Can I receive some help in developing my own trading strategy? Thank you so much!

ArturitoTDT · May 22, 2019, 4:48am

Hi, and thank you for coming over to my post. I am currently trying to develop my own trading strategy and am in need of some help. I want to confirm if the logic behind my trading strategy is sound for a demo test or a run with a small account. I would like to add in a question too which is if trading strategies lose their edge the more people know or trade a particular strategy or system? I have not had much success in finding a post on the forums clarifying this specific question. The trading strategy is stated below along with some trading rules I have created for consistency.

My personal price action based Bollinger Band Reversal trading strategy

Currency pairs: All the Majors and their respective crosses.

Time frames: 30m for entries, and 2h for determining the trend.

Indicators: Bollinger Bands on the default settings, and the Stochastic with the (13,5,5) settings.

Strategy rules (for short entries, the reverse is true for long entries):

A reversal candle (this will be called the “trigger candle”) is required for entry such as a bearish pinbar, or a bearish engulfing candle. Pinbar candles must have an upper wick at least 50% of the range of the whole entire candle, and pinbars do not necessarily have to close lower than its open price to qualify as a bearish pinbar. Bearish engulfing candles must engulf the previous candle’s trading range and close below the previous candle’s low.
Very important: The reversal/trigger candle must stick out like a sore thumb from the rest of the price action forming a peak (visually).
The trigger candlestick must be touching the upper bollinger band or be above it.
Stochastics must be overbought (above or at the value of 80) for both the K and D lines.
Use a series of higher highs and higher lows with the higher time frame of 2h to determine an uptrend or use a series of lower highs and lower lows to determine a downtrend. Only short in a downtrend, and only long in an uptrend by trading in the direction of the higher time frame. Going long or short are both okay for entry when the market is trading sideways on the higher time frame.
Draw support and resistance levels in order to determine potential areas of excessive supply or demand on the 30m time frame. The levels or areas will be used as profit targets to determine if the trade is worth taking depending on how far away a support or resistance level is from the entry price.
Place a stop loss order 8 fractional pips above the trigger candle’s high (after rounding the high to the nearest pip) then, factor in the spread if necessary depending on wether or not the trade is a long or short setup.
Enter only when the next candle breaks the low of the trigger candle (at 8 fractional pips below the low of the trigger candle) then, once again factor in the spread if necessary.
Target at least 1.5x (this rule is arbitrary and only utilized as a baseline for a potential profit target and to improve consistency of the trading strategy) the number of pips of the stop loss distance from the entry price for a risk to reward ratio of 1:1.5 or better. Target 8 fractional pips above the nearest support level for a short setup. After setting the target, factor the spread if necessary.
Only trade with a risk to reward ratio of 1:1.3 or better after factoring in the spread. Risk only 2% of account equity per trade and don’t risk 4% or more of the account equity across multiple trades at once. Note: Make sure that if you’re taking multiple trades simultaneously, the trades are uncorrelated. For example, you do not want to go long the EUR/USD and short the USD/JPY doubling your overall risk. Make sure to close all trades before the weekend or when your broker closes trading.
The goal of this trading strategy is to short rallies in a downtrend, and long the dips in an uptrend through multiple time frame analysis.

Thank you once again for taking your time into reading this and I await your replies !

J_C_Anderson · May 22, 2019, 7:11am

You should not worry about other people using the same strategy due to the OTC nature of Forex market. In fact, each traders operates within the simulated environment created by his broker, so different traders are not direct competitors. Some issues could probably occur if more than half of the volume of the particular broker would be traded by traders using the same profitable strategy because it is necessary for the broker to keep the balance between losses and profits af all his clients, otherwise the broker would need to hedhe that positions at the real market.

By the way, some of the stock traders intentionally share their strategies with other. Each time seeing the setup, their followers would think like “Opinion_Leader_Name always buys in such setups, I`ll by too!”, and since they mostly trade small cap stocks, these followers add speed to the movement influencing the price.

ontario · May 22, 2019, 8:32pm

You have sound understanding of FX basic concepts essential for developing the strategy but can you explain to yourself why those indicators or their combination can indicate shifts in supply and demand? Basically Bbands and stochastic are calculated by some formula where the input is price and what you want to say is that price predicts itself in some short interval (that you use for analysis).The only way to find prove or refute your strategy is to test in history.

Have you tried to do that?

Richpickings · April 8, 2022, 1:37pm

Sounds like you’ve put some work into this so fair play. TIME and PATIENCE, are huge factors, that few folk talk about. Reduce the number of charts you play per week and ultimately the number of positions you take and you will improve. Familiarisation = confidence and clarity. Too MUCH is exactly that, in the currency markets. Keep it SIMPLE and SELECTIVE, trust your judgement and give it TIME. You have to GIVE, to RECEIVE in this game.

darthdimsky · April 8, 2022, 6:39pm

Hi,

A few questions:

One rule of thumb, that I came across in a book or 2, is that the wick should be a minimum 2/3rd (67%). How were you influenced to set 50%?

Upper bollinger band of which standard deviation? For context I’m trying out a strategy now where exits are based on price action exceeding the 2nd standard deviation.

Since the entry is at a Boll band extreme would it mean that you’d be catching ranges on higher time frames (where price is oscillating around the MA that the Boll band is based on) or a reversal with a noticeable spike?

Since I’m trying to follow the trend I’m focusing on trades in the opposing direction (price action testing an MA and moving away from it). For e.g.

Not saying you should take this approach but illustrating where I’m coming from.

The SL requirement will vary between currency pairs (high volatility pairs like GBPJPY are worth testing this against I think). Might require extensive testing. But I don’t know the 2hr/30 min time frames tbf and 8-pips above candle high seems very generous, especially since you’re already aiming at a reversal from a bollinger band price extreme.

It looks like a really well thought out strategy tbh. Have you backtested it against multiple currencies?

Edit: Just noticed that this was a post from 2019… @Richpickings - why’d you resurrect an old post? The OP is probably no longer active to watch your reply anyway.