Here is the latest update from GalleonFX:
If you have followed our news on our website for a while, you will know previous draw downs have provided us important information we have used to strengthen our strategies or even develop new strategies that not only would have prevented or lessened draw downs in the immediate term, but also provide for additional profits throughout the extent of our back testing periods which can be as much as 30 years.
If you have been keeping up with any market news you know that this January 2008 has been an unprecedented month with extreme volatility and erratic movements in both US and world markets. The uncertainty in the markets has no doubt helped push gold over $918/oz even as I write this.
No forex system or trader can stand the test of good long term trading results unless they can react quickly and learn from draw downs for quick recoveries. We believe this to be one of our strengths as we have already proved such several times in the past. We also feel it is very important as well, to keep you informed of what is happening and why, along with how we are reacting to what is going on. We appreciate your patience as it does take time to analyze situations, react and provide such updates as these.
So as most of our clients know, we are currently in a greater than normal draw down brought about by the severe bearish turn of the global marketplace this last month. All the world stock market indices, and with it all the world currencies (except for Swiss Franc and Japanese Yen – the safe haven currencies) suffered staggering price drops. We found ourselves caught in this fall as well. We had recently expanded our trading systems to trade more currency pairs in these last two months, and so when these same pairs smashed through their support levels, we suffered a series of losses. Most of our long trades could not be supported for any amount of time before forced to close at stop loss, and only a few of our short trades were adept enough to navigate the greatly increased volatility of the market in order to capitalize on its fall.
Thankfully, on Wednesday afternoon January 23rd the world stock indices and currency markets rebounded enough to end a seeming free fall of world markets, and we were on this rebound. We have regained much lost territory in the last 3 days and hoping to regain most (if not all) by month’s end with almost a full week of trading yet to go.
We learned an important lesson from this fall. We had previously understood that the Dow Jones and S&P had some impact on world indices and world currencies, but we did not know the full scale of it. When we tested these indices for correlation as leading indicators for price movement in the last two weeks, we were amazed at how powerful they shape overall movement from 1970 till present. In fact, after discovering such a correlation, we developed a very interesting strategy that develops a breakout/trend signal on the Dow Jones or S&P cash index (or futures index) that in turn is transferred to an underlying currency pair (it works amazing well from 1960 till present on at least 10 pairs – without any need for currency specific alterations to the core strategy). In fact, if we had this strategy in place two weeks ago, we would have capitalized on (instead of brutalized by) the dramatic and volatile fall of the Dow Jones and its impact on world currencies.
This new “US Index Leading Indicator Strategy” would have shorted the major currency pairs these last two weeks, piling up impressive profits. The benefit of adding this strategy on 6 of our currency pairs at this juncture is that they will insure us (perhaps even benefit us) from a falling Dow Jones in the future. On the flip side, they will also help us when Dow Jones corrects and resumes an uptrend, which we have already seen evidence of in this recent case in point…
Wednesday afternoon January 23rd, just before the rebound took place, this new strategy was implemented on five currency pairs and they all caught the rebound just in time. Part of our recent dramatic comeback is due to them. We hope for everyones sake that the market does not become again as volatile and bearish as it has been these last three weeks, but if it does happen again, we are much more prepared now to weather such a storm and even turn a nice profit from it.
I imagine some clients may want to discontinue trading as often happens just at the peak of a draw down. This is unfortunate since these are the only clients that ever loose with us. We have others that have also be capitalizing on this draw down seeing it as the perfect opportunity to put in new funds or open an account for the first time. As much as $400k of new funds have come in after announcing our draw down and about $100k of it from our own staff.
Draw downs are part of forex that will never go away. They can either scare you away for good, or allow you the opportunity to take advantage of a situation (if you in fact do believe such to be the case). We can make no guarantees for short term gains but feel very confident we can continue to provide nice long term profits most of our clients have become accustomed to