My Fathers Amazing Forex System

[cdutoit]

Ok, sorry to lure you in with this headline, but just thought I'd share some amusing information.

My father (68 years old) started trading Forex about a year ago. Somehow, he's taken $20,000 into about $190k over 12 months. I was astounded. This from someone with no previous experience. Before thanksgiving he was up $20k on GBP/JPY and decided to sit out the month to hold onto his winnings.

Clearly I was interested in how he did this. Unfortunately we live in two different countries so I'm getting his "system" in little chunks. Essentially though he was pretty much a Moving Averages and RSI type of guy. Nothing fancy.

Here's what made it interesting: He does not use stop losses. Now, I DO NOT agree that this is a good thing and not proposing you should run out and remove your stops. He found himself more often than not being stopped out and then the trade reversing in the direction he had wanted, so he just stopped using stops.

Here's the difference though: He admitted that he approached Forex way to much like gambling. He was making enough money from his business that he didn't really care one way or the other if Forex made money or lost money - it was purely a hobby with play money. Nontheless, its an interesting take in that everything you read talks about money management, yet he didnt read any of that and ended up making good money. Granted, over time such a strategy may yield a negative return, but he's had a heck of lucky streak. Its also interesting how he used a simple indicator set. KISS.

Anyway, once he shares his indicator usage with me I'll be sure to pass it on!

cdt

[tokenforexguy]

FIRST QUESTION !!!!

What is you fathers system. I hope i too can get level ! and the fact he's done it for 12+ months means it more than a fluke anyways you got my attention

[cdutoit]

I spoke to him some more - there really was no magic here - When you trade long term and you catch a trend, way to go. He had some crazy drawdowns which I wouldn't be able to stomach, but he was able to hold on with enough capital and ride the uptrend.

Once again the old philosophy of "the trend is your friend" is the winner!

[greenbackgreg]

Hello,
I've been trading on a demo for a couple of months now and I think the very best indicator I've found is the trend itself. It is fascinating to look at different time frames when trading. The EUR/USD 15min chart for example might show you a sharp down trend but if you zoom out to the hour, day, and weekly chart you will see the trend shift to a strong uptrend! I agree with the discarding of stops if you are following a trend up, especially a weekly chart. I think stops are a scam to the person who doesn't look at the big picture. I went through the EUR/USD weekly chart for 2007 and found that week by week, open to close the most the market ever moved in a week was 221 pips (week of Aug 17). Granted there are successive weeks where the market will continue downward but the responsible trader should be perfectly able to weather these falls (responsible as in not over-leveraged). The EUR/USD weekly chart shows a consistent climbing uptrend. The market this year alone has climbed ~1400 pips! I opened a $350k EUR/USD trade last Monday (I'm still learning!) and Tuesday the market fell about 150 pips. This put me - $5,500. If I would have set a stop for lets say 30 pips I would have lost over two grand. As of yesterday the market rallied some and I'm now around -$3,000. I have no doubt that the pair will climb right out of this lull and I'll get my money back and then some. I think the key is to spot a proven uptrend like the current EUR/USD, trade an amount where you can have enough equity in your account to handle 500 pip dips and watch it climb over the long run. I think this method is safer than the crazy swing trading, and you still make a lot of green- your rollovers.

[tonymand]

Originally Posted by greenbackgreg

Hello,
I've been trading on a demo for a couple of months now and I think the very best indicator I've found is the trend itself. It is fascinating to look at different time frames when trading. The EUR/USD 15min chart for example might show you a sharp down trend but if you zoom out to the hour, day, and weekly chart you will see the trend shift to a strong uptrend! I agree with the discarding of stops if you are following a trend up, especially a weekly chart. I think stops are a scam to the person who doesn't look at the big picture. I went through the EUR/USD weekly chart for 2007 and found that week by week, open to close the most the market ever moved in a week was 221 pips (week of Aug 17). Granted there are successive weeks where the market will continue downward but the responsible trader should be perfectly able to weather these falls (responsible as in not over-leveraged). The EUR/USD weekly chart shows a consistent climbing uptrend. The market this year alone has climbed ~1400 pips! I opened a $350k EUR/USD trade last Monday (I'm still learning!) and Tuesday the market fell about 150 pips. This put me - $5,500. If I would have set a stop for lets say 30 pips I would have lost over two grand. As of yesterday the market rallied some and I'm now around -$3,000. I have no doubt that the pair will climb right out of this lull and I'll get my money back and then some. I think the key is to spot a proven uptrend like the current EUR/USD, trade an amount where you can have enough equity in your account to handle 500 pip dips and watch it climb over the long run. I think this method is safer than the crazy swing trading, and you still make a lot of green- your rollovers.

I agree with your general thesis - who wouldnt. If you now add a little sophistication in terms of when you enter (perhaps using SR levels on lower timeframes, or perhaps scaling in to a position) you can maximise your returns. However at some time the trend on EU will change (or go through extensive periods where it is not clear, retracing or turning - look at USDCAD right now) so you have to have some rules that tell you when to get out (timebased, maximum drawdown, trendchange indicators, whatever) otherwise it is inevitable that you will eventually get seriously hurt. At that point lots of small wins may not make up for a single devastating loss

The chart below makes my point and also emphasises that this market like any other goes through radically different phases

Finally I have highlighted your first comment. As yet you have experienced only one type of market (a somewhat unusual one at that). Do not make the mistake of extrapolating from that to thinking you understand the vagaries of fx. Like the ASX which has been in a powerful uptrend for 4 years there are people who have made a fortune and mistakenly believe they know how to trade. We will see when the music stops

[greenbackgreg]

Anthony,
Thanks for putting me in my place. You mentioned that people make the mistake of thinking they know how to trade because the market has moved in their favor. What law in forex land measures whether a person knows how to trade or not? Is is not success? Isn't success based more or less on educated guesses? You rightly criticized me for projecting the past into the future, but it works. Is it bad to keep things so simple? You sound like a successful trader and probably have a wealth of knowledge and riches. I wish you the best success in adding to your bank account and vocabulary (I like the word extrapolate)

[tonymand]

Originally Posted by greenbackgreg

Anthony,
Thanks for putting me in my place. You mentioned that people make the mistake of thinking they know how to trade because the market has moved in their favor. What law in forex land measures whether a person knows how to trade or not? Is is not success? Isn't success based more or less on educated guesses? You rightly criticized me for projecting the past into the future, but it works. Is it bad to keep things so simple? You sound like a successful trader and probably have a wealth of knowledge and riches. I wish you the best success in adding to your bank account and vocabulary (I like the word extrapolate)

No no, I wouldnt dare to 'put you in your place'. If it works for you then go for it. I am simply pointing out issues that others reading the thread might like to take into consideration and not seeking to criticise you at all

[greenbackgreg]

EUR/USD PIP MOVEMENT CHART 2007

DATE WEEK OPEN CLOSE MOVEMENT IN PIPS
01/05/07 1.3196 1.3008 -188
01/12/07 1.3008 1.2914 -94
01/19/07 1.2914 1.2964 50
01/26/07 1.2964 1.2908 -56
02/02/07 1.2908 1.2965 57
02/09/07 1.2965 1.3005 40
02/16/07 1.3005 1.3136 131
02/23/07 1.3136 1.3162 26
03/02/07 1.3162 1.3189 27
03/09/07 1.3189 1.3114 -75
03/16/07 1.3114 1.3308 194
03/23/07 1.3308 1.3287 -21
03/30/07 1.3287 1.3352 65
04/06/07 1.3352 1.3376 24
04/13/07 1.3376 1.3538 162
04/20/07 1.3538 1.3597 59
04/27/07 1.3597 1.3641 44
05/04/07 1.3641 1.3593 -48
05/11/07 1.3593 1.3527 -66
05/18/07 1.3527 1.3504 -23
05/25/07 1.3504 1.3447 -57
06/01/07 1.3447 1.3443 -4
06/08/07 1.3443 1.3359 -84
06/15/07 1.3359 1.3376 17
06/22/07 1.3376 1.3464 88
06/29/07 1.3464 1.3533 69
07/06/07 1.3533 1.362 87
07/13/07 1.362 1.3786 166
07/20/07 1.3786 1.382 34
07/27/07 1.382 1.3646 -174
08/03/07 1.3646 1.38 154
08/10/07 1.38 1.3695 -105
08/17/07 1.3695 1.3474 -221
08/24/07 1.3474 1.367 196
08/31/07 1.367 1.3624 -46
09/07/07 1.3624 1.3767 143
09/14/07 1.3767 1.3875 108
09/21/07 1.3875 1.4081 206
09/28/07 1.4081 1.4268 187
10/05/07 1.4268 1.414 -128
10/12/07 1.414 1.4173 33
10/19/07 1.4173 1.4295 122
10/26/07 1.4295 1.4385 90
11/02/07 1.4385 1.4496 111
11/09/07 1.4496 1.4671 175
11/16/07 1.4671 1.4657 -14
11/23/07 1.4657 1.4836 179
11/30/07 1.4836 1.4636 -200
12/03/07 1.4636 *********


I made this chart to see what kind of swings come along week to week to see if I could in reality handle the dips. Like I said, if you were a responsible trader and could handle the down runs, then you would have made money this year. If I saw a down trend it would be the same story. My simple lay person method is to see those 'big trends.' and take the ride. Tony, you mentioned the ride ending and I agree whole heartedly every trend will reverse but trend changes seem to come on gradually at least when looking at the weekly charts. My only education in forex has been through this website and a book I read. I do see a 'spinning top' on the weekly chart as for this last week and am wondering if the market will reverse? Also I looked at the weekly macd and it looks like things are getting ready to head down. What are you seeing?

Also, I took your advise and looked at the USD/CAD and I see a strong down trend. I see an almost five year old down trend. This last week ended with a 'shooting star' on the chart and I believe the price will drop as it has been dropping since 2003. The 10ema has clearly crossed the 20ema on the 2 hour chart and is in the midst of doing so on the 4 hour. The 4 hour macd is also taking a nose dive. I would sell and sit on it. This year alone this pair has fallen ~1600 pips.

[tonymand]

[quote=greenbackgreg;31899]
What are you seeing?
QUOTE]


OK I will take the challenge just as long as people realise I am not claiming to be right, just putting in another perspective (which may be less effective than yours)

EU is in a long term uptrend. This does not seem under threat. Weakness in the Greenback and I believe pound to come make Euro the obvious place to fly. But if I want to get into this uptrend where do I do it safely. Previous retraces have taken us back to the vicinity of the 60SMA. Each of those places was a relative safe place to buy. We have not had a retrace since July and indeed we have had a sharp rally defined by a straight edge trendline. As you say the spinning top now shows the market undecided and a close below this TL will mark the end of the shorter term rally. A fib retracement anywhere into the 50-78.6 level would be considered fairly standard and would again place a buy closer to the SMA. If you were to buy now you would have to fall below 1.3300 to consider the longer term trend under threat. In fact if you use classic DOW theory you have to have not only a break of the last retracement low but a new lower high and a further break of the low (that second break is the classic definition of the trend change) which could be much lower of course. Now you say that a responsible trader should make sure they can weather a reasonable retracement (I agree) but you have to define where that stop is (even if you dont place it in the market) so that you can calculate your reasonable position size (which is going to be minute if your stop is over a 1000 pips)

The situation is similar with the CAD. Previous retraces have been over a 1000 pips but the precipitous fall to the 8900 region suggests a bigger retrace is possible adn could easily move a 1000 pips from here. At the very least the 60SMA again provides a guide for a likely sell area. However what makes the current situation of more interes is the issue of parity with the greenback and the extent to which this is in Canada's interest. The sharp buying off the bottom certainly indicates that some people believe (rightly or wrongly) that they have got a bargain. Again if looking to sell into the longer term trend you might well have difficulty from this position. If you had sold in the week around 8900 on the basis that for almost a year it had gone down week by week you would now be down over 1000 pips. There are few traders who could weather that thats my point

Anyway whether you agree with me or disagree hopefully I have given thread followers some food for thought. I dont trade the CAD but if I did (and if I used these longer timeframes which I dont) I would be looking for signs of the retrace on the weekly petering out and then use a lower timeframe to execute my short position. This of course is why people use the lower timeframes because the position sizes if the weekly is your only guide are too small

[triphop]

Great post Tony, valuable insight.