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TFC Commodity Trading Forum

The Yen Is The New Alpha Market *LINK*

Without a doubt the secret to forecasting and trading markets is knowing who NOT to listen to. I can tell you this first hand, having lived thru so many market cycles, that leading opinion makers and analysts do not lead markets. But more often the voice that puts us off track the most is our own. For example I would have never considered that a market with no yield or dividend could be an alpha market, yet USDJPY is now an alpha market. I know this not because anyone told me, but because the model or trading methodology I use pointed it out.

If there is one thing that you need above all else in trading, or in any endeavor, it is the knowledge and confidence that your efforts and goals are supported by a higher power. In my case that higher power is Chaos Theory. Chaos Theory or fractal geometry studies how dynamic systems, such as galaxies, or an ant colony, or a pit full of traders, organize themselves. It is imperative that we understand that both animate and inanimate systems have always, and will always organize themselves. In other words the solar system does not need astronomers to continue to evolve.

In our market studies we always allow the market itself to organize the data we use to analyze and then trade from. We identify a market's individual patterns on the different time frames - for example the 60-minute micro pattern, or the day to day pattern -- and we determine if that individual pattern is bullish or bearish based on its geometric measurement. Once we have determined the bullish or bearish designation of all the patterns within a market, we highlight markets that have the majority of patterns aligned, and look for trade signals in-line with that collective pattern. In trader parlance we are looking to buy dips in up-trends, and sell rallies in down-trends. And most importantly we are not determining which market to trade and which direction to trade it from; we are allowing the market to make those determinations for us. In trading parlance we are using market generated data to make all our analytic and trading decisions.

Back to the Yen pairs, AUDJPY gave an excellent example of this type of behavior this week. Despite a 3-day sell-off at the end of October, the intraday patterns held bullish, setting up a powerful rally heading into November. Below is our Pattern Ratio, which has not changed in a week. The patterns are the same as when it was e-mailed out to our students/clients on October 26th.