I am developing a strategy that should be implemented at the onset of an aggressive trend on the H1 candle. I tried to auto pilot the EA, but I do not at the moment have sufficient explanatory and response variables to model the optimal combination of indicators.
I would be very interested in your ideas on how to minimise false trending signals on the H1 candle. My current basic trend entry at a high level is: Price Cross over VWAP(14) and or VWAP(14) & Parabolic SAR Cross.
I also refer to MACD, ADX and RSI; the RSI should not be in the mid range i.e. 40 > RSI > 60.
Would appreciate your insight to minimising false signals on trend trades.
VWAP doesn’t exist for spot forex, as there’s no centralised market and therefore no way of recording volumes transacted. If a broker is purporting to present something called VWAP, it can only be the volumes of their own customers, I think, or their own liquidity providers - certainly not that of the interbank market and [I]maybe not even representative of it[/I].
Charts are mostly fractal, so false trend signals on H1 bars/candles aren’t any different in principle from those on any other time-frame.
In general, a way of reducing false trend signals is to confirm them by looking at whether or not there’s a trend in the same direction on one or more higher time-frames. In this instance, you might try that from H3 (and maybe also H8) time-frames. Doing this will certainly increase the overall reliability of the signals in your own time-frame, but of course that doesn’t necessarily mean that taking only the signals that match the time-frame(s) will also increase overall profit, because reliability (win-rate) and profitability are two different parameters, and sometimes increasing the trading frequency (e.g. by including the ones that don’t match the trend-direction of higher time-frame(s) will more than compensate for the reduced reliability. Only testing can tell you this.
In general, the “mistake to avoid”, in this context, I think, is to imagine that trying to “confirm” the signals given by indicators by adding more indicators is likely to be a sensible or productive way forward.
And I honestly don’t know whether anything I’ve said will actually have helped, but there it is, anyway. :8:
As much as i’d like to comment on this with some kind of educated response that is built on a foundation of proven facts - I’d be kidding myself.
One thing that I have come to realise over the 9 years or so of trading [from my learning days to present], is that I have only ever focused on the charts. I’ve never really looked [in much detail], into what FX trading consists of from a ‘[I]behind the scenes[/I]’ prospective. This is all good and well, I suppose, as profitability comes from managing ones risk, and that of understand price and its function.
Essentially, the point I’m trying to get across [and perhaps failing at], is that for all sake and purpose the FX charts that I trade off of on a daily routine could just as well be the price quoted for belly pork. I would go as far to say that I actually have no interest in what the actual exchange rate is for any and all of my trades.
Obviously, here speaks a true ‘chart driven trader’ where by I really only ever take into consideration pure ‘price action’ [my god, I really hate that term, too]
So, what would the main difference be if spot FX was Centralized?
It’s funny actually, someone who has been trading for nine years, and someone who is profitable [eventually], is only now asking these questions. I openly admit that I only ever paid attention to the ‘front facing’ aspects of FX trading, rather than the latter.
Hey Ropunzel, The Insto’s game is steering the indicators to false signals… that’s how they generate liquidity… The less indicators you can program into your EA the better. More profit will be found programing the trade to hold for a second confirmation candle than volume of indicators.
I assume that you mean VWAP 14 (Open) and VWAP 14 (Close)? The VWAP Indicator raw or as a MA does lag quite a bit compared with other indicators available.
The Parabolic SAR Indicator is one of my prefered indicators. Sharpening up the Min AF to 0.015 (std 0.02) can indicate trend changes a candle or two earlier.
The RSI is a good indicator but very similar is the CCI (CommodityChannelIndex), another reasonably reliable Indicator which set at -95 +95 can display price pivots.
I used to rely on the MACD Cross / Histogram early on but found that it confused while trading price action.
I don’t think looking at higher time frames will provide any advantage if the charts are fractal.
What if you forgo trying to get in at the onset of a trend and instead wait for the trend to actually develop, to get in on a bounce off the moving average; medium and long running trends tend to correct to around the moving average before proceeding in the trend direction.
Trend-following - my favourite and only trade. Choice of entry signal won’t affect your bottom line as much as where your initial stop goes and how long you let the trade run.
Ok, I think I understand your point about letting the trend run etc…, but using your basic setup to determine the onset of a trend, how do you know the trigger will not be a false flag.
You can never say any type of signal will definitely not be a false flag.
But trends are objective to identify, with not very critical entry price levels, and at least as good reliability as any traditional text book chart pattern. And it is easy to see that periodic trends and their embedded trades run to very considerable new levels, off the scale of any realistic TP calculation from entry point.