The ACD Method

Quote from gmst:

yes correction is typically minimum of 10% agreed. Also agree that SNB is not taking any direct action against yen. The peg I am referring to is Eurchf peg only. Following is what I am saying.

Long Chfjpy position is synthetic long Usdjpy and short Usdchf position. If Eurusd falls, to maintain the Eurchf peg, Usdchf will have to rise. You are synthetically short Usdchf, so you will take heat on that part. This heat will be balanced only if Usdjpy rallies hard, then the trade will be close to breakeven trade. In this scenario, you are better off taking a direct long in Usdjpy rather than long Chfjpy.

However, if if Eurusd rallies up, then above scenario will not work. In this case, to maintain the peg, Usdchf will most likely go down or worst case will stay where it is (thus pushing up eurchf). In such a scenario you are better off going long Eurjpy instead of Chfjpy.

So in both the above scenarios, you are better off taking short Jpy exposure through some other way rather than long Chfjpy position.

The case of Usdchf going down during last 10 market corrections is not applicable here - because that was pre-peg world. Post-peg world, rules of game are different. Going forward, peg will 'force' usdchf to rally, it was by the way the reason why usdchf rallied from 0.71 to 0.95 last August.

All ears if you can punch holes in my analysis above.
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I think you are making too many assumptions about what is going to do what under every scenario. I watch price action period. I have no ability to predict what central banks will do and what peg they will force. I would be broke if I had to rely on that. I think USD/CHF is going to get crushed in the next 12 months. I also think USD/JPY is going to rocket higher hence why I want to be long CHF/JPY. This breakout in the USD/JPY is very very real. Based on what I just said, CHF/JPY is the place to be. Since I use "ACD" to trade. I will jump ship immediately the minute the price action does not confirm my belief. Right now, CHF/JPY has the cleanest breakout. Monthly and QTR A ups have confirmed. In fact, this is the first time in almost a year that CHF/JPY has confirmed this early in the month. Remember the old saying, trade what you see, not what you think. CHF/JPY has broken out. That is a statement of fact that one can see by looking at the chart. What "might" happen is anybody's guess.

People thought I was crazy last year when I said to buy Bonds right ahead of the US getting their debt downgraded because it made no sense. However, ACD confirmed the breakout.
 
Quote from Maverick74:

I think you are making too many assumptions about what is going to do what under every scenario. I watch price action period. I have no ability to predict what central banks will do and what peg they will force. I would be broke if I had to rely on that. I think USD/CHF is going to get crushed in the next 12 months. I also think USD/JPY is going to rocket higher hence why I want to be long CHF/JPY. This breakout in the USD/JPY is very very real. Based on what I just said, CHF/JPY is the place to be. Since I use "ACD" to trade. I will jump ship immediately the minute the price action does not confirm my belief. Right now, CHF/JPY has the cleanest breakout. Monthly and QTR A ups have confirmed. In fact, this is the first time in almost a year that CHF/JPY has confirmed this early in the month. Remember the old saying, trade what you see, not what you think. CHF/JPY has broken out. That is a statement of fact that one can see by looking at the chart. What "might" happen is anybody's guess.

People thought I was crazy last year when I said to buy Bonds right ahead of the US getting their debt downgraded because it made no sense. However, ACD confirmed the breakout.
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Eurchf peg is not an assumption, it is reality. If you think over next 12 months, Usdchf is going to get crushed, it is the same trade as Eurusd rallying up. There is no assumption about it.

Having said above, the truth is that CHFJPY has experienced a very clean breakout. So, net net I am not convinced that long CHFJPY trade is a bad trade, actually purely on technical basis - it is a good trade to put on. I am just worried if it is the best way to gain short JPY exposure. Frankly, AUD has been weak over the last week, for otherwise, my choice for a longer term position would have been long AUDJPY - at least you have massive carry at your side. Right now, I am just confused - I will accept :) and have simply put on a long USDJPY position.

On a separate note, Mav - lets say this CHFJPY trade turns out to be a big winner and moves 10 -12 big figures in your side within next 2-3 months. What methodology do you follow to book profits in such big trades? Do you start scaling out or do you initially scale in - if you scale out, how do you know that big move is over, because there is a real possibility that you start scaling out from 6 big figure move and close the position at 9 big figure move. But position keeps going in your favor for maybe 20-30 big figures? I have found this question one of the hardest, especially on multi-month big potential trades. Will be great to hear your approach. Cheeers!
 
Quote from gmst:



On a separate note, Mav - lets say this CHFJPY trade turns out to be a big winner and moves 10 -12 big figures in your side within next 2-3 months. What methodology do you follow to book profits in such big trades? Do you start scaling out or do you initially scale in - if you scale out, how do you know that big move is over, because there is a real possibility that you start scaling out from 6 big figure move and close the position at 9 big figure move. But position keeps going in your favor for maybe 20-30 big figures? I have found this question one of the hardest, especially on multi-month big potential trades. Will be great to hear your approach. Cheeers!
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ACD is just as good for exists as it is for entries. If this trade does indeed have follow through then what I want to see is continued monthly A ups followed in between by failed weekly A downs and failed monthly A downs. Long term trends tend to end at the QTR A levels so I will always look for failures around those numbers as a guide.

Keep in mind that currencies do not trade like AAPL. They back and fill. So this is not a trade you just hold on to and get out of later. You sell at the failed monthly A up and buy it back on failed weekly A downs or failed monthly A downs. Keep moving in and out in and out. The price action should validate the move. In other words, you do NOT want to see monthly A downs or especially QTR A downs.

I'll update the levels on this trade every weekend to show the progress this pair is making with ACD.

BTW, I don't want to be long Aussie in the midst of a 10% correction and I do believe we have one coming here shortly.
 
Quote from Maverick74:

ACD is just as good for exists as it is for entries. If this trade does indeed have follow through then what I want to see is continued monthly A ups followed in between by failed weekly A downs and failed monthly A downs. Long term trends tend to end at the QTR A levels so I will always look for failures around those numbers as a guide.

Keep in mind that currencies do not trade like AAPL. They back and fill. So this is not a trade you just hold on to and get out of later. You sell at the failed monthly A up and buy it back on failed weekly A downs or failed monthly A downs. Keep moving in and out in and out. The price action should validate the move. In other words, you do NOT want to see monthly A downs or especially QTR A downs.

I'll update the levels on this trade every weekend to show the progress this pair is making with ACD.

BTW, I don't want to be long Aussie in the midst of a 10% correction and I do believe we have one coming here shortly.
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Thank you very much Mav. Very informative.

Btw, your point on AUD with equity correction is spot on :)

Separately, very curious why do you see an equity correction coming up shortly ? Because this is definitely not ACD, rather this is your market experience and knowledge - or maybe you are seeing something beneath the surface that others are missing like Copper ?? !!
 
Quote from Maverick74:

Yeah great spread today. Just to gain some insight here, choppy and range bound days create the smoothest spreads and biggest spread moves. Strong or weak trending days produce choppy spreads. There is an inverse relationship. Since the market chops 80% of the time, spread trading trends 80% of the time. You can see now why so many people like spreads.
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Hey Mav,

Thanks for all the knowledge shared. This goes to all the other active posters. ;)

Any recommended reading on the basics of spread trading? Have only heard the obscure mention a couple times but would like to learn more.
 
Quote from gmst:

Thank you very much Mav. Very informative.

Btw, your point on AUD with equity correction is spot on :)

Separately, very curious why do you see an equity correction coming up shortly ? Because this is definitely not ACD, rather this is your market experience and knowledge - or maybe you are seeing something beneath the surface that others are missing like Copper ?? !!
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I don't see the individual number lines confirming the strength in the broad based indices. Some are are just lackluster, others are downright bearish. The number of new 52 week highs is paltry compared to the highs we made last July and last April. Bonds continue to hold a bid. The VIX has been under 20 for quite a while now. And most of the shorts have been squeezed out of the market.

But the most important of those is the number lines. They really are the driving force behind ACD. Could the number lines turn around? Sure, they could. But we need to see a really broad rally here. I follow all 9 s&p sectors plus real estate, construction, semi's, regional banks, copper, oil, oil services and retailers. None of these sectors are showing any kind of a real bid.

If we are at the beginning of this leg up, I would say, fine, they'll get stronger as the rally develops. However, we are 300 handles into this rally and these sectors look dead, or at least tired.
 
For the record, here is what I have for the 5 day rolling number lines for the broad based indices:

QQQ 0

SPY -1

DIA -1

IWM -3

Now does that look like the strength you want to see before a major breakout?

Let me further add that all 4 of those indices have only produced one intra-day A up over the last 5 sessions.
 
Quote from forex_for_life:

Hey Mav,

Thanks for all the knowledge shared. This goes to all the other active posters. ;)

Any recommended reading on the basics of spread trading? Have only heard the obscure mention a couple times but would like to learn more.
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ok there are many types of "spread trading". The idea recommended on the acd method is to find pairs that aren't correlated and that are uncrowded. A crowded typical prop shop spread trade would be spreading coke and pepsi stocks. An uncrowded example would be ung vs aapl. The idea is to find uncorrelated pairs where other folks aren't, you can spread anything really.
I think if you read thru the journal you will see lots of examples of this. Realize that there is still risk associated with any position.

not recommending this guy just a place to start:

http://biggercapital.squarespace.com/
 
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