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SwissBox daytrading

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SwissBox daytrading is a method of quick trading, to perform a speculation in securities, specifically buying and selling financial instruments within a short timeframe, in terms of minutes or hours closing of the same trading day, such that all positions are closed instantly that the deal or deals of the box reaching the Take-Profit. Take-profit (T/P) orders are limit orders that are closed when a specified profit level is reached. The orders remain open only, if positions are hedged, trying to gain profit at another outbreak on one of the following trading days of the stock market. Commonly day-traded financial instruments with the SwissBox Trading are contracts for difference such as equity index futures. At present the main markets are the DAX Prime Standard of the 30 largest German companies and for the US stock market the Dow Jones Industrial Average.

Forex trading[edit]

The SwissBox can be used by Forex traders. There are six major currencies that are traded with this method: (United States Dollar, Euro, Japanese yen, British pound, Canadian dollar, and Swiss Franc). Typical field of trading such is the British pound/US dollar currency pair rate, known as Cable (foreign exchange) or Euro/US Dollar currency pair. The euro remained the second most actively traded currency in foreign exchange markets. Evidence from the latest triennial survey of global foreign exchange activity conducted by the Bank for International Settlements suggests that the share of the euro in global foreign exchange turnover increased by around 1 percentage point between 2016 – the year when the previous survey was conducted – and 2019.[1]

Based on Martingale[edit]

The strategy is based on knowledge from gambling, more precisely Martingale. A martingale describes a fair stochastic process in statistics. In the stock market, the process is better known as a random walk. Traders go long on a stock and hope for a profit. If the course turns, they short twice as many lots. Until the gains make up for the previous losses. In contrast to a Martingale strategy, in which you always buy more in the event of a loss and thus try to reduce the cost of the purchase price, with the SwissBox strategy a buy order is placed on the top at a previously defined price area and a sell order on the bottom of this area. The speculation is on the breakout from this area. By using CFD (Contract for Difference) products, it is possible to profit financially from both rising and falling exchange rates. The idea of the SwissBox strategy is to deal with breakouts and rapid market movements.

Regulation on Contracts for Differences has been issued by the European Securities and Markets Authority based in Paris from 1 August 2018 regulating a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.[2]

How to trade a breakout[edit]

File:Swissbox Application MetaTrader4.png
Swissbox active in MetaTrader 4

With the SwissBox, a 15-point box and a profit target of 7.5 points in both directions is placed in MetaTrader. If the price breaks through the previously defined area of the range shortly before, during or after the market opening, a pending buy order takes effect. In the opposite case, the pending short order takes effect. If the trade now runs directly to the profit target, the trade is automatically closed. However, the strategy only unfolds its full potential in the case of false breakouts from the zone. The chart leaves the range but does not move towards the profit target. Instead, the course reverses and breaks out on the other side. The breakout in the opposite direction automatically leads to a new, larger trade in the opposite position. If the first position resolves a buy order, a sell position is entered with the second position.[3]

Multiplication process[edit]

Calculation of the multiplier In the user interface called SwissBox, it is possible for every user to determine the position size himself. This is done using an algorithm and entering a risk value, e.g. 0.010% of the account balance. In addition to the position size, the risk and profit target also define the multiplier, which plays an important role in building up the traded positions. In a sideways phase, there can be multiple false breakouts before the trade breaks out and reaches the profit target. Multiplier for the 2nd position = [risk (%) / profit (%)] +2 Multiplier from the 3rd position = [risk (%) / profit (%)] +1

Margin[edit]

Due to the fact that the stock indices are traded with a CFD financial product, the respective broker will block a margin when opening a position. This margin can also be viewed as a security deposit. See topic leverage. Due to the effect that by means of using a multiplier and entering into several positions in the same and different directions, the trading account is stressed to the effect that not an infinite number of trades can be opened. The number of maximum trades is set individually by the user as the trades have to be covered by the existing amount of money in the account.

Box size[edit]

The use of the SwissBox strategy is reserved for short-term impulse trading. In the markets to be traded, care is taken to ensure that the volatility is high enough to allow the trades to run quickly into the profit target. Good results were achieved with the Dax, but other markets such as FTSE 100 Index, Dow Jones, S&P 500 Index, Nasdaq and the major currency pairs are also suitable for use. The so-called box size or line spacing of the area to be defined is in a range that is not too small or too large, as one has to take into account both the spread and the volatility. Accordingly, different markets have different box sizes. As a common rule for the minimum box size, a distance of 15 times the spread is recommended. The markets should have an average daily volatility of about five times the minimum box size.

Statistical advantage[edit]

Basically, the trader cannot make a profit in the long term with the random positioning of breakout areas (boxes). In a fair stochastic process, provided there is unlimited capital, there would be no profit or loss. However, price movements on the stock exchange are not distributed purely at random. This allows areas to be found where major price movements occur. In contrast to classic trading strategies, in which the price direction (rising / falling) is forecast and traded, box trading focuses on the forecasted breakout movement. The direction of the breakout is not relevant due to the multiplication method. In real trading on the stock exchange, there are two additional limiting factors compared to a random experiment. Firstly, the costs of order execution, expressed as the difference between the buy and sell price for order execution (spread) and the actual order fees, and secondly, the capital, which is usually limited. In order to achieve a positive expected value with box trading, the statistical advantage for a breakout must outweigh the costs of trading and the breakout must take place within the maximum possible multiplication (limitation of the available capital). Breakout movements are likely, for example, for the market opening, around market-relevant news as well as at special price marks.

Financial software[edit]

The SwissBox is a financial software available for day trading to the members of Tradersclub24. It can be used with three different brokers on basis of MetaTrader 4 running on any Microsoft Windows-based Computer with basic configuration.

References[edit]

  1. "The international role of the euro June 2020". European Central Bank. European Central Bank. Retrieved September 26, 2020.
  2. "WARNINGS AND PUBLICATIONS FOR INVESTORS". ESMA. European Securities and Markets Authority. Retrieved September 26, 2020.
  3. "Volatility trading with the SwissBox strategy". FX TRADER MAGAZINE October December 2018. Retrieved December 9, 2020.



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