My "Psycho" System! Great System For Your Trading Arsenal

Hi Everyone! I have been a very dedicated reader of this forum, but never made any posts. I will make a post for a change and its partly because I came across an interesting system regarding psychological numbers on another thread. Please have a look and let me know your thoughts on this system.

First off, let me tell you a bit about my trading style. I am a chartist and rely mainly on price action. Indicators are just that, indications of price. They try to smooth out what otherwise might be hard to extrapolate from price action. I use indicators as a gauge to get the feel for the price action. Ask yourself, if the price is moving towards the indicators or away from them? How does price react to your indicators after big moves? Do they perform well in a particular session.

Before I move on to the system, I urge you to only pick a few indicators and just watch and study them and you may find yourself getting a feel for the price action. Please don’t try one indicator for a few trades, then something else for the next. Pick something and master it. As for me, the trading tool I use for entering the market and determining SL and TP is price. But, for the sake of those indicator lovers, I have added some tried and tested ones in my system.

Bored already?

So, onto the psychological numbers. What are they? In a nutshell, these are price levels with large orders in line to be filled. Eventually, these orders will aid in moving the market in a particular direction. You should know that each candlestick is a representation of the fear and greed of the participants in the market. Forex charts allow us to look in time and see what reaction a certain market had to news releases, data or any event of a particular day for that matter. Simply speaking, charts let us look into the degree of emotion from market participants. Putting price into this equation can start with the understanding that certain levels are psychologically driven and hence, I call these psychological numbers. Examples of these numbers are 226.50, 99.00, 110.50, 2.0150, 1.0900 and so on (basically, whole and half marks).

-----UPDATED-----

----------PSYCHO SYSTEM EXPLAINED----------

Time Frame: 15 mins
Indicators: Awesome & Bollinger Bands.
Currency Pair: GBP/JPY & GBP/USD
Targets: 100pips & 75pips respectively.
Stop Loss: 10 pips + spread.
Trade the Tokyo session and the London session.

Bollinger Bands Setting (Standard)
Period: 20
Deviations: 2
Apply to Close

Awesome Indicator Setting (Standard)

LONG ENTRY–

When the whole candle (candle a) is on the psychological support line (ie 1.0800) and closes above it. Then the next candle should move 5-8 pips above (candle a) upon when you enter the market. Awesome indicator should be green at (candle a). If price has not closed outside the overbought band (upper band) of Bollinger, then wait till it does, upon when you enter the market.

SHORT ENTRY–

When the whole candle (candle a) is on the psychological resistance line (ie 1.0800) and closes below it. Then the next candle should move 5-8 pips below (candle a) upon when you enter the market. Awesome indicator should be red at (candle a). If price has not closed outside the oversold band (lower band) of Bollinger, then wait till it does, upon when you enter the market.

IMPORTANT

To filter out false signals, make sure you satisfy both the 5-8 pip movement and the Bollinger Band rule. Also, once you are on +30 pips, move your stop so that you take atleast +10pips. This is to protect against some retracements. Finally, look to enter the market when the bollinger bands are spreading out after a period of squeeze (this would occur often when the next candle after the “psychological” candle moves and closes outside the bollinger support [lower band] or resistance [upper band]).

I have been using this system for some time now with a lot of success. However, I urge everyone to trade this system on a demo account before putting any real money. And if and when you do so, please do it at your own risk.

TRADING RESULTS USING MY PSYCHO SYSTEM

No of Trades: 47 Trades
From: 5/11/2007 To: 7/12/2007
Number of +10 pips: 21
Number of -13 pips: 13
Number of +75 pips: 13

Overall PIPS: +1016 pips



Hey Mazdaz,

Writing to you from Singapore. Thanks for posting your system. I enjoyed reading it and am now testing it out.

I’ve posted a image of yesterdays GBP/USD 15M with two trades I made. Could you critic as to whether or not they were valid entries/exits based on your system?

Many thanks,

Matiusmatt


Hi Matiusmatt,

Yes, the first one was a valid entry. I would have entered at 2.0265 and I would have targeted 75pips as per the rules of my system. You can see on the chart that it did hit 2.0340 (75 pips).

About your second entry, I would not have taken that as the next candle after the psychological candle (the one that is on the psychological number) was a bear candle. Also, it did not increase by 5-8 pips like the rule states in order to go long.

I hope this helps.

And good luck trying out this system.

Well, all whole and half marks (ie 2.0500 & 2.0550) should be treated as “psychological” support and resistance.

Remember, this is not a breakout system, so we can make pips depending on how strong a support or resistance is. To go long, we should look for a candle to form on the “psychological” support line (ie. 2.0500, this is the line where the downtrend reverses, or where the uptrend resumes after a short retracement).

Likewise, for a short signal, a candle has to form on the “psychological” resistance line (ie 2.0550, this is the line where the uptrend reverses, or where the downtrend resumes after a short retracement).

The next candle and the indicators will show how strong the support/ resistance is and whether to make an entry.

Here is a trade I took on Friday. I apologise for the poor illustration. :wink:


where can i get this indicator?Thanks:)

Aha, I see I jumped the gun on that second trade, didn’t wait for 5-8 pips.

I’ve included another image of Fridays session, another trade which I did not actually take but assume it would have been a valid one. What do you think?

Matiusmatt


Yes it seems as though it was a valid signal according to the system. But that is because I missed out on a few details when outlining the system. I should have said to look to enter a trade when the next candle after the psychological candle has closed outside the bollinger support (lower band) or resistance (upper band). By this, you are essentially looking for the spreading out of the bollinger bands after the squeeze.

If you look at all my trades that hit the +75 targets, they all had a breakout of the bollinger bands after a period of squeeze. Also, the next candle closed outside the bollinger support or resistance.

[B]1st Post has been Updated. [/B]

Hi Faizal,

If you use MT4, then go to custom indicators and you will see “Awesome”.

TY

Some very interesting ideas here mazdaz. I am obviously missing something though. Chart 2 on your first post you report a +10. I have annotated my chart of the same area and have a -10 as there wasnt a 30 pip move after entry. What am I missing here? It might be asking too much of you but could you post your dates and entries for the trades you have done as this would provide a valuable double check that we were following your methodology exactly


In response to Matiusmatt you said entry at 2.0265. Again I cant see this from my chart given your rules say wait for the close above BB

LONG ENTRY–

When the whole candle (candle a) is on the psychological support line (ie 1.0800) and closes above it. Then the next candle should move 5-8 pips above (candle a) upon when you enter the market. Awesome indicator should be green at (candle a). If price has not closed outside the overbought band (upper band) of Bollinger, then wait till it does, upon when you enter the market.


Hi all!

Seems like a nice system. I picked this one as a learning example trying to learn MQL4 programming. Please try out my indicator below and give me some feedback. When the indicator looks stable enough I’ll proceed programming an EA.

Kind regards, Erik

Mazdaz123: Is it allowed to make multiple entries on the same candle? The first trade open and close on the same candle. (I know the 2:nd entry in the screenshot is not perfectly valid but you see the point.)


I like this system though I think it needs some tweaking. One thing I can think of is scrapping the Awesome Oscillator. Reason being that is seem to be a redundancy- if there is a breakout of the BB it pretty much is guaranteed to be green if long or red if short, whether a false breakout or not. Therefore, it doesn’t actually filter out anything. Yes? No? Maybe so? I’m a newbie so take this idea with a grain of salt.

I agree, looks like the system would do just fine without the awesome oscillator. Im usually not a big fan of adding or changing indicators in a system, especially if it works but in this case we would end up with less indicators on the chart which makes it easier to follow the system. Would be interesting to see what the author thinks.

Hi,

I don’t think the Awesome Oscillator acts as a filter. It is just there for the sake of having more indicators, as people tend to get over excited when they see a more complex looking chart. :slight_smile: If you read my first post, you can see that I am not a big fan of indicators. So yes, you can remove that. I made +75pips with this system today.

Thanks for the indicator. It works.

There was a nice set up on the GBP/USD 09.45 candle today. Nice ride for over 100 pips. Since we dont want to be too greedy and we stick to the system, we take profit @ 75 pips.


Very well done with your trade. I am not looking to pour cold water on this so feel free to ignore my analysis. I have posted daily, H1 and 15 min charts which could all have led to an earlier execution of your trade with perhaps bigger profits or perhaps have given you added confidence in the trade. The problem with the BB breakout is that you are very late into the trade which is only going to work in a strong trend. However if your system is working for you, excellent, stick with it but hopefully I have given you some food for thought