Indecisive Capital Market and Trading Currency pairs in the 4 Hour Chart

Around the mid of each month all the automated trading systems on the H4 for each pair are being refreshed with a new collection to run again for about a month. The automated trading systems are better known as Expert Advisors (EAs) used in MetaTrader. We will investigate the performance of the Expert Advisors (EAs) that are trading the H4 chart because there is interesting information. We will do this also by looking at the market development during this period.

The markets

To investigate the markets and save time but still getting a good overall idea I use 2 charts. The S&P500 and the USDJPY. The EAs were active from May 23 until June 20 and during that period the capital markets had no clear direction when looking at the 4 Hour chart. You can see the S&P500 which is a representative index for getting an overall idea of the capital market. The result of the S&P500 during the period is a loss from around 4000 on May 23 to 3800 on June 23. It is clear to see that there was a period of a rising trend and a falling trend. The Ichimoku and MACD indicator show this very clear.

In the chart below you can see the USDJPY which is a good index for measuring Risk. Although the stock market was going down in the 2nd half of the period the USDJPY kept rising. The USD is also a Safe haven so part of the rally can be caused by that too. However, once Risk aversion (Risk-OFF) takes the upper hand the USD will also drop.

Based on both charts above the uptrend in the Stock market (Risk-ON) is having difficulties to continue. However, there is not yet a clear down trend. For that to happen, the JPY crosses should be going down also.

The pairs traded

The EAs for the 4 Hour chart that were active were: AUDUSD, EURAUD, EURCAD, EURJPY, GBPJPY, GBPUSD. To get an idea if there was Risk-ON on during that period we can check the 2 JPY pairs: EURJPY, GBPJPY. Here below you can see the total number of trades per direction. It is clear to see that going long against the JPY was the favorite direction, meaning that risk trends were still in favor instead of risk aversion.

When looking at the total profits made it is clear to see that the GBPJPY and EURJPY had a very good performance. After that we can see that trading the USD pairs AUDUSD and GBPUSD also showed a very good performance.

Here you can see how the GBP makes profit mainly going long on the GBPJPY (green line).

This means long on GBP and short on JPY.

Here you can see how the USD makes profit mainly going short on the GBPUSD (red line).

This means short on GBP and long on USD.

The EURAUD and EURCAD were hard to trade because during the period a lot of good news came in about the EUR. The EAs are more oriented in going short on the EUR because that was the main trend of the EUR against the Commodity currencies like the AUD and CAD. There is a possible change because of Risk aversion kicking in, the Commodity currencies will then drop and with the EUR getting stronger things can reverse in favor of the EUR.

Conclusion

What can we say about all the information above? The positions taken can be divided in 3 groups.

1. Risk-ON trading long against the JPY
2. Strong USD because it is a Reserve currency and Risk aversion is looking around the corner.
3. Commodity currencies trading against a weak currency (low interest).

Based on this information we can conclude that Risk is still on (Long against JPY) but we seem to be close to a turning point (Strong USD being a Safe haven and capital markets dropping). Trading a Commodity currency against a weak currency was not successful because of a possible reversal in direction. This reversal is oriented on Risk aversion.

Using the GBP for both charts here above is random and not a choice. However, it shows that the USD was a lot stronger than the JPY. After all. USD was stronger than GBP and GBP was stronger than JPY. However, the FxTopSystem did not choose the USDJPY to be traded in this period. However, it is added for the coming period, read more here below about this.

The 6 pairs: AUDUSD, EURAUD, EURCAD, EURJPY, GBPJPY and GBPUSD had all different motivations to choose a direction. This makes it possible to diversify and manage risks when trading FX. Furthermore, there are more reasons why FX trading may offer better opportunities compared to trading stocks or other. However, this is out of the scope of this article and maybe a good idea to write about in a next one. For the next period the following 9 pairs are enabled for trading in the H4 chart: CHFJPY, GBPJPY, AUDUSD, CADJPY, EURCAD, EURJPY, GBPUSD, AUDJPY, USDJPY. I will write a review about them around the mid of next month after they are taken out of the running.

I hope you liked this article; this is it for now. If you have any questions and I can answer them, I will do so in the next article. For more information about the development of FxTopSystem you can visit my blog FxTopSystem.info or click here or just send me a message. Are you interested in the performance, check here. I wish you a happy trading in the coming period.

DISCLAIMER

This article is my personal opinion, not recommendations, FX trading is risky and not suitable for everyone. The content is for educational purposes only and is aimed solely for the use by ‘experienced’ traders in the FX market as the contents are intended to be understood by professional users who are fully aware of the inherent risks in forex trading. The content is for 'FX Trading Journal' purposes only. Nothing should be construed as a recommendation to purchase any financial instruments. The choice and risk are always yours.