The ACD Method

[test_user]

You're welcome to come over to USD index thread if you want to post any forex observations. Not trying to steal any customers from Mav, just sayin. I read this thread from time to time(obviously) but dont have much to say in terms of ACD and currencies. USD is more stream of consciousness if you will. Starting to attract some talent I think. Like hearing any intelligent discourse on any market.

I don't specialize in dollar index, it's just one of the many markets I follow every single day so I don't know if I can add anything interesting there. I don't even trade the DX, but I track DX futures to see if I should stay away or be more interested in USD denominated pairs.

I also view all markets as one large interrelated mess. E.g. if I go long corn, I am implicitly shorting USD at the same time. Then the question becomes "am I satisfied by this? is dollar weak enough to keep outright long corn?". If not, I may lay off the risk by e.g. going short the wheat if it is weaker.

I analyze DX using the ACD methodology and I'd like ACD to stay secret within this thread (just kidding of course)

At this very moment DX looks like a potential short, creeping below monthly, weekly and daily A down levels, having -6 monthly NL and needing one more down day to confirm 30 day NL to confirm the longer term downtrend.
What I don't like about the set-up:
It's the second half of the month already.
What I like about the set-up:
1) it has bounced off the monthly A up on the 04/09 and
2) if it confirms monthly A down, it will be the first confirmed A down in a long long time

 

[test_user]

DX is bouncing off of monthly A down (94.04), weekly A down (94.02) and intraday A down (93.92). No shorting of dollar index allowed! Numberlines are in the negative territory. No going long the dollar index allowed!

 

[test_user]

Closed my long Aussie/short US T-Bond spread because ZB bounced off the weekly A down (139.55). Ran it for 15 days since September 11th. I like how ACD takes you out without giving up huge parts of the profit unlike the classical trend following stuff. Kudos to Maverick74 for this gem.

 

[tonysoprano]

Closed my long Aussie/short US T-Bond spread because ZB bounced off the weekly A down (139.55). Ran it for 15 days since September 11th. I like how ACD takes you out without giving up huge parts of the profit unlike the classical trend following stuff. Kudos to Maverick74 for this gem.

Hello, re the Aussie portion of this spread, was this an Aussie bond, Aussie dollar or something else? What symbol is it? Would like to chart and see how it looks. Thanks.

 

[test_user]

Hello, re the Aussie portion of this spread, was this an Aussie bond, Aussie dollar or something else? What symbol is it? Would like to chart and see how it looks. Thanks.

It's Aussie dollar vs. T-Bond. Long 6A, short ZB at the ratio of 120:1 (normalized dollar volatility).

Chart marking approximate entry and exit points:

 

[tonysoprano]

Chart marking approximate entry and exit points:

Hello, if you get a chance would you explain why you picked 6A to spread against bonds and your rationale for the entry. I like looking at trades mentioned in this thread and seeing if, in hindsight, I would have seen the same thing. Thanks

 

[test_user]

Hello, if you get a chance would you explain why you picked 6A to spread against bonds and your rationale for the entry. I like looking at trades mentioned in this thread and seeing if, in hindsight, I would have seen the same thing. Thanks

The main signal was in ZB. It has made a strong monthly A down. To lay off the risk, I looked for the strongest correlated symbol at the time. It happened to be the 6A. My reasoning was: short bonds ~ long dollar ~ short Aussie dollar. I also inadvertently picked the bottom in the Aussie - went long only 10 pips above the low.

 

[test_user]

Anyone watching CL? All its numberlines are pointing downwards but it was creeping up all this time. A potentially interesting setup may play out next week.

 

[tonysoprano]

The main signal was in ZB. It has made a strong monthly A down. To lay off the risk, I looked for the strongest correlated symbol at the time. It happened to be the 6A

Interesting spread - not sure if that would have occurred to me. Re the strongest correlated symbol ... I would have thought that any of the other interest rate products would have been more highly correlated than 6A. Will look at the chart to get a better sense of this spread. Thanks again for the feedback.

 

[test_user]

Interesting spread - not sure if that would have occurred to me. Re the strongest correlated symbol ... I would have thought that any of the other interest rate products would have been more highly correlated than 6A. Will look at the chart to get a better sense of this spread. Thanks again for the feedback.

Disclaimer: take it with a grain of salt. I'm no expert in pair trading.

I actually checked if Aussie dollar and US T-Bond is correlated at weekly % change. It is not. I haven't checked other timeframes and the correlation stuff is still work in progress for me.

However, the sole reason to pair trade for me is to mitigate the risk I don't want to have. For instance, let's take NFP number that came out on September 7th. The Euro went down, so did the Aussie dollar as well as US T-Bond. That's the correlation I want. So if I go long Aussie and go short US T-Bond, events like NFP are canceled out. That means my risk is lower and it follows that I can put on a larger size. (Sorry if this all is basic stuff to you)