Philosophy - Money is made in forex by having the odds in your favor. Currencies trend well (and I have a day job) + newbies lose money with emotion and too many indicators (and even knowledge) complicating an (only) bidirectional system. I noticed I lost money systematically “discovering” trend reversals in the making.
Why not a system using only the odds of a trend continuing vs trend reversals (rare occasions in large TF).
ie - If you were to post random positions on 1:1 P/L ratios on a large scale your account would just suffer the slow erosion of the spread as you win and loss trades would even at 50/50. (and get closer and closer to this ratio as the number of trades increased)
Rules -
Find trending currencies on 4h charts - Heiken-Ashi same color on daily + 8,21,100 EMA lined up on 4h
No trade on ranging pairs: Heiken-Ashi color change (or dogi) on daily or mixed EMA levels on 4h
Entry -
long if uptrend + RSI above 50
short if downtrend + RSI bellow 50
SL and TP - 90 pip SL + 90 pip TP - 1:1 (90 pips covers most retracements) - can increase for volatile pairs like GBP (but increase TP by same amount!)
Pair is not traded again until position is closed by SL or TP
Pairs used - only the 8 majors - for lower spreads (important in this strategy)
You now have a system where the odds are in your favor as in any point in time the likelyhood of a trend continuing as opposed to reversing is much greater: a trend can continue for months and only reverse at 1 point to make a new one - and no discipline requirement.
The idea is to be the casino and not the gambler - where have I read that before? : )
I have not backtested electronically - hopping someone will have the software to try it out.
I was also hopping to get on board with someone that can backtest this with a click of a botton as there will be different optimum pip values for each pair.
Any thoughts?
Thank you!
Luigy
Hi luigy, You have written well. I am a beginner of forex. Some days ago I have lost my $200 from Liberty reserve and that was for forex. But that was not my end. I have start the business again. I hope your valuable post will help me. Thank you.
Try demo first. Trade and when you feel trading outputs are good or you are gaining 5% monthly, then I guess you can try live (start with Micro account first). Concentrate on your specific strategy and stick with that.
You may want to try having the probablites in your favor
Use your favorite :
Trend Indicator. Trade the trend
Momentum Indicator. Make sure momentum is on your side
Cycle Indicator. Trade beginning of the cycle
Verify above indicators with Support and Resistance
Confirm with 3 time frames
What do you think trading with the trend; trading with momentum; trading at the beginning of a cycle, verifying your trade with previous support and resistance on 3 time frames does? Decrease your probability of having a winning trade?
I am absolutly not an expert but when i am not really sure an idea is truth (mathematically verified), i don’t use it.
Multiple timeframe seems not a bad idea because is involves the fractral nature of the market. But fractal is mathematically difficult to master for me.
Cycle : do you mean searching for frequencies and phase of the signal ? The problem is that when you have that frequency, the other part of the cycle has already begun (late indicator but maybe usefull). The problem is which frequency ? Do we have to treat a multi-frequency cycle scheme (this price FFT + phase detection) ?
Support / resistance : yes but not necessarily horizontal. A common “good” pattern is a two bounce to a pivot line with decreasing wave then the price break below, and make it’s third wave back to the pivot: then the price move away up or down but it moves away.
An indicator that does not repaint : the moving average for example. What to do with that ? i don’t know but i am sure it wil not fool me with bad information. This is a mathematical truth you can count on every bar.
Being a little bit late with an indicator is not necessarily bad if the information it gives is usefull for a very longer time than its delay.
I’m not sure what you mean when you say idea is truth mathematically verified. But if you mean your don’t trade unless your trade is mathematically verified to be profitable, then I guess you don’t trade, cause you can’t. All you can do is try to put the balance of probabilities on your side, not odds; probabilities. No matter how you choose to do that, indicators, news, crystal balls, etc, you’re doing it with lagging information. But lagging information is all you have to work with. Different indicators are used by different traders with different strategies and there is no indicator or strategy that is a one size fit all and some are better than others.
I agree with you. It depends on what type of trading you’re doing, what and how you’re using any indicator or strategy
Another example of an indicator that is always verified at any closed bar is the bollinger band. That does not give entry and exit points necessariliy but can be used in conjuction with other informations.
Again I agree with you, so has a swing trader you could use them in conjunction with other information but probably not in conjunction with entry and exits. That makes sense. Now here’s how someone who is trading smaller time frames might use them with other indicators. When the candle goes above the top band you wait for the next candle to form under the band then you go short until a candle goes below the lower band then exit and wait for the next candle to form and go the opposite direction. So like I said what you do should depend on what you’re trying to do.