Beyond the Big Mac — June, 2017

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It’s finally here!

The wait is over! At long last, the research report that describes my best trading edge is now available.

The best?  Really?  How do you measure that?

I’ve tested many indicators over the years in order to determine how correlated they are to future price action. In just about every case, the correlation (if there is one at all) is fairly weak; in single digit territory.

Just a review for you non-statisticians out there. Correlation is a number that measures how closely the change in one variable tracks the change in another. A correlation of 0% would indicate a random relationship between the two values. A positive correlation indicates that the two variables tend to move in the same direction, while a negative correlation means that they move in opposite directions. So correlation can range from -100% to +100%. A +100% correlation means that when one variable changes by a certain percentage, the other will track it exactly; changing by the same percentage. A correlation of -100% means that when one variable rises, the other falls by the same percentage and vice versa.

A picture is worth a thousand pips….

The opening chapter of this report includes the illustration below:

This was a test of an indicator I call the Buying Power Reversal Potential (BPRP) applied to the EUR/CAD pair. Each point represents the value of the BPRP (shown on the horizontal axis) and the subsequent change in price of the pair six weeks later (shown on the vertical axis). Notice that in the vast majority of cases, when the indicator was positive, the price went up over the next few weeks and vice versa.

Whoa!  Is it the Holy Grail??

Of course not. It’s not perfect; there were a few cases where it didn’t work, as you can see from the plot.  Also, I cherry-picked the best test for illustration purposes (yeah, who else would tell you that on their sales page, right?). The average correlations across all pairs aren’t this strong, but they’re still extremely high (in the 30% to 50% range) compared to anything else I’ve seen over the years.

OK, so what’s this BPRP indicator?  And…Big Mac??  

Right. I’ll explain.

Unlike the indicators described in my previous two reports, this trading edge is based on fundamental analysis, not technical analysis. It’s also geared toward longer term trades, but can be used by short term traders as a filter as well.

The edge is based on a variation of a fundamental analysis concept in the Forex markets called Purchasing Power Parity (PPP). This approach tries to identify undervalued and overvalued currencies by comparing how much of a basket of real world goods each could buy. To illustrate this idea in the 1980’s, The Economist magazine came up with a fun idea called the Big Mac Index, which just used the price of a Big Mac in various countries to analyze PPP.

The BPRP indicator I developed uses a more comprehensive basket of commodities and a more dynamic extension of the PPP concept. It looks at how the real world buying power of each currency is changing over time in order to identify which are currently over-extended.

This 21-page report includes:

  • the conceptual model behind the edge
  • the calculations for computing the BPRP indicator
  • the results of all the research I did during its development
  • details on trading the edge along with my own results

 

As with all my research reports here at capitalisttrader.com, there’s a full, no questions asked, money back guarantee. When you buy the report, just copy and save your PayPal receipt. For a refund, just contact me at capitalist@capitalisttrader.com and include the receipt. I’ll send your $8 right back via PayPal. The report is yours to keep.

Who am I?

I’m Scott Percival, otherwise know as The Capitalist Trader. I have been:

  • a civil engineer,
  • a software developer
  • a trader and instructor at Fidelity Investments
  • a self-employed trader
  • A freelance writer on the energy industry for The Motley Fool
  • a soldier
  • and a few other things, even a truck driver!

As you can probably tell from my background, I’m very math/logic oriented, so I started this blog to discuss three of the most fun things in the world; markets, money, and math!

Why sell the edge? Why not just trade it?

That’s a perfectly legitimate question, and I’ve asked it of others myself. Whenever I saw anyone selling trading lessons or whatever, I would wonder, “Well, if this method makes you money, why do you need my money?”

Then I found out that it’s useless to be profitable when you’re greatly under-capitalized.

In 2003, after a big layoff at Fidelity Investments, I spent several months trading bulletin board stocks. Each month, my account was earning a little under 10%, but I was withdrawing over 20% for living expenses. Obviously, that’s not sustainable.

More than a decade later, I find myself in a similar boat. My account is currently profitable, but I’m withdrawing more than the account earns in order to supplement my income.  So I decided to generate extra income from all the research I do. After all, the best way to earn money is doing something for which you have a passion, right?

OK, makes sense. So what now?

Get the report and read it, of course! Click on one of these boring blue “Purchase” buttons, and buy with the ease and security of PayPal.

 

Then, judge for yourself. If you think the report is bunk, send me your PayPal receipt and I’ll send your $8.00 right back. And of course you can still keep the report!

So why wait? Look, I’ll even add another boring blue button below. Have fun, happy reading, happy trading, and as I always say…keep pipping up!

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