Forex Market Commentary
Thursday's EUR/USD and a moot point.
So just to recap on Thursday 10th March 2016 the ECB cut it's base rate by 10 basis points to minus 0.4%. Promptly the EUR/USD falls to $1.0821 then does a reversal upwards to $1.1218. That's a 400 pip trading range and in due course many small traders must have seen their positions and stop losses over-run. Of course hedging a long position would have helped but this day's action quickly reminds us that stop orders in fast moving markets can close out a position almost anywhere. And anywhere's just no good for a small trader trading on thin ice.
In the case of the bots, the logical framework of their trades must have gone completely upside down. On days of large volatility like this almost always the bot falls flat on it's back whilst the human mind is quick to discern rapid changes and take a prompt decision.
The problem with bots is that they need historic price data to determine probable outcomes. Humans do not require such rigid rules since they also have the 'gut feeling' to fall back on.
In the case of Thursday firstly a bot would have picked out the recent bottom and steadily changed it's short course noting 5 successive trading days of higher lows and using the premise of the sum then determine a logical long entry on market entry. Secondly, the concept of narrow range 4 and narrow range 4 inside bar, whilst technically not completely authentic as a signal, may have applied by virtue of Tuesday and Wednesday narrowing trading rangesto give a second logical deduction to enter long on Thursday open.
Since bots are ruled by logic the first hour after the ECB announcement would have seen price collapse and the bot determined long entry on market open suddenly accumulates losses with a stop way off the mark perhaps even by 100 pips after 3 successive 15 minute bars takes the price to 1.09. Thereafter, following the lower 15 minute bars x 3, the bot may have disastrously entered a short position near the 1.09 region with perfect logic that 3 successive 15 minute bars being lower indicates downward momentum. Short thus entered the market then saw a change in trader anxiety as Draghi comments that this maybe the final interest rate cut, and thus enthused there now comes a price reversal as traders shake off the negative sentiment during his speech and the price lurches back up with the bot on a short entry unable to react so fast on a dime and thus losing out another 100 pips as rapid price action sees the buy stop over-run. So the price lurches up in 3 successive 15 min bars and the bot can faithfully re-enter a long position and survive the day having been wrong twice in the day and stopped-out twice.
This explanation of bot rationale is not a surmise but indeed a logical explanation of how logical bots move albeit in time lags to actual trading. The point is that the bot could never change course on the short as soon as ECB chief Draghi says that this cut is probably the last. The bot logical mind works on historical data and requires the 15 minute bars x 3 as evidence for entering the new and final long trade.
Day Chart courtesy OANDA:
Intra-day 15 min chart courtesy OANDA:
The purpose of technical trading of course is to gauge a probability of future price action; yet, fundamentally, news events greater than trader expectation can drive price action against technical probabilities. The bot is like a passenger in a car driving down the road with his front vision blurred part form a side and rear view. But as the Marvel comic hero Daredevil reminds us; we humans have an extraordinary range of senses on top of our visual perceptions to help us make a rapid a decision. a ball is thrown at your eye and the human brain has see the ball, calculated the trajectory and taken evasive action even before the conscious mind has realized the danger.
What a difference a day makes!
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Pieter Bergli - DeLoren Trust Holdings
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Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
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All trades, patterns, charts, systems, etc., discussed in this blog http://forexeducationperspective.blogspot.com/ are for educative and illustrative purposes only and not to be construed as specific advisory recommendations for actual trades. Disclaimer - http://forexeducationperspective.blogspot.com/ bears no responsibility for the trading actions of its readers.
* European Union laws require European Union visitors to this blog to know that cookies are used by Blogger and Google, including use of Google Analytics and AdSense cookies and in reading material from this blog do consent to the use of such cookies
A non-profit commitment to provide education on the properties of currency markets. Forex market commentaries and media reports for free
Disclaimer - U.S. Government Required Disclaimer - Commodity Futures Trading Commission
Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
All trades, patterns, charts, systems, etc., discussed in this blog http://forexeducationperspective.blogspot.com/ are for educative and illustrative purposes only and not to be construed as specific advisory recommendations for actual trades. Disclaimer - http://forexeducationperspective.blogspot.com/ bears no responsibility for the trading actions of its readers.
* European Union laws require European Union visitors to this blog to know that cookies are used by Blogger and Google, including use of Google Analytics and AdSense cookies and in reading material from this blog do consent to the use of such cookies
