Entry 1 Short EUR/USD

I do not have a conformation of this entry, from my indicators. But I will enter into this position now because I do no want to miss the movement to the basis of the correction. The stop loss will not be according to the daily graphics.

Entry: Sell short from 1.2702

Stop loss: 1.2968

Strategy: Discussion of entries and exits

We are going to use the 4 h time frames for the main entries.

So when we identify an entry on the daily we are going to ride the trend with 0.01 lots.

When we have a correction (in the 4 h time drame) we are going to close the daily position and open an entry in the direction of the correction.

We can also hedge the daily and open a new position in the direction of the correction, it is a matter of choice but I do not want to use more capital for the margin and pay extra swap costs for three positions.

Signal generation

The signal generation is fairly complex.

1. It is based basically on an upgrade of the volatility system of Wilder with digital filters.

We will use also some indicators based on the chaos theory.

2. We are going to use the fractal dimension index (and the exponent of HURST) in order to measure the probability of the trend continuation. And the variation of the exponent of HURST. The idea is that every algorythm for the estimations of this exponent cannot give a precise estimate at any local point. So we are going to be interested at his sudden change for a break - out. This is part of some day trading strategies that will not be covered here.

3. We are using the Lyapunov exponent in order to estimate how chaotic the time series are.
It may be curious but the latest experiments showed that the EUR/USD is not chaotic at the 30 m. time frame (-2 )in fact it has a negative Lyapunov exponent. And that is very curious, that means that we can make predictions and we have to. The system is predictable. But the system looses the equilibrium from time to time.

First Entry

The first entry is difficult. It is very difficult to time the entry for the trend following strategy. Sometimes it is better to not time it at all. I think today is not the day for an entry on the market, because we do not know if the trend is going to continue or to reverse.

The idea is to evaluate in a stress free environment. When you risk 150 $ you are stress free, but who knows. The idea is that very often when we enter into a trend following we face the following problem.

People tend to take their profits too early and to hold loosing positions for longtime.
In fact in order to succeed in our experiment we have to force ourselves against our natural drive. That means that when we see a winning position we are not going to close it when we see an averse price action, we will let it breathe. On the other hand when the position is negative if it exceeds the stop loss level we will close it without remorse.

We are doing that not from a day trader perspective. We are not going to check everyday our deals. The money has to work for us. Right!

About

This blog is created as an experiment. This is a micro hedge fund experiment.

Is it possible to have a personal micro hedge fund to generate profits with money far bellow the imaginable?

My answer is probably Yes. That is why I have created this experiment. So what is the situation?

We have as low as 150 USD of risk capital that we want to invest. You are laughing OK, I understand. And we want to invest them in the market. The idea is that we are going to make a time frame diversification (that can be an eye opener for the day traders)

We are going to apply a high risk trend following strategy with our capital.The purpose will not be to accumulate profits and more profits. The purpose will be to take every month half of the profits and bye some beer.

I will give some technical details.

We are going to use mainly daily and 4 hours time frames. We will use a moderate leverage.
We are going to take positions with 0.01 lots or 1000 $.

The entry into position will be generated on a 30 minutes time frame.

The stop loss will be dynamic and will evaluate with the trend to lock in the profits. The stop loss levels will be deep in order to avoid the high frequency algorithms effects as much as possible.

I will open positions only on EUR/USD, because it is a well trending market we want to exploit. The idea is fairly simple this market has good trending characteristics we want to exploit. I have been forward testing this strategy for six months, before starting the experiment.