I haven’t seen this entry technique posted yet, but if it has been tried, please direct me to when the results/comments are posted.
In my quest to find an indicator-less entry system, I’ve come across an idea that I’ve briefly looked over on some charts and it seems to make some sense. However, two points right up front: I have not yet backtested it; and these entries wouldn’t normally seem to coincide with any instituation buying trigger. But it does seem interesting to me and I’d like to know if anyone has tried anything similar, or has any ideas for improvement on this.
System Theory:
Borrowing from the Tunnel of Five’s method, get the EMA(5) applied to the HIGH and the EMA(5) applied to the LOW on the DAILY Chart. (I know, I know…I’m not 100% indicator-less yet, but I’m working on it…)
Get the current range: EMA(High)-EMA(low)
If we are in an UPTREND (defined however you wish to define an Uptrend), add Fibonacci Levels within the range, with 0% being the cuurent EMA(Low) and the 100% level being the EMA(High) on the Daily Chart.
Once your lines are drawn, move to the 15 minute chart. Look to go LONG if the price either bounces off the 23.6% level, or crosses-up and closes above the 23.6% level.
In a strong UPTREND I would think one could go LONG at the 50% level.
Stop-Loss would be one Fibonacci Level down (23.6% if you entered at 50%, 0% if you entered at 23.6%, etc…)
Take profit at the 100% level (or add a trailing stop that’s triggered at the 100% level). If a trailing stop it implemented, I’d use the pip distance between the 100% and 61.8% levels as the trailing stop number.
Reverse this info if you are in a Downtrend and looking to go SHORT.
Here’s a LIVE example. The trigger for this trade came at 6:45pm New York Time.
Here’s the Daily Chart. I don’t have them in here but the 200 SMA>150 SMA, so we’ll be looking to go SHORT. Note how we draw Fibonacci retracement lines from the 5 EMA (applied to the Daily LOW) to the 5 EMA (applied to the Daily High) of the previous day’s close (in this case the close at 17:00 EST on Jan 11). (Chart1.jpg)
Next, zoom in to the 15M Chart. We see here that the candle closed below the 38.2% line. Therefore, we ENTER SHORT at 1.0351 (the opening of the next candle). Our Stop Loss is 1.0393 (the 5 EMA applied to the Daily HIGH). Our Take Profit is 1.0303 (the 5 EMA applied to the Daily Low). (Chart2.jpg)
I’ll post the results of this one after 4pm New York time (or later if the trade is still active).[ATTACH][/ATTACH]
We were stopped-out for a loss at 8:45 am New York time. I should not have been in the trade at the time anyway since there were two economic news items being released out of Canada at 8:30 am EST…
The chart shows where we were stopped out (at our previously set stop loss of 1.0393) for a loss of 42 pips.
I’ll continue to add performance as the signals come in.
I personally see it risky to enter on the lower fib levels simply because the majority of retracements end at 61% or 76% regardless of an EMA signal that captures so little info that even small price fluctuations can heavily manipulate. The only trading opportunities that arise at 23 or 38 are when price is extended in either a strong bull or bear move. More often than not these levels will be taken out.
There are several types of correction that occur frequently in Forex. Before wasting time on trend indicators and oscillators study Elliott Waves corrective patterns. This will help determine if a move is constructive or corrective. If a move is corrective then it merits buying (or selling) on a fib level depending on its type. If it is constructive, then it should be avoided since 100% fib level is likely to be taken out. The next step is defining the type of correction. The type can either be triangle, flat, zigzag or irregular. Once you know which, you can easily spot the most probable turning point and execute your position from here with a stop/loss always below 100% shifting it immediately higher (or lower) once price moves in your favour, in particular, when the recent high (when buying) or low (when selling) is taken out.
Hope this helps… It has helped me immensely. My advice for what it’s worth… Sack ALL indicators and focus on price movements and market sentiment. In my studies, indicators show buys and sells when price is about to correct. If you maintain a position for long enough you may get your money back. I have never met anyone who makes money from indicators. These are for people who enjoy playing with charts and drawing on them, changing colours, drawing shapes etc… Ok it’s fun to study but serious people snub these because they simply don’t make money. Perhaps in the short term but they do not in the long term. Markets are more complex than buy above a moving average or sell when price is over-bought or even buying on a positive divergence.
