while EUR/CHF just limps along. That said, characteristics like volatility rotate between different pairs, so even EUR/CHF has some exciting times over the course of a year.

All it boils down to for us private retail traders is that pairs can move strongly, some weakly. This will necessarily affect the outcomes of a TA-based strategy, but that alone doesn't prove absence of edge.

 

[Rapunzel]

not TA based. based the application of maths as stats to over 16 yrs trading data.

 

[tomorton]

If by trading data you mean price behaviour, isn't trading data the core of TA? Isn't TA simply the pictorialisation of trading data? Sorry, but I take the orthodox view, that analysis is either Technical or Fundamental and that if it isn't either, then it isn't analysis.

But I'd be happy to be shown how wrong that is.

 

[Rapunzel]

It doesn't really matter what approach you take, so long as you make money in the long term. I am of the view that is important to prove a statistical edge before committing any reasonable capital to trading activity. It is quite hard to do this with lines subjectively placed on a chart, arguably impossible.

I don't have anything new to add to the age old debate about the relative efficacy of TA as compared to a quantitative approach.

 

[SunTrader]

It would help "qualitatively" if you would quote who you are replying to.

 

[Rapunzel]

Hi Thanks, that was in reply to @tomorton.

 

[tomorton]

It doesn't really matter what approach you take, so long as you make money in the long term. I am of the view that is important to prove a statistical edge before committing any reasonable capital to trading activity. It is quite hard to do this with lines subjectively placed on a chart, arguably impossible.

I don't have anything new to add to the age old debate about the relative efficacy of TA as compared to a quantitative approach.

Well, I agree, making money in the long term is the goal. And also the proof of a strategy.

You kicked the thread off reporting a strategy which doesn't display a universal edge. I can only suggest there isn't any way round this, and in the long term it won't matter.

 

[Leob]

KISS is no excuse for doing due diligence. It comes AFTER all the details are studied and understood, not before.

Great point.

 

[Rapunzel]

30 FX pairs is a lot.
it doesn't mean the more FX pairs you trade, the more opportunities there will be.
Just focus on the major FX pairs

a decade ago, things were very different;
there were major currency wars.
you can literally trade with the eyes closed and yet still earn $$$.

Look at Brexit news.
When there was Brexit news, GBP was very tradable.
Now it is over.

Nowadays, even if you open your eyes extra-wide, it doesn't mean
you can earn $$$.
Nowadays FX moves just a little & Opportunities come rarely.
Factor in all these and also have an understanding of macro fundamentals.


If you just use TA without any consideration of macro fundamentals,
don't expect to earn $$$.

I used to day trade major FX a decade ago.
Nowadays, I rarely trade major FX as there are other better things to trade.

Thank you for this post. It might be an interesting idea to include a tool to monitor the properties of the current market versus the market conditions over which the models were created.

I could look at how the back test performed without the application of my filters, monitor the win rates and drawdown in chunks of time and then compare them to the performance of the back test with the filters applied, over the same periods of time to find a relationship.

There might be a relationship to exploit as an early warning of the likely future reliability of the signal. Or it might simpler to monitor the performance of the signals at the pair level, to know when it is underperforming and is time to switch off, at least that would minimize the losses.

 

[billv]

Hi folks, hope you are well. I'm quite new here. I am in the process of creating some signals of 30 FX pairs and am increasingly frustrated by the fact that the process does not seem to produce edge on all pairs in all directions when tested on new data.

I start to wonder if the edge that seems apparent on some pairs may just be incidental to the dataset that I am using; is it real? But then it would make sense that some instruments are not sensitive to my filter for one reason or another.

I suppose I need to answer the question; why does it work for some whilst it not for others to be fully satisfied with the results.

What are your experiences in the process of generating edge, do you also have a mixed bag of results and how do you proceed when that happens?

All comments welcome. Thanks.

I trade 20+ currency pairs and I found that no matter what strategy I use, my filter settings would have to be different due to the different dynamics of each instrument.

Also, if you are doing back testing you would need to know what happened during certain periods of time so that you can decide if the event which caused your test to fail was a one off event (eg Brexit) or if it is likely to occur again (GFC?).

Depending on the strategy you use, you might want to consider excluding certain currency pairs which would not result in many trading opportunities or perhaps exclude those currency pairs which could increase a trader's risk (EURCHF?, EURAUD?)

You mentioned that you have a problem with new data.
My guess is that the dataset you've used for setting up your filters is incomplete or that it has errors.
If you are using metatrader historical data, it is broker dependent and often has errors or is incomplete and therefore its not reliable for fine tuning your strategy. Ideally a strategy should be forward tested for >1 year before we could say that our edge is working.