A Super Simple Trading System:

[finally]

Greetings Fellow Traders,

I have been trading in the stock market since 1980 and Forex for the last few years.
I recenty joined BabyPips and have found some good ideas on this site which I usually tweak to arrive at a trading method.

In return, I’d like to share a super simple trading system which I found on another forum.
On the other forum, people were using this system and making money.

I haven’t tried it yet, but I have eyeballed the charts and it looks quite promising.

The purpose of this thread is to add ideas which might improve an already profitable system.

I am going to try it live, for the first time, on Sunday.

The System:

"Create a weekly chart. Place trades 50 PIPS above or below the close for the previous week. Use a fixed 30 PIP stop. No profit targets. Let the trade run for the entire week and close during the final 30 minutes of the market for the week. The great feature of this system is that more often than not the weekly trend will establish itself and stay in tact from the Monday or Tuesday of the trading session for that week.

GBP/USD Example:

Previous weekly close: 1.9597
Buy: 1.9647
Sell: 1.9547

The following rule is a bit different than most trading systems of this style:

If the “Buy” is executed, move the sell up to the previous weeks close (1.9597 in this case)

If the “Sell” is executed, move the buy down to the previous weeks close (in this case likewise 1.9597)

These two rules permit a more robust and agressive entry after losing trades.

Recommend volatile markets (USD/CHF, GPB/USD, etc.)

This system averages approximately 150 pips per week in the GBP/USD market without any intervention. I am a big believer that most people over trade the market. This system will minimize your trades by its very nature."

[MattW2009]

I’ve just done a quick indicator on my chart to show if a weekly bar moves more than 50 pips in both directions. Apparently it does around 85% of the time, so this would suggest that most of the time the first trade is a loss and the second is the one that brings in the money.

Given this, maybe a tweak would be to skip the first trade and once price has moved 50 pips in one direction, place the opposing order at the week’s open price.
This would get hit 85% of the time and would run to the end of the week except in a whipsawing market where the original rules would give you two losses rather than one.

[finally]

I’ve just done a quick indicator on my chart to show if a weekly bar moves more than 50 pips in both directions. Apparently it does around 85% of the time, so this would suggest that most of the time the first trade is a loss and the second is the one that brings in the money.

Given this, maybe a tweak would be to skip the first trade and once price has moved 50 pips in one direction, place the opposing order at the week’s open price.
This would get hit 85% of the time and would run to the end of the week except in a whipsawing market where the original rules would give you two losses rather than one.

Thanks Matt for the test.
However I think that the most important factor is where the weekly price CLOSES.
Granted an 85% chance of the market moving more than 50 pips in either direction is very encouraging but the most important factor is where the price CLOSES for the week.

Are you able to test the percentage of times that the weekly price CLOSES more than 80 pips from its opening?

This will tell you the percenatge of the time that the trade AT LEAST breaks even (assuming you lost 30 pips on the other side, if you didn’t lose the 30 pips on the other side, then all you need is a 50 pip move in one direction to break even).

The best test for this method would be: What is the average nimber of pips that the weekly price closes from its open.

This would tell you what your average profits might look like.

If you know what your average profit might be, then just assume that you lost 30 pips on the other side (even though you might not have lost any pips on the other side because you might not have entered the trade) and then you will know what your average profit migt be.

Then you can test the number of times that the trade wins/loses and multiply that by your average profit to obtain a return on equity.

As far as yor point about only taking one side of the trade (after it moves 50 pips in the other direction) I don’t know the OPTIMAL way to play it but I would be inclined to take BOTH trades because I would not want to miss out on a BIG trade.

My inclination here is to play BOTH trades because the basic idea behind this system is to try and hit the BIG trade.

If you hit only one big trade per month, this should make up for 3 losng weeks, if you even get that many losing weeks.

Are you able to do any of the above tests?

Regards,

Michael

[finally]

I have eyeballed the Eur/Jpy for the last 3 years.
It appears that the average close is around 2 points from the opening.
So, if you don’t get stopped out , your average profit will be around 2 points.

[MattW2009]

Thanks Matt for the test.
However I think that the most important factor is where the weekly price CLOSES.
Granted an 85% chance of the market moving more than 50 pips in either direction is very encouraging but the most important factor is where the price CLOSES for the week.

Are you able to test the percentage of times that the weekly price CLOSES more than 80 pips from its opening?

This will tell you the percenatge of the time that the trade AT LEAST breaks even (assuming you lost 30 pips on the other side, if you didn’t lose the 30 pips on the other side, then all you need is a 50 pip move in one direction to break even).

The best test for this method would be: What is the average nimber of pips that the weekly price closes from its open.

This would tell you what your average profits might look like.

If you know what your average profit might be, then just assume that you lost 30 pips on the other side (even though you might not have lost any pips on the other side because you might not have entered the trade) and then you will know what your average profit migt be.

Then you can test the number of times that the trade wins/loses and multiply that by your average profit to obtain a return on equity.

As far as yor point about only taking one side of the trade (after it moves 50 pips in the other direction) I don’t know the OPTIMAL way to play it but I would be inclined to take BOTH trades because I would not want to miss out on a BIG trade.

My inclination here is to play BOTH trades because the basic idea behind this system is to try and hit the BIG trade.

If you hit only one big trade per month, this should make up for 3 losng weeks, if you even get that many losing weeks.

Are you able to do any of the above tests?

Regards,

Michael

I’m working on Cable since Jan 2008.

100% of weekly bars move at least 80 pips in either direction.
~85% of weekly bars close more than 80 pips from the open.

Average absolute value of close from open (taken as an MA over the last 20 weeks) is 175 pips.

[MattW2009]

I have eyeballed the Eur/Jpy for the last 3 years.
It appears that the average close is around 2 points from the opening.
So, if you don’t get stopped out , your average profit will be around 2 points.

On EUR/JPY I get an average bar change of 195 pips, not 2?

[hess]

this system was originally devised by a trader called tkimble over at ff, it was popular for a while a few years ago but then ran into several losses in a row.

[MattW2009]

this system was originally devised by a trader called tkimble over at ff, it was popular for a while a few years ago but then ran into several losses in a row.

I’ve modified the rules slightly for ease of back-testing and this is what I’ve come up with:

Take a long on GBP/USD if the price starts the week, drops by 50 pips and then re-passes the opening price (so entry at weekly open). Close trade at end of week with a stop at 30 pips below open.

Results are maximum four losses in a row over the last 2 years. AVERAGE per week across winners, losers and no trades is 80 pips (would be higher if you discount no trades, probably about 100 pips).

However there are certain assumptions made here such as price strictly trending and not whipsawing so I would expect to see results slightly less than this.

[Davidee]

Thanks,

Do you have a link to the original system for me to look at it in more details please?

[finally]

I’ve modified the rules slightly for ease of back-testing and this is what I’ve come up with:

Take a long on GBP/USD if the price starts the week, drops by 50 pips and then re-passes the opening price (so entry at weekly open). Close trade at end of week with a stop at 30 pips below open.

Results are maximum four losses in a row over the last 2 years. AVERAGE per week across winners, losers and no trades is 80 pips (would be higher if you discount no trades, probably about 100 pips).

However there are certain assumptions made here such as price strictly trending and not whipsawing so I would expect to see results slightly less than this.

Matt,

What type of bars did you use to test this?

Surely you can’t determine if you would have been stopped out using weekly, daily or hourly bars.

Did you use 15 minute bars or less, in order to look at the intraday action?

This sounds like good statistics if you were able to accurately determine if you would have been stopped out.

[MattW2009]

Matt,

What type of bars did you use to test this?

Surely you can’t determine if you would have been stopped out using weekly, daily or hourly bars.

Did you use 15 minute bars or less, in order to look at the intraday action?

This sounds like good statistics if you were able to accurately determine if you would have been stopped out.

No, this wasn’t in-depth testing that was purely looking at weekly bars on a standard chart. As I said I would expect results on a 15 min chart to be slightly less due to whipsaws but it shows the theory has some potential

[finally]

No, this wasn’t in-depth testing that was purely looking at weekly bars on a standard chart. As I said I would expect results on a 15 min chart to be slightly less due to whipsaws but it shows the theory has some potential

How can you tell if you would have been stopped out, using weekly bars for testing?

[MattW2009]

How can you tell if you would have been stopped out, using weekly bars for testing?

Ok it was only generalised as I said in my previous post as one has to assume that the market is trending. However I’ve taken it down to 15 minutes to give you some precise statistics.

At 15 minutes, my data only goes back less that one month (3 weeks) so this is not exactly indicative! I suggest scrolling back through your charts for a year or two and test out some rules to see what proves to have merit.

So, using my modified rules above over 3 weeks we have:
Loss: 2 (-60)
Win: 1 (509)
Total: 449

The only thing I can determine from that is that a wider stop, such as 50 pips, would have turned one of the losses into a potential winner.

[finally]

Ok it was only generalised as I said in my previous post as one has to assume that the market is trending. However I’ve taken it down to 15 minutes to give you some precise statistics.

At 15 minutes, my data only goes back less that one month (3 weeks) so this is not exactly indicative! I suggest scrolling back through your charts for a year or two and test out some rules to see what proves to have merit.

So, using my modified rules above over 3 weeks we have:
Loss: 2 (-60)
Win: 1 (509)
Total: 449

The only thing I can determine from that is that a wider stop, such as 50 pips, would have turned one of the losses into a potential winner.

Were these results using your idea of waiting until price moves 50 pips in one direction and then back through the opening or were these results obtained using the original method outlined in the opening post?

Unfortunately I am only able to scroll back a few weeks as well, so I don’t think a statistically significant historical data test is possible.

It seems like the only way to accurately test this method is to test it going forward.

I don’t think that demoing this method for a few months will give you any satistical significance because a few months is not a large enough sample.

So, I am going to test it live tonight with just 1 micro unit with my total risk on the trade being a whopping $6.

I am going to use the guy’s original method as outlined in the opening post.

I will post my results and let you know how I do.

The hope here is that you get 1 big week out of the month that moves in 1 direction from the opening and that big trade will more than make up for any potential losers.

[MattW2009]

Thinking about it, you’re looking to trade the weekly charts so a 30 pip stop will definitely be too tight.

[dpaterso]

Hello,

Not to detract from the system that you’re testing here BUT: if this is the type of thing that ‘floats your boat’ then you should also take a look at some of Larry Williams’ ideas on the subject (I forget now the term that he uses to describe this type of methodology) e.g. buy the S&P 500 at the open ONLY on a Monday and sell at the close ALWAYS three days later (always REGARDLESS of the result) or sell the S&P 500 at the open ONLY on a Monday and close the position out at the close (always REGARDLESS of the result) on the same day. That type of thing. I myself did much research on this a while back and found that there is a DEFINITE ‘Trade Day Of The Week’ (one of Larry’s terms) bias (well for the S&P 500 anyway) that lasts for a VERY long period of time (years as a matter of fact). The ‘Trade Day Of Week’ bias DOES change over time, however, so you need to watch out for this (which is relatively easy if you construct an indicator to indicate that the bias is gradually starting to change).

This is ‘out of the box’ thinking (and trading) of course and in my opinion definitely has merit. Maybe you could find similar patterns in forex trading (bearing in mind that pairs like EUR/JPY, USD/JPY, and GBP/USD mimic quite closely the movement in equities so there’s no reason why this shouldn’t work to some degree).

(If anyone is REALLY interested I’ll ‘dig up’ my testing results for the S&P 500).

(Note: the examples given above for trading the S&P 500 using this methodology are ONLY EXAMPLES. I’m not saying that those ARE the patterns currently).

Regards,

Dale.

[finally]

Thinking about it, you’re looking to trade the weekly charts so a 30 pip stop will definitely be too tight.

Do you think a 50 pip stop is wiser?

[MattW2009]

Were these results using your idea of waiting until price moves 50 pips in one direction and then back through the opening or were these results obtained using the original method outlined in the opening post?

Unfortunately I am only able to scroll back a few weeks as well, so I don’t think a statistically significant historical data test is possible.

It seems like the only way to accurately test this method is to test it going forward.

I don’t think that demoing this method for a few months will give you any satistical significance because a few months is not a large enough sample.

So, I am going to test it live tonight with just 1 micro unit with my total risk on the trade being a whopping $6.

I am going to use the guy’s original method as outlined in the opening post.

I will post my results and let you know how I do.

The hope here is that you get 1 big week out of the month that moves in 1 direction from the opening and that big trade will more than make up for any potential losers.

Yes, that was based on it moving back through the opening rather than the original method. The original would have had an extra 3 losses in it.

I think the key to this strategy is several small losses whilst waiting for the big winners. I have no doubt that this strategy, in either form, will prove profitable in the long run.

I believe there are MT4 demos with brokers available that have significantly more data if you wish to back-test over a longer period.

As an aside, there are numerous strategies based on a similar premise to this one, including the Sunday Breakout thread started by Phil which itself has proven to be profitable over many years.

[MattW2009]

Hello,

Not to detract from the system that you’re testing here BUT: if this is the type of thing that ‘floats your boat’ then you should also take a look at some of Larry Williams’ ideas on the subject (I forget now the term that he uses to describe this type of methodology) e.g. buy the S&P 500 at the open ONLY on a Monday and sell at the close ALWAYS three days later (always REGARDLESS of the result) or sell the S&P 500 at the open ONLY on a Monday and close the position out at the close (always REGARDLESS of the result) on the same day. That type of thing. I myself did much research on this a while back and found that there is a DEFINITE ‘Trade Day Of The Week’ (one of Larry’s terms) bias (well for the S&P 500 anyway) that lasts for a VERY long period of time (years as a matter of fact). The ‘Trade Day Of Week’ bias DOES change over time, however, so you need to watch out for this (which is relatively easy if you construct an indicator to indicate that the bias is gradually starting to change).

This is ‘out of the box’ thinking (and trading) of course and in my opinion definitely has merit. Maybe you could find similar patterns in forex trading (bearing in mind that pairs like EUR/JPY, USD/JPY, and GBP/USD mimic quite closely the movement in equities so there’s no reason why this shouldn’t work to some degree).

(If anyone is REALLY interested I’ll ‘dig up’ my testing results for the S&P 500).

(Note: the examples given above for trading the S&P 500 using this methodology are ONLY EXAMPLES. I’m not saying that those ARE the patterns currently).

Regards,

Dale.

I can add to that. It was on the Sunday Breakout thread, I think, that they pulled up some analysis on GBP/USD that showed that (at least currently) trends tend to start most often on Mondays and Fridays. Thus opening on a Monday is a good day. Friday not so much in my opinion due to the potential for weekend gaps which give you no opportunity to manage a trade that starts to bomb.

[finally]

Hello,

Not to detract from the system that you’re testing here BUT: if this is the type of thing that ‘floats your boat’ then you should also take a look at some of Larry Williams’ ideas on the subject (I forget now the term that he uses to describe this type of methodology) e.g. buy the S&P 500 at the open ONLY on a Monday and sell at the close ALWAYS three days later (always REGARDLESS of the result) or sell the S&P 500 at the open ONLY on a Monday and close the position out at the close (always REGARDLESS of the result) on the same day. That type of thing. I myself did much research on this a while back and found that there is a DEFINITE ‘Trade Day Of The Week’ (one of Larry’s terms) bias (well for the S&P 500 anyway) that lasts for a VERY long period of time (it does change over time however so you need to watch out for this).

This is ‘out of the box’ thinking (and trading) of course and in my opinion definitely has merit. Maybe you could find similar patterns in forex trading (bearing in mind that pairs like EUR/JPY, USD/JPY, and GBP/USD mimic quite closely the movement in equities so there’s no reason why this shouldn’t work to some degree).

(If anyone is REALLY interested I’ll ‘dig up’ my testing results for the S&P 500).

(Note: the examples given for the S&P 500 above are ONLY EXAMPLES. I’m not saying that those ARE the patterns currently).

Regards,

Dale.

Thanks alot Dale for the input.
I like thinking “outside the box” when it comes to trading.

Larry Williams (and I love his creativity) idea of certain days having statistical significance is echoed by Yale Hirsch in his "Stock Traders Almanac"
where he analyzes the odds of playing certain days , going back 100 years.

I don’t know if Williams concepts would apply to Forex because it seems like the factors that effect the stock market are different than the factors that effect Forex but I think reading his ideas on this subject could apply to Forex.
In addition, Forex trades 24 hours with no gap openings, unlike the stock market.

I think that if you trade the stock market, you might be able to find a way to make William’s and Hirsch’s concepts on this subjects profitable.

However, currently I am only trading Forex but I would like to read William’s book on this subject.

Does he have a book on this subject or are his ideas on this subject just interspersed throughout his writings in diferent books?

Regards,

Michael