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AdrianWS

volatility FX trading gamma
Posted on 15 Apr at 20:18 GMT by AdrianWS
Intro:

It is no surprise to anyone that the FX markets are dead right now... We are glad when the EUR moves 50 points these days. Gone are the days of the 300-500 point daily swings of 2011 - at least for the foreseeable future anyway. In a year such as this one so far, it is beyond critical to adapt our horizons in a realistic way.

This year has been so against consensus it is crazy. Going into the year, everyone was expecting the USDJPY to rally towards 110, the Nikkei to hugely outperform and Global rates to be rising, and fast. Yet none of these have happened. USDJPY is 4% lower, the Nikkei is a huge -11.15% down (in USD terms) and US 10's are 40bps lower. So it is fair to say that this year has been a tough one, one of the toughest in terms of alpha generation since 2008 in my opinion.

Here is JPM's FX volatility index.

As we can see it is very low, and still heading lower, and given the lack of any huge events its not a surprise.

In a previous article here I discussed how to use Volatility to aid in trading, and this article, while similar will focus on how we need to adapt to low vol environments, giving a few tips I've learnt from my times trading both high and low v…
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FX Carry value Momentum
Posted on 6 Apr at 17:02 GMT by AdrianWS
Intro:

There are many Short term trading strategies - many of which can be seen with various articles here, they range from simple Moving average crosses, to using overbought/oversold signals and many, many more technical indicators. Broadly speaking, a rules based strategy involves no skill and this applies to both shorter term and longer term strategies. However, market participants need to know when to use each - for example, using RSI is unlikely to work to effectively over the course of 20 years, but can work quite well on a 30-minute chart, likewise using any of the three main multi year strategies fail to work on shorter term timeframes.

Here is a quick look at some simple short term strategies and their backtests (tested on the AUDUSD), while there are some profitable ones, sharpe ratios and Max DD's are awful and thus these will fail in the long run.

Long term FX strategies:

As highlighted above, there are literally 1,000's of techniques that are used in trading, yet only 3 have stood the test of time, these are as follows; Carry, Value and Momentum. I will look at each one individually to explain what they are, and why they have been successful.

Carry:
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