The Cowabunga System

[Elroch]

I think there has been a slight communication problem between the last two posters. lilfeet was referring to using the cowbunga setups on charts where each bar is a day or a week. My first impression is that the signals on the daily are of considerable interest, but the weekly is going a bit too far, even for someone with a very great deal of patience.

It is certainly true that the targets designed for intraday trading using charts like a 15 minute are not appropriate for the signals on the daily chart. In fact the trends appear so good that holding a lot of the position to the cross of the emas in the reverse direction is appealing. Taking some relatively quick profits (at a price making R/R around 1 perhaps) would increase the percentage of winning trades and smooth the equity curve.

The following chart shows what I interpret as cowbunga signals on the daily chart in recent years (automatically generated red and green shading behind the signal bars). The signal on February 15 this year would have made 757 points exiting on a reverse ema cross, (MFE 1225 points) in about 5 weeks.

[lilfeet]

Originally Posted by Elroch

I think there has been a slight communication problem between the last two posters. lilfeet was referring to using the cowbunga setups on charts where each bar is a day or a week. My first impression is that the signals on the daily are of considerable interest, but the weekly is going a bit too far, even for someone with a very great deal of patience.

Exactly, wasn't meaning to say the original system isn't profitable, it is just hard for me to trade those time scales and periods. So I was looking to modify the system for the daily charts.

I would only use the weekly charts for determining the larger trend.

If you are using the system on the 15min charts, you can risk around 20-30 pips, however using daily bars results in 200-300 pip risked which completely throws out your risk/reward numbers. So I was just asking if anybody has had any luck using any particular profit target using the daily bars before I start backtesting it.

On a different note, when you see in your larger time scale IE the 4 hour, and you see the trend 'change'. Do you not take any trades at all for that 4 hour period, or do you immediately change to the new trend. If you look at the 15 min period and the trend changed, but the EMA's have already crossed in that direction, do you wait for them to re-cross again before taking the trade, or do you hop into the trade immediately?

Let me see if I can outline an example:

4 hour trend is up, so you are waiting for a EMA cross 5 over the 10 on the 15 min charts as well as your other indicators. You see the next 4 hour bar is made and the new trend is down, so now you are looking for a EMA cross 5 below the 10 on the 15 min charts. If the 15 min charts already show the 5 is below the 10, do you wait for it to cross back up and then back down for an entry, or do you jump into the trade if your other indicators are supporting the new down direction?

[Elroch]

The combo of the weekly and the daily looks like a very nice one - a 5:1 ratio is quite a popular one, such as Elder's "triple screen" system, and a quick look shows it would have certainly would have caught some great trades, and avoid some not so good ones that were against the weekly trend.

[lilfeet]

Here is another question. Author mentions that he trades the system between midnight and 4am EST. If the system were to be traded during the day, would the recommended time be 6am to noon EST? What market overlaps are the targets for enough volume?

[yschan_84]

Hi fellow traders,

I might have missed out this part but can anyone explain to me how do we judge if the price has a clean break?

I believe someone was asking about the same question but i have not seen any reply to his thread. Thanks for the help in advance.

Cheers!

[lilfeet]

Originally Posted by yschan_84

Hi fellow traders,

I might have missed out this part but can anyone explain to me how do we judge if the price has a clean break?

I believe someone was asking about the same question but i have not seen any reply to his thread. Thanks for the help in advance.

Cheers!

Not being the one that wrote the system, this is what I have learned about clean break. Essentially watch the price action as it approaches and passes your price target. If the price shoots past it, leave the trade open and get a few more pips. If it seems to be just barely making it, going past the target then pulling back take your profits.

You are basically waiting until the end of the bar, and seeing where the price is and deciding to follow the trend for a bit longer.

Of course this means you are watching the trade and price action, so you don't have an automatic limit order set.

[Mark Trader]

Guys,
I would like to clarify this and I don't believe it was discussed. How do you determine when to set the TP to the nearest 50 or 00 level and when to go for the amount of pips being risked?

For example, according to PipSurfer:
The entry was at the close of the candle at 1.9856 with a stop at the most recent swing high at 1.9905. Since I was only 6 pips away from the nearest 50 or 00 level (1.9850), I decided to go for the same amount of pips I was risking on the trade which in this case was 49. This put my initial target at 1.9807

So if it's as close as 6 pips, it should be the amount of pips being risked, not the 50 or 00 level... what about 10 pips? 12? 15?
I realize this may be done on a case by case basis, but what if, hypothetically, you were automating the cowabunga system and you needed an exact number, what criteria would you use?
Thanks,
Mark.

[tonymand]

Originally Posted by Mark Trader

Guys,
I would like to clarify this and I don't believe it was discussed. How do you determine when to set the TP to the nearest 50 or 00 level and when to go for the amount of pips being risked?

For example, according to PipSurfer:
The entry was at the close of the candle at 1.9856 with a stop at the most recent swing high at 1.9905. Since I was only 6 pips away from the nearest 50 or 00 level (1.9850), I decided to go for the same amount of pips I was risking on the trade which in this case was 49. This put my initial target at 1.9807

So if it's as close as 6 pips, it should be the amount of pips being risked, not the 50 or 00 level... what about 10 pips? 12? 15?
I realize this may be done on a case by case basis, but what if, hypothetically, you were automating the cowabunga system and you needed an exact number, what criteria would you use?
Thanks,
Mark.

It is a case by case basis. To automate an exit you would need to do extensive testing and I suspect would lose the profitability. From my observation it is the trades greater than R that make this profitable as the win loss is only just above 50% (has varied between 54-58 while I have been following it)

[Mark Trader]

Originally Posted by tonymand

It is a case by case basis. To automate an exit you would need to do extensive testing and I suspect would lose the profitability. From my observation it is the trades greater than R that make this profitable as the win loss is only just above 50% (has varied between 54-58 while I have been following it)

Tony,
I am sorry but I didn't understand what you said... what do you mean by "it is the trades greater than R" ?
How do you determine if the TP should be the nearest "50" or "00" level or the same number of pips as the number being risked?? Thanks!

[tonymand]

Originally Posted by Mark Trader

Tony,
I am sorry but I didn't understand what you said... what do you mean by "it is the trades greater than R" ?
How do you determine if the TP should be the nearest "50" or "00" level or the same number of pips as the number being risked?? Thanks!

R refers to risk reward. A 1R trade returns the same amount as you risked including spread and commissions. Take this afternoons Cowabunga entry at 9756 with stop at 9788 so risk is 32. TP at 50 is clearly not an option, a 1R trade gives a TP at around 21 so that is a good first place. No clean break so exit. Also it is a UK holiday so not much movement is expected. As it happens an 00 target would have worked and we are just below major support now so it may have further to go but thems the breaks. As I said you have to assess on a case by case basis. If I was still in this trade I would be looking to trail behind the move to see how far it will go