Capricorn FX-DM Systematic
The Capricorn FX-DM Systematic strategy is a fully automated trading system using algorithmic calculations to identify short to medium term momentum shifts in the currency markets. By using this systematic analysis the strategy seeks to capture the initial development of a short-term trend.
The strategy aims to generate a profit by accurately predicting a directional view or momentum breakout on each G-10 currency crosses traded within the pre-determined model portfolio. A multi-strategy approach is used to identify these trading opportunities that include trends and reversal signals. Strategy execution and risk controls are monitored and governed by the Capricorn team according to the client investment goals, by controlling leverage and exposure.
The Investment Process
The trade generation ideas originate from creating trading views that capitalize on the strategy identifying short-term trends. By first analysing the market environment the strategy determines the presence or either a trending or market reversal environment, in order to generate trading signals to take advantage of short term movements.The strength behind the trading signals is dependent upon certain volatility factors.
Idea Generation Process:
- Maximum of 8 positions, 1 from each FX pair
- All positions are equally sized across currency pairs
- Stoploss and take profit levels set automatically
- Risk/Reward profile is dynamic, based on volatility
- Strategies are re-evaluated on hourly observations
- Pre-determined equity drawdown limits governs risk
Pre-determined trading parameters are used to develop individual strategies for each currency pair within the portfolio. The initial stoploss and take profit levels that are analysed by a rules-based technical approach using volatility indicators, are fixed by the methodology as part of the strategy risk controls. In addition, trading risk cannot be adjusted higher meaning that only trailing stops can be moved further away from the entry level. However discretionary judgement is used if a change in the market environment warrants the case for it.
Each trading signal that is generated from the underlying strategy is then mirrored to the Capricorn FX-DM Systematic portfolio, and are executed under client instructions. All signals are monitored by the investment team should the target or stoploss of the strategy be revised due to a shift in its risk/rewards profile. Clients and their brokerage execution relationships are immediately notified of these modification to adjust the portfolio accordingly.
Benefits from Systematic Trading Approaches
Systematic trading strategies commonly use algorithms which are essentially a set of specific rules designed to complete a clearly defined task. This is whereby technology is utilised to analyse specific trading opportunities by creating predictive models based upon pre-determined indicators. These systematic formulations can be programmed to follow different trading strategies to suit the users’ risk appetite.
- Trades are executed at the best possible prices depending upon liquidity
- Strategies can be timed instantly to avoid significant price changes
- Reduced risk of manual errors in placing the trades
- Backtesting possibilities based on historical and real time data
- Human errors based on emotional or psychological factors are reduced
The trading algorithms used to calculate and predict market opportunities come in many forms from being a simple analytical indicator, to a complex investment strategy used to generate multiple trading ideas. However, the benefits from their use is clear with trading never being easier to execute and an increasingly lowering of trading costs at the expense of human input.
Capricorn FX-DM Systematic
Updated on 2017-02-20T16:11:58+00:00, by .