INGOT'S RAINBOW ... A Position Trading Strategy

[Ingot54]

10,000 pips per year? Possibly!

In fact you'll RARELY see a strategy as effective and simple as this one. And in fact if you follow this strategy faithfully there's an excellent chance you'll never record another negative trading week.

I had not intended to share my strategy, but from the Parabolic SAR - that's all! forum I received 3 emails about my method.

I am not a PRO trader, nor am I a systems seller - I am a salaried shift worker who enjoys learning and teaching FX-related topics - in fact probably not much different from yourself.

And in fact, you probably have much to teach ME if you only realised what you already know.

The theme of this thread is POSITION TRADING and I will approach the topic from a rather simple angle, using one oscillator and Moving Averages.

Be ready for a surprise though ... and I hope you too can surprise me.

I am currently commissioning a new Mac computer and have Parallels Desktop going sweetly, but have yet to migrate my files across to the new machine. I will post a chart or two shortly to whet your appetite for this approach.

Along the way I hope to discuss some altruisms, and feel free to add some of your own - just as long as it contributes to the general flow no one will mind.

Before I leave this post, I will leave you with a thought - something I recently forgot myself!

THOSE BENEATH YOU
CAN'T OFFEND YOU
THOSE YOUR EQUAL
WOULDN'T

If we keep this in mind there should be nothing but progress here.

Please be patient while I try to assemble the strategy in a form that all of us can understand and use.

[Bocajunior]

Ignot,
Hello there and glad to see you back on the forum. I look forward to keeping up with this thread and contributing as much as I can. I'm no expert on forex, buT I feel I am progressing everyday and have come a long way since I first started at the end of August.

All the best
Boca

[Ingot54]

Originally Posted by Bocajunior

Ingot,
Hello there and glad to see you back on the forum. I look forward to keeping up with this thread and contributing as much as I can.
Boca

Thanks Boca - you are very welcome to contribute anywhere you see an opportunity to enlighten.

I am going to post a little story, which I hope will start us all on the road to a paradigm shift.

Gotta love politically correct language ... lol !!

"Paradigm shift" simply means "Viewing a different model".

But why use simple words when more complicated species are available!

And a "different model" it will be ... I'm not referring to the brightest and best eBooks and set of 6 beautifully-bound DVD's in a silver-and-brown presentation case - just simplicity and common sense - here free, on Babypips.com
With best wishes

Ingot

[Ingot54]

One of the things we have to do in order to assimilate new ideas is to come to the table with an open mind, and an enthusiasm for the topic.

In order to show you the colour of the slate we are about to write on, let me tell you a story.

Trader Joe decides he wants to be a currency trader. He heard his popular buddy Trader Bill telling the party scene at the recent barbecue gathering how he made $1200 in 45 seconds when the NFP data was released earlier that day. Not only that, Trader Bill said it was as easy as falling off a log – just open the account and click the orders through to the broker electronically.

As a matter of fact, Trader Bill had a dozen “good luck” stories about his successes as a day-trader of currencies. Trader Bill enjoyed quite a reputation as a high flier, and as Trader Joe listened his mind went into over-drive … new car … work from the yacht … just a few hours a week … extended vacations … aah … the good life.

If Trader Bill could do it – why not Trader Joe?

Why not indeed?

One thing Joe did not realise was that his friend Bill was not letting the truth interfere with a good story.

Oh yes, Bill was telling PART of the truth … in fact he HAD made $1200 in 45 seconds. But Bill failed to tell how the account balance finished at the end of the day. He did not mention that his position had reversed by 50% with the next 20 seconds, cutting his profits to Just $550 … less spread of 3 pips.

In fact Bill really had not had a good day.

He took a position on the AUDUSD, which had been flying recently, but he called it long when he should have gone short, when the RBA decided to keep interest rates on hold – a move that went against the consensus of opinion.

After that he gained 40 pips on a short position on the USDCAD, but gave it back on the USDJPY when he decided the current trend would continue, and forgot to account for the influence of the People’s Bank of China raising interest rates to try to take the heat out of the stock exchange growth in China.

In fact, Bill had stressed and pored over his charts and data, news-feeds and broker calls all day, and half the previous night. Bill really needed the barbecue party to chill out a bit. He loved to tell his stories, as if he needed to convince himself that he really was doing OK as a trader.

The other things Bill didn’t mention was that his wife loathed his involvement in the Forex markets – their marriage was empty – but Bill maintained he was “doing it for their future.” Little wonder that Bill’s wife was never with him at these functions – she hated anything to do with trading – period.

But this stuff was concealed from Joe – all he could see was dollars … and the good life … freedom from his boss … and so on.

Joe took Bill aside and asked him how he too could get involved in currency trading.

If you were Bill … what would you tell Joe?

[Ingot54]

Bill realised he had been wrongly influencing Joe, and quietly said: “Buddy - before you decide to do anything with this, come over and have a look at what I do.”

The next afternoon after work, Joe arrived to see Bill studying the screen, trying to get a short scalp on the NZDJPY which was quite active because the carry trade had been unwinding over the previous 12 hours.

Joe was impressed. WOW – four screens … all those charts, and the blinking lights on Bills trading platform looked very professional. But the look on Bill’s face was far from “professional” – in fact it was the look of a very worried man. Strange, thouht Joe – Bill made this sound so easy.

Bill suddenly tossed aside his pen and threw his hands up in disgust.

“That’s the third call I’ve made this safternoon that has gone against me. I set tight stops to preserve my capital. Only thing is – I loaded up on the number of lots I bought to really get some money back, and it hit my stops EVERY time. Not only that, about 5 pips further on, the trades reversed and I would have been really in the money … by thousands.”

“I had it all worked out – risk/reward, position sizing except for the extra lots, and I even had the trends going right on the 15 minute and 30 minute charts. There was just this spike – three times in three trades.”

“How much has it cost you Bill?” asked Joe.

“$2500.”

“What – this week? You’re kidding!”

“No Joe … this afternoon alone. So far this week I’ve lost over $4500.”

“But I thought you were doing so well.” Suddenly Joe was seeing a different picture from the one at the barbecue party.

Something was not quite right about all of this. If currency trading was so bad – why did people like Bill become involved in it? If no one made money, thie industry would soon fail and cease to exist.

“So tell me what you do Bill” said Joe.

Bill took Joe through many of the different currency pairs, a few of his favourite indicators, the principles of leverage, the costs of spread, stop loss orders, take profit points, margin calls, and so on.

Bill – tell me – do you always trade the 15 and 30 minute bars?” asked Joe.

“Always” answered Bill. – “That’s where the action is. If you can get the call right several times a day, you can make 200 pips.”

“How many times have you done that?” asked Joe. “No. Don't answer that - I can see the answer on your face my friend. It seems to me that this could be approached in a slower way, but in a much safer way.”

What was Joe alluding to?

[Ingot54]

Over that weekend, Joe and Bill had a really constructive look over what Bill had been doing.

Joe had a really analytical mind and was gifted with an insight that could cut to the chase very quickly. He had not commented much as Bill explained why and how he had put on his trades,. To his credit, Bill had kept good records, and had even gone to the extent of printing out his charts and writing on them where and why he had made each entry and exit.

Even though Joe didn’t know a Renminbi from a Razoo about currency, the solution was becoming clear to him.

What would happen, Bill, if you reduced your leverage from 200:1 to just 5:1?” asked Joe.

“Well, I’d never make any money” answered Bill.

“And are you making it now?” queried Joe. They both knew the answer to that cynical question.

“So what if you also extended your time frame from 30 minute to weekly?”

“Same thing” said Bill, “It would take forever to get into the money.”

“And are you …”

“OK … OK … NO! I’m NOT making any now! OK!!”

“It was not designed to press your buttons Bill. I think I can see a way to help you turn this thing around. Not only that – I think you will soon have so much time on your hands … and money too if I’m not wrong … that your life will be taking a new direction shortly.”

What could Joe possibly have seen that Bill, with all his knowledge and Technical Indicators and charts had missed?

[Ingot54]

Thanks for staying with me through that simplistic story.

In the posts ahead, I will be outlining a strategy that is known as Position Trading by most traders, because trades run over more than the usual few days of swing trades, and certainly resemble nothing like scalping, News Trading or day trading or the like. My brand of “Position Trading” may be a little different from the common concept of it … but there it is.

Further, I will show you why it is preferable in my view to trade WITHOUT STOPS.

I knew that would raise eyebrows. What I mean is … trading without CLOSE stops. I still prefer to have my stops set around 250 pips away. And the reason for that will become clearer as we go.

The concept I would like you to consider right now, is trading without using all of the leverage available. There is NO reason at all to use leverage of 50:1 or 100:1 or even 400:1 and higher. It is very foolish, particularly if you have not been trading successfully for an extended period of time.

Many traders who are doing OK are a particularly secretive primate really! Highly sucessful traders think entirely differently from we forum animals! (I don’t call them PRO traders – I do not actually know any PRO traders.)

Another concept I would like you to consider, is entering your trade with just a very small position – perhaps one tenth of your usual position size.

I know some of you are already thinking: “How can we make money by placing such small trades?”

How indeed!

Watch this space.

So far we have introduced the following concepts:

1) WIDENED stops
2) LONG time-frames
3) LOW leverage
4) SMALL position sizes

If you are following this thread so far, I would like you to do some homework.

Would you please look at some of your less-successful trades and apply some of the concepts I have introduced so far.

I have no objection whatsoever to anyone posting any experiences they have had which might have had a softer landing, or a brighter outcome, with the application of just ONE of the four concepts above.

Homework exercise Number Two:

Start thinking of ways to make serious money by using the above principles ... and another factor or two!

I don't mind in the least if you pre-empt my spiel in any way and have a go at making this work. This is where I am hoping you might surprise ME!

It’s bed-time here in Australia – the sun has set 6 hours ago in this land down-under (The Antipodes to our Pommy brothers and sisters!) and I have some charts ready to post for you tomorrow.

It might be wise for some of you to cut your losses as soon as you are able to and take a breather from trading. I hope I am not building you up for a let-down with this method – I don’t think so.

But I do know that the principles we will discuss here will be at the very least beneficial to your future trading endeavours, and if we achieve that, then the effort will have been fruitful for us all.

With best wishes

Ingot

[Bobkat]

Hey Ignot,

I am fascinanted with your paradigm shift. Please post your strategy asap before I run out of money in my trading account! LOL

Bob in Wisconsin

[Ingot54]

Before we go too much further, I want to say that I am the originator of the Rainbow charts in the form I am using them.



and gave permission to Mr Colin Twiggs of Incredible Charts to incorporate the Rainbow Chart within the range of templates offered by Incredible Charts:



I am posting those links to try to head off claims from others who use Rainbows. If someone has used these before 2004, I would acknowledge their efforts as well, but as I was not even aware of charting and TA prior to this, I can assure you this is all my own work, created from scratch on the charting package mentioned.

This chart I am posting is an older one - not FX but of the Australian ASX200 (called the XJO locally). It shows the value of using Multiple Moving Averages to define LONG TERM trend.

Why use MMA's? And why in such a parrot-coloured array?

SPEED ... and SIMPLICITY!

It is far easier to eyeball a chart quickly when displayed in the 3-D MMA format. As you scan through your charts, it is an economy of time to be able to select candidates to trade withing seconds, as opposed to actually working out whether the trend is starting/stopping/ranging sideways.

The colours are NOT included to entertain ... they are there to help you develop an intuitive "feel" for what is and what is not suitable to carry your money.

The outstanding benefit of the MMA chart (in my view) is to give an illusion of a 3D view. Combine the colour and the 3D and you have an easily-recognisable pattern that quickly identifies trading candidates.

Later I will post a series of charts of smaller time frames, showing how to capitalise on moves within multiple TF that are congruent (moving unidirectionally = your HIGHEST probability of trading success).

Still having access difficulties to charting as I establish "Mrs Mac" as my hardware of choice, but please be patient ... I will be able to produce the charts I need soon.

Meanwhile see if you could trade this chart successfully.

[Ingot54]

I have moved some of "My Pictures" files and can show you a few other charts.

Unfortunately I didn't want to introduce you to the other members of the team just yet, but in the interests of moving this thread forward I am proud to unveil the "Multiple Stochastic Family" who are the only other indicators invilved in this Position Trading Strategy.

I wish to publicly acknowledge "Spudfyre" as the owner of this intellectual property. Without Spudfyre's insight andd creative ability, I would not have taken this idea to this length.

Spud's Multi Time Frame Strategy Guide

and

MTF Stochastics

The explanation of the MTF (Multi-Time Frame) Stochastic is here:

Spuds Stochastic Thread Theory

I offer those three links, and I expect you will want/need to crawl all over those threads in order to really develop an insight into HOW MTF Stochs really can make the difference here. The Rainbow Charts are one thing, but add the MTF Stochs and you have one great approach - a strategy that can have you doing ANYTHING other than screen-gazing as you crank up your account equity.

I believe Spudfyre initially used his Stochs for scalping 20-to-50 pips using a 20-to-25 pip Stop Loss. I have not read his entire threads yet myself - but my application of his invention is to the longer time frames. I am not a successful scalper at all!

I will post other charts as able, and as time goes on, I shall get into live trading. Really, there is no need for this thread to go further as far as the theory goes - you should have it all now - nothing to do except discuss the concept.

Here are some shorter TF charts - unable to load from my platform yet ... I am not a software wizard as is becoming obvious!

I think there is enough food for thought here for today.

Because we are trading over days-to-weeks here, selecting entry/exit points will be academic. As we know, the longer the time frame traded the less critical the entry. There are ALWAYS optimum landing points (entry/exit) but you would agree that 20 pips out of 350 is really spliitng hairs a bit.

Having said that, optimum entry CAN be effected through looking at LOWER time frames prior to taking a decision to trade. But it is not essential.

My own exits have been discretionary - I rarely use technical exits, (other than to exit when the stochs are becoming "fish-net" in appearance, or the Long Term Stochs are beginning to slip under the Short term ones) though I could surely pick up much more from the trading table by refinements in these areas.

BTW - the template for the MTF Stochs can be found on one of the links above - Spudfyre has written and EA for MT4.

If requested, I will post the parameters (sorry - no EA or Template) for the Rainbow MMA's.