Ema Step System.

[tonymand]

Originally Posted by Benjimang

G'day everyone!

Ok, Like I mentioned yesterday, we have an EMA cross on the Daily for GBP/JPY. I've been waiting for hours to enter though, as stochs were high when the new candle formed and RSI(5) values have been up over 80 on most of the lower timeframes and RSI(14) has been up around the 70 mark as well. A few hours have passed since my Daily stepped, and I know that there are those of you out there who are now several hours past the stepping. Good news is that stochs have hit rock bottom on 15 min and 30 min charts and RSI(5) has rebounded off the 20 mark. I would be looking to go long at the next upward crossing on a timeframe higher than 15 mins.

-Benjimang

Hi Benjimang. Just a follow up to my last question to make sure that I fully understand how you trade this method. Seems like you put less emphasis on BB and CCI. You wait for the daily cross, the rationale I expect is that that is the start of the new daily trend. You then take the next set up on the lower time frames so for a long you are looking for the oversold levels on RSI and stoch. If I have got this do you then take repeated signals in the direction of the daily or do you wait for the next daily cross and then again take the first lower time frame cross after that. As I work through your trades is it usually the 30 min timeframe that is your entry signal - thx

[Benjimang]

Hi mate, good to hear from you again.

I haven't started trading the revised version of this system with Bollinger Bands. I still also struggle with making any meaningful imterpretations of the CCI readings. The major indicators I use are:

1. EMA's. Obviously this is the trigger.

2. Stochs. I use this to help me time my entry. Buy on oversold stochs, sell on overbaught stochs.

3. RSI. I use this to help me Stay out of risky market conditions. I don't use it as an aide to entry, more as a warning signal to keep me out. I use a fast RSI (5 period, blue) to help me avoid short term minor retracements (dely my entry if need be) and I use slow stochs (14 period) to identify extreme overbaught or oversold conditions where I can expect a fairly sizeable retracement very soon. Overbaught and oversold conditions are 80 and 20 respectively.

My approach to chart timeframes is:

1. Try to trade on as larger timeframe as possible.

2. Instead of entering on the start of the high timeframe candle, wait for the first confirming signal on a lower timeframe (15min or 30min). This is why most of my trades seem to be placed on the 30min timing, even if I was actually trying to catch a 'large 4h or daily' morve. By picking my timing on a lower timeframe I can essentially shoot for the high profits of the higher timeframe whilst keeping the tighter stoploss of the smaller timeframe.

3. Keep an eye out for multiple timeframes lining up. This is the most powerful trade: when at least three timeframes show the same entry signal at the same time.

With respect to taking repeated trades in the direction of the daily, I do, but not many. I try to get my entry for the daily, then hold it till stochs run out of puff on the hourly or 4h. That said, If I make a large run, I won't enter again unless I see a sitting duck, so to speak.

Finally, I wouldn't class me as a successful trader just yet. I seem to have the system fairly well grasped, but I'm still tackling the psych part. Getting there though.

Cheers,
Benjimang

[tonymand]

Thanks Benjimang.I am sat here currently working through the charts and trade examples. Thats a helpful summary - cheers

[tonymand]

I think I have got my head around this now. As Benjimang said in one of his posts what seems very obvious to those who trade it can take significant grey matter to get to grips with when it is written down. Given that the cowabunga seeks to trade in line with the higher timeframe and uses RSI and Stochs to detect where in the trend you are but uses a 5 and 10 EMA rather than 1 and 5 on the entry timeframe would it be fair to assert that they are similar methods exploiting similar principles but the use of the tighter MAs on the Step leads to more rapid entries. I am not detracting from the method at all as the results speak for themselves, just trying to get my head around it all

[Lobo]

Besides GBp/jpy wich ones are good pairs to use this method (10 pip spread with this currency, no good for me)

I live in NY.

Thanks

[Benjimang]

I'll be honest with you Tonymand, I have never actually read through the Cowabunga system. Also, in all seriousness, this system is nothing earth shattering in that it uses only a few, very simple indicators. Where it IS earth shattering, in my opinion, is in the theory behind it.

Trigger:

Basically, this system trades around a 5 period EMA. Waiting for the 1 period EMA to cross the 5 is the same as waiting for a new candle to form on the opposite side of the 5 EMA. You don't need the 1 EMA, but it certainly helps me see what's happening. As Maurizio says, 'X marks the spot'.

What this does is it essentially seeks to find moments when the most recent candle has accelerated significanlty from the last 5 candles. Therefore, this system uses price action as it's trigger. This trigger is successfully finding points where trends typically start in currency markets. However, by using short period EMAs, the trigger may result in more false signals than using slower EMAs, so we need to filter out false signals.

Filters:

Stochs, more than anything, are an indicator of investor sentiment. A vast many traders use stochs to gauge overbaught and oversold conditions and act on them accordingly, bringing markets 'back into line'. This makes stochastic analysis a self-proving indicator. Maurizio has applied this indicator to guage when we might be looking at the start of a long run, already halfway through it, or just jumping in near the end of one. This filter helps us get into trades at the right time.

RSI tries to graphically show how long a given run has lasted and how quickly it it accelerating or decelerating. I personally think the RSI is the best thing since sliced bread for telling when a market is likely to turn back on itself as it reaches market extremes (usually around 80/20). As with stochs, many investors react to RSI values as they hit very high or very low values. This indicator warns us when we might be trading in the current direction, but at a time when most investors' confidence in the run is coming to an end. In other words, this filter helps us stay out of potentially disastrous trades.

Whilst I still haven't used Bollinger Bands with this system yet, I can certainly see it's value. So far I've only mentioned the idea of identifying trends. Well, a range is essentially made up of many alternating short term trends. This filter gives you not only an idea of whether you're facing a false signal or not, but it helps to set realistic profit targets, and effectively trade a ranging session.

So, having said all that, I hope everyone here can try to get an understanding of WHY these indicators work so well together. They each have strategic value. Now, in no way am I going to try to take credit... Maurizio put all the time and effort into selecting which indicators work well together. I would just prefer that people new to this system don't just trade it as a bunch of lines on a page, but to try to understand how these indicators help us to understand price movements.

-Benjimang

[Benjimang]

Originally Posted by Lobo

Besides GBp/jpy wich ones are good pairs to use this method (10 pip spread with this currency, no good for me)

I live in NY.

Thanks

G'day mate, I trade a vew different pairs. I started out by trading heaps of pairs but got burnt by most of them. This system seems to work best with GBP/JPY, and in all honesty, there's usually enough price movement through different timeframes to be able to make good gains with this pair alone. However, if you want to brach out, these are my pics:

EUR/JPY - EUR is a great substitute for GBP. Economically tied together, these currencies are closeley correlated. Spread is lower on this pair and price action is usually very similar. In fact, sometimes I use this pair to confirm decisions I'm making about GBP/JPY.

GBP/CHF - CHF is a great substitute for JPY. Due to their very low swap rates, these currencies are usually used as base currencies for trading strategies. When the global economy is looking good, bot these currencies have a hard time (as investors back high yield currencies). Alternatively, in hard times (like our current US sub-prime concerns), these pairs usually strengthen. Importantly, they tend to weaken or strengthen together. whilst you still might pick a move here that you missed on GBP/JPY, the spread is just as bad. Which bring me to:

EUR/CHF - This pair is slightly sketchier than the others. I think this is because the system is built around GBP/JPY, and this pair uses 'replacement currencies' on both sides of the trade. I've still made some money with it in the past. Oh, and a low spread.

Check out USD as a replacement for GBP or EUR too, but I find it too mentally taxing. The USD pairs using low yield currencies whipsaw too much for my liking.

-Benjimang

[tonymand]

Originally Posted by Benjimang

Filters:

So, having said all that, I hope everyone here can try to get an understanding of WHY these indicators work so well together. They each have strategic value.

I would just prefer that people new to this system don't just trade it as a bunch of lines on a page, but to try to understand how these indicators help us to understand price movements.-Benjimang

Exactly!! and thanks again for your thoughtful and detailed response

[awi69]

Hello everyone..
I'd like to foremost thank Maurizio for coming out with this system and would also like to thank everyone else for supporting this thread by giving their input. As a forex newbie, I really appreciate and thank my lucky stars for coming across this thread.

After reading this thread thoroughly and looking at historical charts, I'm pretty convinced of it's success. However, as I'm still on my demo account, I think I'll test it out on my demo account first thing tomorrow. But I suspect I may only have some strong signals only in the afternoon when the European markets come to life (I'm in the Asian trading zone and Monday mornings are a little slow).

Hope I'll get to share with you news of my profits soon. Thanks again everyone. Happy trading

[ChowClown]

...in with a few long Yens.