British Pound Buy Signal

We will be buying the June British Pound for our first seasonal entry in April. We’ll buy the June British Pound futures sometime between Thursday and Monday, depending on the market’s action. This will be one of our longer holding periods as we expect to let the market run through the rest of the month.

The Details:

British Pound futures margin – $1,980.

Risk – We’ll be using a dynamic stop set to 1.5 times the average true range. The six-month average for this range has been .0168 or, $1,050 per contract. The six-month range for this calculation has been .0360 – .0068 or, $2,250 – $425, respectively. Currently, we’re at .0105, which equals a current cash risk of $656.25 exclusive of commissions and fees.

Reward – The average return has been nearly .0300 points or, $1,875.

See the Tradestation report below for full out of sample performance.

Out of sample walk forward results for the dynamic stop, eleven-year model we'll be employing.

Out of sample walk forward results for the eleven-year, dynamic stop model we’ll be employing.

Now, the British Pound closing prices plotted against the strategy’s closed trade equity curve. I have to admit; I continue to be amazed at the pockets of profitability that can be found in spite of a market’s overall trend. This is a long-only strategy, and the British pound has declined precipitously since mid-2014. As an aside, it appears that the Pound wants to re-test the $1.50 level, last seen the day of the Brexit vote.

This equity curve is a great example of, "Correlation does not equal causation." The Pound declines yet, the long-only strategy thrives.

This equity curve is a great example of, “Correlation does not equal causation.” The Pound declines yet, the long-only strategy thrives.

Finally, we’ll close with theMonte Carlo statistics. The results below are the composite results of 1,000 walk-forward runs based on a $100k account size. This provides a more representative sample of trade expectations. Once again, the drawdown/return metrics coupled with the expected winning percentage meets the edge necessary to put my dollars at risk. Remember, I developed this to trade my account, as well.

*Past performance is no guarantee of future profits.

*Past performance is no guarantee of future profits.

One final note on the British Pound setup. The weekly trend is supported at 1.3990 going back to November and 1.3700 going back to last March. as mentioned above, the Pound is behaving like it wants to test the Brexit breakout near $1.50. The market is currently forming an inverted head and shoulders pattern. The near-term weekly trend at 1.3990 represents the failsafe line. This pattern will be triggered by a close above the neckline at 1.4260 and has a measured upside objective of 1.4620.

As always, we’ll send out the entry signal once it’s generated and follow up nightly with the dynamic stop’s calculation.

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Seasonal Results

This material has been prepared by a sales or trading employee or agent of Commodity & Derivative Advisors and is, or is in the nature of, a solicitation. This material is not a research report prepared by Commodity & Derivative Advisors’ Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Commodity & Derivative Advisors believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.