Z4 and Z5 - newest info

Z4 and Z5 users have certainly noticed that the systems made almost no trades in the last time. We're seeing here what happens when large trade institutions exploit an inefficiency:



Algorithmic traders started exploiting the CHF around January 2013. It was a very obvious and easy to use ineffectivity, so more and more jumped onto the bandwagon, by mid-2013 also banks and trading firms with very high trade volumes. Consequently we can see how the native CHF volatility went down step by step over the next year. This made it harder and harder to squeeze profit out of it. In such a situation, volatility peaks are only caused by external events, such as the last one in January 2014. Due to the low volatility the system now requires different algorithms. Mere grid trading won't do anymore. The next Zorro update will contain modified Z4/Z5 systems that still generate profit even with extremely low volatility.

Thanks for the update, jcl.

Those of us with trades open from January should not close them manually for loss, but rather keep them open, correct?

Thanks.

Yes.

Thanks.

What TimePeriod did you use for the volatility? Might be a nice little example script to include too...

Don't know that this is relevant any longer since Z4/5 are going to change, but I've noticed that Z5 always goes Short 1 Lot but Long >1 Lot. I assume the difference is due to Optimal F weighting? But if so, does it make sense? In Grid trading where the expectation is that things will oscillate within a range, shouldn't the Short/Long lot sizes be the same?

Thanks.

Most systems, including Z5, have a slight short/long asymmetry due to the rollover asymmetry. Volatility can be plotted with a command like this:

plot("Volatility",LowPass(series((HH(5) - LL(5))),100),NEW+BARS,BLACK);

Thanks jcl. Not sure how the asymmetries are correlated - the Rolls vs. Lots in TS aren't making the relationship too obvious. Guess I'll have to wait for the secrets to be revealed in your forthcoming "Joy of Trading" by "Z" book.

Thanks.

In the case of EUR/CHF, the short rollover swap is normally negative and the long positive - and this has a noticable influence on the result.

My book would be rather named "The black book of financial hacking" .

Thanks jcl. Yes, I saw that directional relationship, just not the magnitude correlation. Will keep looking.

Thanks.

I'd buy that.

My Z5 traded last July 30 at 1.21734. Meanwhile EUR/CHF is 1.206.. I have 25 pending trades with entries beyond the market. Is this really normal? Should I restart the strategy to get off the pending trades? Maybe then Z5 can calculate new entries closer to the acutal prices?

Thanks, Sphin

Yes, this is normal. The pending trades are not hit as long as the asset price doesn't move upwards. We have the same effect with our versions.

The next Zorro update will come with improved Z4/Z5 systems that also trade in low-volatility periods. You need not restart until then.