Services Guide A S S E T M A N A G E M E N T P R O J E C T. Version 2.3 English

Transcription

1 Services Guide A S S E T M A N A G E M E N T P R O J E C T Version 2.3 English

2 I Copyright 2012 Faunus Analytics LLC. All rights reserved. This document is the property of Faunus Analytics. Any copying, reproduction and publishing of this document in any form (including for commercial profit), in whole or in part, without written permission of the copyright holder is forbidden. If you have any questions, concerning this document and the information it contains, please contact us by or by phone: (Moscow) or (Prague).

3 II Contents 1. MARKETS INDICATORS About the service Delivery time Instruments Presentation of information Trading signals About the service Delivery time Instruments Presentation of information Recalculation of the contract size Risk management... 13

4 III 1. MARKETS At present analytics is available for the FOREX market, precious metals markets, indices of the Russian stock exchanges MICEX and RTS, indices of the world s largest exchanges and rating agencies, Exchange traded funds. Project development plans include extending of the range of supported markets and investment instruments. 2. INDICATORS 2.1 About the service The service «Indicators» - is the forecast of a tendency (sign) of quotation change for a given trading instrument during a set period of time (forecasting period). Indicator gives a trader such important information as: Most probable direction of quotation change Forecast period Level of forecast confidence Indicators forecast increase or decrease in quotations. But this does not mean that almost strongly linear variation in quotations is expected for the forecast period. Pictures 1-4 show examples of forecast and the actual history of quotations change. These examples show how important it is to specify correct stop-levels when opening an order based on forecasts. It is also useful to analyze new economic news, which was not available at the time of order opening. Optimal stoplevel TP Optimal stoplevel TP Fact Forecast Fact Forecast Picture 1 Increase in quotations was forecasted. The expected increase actually happened only at the end of the forecast period. Picture 2 - Increase in quotations was forecasted. Fast increase happened in the beginning of the forecast period, and then there was actually decrease in quotations to the level, which was even lower that the initial one. In this case you can get profit with the help of correctly specified take profit.

5 IV Optimal stoplevel TP Fact Forecast Optimal stoplevel SL Fact Forecast Picture 3 Decrease in quotations was forecasted. The expected Fast decrease happed in the middle of the forecast period, and then values of quotations abruptly increased and even exceeded the initial value. In this case you can get profit with the help of correctly specified take profit. Picture 4 - Decrease in quotations was forecasted. But the forecast did not work, quotations began to decrease. In this case correctly specified stop loss will help to reduce losses. For the moment the system provides indicators with the 24-hour forecast period 1. Our numerous researches show that the most accurate prediction for the system s supported markets is with the 24-hour forecast period. Any forecast has a probabilistic nature and can be different from the actual change in quotations. Level of reliability reflects the probability that the forecast will be the same as the fact. The current version has a 10-level scale of forecast reliability, which can be shown as a diagram (picture 5) or as a number. The higher the reliability level, the higher is the probability that the forecast will work. A switch from direct showing of the probability to discreet probability levels is caused by an intention to make perception of information easier for a user. 1 The forecast period does not include the time of the market inactivity, but it is brought forward to the next market activity period. For example, if a 24-hour forecast for FOREX was made at 11 PM on Friday (according to UTC) then the end of the forecast period will be 11 PM on Monday next week. If a 24-hour forecast for FOREX was made at 8 PM on Friday (according to UTC), then the end of the forecast period will be 8 PM on Monday (according to UTC) next week. This means that the market inactivity period is just omitted and it s time is not included into the 24- hour forecast period.

6 V Here are variants of indicator use, which we recommend: Reduction of information for analysis. It is difficult for a trader to analyze tens of trading instruments of different markets in real time. Instead one can pay attention only to those trading instruments, for which at present there are indicators with sufficient reliability level. In such a manner intelligent filtration of a stream of market information is performed. Improvement of personal trading strategy. Joint use of standard indicators, unique trader s solutions and the information from Faunus will help to significantly increase any trading strategy. Trading. Indicators give forecasts of changes in quotations, on account of which one can make decisions during opening, changing or closing of orders. Please, note that indicators, which are generated by the system, are not definite instructions for doing trading operations. In order to get the full set of trading operations parameters, you should use the service trading signals. 2.2 Delivery time Indicators can be created at any time of the day. In order to let you know for sure when an indicator was created, there is always given the real time of its creation 2. This information will be useful when an indicator was delivered to a user with delay due to technical problems (for example, due to connection failures). For indicators, provided by the system, delay of up to 1 hour is not critical. But if delivery was delayed for more than 1 hour it is advised to refrain from usage of such information. 2.3 Instruments Indicators can be formed for different trading instruments. Faunus actively uses the possibility of speculative trading with a large number of trading instruments of different markets. Thereat, the system carefully chooses, for which trading instrument it shall make an indicator. Filtration allows giving to a trader only the information, which is really important. 2 The time is always given for the time zone, in which a trader is at the moment, and which he specified in his profile during registration. The system automatically takes into account daylight saving time. Additional information on profile setting can be found in the document Faunus Asset Management Subscription Guide.

7 VI 2.4 Presentation of information Indicators are presented in a table (picture 5). Column names and time format depend on the language you specified in your profile settings 3. Below is an example of a table with indicators on 4 currency pairs for 5 PM of your local time. The same table can be seen in messages, sent by the system. Picture 5 Example of the indicators table, which can be seen in an message or at the web-page. The message header contains the system logo and some general information, which tells: Type of the analytics Forecast horizon is 24 from the moment an indicator was created Description of table s columns: SYMBOL (INSTRUMENT) trading instrument TIME the time of indicator creation. There is always shown the local time of a country and a time zone, which you selected in your profile. The time zone itself, for example «Europe\Moscow», is displayed in the lower footer of the message, which is useful, if you physically change your location, but do not forget to change settings of your profile. FORECAST Forecasted tendency of quotations change. RELIABILITY The level of forecast reliability. The more pints in the picture are colored, the higher the reliability. In case of indicators use, the choice of sufficient reliability level and stop-levels is up to a trader. If this task is too difficult for you, you can use the service trading signals. 3 See Faunus Asset Management Subscription Guide

8 VII In some cases a user may wish to receive indicators as simple text messages. Limitations of text format do not allow showing some graphical elements of the standard indicators table (picture 5). But all informative elements are preserved (picture 6). Reliability of the forecast is displayed as (n/10), where n is the numeric value of reliability level, 10 reminder of a 10-level scale of reliability. Picture 6 Example of indicators table in case of a simple text message. We would like to remind you that trading on the financial market has not only possibilities, but also specific risks. We advise you to carefully read the «Risk disclosure» before you start using our services.

9 VIII 3. Trading signals 3.1 About the service The service «Trading signals» - represents definite recommendations for execution of speculative operations on the market. You can correct values of trading signals parameters, for example due to new economic news, but in this case statistics of your trade can be different from reports of the system s analytical module. There are several types of speculative operations: 1. Order opening (entry to the market ) 2. Changing of open order parameters 3. Closing of an order due to one of the tree reasons: a. No perspectives are seen for further profit markup or reduction of losses on the order b. Profit of sufficient level was received (take profit or abbreviated t/p) c. Losses on the order reached the maximum allowable level (stop loss or abbreviated s/l) A trading operation is determined by a set of the following parameters: 1. Name of the instrument, for which the operation is executed 2. Date and time of the operation 3. Order type 4. Event type a. Buy (long position) b. Sell (short position) a. Order opening b. Changing of an open order c. Order closing 5. Stop-level values: a. S/L level of quotation, at which there will be the maximum allowable loss value, after which the order will be automatically closed (stop loss) b. T/P level of quotation, at which there will be sufficient profit value, after which the order will be automatically closed (take profit) 6. Contract size in standard lots or those specified by user in settings. 7. Maximum time for keeping an order open.

10 At present the system provides trading signals for orders with the 24-hour period of keeping them open 4. If the time of order existence from the moment of its opening or last changing reaches 24 hours, then such order must be either closed, or expressly changed and prolonged for 24 hours. The period of 24 hours is connected with the corresponding forecast period, which is used during creation of an indicator. In order to always receive an indicator for closing of an order, it is required to tick the option «Inform about position closing» when changing delivery settings (see. Faunus Asset Management Subscription Guide). On default this option is selected. IX 3.2 Delivery time Trading signals can be formed at any time of the day. In order for you to always know, when a trading signal was formed, the message always contains its real creation time (local). This information will be useful in a situation, when a trading signal was delivered with delay due to technical problems (for example, due to connection problems). For trading signals, provided by the system, delay of less than 1 hour in most cases is not critical. However, if delivery of a trading signal about opening or changing of an order was delayed for more than one hour, it is better to refrain from usage of received information and not to open an order. 3.3 Instruments Trading signals can be formed for different trading instruments. Faunus actively uses the possibility of speculative trading on a large number of trading instruments of different markets. Thereat, the system carefully chooses, for which trading instrument it shall form a trading signal at the given time, and if it shall enter the market today at all. You can open more than one order for one trading instrument a day. The system is organized in such a way that this will not lead to increase of a risk of significant losses, but will increase potential profit. 4 The period for keeping an order open does not include the time of the market inactivity, but is brought forward to the next period of the market activity. For example, if an order with the 24- hour keeping period for FOREX was open at 8 PM on Friday (according to UTC) then an order must be closed not later than 8 PM on Monday next week, or prolonged by an additional operation. That means that the market inactivity period is omitted and it s time is not included into the 24-hour period of keeping an order open.

11 X 3.4 Presentation of information Trading signals are presented as a table (picture 7). Column names and time format depend on the language you specified in your profile settings. Below is the example of a table with trading signals for 3 currency pairs with delivery time of 5 PM according to your local time. Picture 7 Example of a table with trading signals, which can be seen in an message or at the web-page. Description of table columns: SYMBOL trading instrument TIME the time of indicator creation. There is always shown the local time of a country and a time zone, which you selected in your profile. The time zone itself, for example «Europe\London», is displayed in the lower footer of the message, which is useful, if you physically change your location, but do not forget to change settings of your profile. ORDER unique number of an order ORDER TYPE: o BUY Buy order «long position». It is characterized by initial buying of an instrument with its further selling. o SELL Sell order «short position». It is characterized by initial selling of an instrument with its further buying. ORDER STATUS OPEN MODIFY The order is open. This is the initial state of any order. The order is changed. Only stop-levels can be subject to changing. Changing additionally leads to prolongation of the order existence in the open state for 24 more hours

12 XI TAKE PROFIT STOP LOSS CLOSE The order is closed due to reaching of sufficient profit level (take profit) The order is closed due to reaching of the level of maximum allowable loss (stop loss). The order is closed by the system due to changing of forecasts or reaching of the maximum time of order existence in the open state. STOP LOSS Quotation level, at which maximum allowable loss is reached. Upon reaching of this level, the order must be automatically closed. TAKE PROFIT Quotation level, at which the sufficient profit level is reached. Upon reaching of this level, the order must be automatically closed. VOLUME Size of a contact in standard lots or those specified by a user in settings. Please note, that the contract size is determined on the assumption that the value of the trading account balance is equal to the value given in commentaries to the table of trading signals. You need to correct the contract size taking into account the real value of your trading account balance 5. All quotations for trading signals are always given in Bid prices. 3.5 Recalculation of the contract size Let us suppose that commentaries to the table of trading signals contain the balance system BALANCE $. Most probably, the balance of your trading account is different from BALANCE system. Let us suppose, that the actual balance of your trading account is your BALANCE $. The trading signal contains the contract size find the contract sizevolume formula: your VOLUME system. Then, to, corrected for your trading account, use this simple BALANCE BALANCE your your VOLUME * system VOLUME system The result should be rounded to the digit, which is supported by your broker. Let s consider the example for calculation. Let s suppose that there was received a message with one trading signal (picture 8). 5 You can avoid the necessity to correct the contract size by specifying in your personal profile the approximate balance of your trading account and other personal trading conditions (see Faunus Asset Management Subscription Guide).

13 XII Picture 8 the example of a message with one trading signal, which can be seen in the The trading signal tells that it is required to open an order No for sell of the pair USD/DKK on January 4, 2010 approximately in the beginning of 12 PM (according to trader s time zone). Stop-levels SL=5.2492, TP= (quotations are always given in bid). Volume = 5.17 of standard lots. However, pay attention that to open orders with such volume safely, your trading account balance should not be lower than $ (see picture 8 commentaries to the trading signal). If the real balance of your trading account is 1000 $, then you will have to recalculate the order volume. Given: system Trading account balance according to the system s version BALANCE = $ your Balance of your trading account BALANCE = 1000 $ system Order volume VOLUME = 5.17 standard lots Then the recalculated order volume, considering your trading account balance your 1000 $ VOLUME * standard lots $ If you are a supporter of high-risk trading, then you can increase the contract size, which is found according to the above formula. But do not forget, that growth of potential profit also means growth of risks in the form of possible significant drawdown of your trading account balance with all the consequences that come with it. We advise you to carefully read «Risk disclosure» before you start using our services. Please note, that the section does not contain the information on the current balance of your trading account. This is due to the fact that not only the current balance can be used in calculations, but also balance for the beginning of a quarter, year and so on. We recommend you to read additional literature concerning financial management in speculative trading (money management). You can avoid the necessity to correct the contract size by specifying in your personal profile the approximate balance of your trading account and other personal trading conditions (see Faunus Asset Management Subscription Guide).

14 XIII 4. Risk management An essential part of any trading strategy is risk management. The term "Risk" is understood as all undesired events, which can cause loss of capital. For example, considerable losses from one trade, a random series of red ink trades, decrease of the trading strategy efficiency, etc. Any trade is always risk bearing, and so, success cannot be guaranteed. But risk management allows to set parameters of a trading strategy in such a way as to get the best ratio of returns to the trading strategy risk. At present there are implemented 2 risk management strategies in the system. Their purpose is to satisfy requirements of different types of investors. Conservative strategy In the mode of conservative strategy there are used all mechanisms of risk management, which are implemented in the system. This provides the best ratio of expected return to the risk. All reports at the website of the system are given for the conservative strategy only. See details in the document Faunus Asset Management Reporting Guide. Enhanced risk control may cause prolonged absence of trade signals for trade instruments you are interested in. This may happen due to temporary disturbance of some market regularities, which are used by the system. The period of suspension of trading at a certain market sector can last for a week, a month or even a year. Aggressive strategy If you are sure that you can independently filter trade signals, using an alternative risk management system, then you can switch to the aggressive strategy mode. In the aggressive strategy mode many risk limitation functions are disabled, which fact usually causes increase of volume of trade signals and indicators. The aggressive strategy is recommended for experienced traders. Please, turn your attention to the risk disclosure before you start using the strategy.