Hello Alexander. You are widely known among traders as an expert in financial markets. Tell us, please, when and how you came to these markets.
If you mean how I got to the idea of working on financial markets, then it was done by necessity. In 1991, the old, Soviet, banking system started to deteriorate and difficulties occurred with payments between Russian and Ukrainian legal entities. Having addressed these problems for my companies, I gradually started to solve them for many other firms and created a kind of clearing company that helped to perform mutual payments between Russia and Ukraine.

During years 1995 and 1996, these functions gradually started to be performed by banks, so I could not compete with them. In 1996, I met “up against” of Forex in a large bank’s dealing room for the first time. I liked the idea itself, but having considered all risks and all trading conditions of that time, I decided to postpone these activities to better days. It was approximately the same time when I started to know about stock market. The same situation: I did not like the trading conditions and the general “view” of our stock market at that time, so I refused to go in for it, as well.

The “better days” came after year 2000, when the first online trading platforms started to be offered. I studied them, but I was not hasty to start trading since I did not solve the problem of a leased line and I could not imagine how to trade without permanent and reliable internet connection. In 2002, I solved the problem of permanent internet connection and started trading through a Dealing Center in the bank of an acquaintance of mine in September of that year. This is, in general, how I got into trading.

Let us go to your popular strategy named Silver-channel. What is its principle of operation? How was it realized technically?
To get into details of rather simple principles on which this strategy works, it is necessary to go back to the sources of its creation. I traded using indicator of Ishimoku in 2003. However, I faced the problem of markets going from flat state to trends and back.

I added price range channeling to indicator Ishimoku and, in such a way, obtained a system to trade with on both flat market and trend market. A general description of the system and of how to trade using it is given within the framework of my training course “Trade with Silver-channel” – the first eight articles of that course are in free access.

Technically speaking, the strategy is not formalized. Some principles of it were realized in some Expert Advisors, but this was not so much done for trading as for collection of statistical data on history

The strategy is not super-profitable, nor very successful. It gives rather modest profit percentage on historical data, but has a small and stable (for almost all currency pairs) positive mathematical expectation. This is why I use it for purposes of teaching how to trade with the strategy.

Are there among your students any who tried to realize it technically?
Well, as a matter of fact, that was them who realized the Expert Advisors. However, as I said, the main task of those Expert Advisors was to collect statistical data and check parameters for different timeframes. There are too many conditions in it to make it fully automated and there are some decisions to be made by trader only.

Generally speaking, we did not make it our mission to create an Expert Advisor that would trade automatically on the basis of the strategy.

Is the strategy modified with the time?
No changes within the last year. I just use Silver-channel in my real trading as one of its elements basing myself on different kinds of analysis including analysis of currency indexes and that of market psychology.

Can you give more details about those elements?
I construct mean geometric currency indexes for 8 currencies – USD, EUR, JPY, GBP, CHF, CAD, AUD, and NZD. So I obtain histories similar to currency histories. I superpose the same indicators of Silver-channel onto the obtained charts and analyze index movements in order to see how currencies interrelate and what movements take place not in a specific currency pair, but on the market as a whole.

As to analysis of the psychological component, this is the most complex and time-consuming thing, since one has to read all news, know everything written on forums about price movements. I usually pay the greatest attention to emotions: How do people accept market movements and what expectations do they have in this concern?

Tell us, please, about the BonnyTrust project and your participation in it. What is planned for this project in future?
The project was created in April-Mai 2005 to support PAMM account with FXCM and attract investments to it. It was founded by Roman Markov and me. Roman was, in fact, the second investor I had worked with on Forex in years 2003 through 2005. During creation BonnyTrust, we had already planned not to be limited to only PAMM account with FXCM. We planned to expand our activities gradually towards offshore fund working on exchange markets.

Starting from autumn 2005, we test some traders in the project in order to enlarge it. Starting from January 2007, at some investors’ request, we opened the second account, with Alpari, in order to reduce expenditures on transferring funds to the USA and back. And since April 2007, the second trader has been participating in the project – Irina (Tornado).

Our plans are gradually put into practice: the project develops and expands slowly and surely. The mission of our fund is to achieve sufficient stability in trading and maintain the fund as transparent for its investors as possible. We don’t push on with enlargement and increasing the amounts of money to be managed. In our opinion, this will happen by itself when the fund is organizationally and psychologically ready to manage larger amounts of money.

According to your account statistics, you had negative results at the end of the second quarter and great results within 2 months of the current quarter. Tell us, please, about the profitability/loss levels underlying your strategy.
In this case, a rather unique situation related to some problems on exchange markets takes place. The Carry Trade strategy became too popular during the last year, so it starts being clear that such a situation will result in “discharge” of the market for these positions. Besides, I found out that the market volatility at trading in the direction of Carry Trade was low and tended to decrease, whereas it increased sharply at slumps. This is why I think that trading risk in the second quarter was rather limited, whereas the trade results had to exceed this risk several times, by my reckoning. And it was so.

Basically, I try to keep the rule of setting risk as two times lower than the expected profit. Statistically, this ratio (profit/loss) is usually located within the range of 1.5-2.0.

Various trading strategies were represented in our previous Championship. In this connection, would authors of some of those strategies be able to participate in your project, BonnyTrust?
According to the terms of testing, the strategy must be tested on a real account, the size of the deposit being of great importance, too. Tornado had been tested from September, 2005, to March, 2007, i.e., for over one and a half years, before the decision about her participation in the project was made.

At present, among traders under test there are some who use automated trading systems. For example, Rann. Generally speaking, for traders it is not so important who and how trades: the trader himself or herself presses buttons or an Expert Advisor does it for him or her. The main thing is stability of the result on a time period sufficient for analyzing.

We would like to know what you think of automated trading in general and, particularly, about the Automated Trading Championship 2007.
Yes, I watched the Championship rating at the very beginning. Unfortunately, later I did not have time enough to observe the results in more details. I read comments and discussions at Alpari forums, though. My opinion about automated trading is as follows: It is possible, though one should not expect to have much profit from a robot. However, the advantage is that the factor of psychology is completely excluded, and a system gives its percentage with a sufficient probability.

There is a well-developed market of model funds in the world. These funds are, in fact, maintained by automated trading systems. It is clear that the other party tries to understand the essence of these systems by responses and gain profits trading against them. However, until an automated system influences the market, you can use it in your trading.

The last question, Alexander. Rashid Umarov has recently written an article named “Mathematics in Trading: How to Estimate Trade Results”. He considers knowledge of mathematics to be necessary for a trader. What can you say about this?
I would say so: If the trader has no diploma in mathematics, he or she must hire a mathematician on a regular or temporary basis in order to collect all necessary statistical data and to process trading data. Statistics is the trader’s accounting. It allows a trader to realize his or her location at each specific moment of time and the direction the trading goes in. Without this, sooner or later, the trader will get into unavoidable and sudden crises that may result in complete ruining the trader’s career.

Thank you, Alexander, for this interview.