Alpha is often used with beta, which measures volatility or risk even before trade position can be establish. Applying such strategy tool can be quite a meticulous process where the assumption of measuring the extent of price action would be at as against their respective benchmark would only be reflected more often post market risk event results.
However, it can still be done as a combination of Alpha / Beta Framework where certain tools of the trade can be applied into the data equation such as the linear regression to reflect Alpha. This is a 2nd tier market analysis applied on certain market conditions that can be identified prior to most risk events. This is one of those rare cases when it practically presents itself for the taking.
Tools of the Trade: Linear Regression, Relative Volatility Index,
Price Action & Behavior Analysis
UPDATE ON TRADE: Identify Correlation on EUR & USD
While in the case and market condition of the USD and the Euro: it does have a diametrically opposing direction more often. We redefined this as a counter trend directional move to place it in simple terms. However, during the course of the trade; the Euro's behavior carried an identifiable level of idiosyncratic risk before the ECB rate decision, and was well supported by a fundamentally driven remark from ECB President Mario Draghi.
Plus the fact, that the Relative Volatility Index have already provided the first clear signal of a turning price point. Again, knowing what, when and how to apply appropriate tech tools would be very useful. As the end-result on the USD measured by the DXY and EURUSD was a diametric price swing which measured to their extreme levels, on top of the spill over in all three major trading sessions.
"MegaTrade101 starts with the trader / investors experience and work backwards to the trading methodology applied while identifying what traders didn't or failed to do while trading to achieve Alpha trade results in moving forward".
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