64# Currency/Bonds/Dollar Index Strategy

Submit by JanusTrader (Tradestation Strategies)

 

The Currency/Bonds/Dollar Index Strategy (CBI) is based on the positive correlation

between foreign currencies and US Treasury Bonds and the negative correlation

(obviously) between foreign currencies and the US Dollar Index. When the Bond market

is bullish, foreign currencies tend to do well against the US Dollar; when Bonds are

bearish, foreign currencies usually are weak in comparison to the Dollar. When the US

Dollar Index is strong, there’s a broad-based weakness in most of the foreign currencies,

and when the US Dollar Index is weak, there’s strength across the board in most of

the foreign currencies

 

 

We use three exponential moving averages to determine the trend of the currency. Next, we use an exponential moving average of Bonds to confirm (or not to confirm) the trend of the currency. Finally, we use an exponential moving average of the Dollar Index to determine if the currencies in general are strong or weak relative to the US Dollar.

If the moving averages indicate an uptrend, we have a setup to buy. Our buy entry will be at the high of the setup bar plus 50% of the average true range. When the moving averages indicate a downtrend, we have a setup to sell short. Our sell entry will be at the low of the setup bar minus 50% of the average true range. The setup will remain in effect for five bars.

Our signal to exit the position will be a crossover of the two moving averages calculated on

the currency.

 

Long and Short Setups

a) For a long position, check for all of the following:

• the four-bar exponential average to be greater than it was one bar ago

• the 12-bar exponential average to be above the 23-bar exponential average

• the 50-bar exponential average of Bonds to be greater than it was one bar ago

• the 50-bar exponential average of the Dollar Index to be less than it was one bar ago

b) For a short position, check for all of the following:

• the four-bar exponential average to be less than it was one bar ago

• the 12-bar exponential average to be below the 23-bar exponential average

• the 50-bar exponential average of Bonds to be less than it was one bar ago

• the 50-bar exponential average of the Dollar Index to be greater than it was one bar ago

Long and Short Entries

a) Once the trends of the currency and Bonds are up, and the trend of the Dollar Index is down, add 50% of the 10-bar ATR to the high of the setup bar. That’s our buy point: we’ll go long when the market reaches that price. The buy point will remain active for five bars.

b) Once the trends of the currency and Bonds are down, and the trend of the Dollar Index is up, subtract 50% of the 10-bar ATR from the low of the setup bar. That’s our sell point: we’ll go short when the market reaches that price. The sell point will remain active for five bars.

Long and Short Exits

a) We’ll exit a long position on the next open when the 12-bar exponential average crosses below the 23-bar exponential average.

b) We’ll exit a short position on the next open when the 12-bar exponential average crosses above the 23-bar exponential average.

 

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