A day in the life of an algo

Gary Stone, Chief Strategy Officer, Bloomberg Tradebook, gives us a masterclass in handling a trend reversal.

“Back on 7th November, the euro broke its 50-day moving average. When that happens, typically you have a bunch of down days and then you look for a counter-trend rally. FX is an extremely technical market, and the correlation between FX and technical  patterns is extremely high, so I always look at FX very technically.” “When the market breaks through a 50-day moving average, one of the things it has to do is go back and revisit, as though the market is asking, should a trader really have broken through? Once support becomes resistance, a traders wants to know whether that really is resistance; was the market wrong to break it? So, on 7th November there was the break, and then over the next two weeks, there was the counter-trend rally back towards the 50-day moving average, and it got there on 20th November.“Let’s say that you came in on the 20th. You’re looking at the fact that you’re testing the 50-day moving average, what are you going to do? You’ve...continued