Transcription
Forex Analysis and Money ManagementInteractive Qualifying ProjectSubmitted to the Facultyof theWORCESTER POLYTECHNIC INSTITUTEin partial fulfillment of the requirements for theDegree of Bachelor of ScienceSubmitted by:Kimberly MaciejczykXianjing HuAdvisor:Professor Hossein HakimMarch 8, 2012
AbstractIn this paper we cover the technical and fundamental aspects of Forex analysis and thedevelopment of our own money management and risk assessment system. We also show theinner aspects of a money management company including the legal structure, licenses needed,performance measurement and marketing aspects. Finally, we explored possibilities of autotrading and provided documentation for an indicator and an expert adviser developed in MQL4.ii
Table of ContentsAbstract. iiTable of Figures . vii1. Introduction . 11.1 Introduction . 11.2 Project Description. 32. Background . 52.1 Different Markets . 52.2 History of the Forex Market . 82.3 Understanding the Forex Market . 93. Methodology . 113.1 Background Research . 113.2 Fundamental Analysis . 113.3 Technical Analysis . 113.4 Practical Trading in MT4 . 123.5 Learning and Writing MQL4 Indicators and Robots . 123.6 Money / Risk Management . 123.7 Researching the Launch of a Money Management Company . 134. Project Execution . 144.1 Learning to Trade . 144.1.1 Fundamental Analysis . 144.1.1.1 The Gartman Letter . 154.1.1.2 Important Websites . 154.1.1.3 Interest Rates . 164.1.1.5 GDP . 184.1.1.6 Unemployment . 194.1.1.7 Inflation . 204.1.2 Technical Indicators . 214.1.2.1 Forex Support and Resistance Indicators. 224.1.2.1.1 Fibonacci Indicator . 224.1.2.1.2 Forex Pivot Point . 24iii
4.1.2.1.3 Bollinger Bands Indicator. 254.1.2.2 Three Popular Indicators . 274.1.2.2.1 200 Day Exponential Moving Average . 274.1.2.2.2 Stochastic Oscillator . 294.1.2.2.3 MACD. 314.1.3 Lessons Learned . 344.1.4 Psychology of Trading . 354.2 Implementing our Trading Plan . 364.2.1 Selecting a Platform . 364.2.2 Trading Resources . 374.2.3 Risk Management . 384.3 Trading Summary and Results . 394.3.1 Kimberly‘s Trading Summary and Results . 394.3.2 Xianjing‘s Trading Summary and Results . 394.4 Money / Risk Management . 404.4.1 Account Information: . 404.4.2 Trading Information: . 404.4.3 Trading Time Frame: . 414.4.4 Risk Management . 414.5 Launching a Money Management Company. 424.5.1 Legal Structure . 424.5.2 Off-Shore or On-Shore Accounts . 454.5.2.1 Advantages for Investment Off-Shore . 454.5.2.2 Disadvantages of Off-Shore Investment . 464.5.3 Money Management . 474.5.3.1 General money management options . 474.5.3.2 Money and Risk Management of our Forex Money Management Company . 484.5.4 Licensing. 504.5.4.1 FSB Licensing - Forex Broker License . 504.5.4.4 Series 3 License . 504.5.4.5 Series 65 License . 514.5.4.4 Series 34 License . 51iv
4.5.5 Regulations and Organizations . 514.5.5.1 Commodities Futures Trading Commission – CFTC . 514.5.5.2 National Futures Association – NFA . 524.5.5.3 FAIS Act . 544.5.5.4 FIA Act . 554.5.6 Performance Measurement . 554.5.6.1 Alpha. 564.5.6.2 Beta . 564.5.6.3 R-Squared . 574.5.6.4 Standard Deviation . 574.5.6.5 Sharpe Ratio . 574.5.7 Marketing . 584.5.7.1 Build a Website . 584.5.7.2 Forex Advertising Agency . 594.5.7.3 Reputation and Reviews: Serve the Current Customer Well! . 595. Programming Project . 605.1 The Automation of the Silver Trend Indicator . 605.1.1 Initial Idea . 605.1.2 Implementation and Back Testing . 615.1.3 First Improvement: Adding Trend Condition . 635.1.4 Second Improvement: Adding RSI Condition . 645.1.5 Third Improvement: Stop Trading When Losing Consecutively . 645.1.5.1 Motivation . 645.1.5.2 Hand-Analysis of the Algorithm . 655.1.5.3 Implementation of the Algorithm . 665.1.6 Final Improvement . 665.1.7 Analysis of Silver Trend Indicator Code . 675.2 Spread Indicator . 705.2.1 How to Use It . 705.2.2 Code Analysis and Explanation . 726. Conclusions and Recommendations . 736.1 Conclusions . 73v
6.2 Recommendations for Professor Hakim .
the plan could become more and more comprehensive and less prone to large risks. We followed our plan while we were trading to test its validity, and made improvements when necessary. The final plan includes the details of account information, trading information, trading time frame, risk management, and rules to follow. The important principles that we have always been following include .
