Experimental Channel breakout system

Trading Systems Free Forex Trading Systems
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1. Philosophy behind the system.
This is an experimental system that I am in the process of testing.

It takes elements for the Turtle’s staggered entries and position sizing (taken from Faith’s book 'Way of the Turtle) and risk control/money management techniques taken from Smith’s book ‘How to make a living Trading Foreign Exchange’

2. Indicators and parameters.
This is a 55/20 channel system so it uses a 55 and a 20 price channel. I trade daily, but I suspect it would work on all longer (4h+) time frames. I have no idea, or intention to check smaller ones.

It also requires an ADX indicator with a 14 period and a ATR indicator period 20.

3. Entry and exit signals.
The 1st entry long is made when the price hits the upper 55 day channel, entry short is made when the price hits the lower 55 day channel (Turtle) this needs confirmation of a rising ADX signal (Smith). There are 3 more staged entries from this point, each at 1/2 ATR from the entry point.

Each entry is sized a 1/2% of account based on the ATR being 1% of the account.

Exit is by hitting the opposite 20 channel (the lower if you are long, the upper if you are short), or a ‘Bishop signal’ (Smith) an ADX that is over 40 and turns down, or a failure to complete all 4 entries in 4 days.

4. Stop loss and profit target placement.
Each entry has its own initial stop at 2 times ATR from its entry point, but all stops are moved to the closet to the current price that is active. The stop will be at the 20 channel in a long term trend.

i.e. The price hits the upper channel, and the 1st entry is made, as is the 1st stop, the price continues to move in the direction of the entries. The 2nd entry is now tripped, and we have two trades, at this point the 1st stop is moved to the same point as the stop for the second entry. The 3rd entry is tripped and we have 3 trades, but only one stop - at the same place for the 3rd entry (for the size of the 3 trades), and so on for the 4th entry.

As the market continues to move in our direction the 20 channel will move past the stop position of the 4th entry and the stop is now on the 20 channel.

5. Sample chart with signals.

2 entries.jpg700×422 48.1 KB

Only have 2 entries placed on this chart for clarity. When 4 are there it ends up quite crowded until they are all open. The red channel is the 55, the black is 20, the green is 10, and not used for this.

6. Backtest results, if available.
Not yet done

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Hey Cyco…
What indicator are these channels? I never worked with those and am not finding anything like it on my mt4.

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I think on MT4 you will find them under ‘Price Channels’, but I’m not 100% sure

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Cyco…
The closest indicator to it that I found was a custom indicator I had here called Donchian Channel. Ill read your post again and try to work with that! Ill have doubts for sure… I`ll shoot them aways as the come!

Thank you! =)

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Cyco, how is this system working?

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The Turtles used two Donchian channels, one fast period and one slow period with a shift of 1 bar.

Here’s more information:

Incredible Charts: Donchian Channels

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Then I should be ok using them, right?

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Correct, they’re just Donchian Channels shifted 1 bar back. With the default Donchian Channels, price will never break out of them. :stuck_out_tongue:

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What sort of success rate does this strategy have would you say?

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The base strategy of Courney Smith says about 45%.

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Less than that. The Turtles system had around 35%. But the wins were much larger than their losses. Simply because the system is a trend following system. Trend following systems excel when the markets are moving a lot, but when it’s consolidating, they give a lot of their profits back. That’s just the nature of trend-following systems.

VERY rarely do you find a system that has a win rate of over 50%; even 40% is a struggle.

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I’ve recently installed some testing software, now I just need to lean how to use it!

Then I’ll know how this rates myself

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You can test myfxbook to get some stats :slight_smile:

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Hi ClarkFX - I would be interested to know how you apply a shift back by one bar on MT4 or Ctrader.

I have read way of the turtle and smiths books as cited above and started looking at the strategies on ym charts and testing etc. Funnily enough I thought that they never break out of the channels and was considering using them as support/resistance. I found cycos post after looking for channe breakouts.

Cyco how have you got on with the strategy?

I was wondering if best to use on majos or crosses as crosses may be a bit smoother and less likely to dip in and hit the stops?