The Blade Runner Strategy
The method that I preferred was the Blade Runner Strategy. The reason that I prefer the strategy was because the treading signals are based on pure price action (Archer, 2007: McDonell, 2008). As such, they are entirely founded on the principles of financial economics. Also, the method is suitable in this case since off chart indicators do not play a major role in it. However, they can be used as an enhancement tool since this is a speculative affair. Therefore, this enables concentration on the on chart activities thus maximising the value of the decisions that are made. Moreover, the Blade Runner Strategy is suitable across all the markets, all timeframes and all currency pairs. The strategy tries to utilise the breakouts from the continuation thus trading the reset.
Policy Assumption
In developing this forecasting, I based the forecast on the policy of the firm that seeks to hold the foreign currencies and sell them to the end of the period. However, the forecast further assumes that if an opportunity arises in the course of the period, I am authorise to sell on margin if holding the foreign currency will lead to a lower gain than trading on margin.
Forecasting the Exchange Rates
Three methods are used in forecasting the exchange rates.
Auto regression Technique (it has the ability to regress a variable on itself thus giving the recurrence)
Seven point moving average (selected to ensure that the data considerers weekly data)
Conservative approach (based on the immediate previous value and summed up with the changes corresponding to the specified period in the previous period)
Forecast Combination
As expected, the three methods will apply different procedures thus having different results. As such, in streamlining the values of the three methods, the harmonic mean is preferred (Kerman, 2001). As such, the applicable streamlined exchange rates for the forecast are presented in the graph below.
Exchange rate Vs Trend
Initial Observation
There is an interesting phenomenon observed on the 9th day of the following year. On this day, the Australian dollar randomly gains against all the currencies. However, after, there is also steep slope with which the currency loses against all the three currencies. It is also observable that the Australian dollar consistently gains against the Euro while it consistently loses against the other two currencies, Great Britain Pound and Euro, especially after the 127 day mark. Therefore, the preliminary trend shows that the best currency to trade is the euro. From the observable trend, the currency has a favourable trend. Also, it is the only currency that beat the end of year expectation of the last day value that is expected to be at 0.72. Also, conducting a standard deviation on all the rates, EUR/USD shows the least standard deviation. As such, it implies it has the least risk exposure among the three currencies as specified by the modern portfolio theorists.
Currency Pair Selection
Technical Analysis
Moving Average Convergence/Divergence (MACD)
The analysis applies the MACD since it is a momentum that outlines the relationship between two moving average prices. To realise the MACD, the difference between the 26 day and 13 day moving exponential moving average are applied. A plot of 9 day exponential moving average is plotted on the MACD as the trigger. There are three ways in which the technique was applied. First, Cross overs are examined. The aim of this observation was to ensure that that I can observe instances in which the MACD is above the signal line. At these points, when the 12 point exponential moving average is below above the 26 point exponential moving average, I should sell. On the other hand, when the 12 point exponential moving average is below the 26 point exponential moving average, I should buy. Also dramatic rises, the short term EMA is pulling away from longer EMA, is examined to ensure that I observed whether the currency is being overbought and should be an indicator that the pair will return to its normal levels (Cain, 1997:1998). In addition, divergence signal is used to ensure the end of the current trend is expected to be observed soon.
Exchange Rate Smoothing for AUD/USD Pair
Proposed buying and Selling Schedule
References
Archer, M. (2007). Getting started in Forex trading strategies (7th ed.). Hoboken, N.J.: Wiley.
Cain, C. (1997). Blade Runner: Exclusive strategy guide. Indianapolis, IN: Brady Pub.
Cain, C. (1998). Blade Runner. Paris: Simon & Schuster-Macmillan.
Currency Exchange & International Money Transfer - OzForex. (n.d.). Retrieved April 26, 2015, from http://www.ozforex.com.au
Kerman, J. (2001). Retrofitting Blade runner: Issues in Ridley Scott's Blade runner and Philip K. Dick's Do androids dream of electric sheep? Bowling Green, Ohio: Bowling Green State University Popular Press.
McDonell, W. (2008). The FX bootcamp guide to strategic and tactical Forex trading. Hoboken, N.J.: John Wiley.
Promoting the good of the people of the United Kingdom by maintaining monetary and financial stability. (n.d.). Retrieved April 26, 2015, from http://www.bankofengland.co.uk
