Experiment just for fun.

Price to hit target (orange horizontal) at some point in the week.

Looking at strike rate first, not worried about stop loss etc yet (options type trade).

Will explain system if strike rate looks reasonable over time.

Ogee wrote: Mon Oct 03, 2022 9:09 pm Experiment just for fun.

Price to hit target (orange horizontal) at some point in the week.

Looking at strike rate first, not worried about stop loss etc yet (options type trade).

Will explain system if strike rate looks reasonable over time.

Ok, I have a confession to make, I don't really have a crystal ball (mores the pity) but what I do have is trader's data and that might be even better.

So last Monday I posted the above charts, nothing on them, no indicators, just weekly targets, so where did those come from?

Just 2 sources, one for direction and one for the target price.

For direction I used the prior Friday's COT report. In the COT Report thread I explained that the report on Friday evening tells the net positions of large speculators for the start of the next week. If they were net long my target would be on the long side (net short, go short)


Simple enough, now target. That is taken from the implied volatility data supplied by the options market.

Put briefly, implied volatility shows the expected move in price and is based on price changes in the options market. The implied volatility data shows us where the majority of long side traders are expecting price to reach for the next week giving a high probability high band price and short side traders giving a high probability low band price.

All is explained in great detail in the 50 minute video by Chris Weston posted on page 1 of the 'Educational Videos' thread.

There is some math involved in converting the implied volatility annualised % into a weekly price points range as explained in the video so you can apply it to any market but Chris posts a newsletter every Sunday with many already worked out.

So the all the data is all from actual trades placed in the markets.

So on Friday before last I took this COT report;



An on Sunday this IV report;


And on Monday I posted the charts in the first post.

Using Gold as the example COT said net Long and the high probability high band for Gold was 1696.63 so that was the target price.



So how did it go ...



Interesting results. Gold and Eurodollar raced to target on day 1 and 2. AUD and GBP raced off in the opposite direction but then reversed and are heading back towards target and still going while JPY is making slow progress to target.

As an experiment I think it's worth continuing but my sample is probably too heavily weighted on the USD so might change AUDUSD and GBPUSD for whatever is in both lists with opposite net long/shorts

I will post the info tables tomorrow and update targets of those that haven't completed.

Reminder that I haven't added a stop strategy yet but it's looking like it would need to be a fixed stop and quite wide (50 points +) as we are looking at weekly time frames.


Thanks for taking the time to read this and don't forget the video, well worth a watch.

This week's predictions as per COT and the options market implied volatility;


COT

Options weekly IV;

Which translates to new targets of;


Gold 1730.88
GBPUSD 1.0843
EURUSD 0.9897
AUDUSD 0.6247
USDJPY 146.98
EURGBP 0.8897

(added a floating one other, this week's guest appearance is EURGBP (though that chart looks really dodgy))


And to keep a score I'll call a notional stop loss of 150. Trades not completed will run with updated targets.

So from last week;

Gold: completed +337
GBPUSD: stopped (-150)
EURUSD: completed +166
AUDUSD: not completed (max negative 127)
USDJPY: not completed (max negative 120)

Ogee wrote: Sun Oct 09, 2022 7:48 pm This week's predictions as per COT and the options market implied volatility;


COT

Options weekly IV;

Which translates to new targets of;


Gold 1730.88
GBPUSD 1.0843
EURUSD 0.9897
AUDUSD 0.6247
USDJPY 146.98
EURGBP 0.8897

(added a floating one other, this week's guest appearance is EURGBP (though that chart looks really dodgy))

And to keep a score I'll call a notional stop loss of 150. Trades not completed will run with updated targets.

So from last week;

Gold: completed +337
GBPUSD: stopped (-150)
EURUSD: completed +166
AUDUSD: not completed (max negative 127)
USDJPY: not completed (max negative 120)

Thanks for sharing your observations!

Consistent Bias and Targets... it's an interesting concept.

Sorry if I missed it, but when do you enter?

PumbaPLS wrote: Sun Oct 09, 2022 8:45 pm Thanks for sharing your observations!

Consistent Bias and Targets... it's an interesting concept.

Sorry if I missed it, but when do you enter?

so it's an experiment testing a concept for a 'set and forget' type strategy that can be worked out over a weekend based on trader's net positioning on Friday evening. Once the calculations are done entry could be by pending order for market open Sunday night or an 'at market' order on Monday morning. I'm not too worried about specifics yet so am just using the Monday open data for the calculations.

Have added a few more charts to speed thing up a bit and changed the stop rules to make things easier (doesn't change previous results).

So the target and the stop are based on the weekly Implied volatility data from the options market and direction is from the COT data. For net long the target id the high IV band and the stop is the low IV band. For net short the target is the low IV band and the stop is the high IV band.

Completed Trades total.
Win: GLD, EU, AU, UCAD, UJ,

Lose: GU, GU, EG, GLD

Uncompleted: EU, UCH, NZU

Needed to edit last post as for some reason it submitted the post when I pressed the Tab key.

So the results for the first 2 weeks not great but will persevere for a while yet. Leaving trades running for a week leaves them at the mercy of news events, last week we had Zelensky trying to start WW III urging the US to strike Russia and then the CPI data. CPI was only 0.1% higher than previous but it signalled that inflation was not under control and coming down and so the Fed could not pivot yet and the next FOMC would likely give another 75 basis points rise in interest rates. Bets for the pivot instantly came off though price reversed back over the day.

For this week I've not had the implied volatility bands post from Chris Weston which is most unusual as he's been sending them out every week for years. I'll see if they arrive this morning and if not will see if I can work them out myself.

I checked the mail but no post, on Chris' twitter feed someone else asked about the data but he said they were posted so not sure what happened.

So I collected options implied volatility data from a broker (was only able to get a selection) and converted to weekly range. Direction from COT data.

NZDUSD and USDCHF out and S+P500 and US Oil in.

Turmoil this last week and bad results for the experiment so am closing this one down and starting a new one.

Total over the 3 weeks was 9 losers and 6 winners. I did like the implied volatility bands for targets and stops but, as ever, the direction prediction did not work out often enough. The COT data just was not reactionary enough on a weekly time scale with large speculators staying in positions for months on end. I had seen the same problem with retail trader sentiment, they also often stay long or short for months, for example after the Trump election win the S+P went on a 6 month up trend and retail stayed short for the entire time but weekly bars zig-zagged.

So for the next experiment I'm going to keep the IV bands but try something I've wanted to try for a long time for direction. Just use the direction of the previous week.

Will post next week's predictions later.