Dazed and Confused

Given the recent repricing of oil given Chinese and Indian demand, the US dollar has been in quite a volatile period. And given this, it is time to look for short term trends in these markets.

As a consultant to a large trading fund, I observe and research these volatile relationships. I have several parameters that I work under. Monies are allocated to models that show sufficient risk and reward parameters over time, by forward and back-testing. I earn money on an hourly basis by doing this research. And I earn money by sharing profits it the trades that I construct. It is a good gig.

The currency trading vehicle of choice these days is the Euro. And the EUR/USD has been moving in tremendous swings. The most liquid trading vehicle these days for such is the cash currencies, no longer the futures.

Now we have several parameters that I adhere to. First my systems are automated. That is, a computer can enter trades 24/7. Secondly, as much as possible we keep these trades to a short term. We are able to keep our commission overhead to three pips.

Optimizing the relationships, for me involves measuring the volume at various times of the day. Trade entry and exit during periods of illiquidity gets a trade whip-sawed.
Secondly, measuring the volatility is important and one needs to do this by viewing the price data as a time series.
And in measuring this, keeping tabs of option implied volatility of the most liquid strikes is critical. That is, the options market measures a threshold. If the volatility is not at a critical level, the market is not adequately volatile to justify a trade.

It is also important to consider how to enter and exit trades by not "moving" the market. This is why liquidity is so critical. There are times that a USD$1 million buy order will move the market, at other times it won't.