Fernan's Trading Blog

[fernan]

Squeeze Momentum Indicator (by LazyBear)

I decided to backtest this strategy because it is the most popular strategy in TradingView right now, and I wanted to try coding a bit of strategy on Pinescript.

So how does it work?

You simply pay attention to the crosses and the histogram bars!

If the cross was black and turned grey, follow the trend of the histogram, and exit when the shade of bar turns darker.

I’ve marked the points where you should be placing your orders and exits on the screenshot below.

That’s it! But how profitable is it really? Well, let’s see.

I wrote a simple strategy on TradingView following the rules of the indicator to backtest several instruments.

Here’s how it looks like backtesting the strategy on Apple stocks on a two-hour timeframe for last week.

Apple (Stocks)

• 3M timeframe for last week triggered 14 trades, 50% profitable. extending the backtest to the week before drops it to 38% profitable. Not interesting.
• 45M for last week triggered winning trade. Extended the backtest to whole of November, it triggered two trades, dropping the profitable % to 50%. Same results with 1H timeframe
• 2H is probably to most interesting one. Backtested for whole of November, triggered 4 trades, all winners. Pushed the backtest to start from June, and it’s still high, 70% profitable.

GBPUSD (Forex)

• I used GBPUSD as my sample for forex. Indicator performed really bad, most of the results didn’t stand out to me because they had a less than 50% profitable.
• 45M from 1st November triggered 8 trades, 62% profitable. This is the highest % I could find.

BTCUSD (Crypto)

• Of course we can’t go without testing cryptocurrency!
• 45M had the highest profitable %, 9 trades triggered this week with 77.7%. However it drops down to 56% if started from November, and drops even further to 40% if started from June.

Quite boring results actually, I thought BTC would have a lot more % since its the most volatile, but it turns out, the number of times a trade is triggered does not make the profitable % better. Perhaps I will have better luck testing it on stocks.

More info on the concept and its origins from the original author’s post.

All thoughts are welcome!

[fernan]

Cowabunga System (by Big Pippin)

I’ve been wanting to cover this system for a long time but I didn’t have enough patience to backtest the values manually, but now that I know how to write indicators and strategies I figure I’d give it a go.

It’s a very simple system designed for beginners to get grips on how a system could look like.

I saw a strategy already lying around on TradingView which apparently backtests the Cowabunga System, but after some manual backtesting I saw some entries / exits that were not aligned to the rules of the system.

So the rules for this system is quite simple:

For long entry, these values has to match:

• EMA 5 line (red) crosses over EMA 10 line (blue)
• RSI is over 50
• Stochastic is on an uptrend and not overbought
• MACD histogram is on an uptrend

For short entry,

• EMA 5 (red) crosses under EMA 10 (blue)
• RSI is under 50
• Stochastic is on a downtrend and not oversold
• MACD histogram is on a downtrend

In addition, we also have to pay attention to the 4H timeframe to get our maintrend.

So writing the strategy is where my variation of the strategy starts, because the exit and stop losses are not defined on set values, they are more manually set. So what I’ve done is done position reversals.

If no position is open and a buy is triggered, open a long position. close the position when the sell is triggered

Same with the sell triggering.

One thing to note is that I didn’t incorporate position adding if the same position is triggered in the same period. So potentially there could be multiple buy triggers, but all of them are ignored except the first buy trigger.

EURUSD (Forex)
Backtested from last week, took 8 trades in total, 87% profitable! what crazy results. There were 18 buy / sell signals triggered, but only 8 trades taken in total.

NVIDIA (Stocks)
Backtested this specific stock, took 3 trades, all losers. Not very good results I would say.

LTCUSD (Crypto)
Backtested from beginning of June, 59% profitable. Not as good of results as forex.

I also tested with the other FX majors and they all performed relatively good.

[fernan]

Wave Trend trade 20th Nov 15:30 UTC USDJPY

My Wavetrend alert triggered at 15:30 yesterday for USDJPY.

It looked like a good setup, so I shorted at market, set my stop loss to the nearest support-turned resistance.

I’m trying to emulate real market scenarios so I am starting at 1000 USD account balance.

As of now (following day) my open profit is +10 USD which is good, but it’s been ranging for a quite a while. Perhaps because it’s evening in Japan now?

Result: WIN

Target profit is hit today at 14:00 UTC, after a massive bearish candle. Perhaps we keep the profit running by trailing the stop?

[fernan]

Squeeze Momentum trade 21st Nov 11:00 UTC GBPUSD

My squeeze momentum alert triggered this morning for GBPUSD, I took the trade, set my stop loss to the nearest support / resistance lines… and I got STOPPED OUT an hour later.

My mistake is probably setting the stops too tight.

[fernan]

USDJPY Positive Correlation with USDCHF ( 21st Nov 14:30 UTC USDJPY )

Squeeze alert triggered on two pairs, USDJPY and USDCHF.

I entered the trade on USDJPY again, setting my stop losses and take profits to the nearest s / r levels. I was gonna enter the same on USDCHF then I realised they both look the same.

It reminded of the currency correlation section on the BabyPips course, it means if I entered I would just be doubling down on my position! Phew!

Maybe I can hedge my possible losses on USDCHF?

Are You Doubling Your Risk Without Knowing It?

[fernan]

Ultra-tight stop loss stopped-out ( 21st Nov 13:00 UTC EURUSD )

This is a very short-lived trade that again, got STOPPED OUT because my stop loss is too tight. I don’t learn my lesson, now I paid the price. Luckily this is only demo.

Perhaps I should pay attention to average pip movement to guide my stop loss?

[Drekieyja]

For the right plan, the Average True Range (ATR) can be a very useful guide placing your stops and profit targets. Of course, as with any indicator, you need to make sure the settings are relevant to your particular strategy.

[fernan]

Hi there,

Thanks for the advice! Definitely thinking on the same lines here, one my FX colleagues @Radoo actually recommended Average Daily Range (ADR) to measure the volatility, it sounds similar to ATR but their plots seem to be different.

Maybe they are the same, but the ADR is calculating all bars on the day, whereas ATR is controlled by the number of bars on the parameter?

[Drekieyja]

Pretty much. If you are not trading the D1 or higher, the ADR is misleading because you care about the volatility on a much shorter timescale.

If I’m on the M15 in the middle of the London session I don’t want my indicator looking at the much quieter Asian session. Nor do I want it looking back to yesterday’s news inspired volatility. I just want to know what the market has been doing for the last few hours.

[fernan]

Perfect,

So maybe what I will do is incorporate ATR to my strategy, and set my stop loss to the nearest S / R levels of the price level + / - ATR.

This way, it will prevent me from setting my stop losses too tight.

Thank you!

[fernan]

Tried to follow the trend but got reversed (21st Nov 14:30 UTC USDJPY)

So I got too overconfident on USDJPY after my first win, so I entered at market again, and only got STOPPED OUT

Perhaps I should’ve noted down the loss of momentum on the indicator at the next bar and exited from there instead of sticking to the stop loss, that way I would’ve cut my losses sooner.

[fernan]

Reversed momentum (21st Nov 22:00 UTC)

At 10PM yesterday I entered a sell trade to ride a momentum… a couple of bars after the signal.

I missed the signal because I was dancing salsa out in the city… The momentum died down the moment I jumped in and started reversing.

I’ve not been stopped out yet, but I’m thinking I should close this position to cut losses. I’m thinking now of setting up alerts to notify me when momentum dies down, activating the alert once I’ve entered a position

Result: LOSS

I cut my loss here because I understand the reason why I didn’t cut earlier - missed the momentum loss on the trend

[fernan]

Just missed take profit zone! 21st Nov 19:30 UTC

A squeeze alert on EURUSD triggered last night, so I entered and I forgot about it. Momentum faded and another buy alert triggered this morning. The position is still open but I’m getting really antsy to close it while my open profit is still positive.

Should I move my stop loss? Shall I close?

EDIT:

So I took @Drekieyja’s advice and tried to draw a fib extension on the nearest swing highs / lows when I would have taken my trade, not sure how accurately I drew it (or if I’m using it correctly) but I can see some reaction on levels like 1 and 0.618. Maybe I will use these levels as my retracement tolerance on my trades.

By the way my long position has completely gone against my favour, at the moment it doesn’t phase me but I reckon with real money, I will be more frustrated than I am now.

Result: WIN

This trade retraced beyond my entry, but then it skyrocketed back up, triggering my take profit. This win may be more down to luck.

[fernan]

Missing profit zone part 2! What is going on! midnight 22 Nov UTC

I shorted USDCHF at midnight and this morning it just missed my take profit zone again! now it seems to be reversing…

I am putting my zones on s / r zones bang on, perhaps I should adjust my take profit zones nearer to the price action, but not on top of the s /r lines? Maybe this is psychology thing

Result: WIN

It seems the uptrend is just a minor retracement, it was within my risk management plan so instead of cutting the profits I let the trade play out, and soon after it hit my target at 11:30!

[Drekieyja]

You should have a clear idea of what the movement is going to look like before you enter the trade. Once it becomes clear that you were wrong about the way the price action would play out, you should get out of the trade.

It’s not that price can’t still hit your profit target. It’s that you are no longer trading, you are gambling. If your profit target is hit it will be luck rather than foresight.

When in doubt, get out. Capital preservation is king. Or at least it is for me.

[fernan]

Hi,

Thanks for the insight,

Just to understand, you mean foresight on how the price action is going to play out?

I think an issue I have with the current system right now is that I focus too much on getting the right entry points that I neglect on setting alerts for exits and rely too much on take profit levels.

Because my indicators rely on riding a trends, I noticed that my past couple of trades I did not exit straight away once the momentum seem to be losing momentum.

I think I will need to refine this strategy either today, or end of the week during my retrospective.

[fernan]

Contradicting indicators - hesitating to jump in

At 10:30 UTC today LTCUSD triggered a squeeze alert, normally I would just enter but I noticed it’s having a hard time breaking a key resistance point.

Also one of the other indicators I have on the system Wavetrend, is showing overbought conditions.

I will observe this closely in the next hour or so to look for any clearer signs to jump in.

[Drekieyja]

Just to understand, you mean foresight on how the price action is going to play out?

Pretty much. We know that price does not move in straight lines, but you should have a reasonable idea of how it is likely to behave. If you don’t you probably shouldn’t be in the trade.

As an example, let’s say I’m a trend trader with an open bullish position. I should have a pretty clear idea from my past experience and my trading plan how much of a pull-back I am willing to wait out before getting out of the trade. If I wait too long, and that pull-back becomes a true reversal, then I will have lost a great deal of profit, or even taken a loss.

Don’t let greed keep you in a trade when things are not going your way. ‘Hope’ is not a strategy. Protect your capital.

[fernan]

how much of a pull-back I am willing to wait out before getting out of the trade

OK makes sense, so perhaps a good improvement I need to incorporate is to draw out retracement zones using something like Fibonacci or via past s / r lines to validate the trend.

[fernan]

Squeeze Quick Win! 22nd Nov 14:30 UTC

Squeeze alert triggered on USDJPY, so I shorted. This time, instead of just firing a market order straight away, I tried to draw a fib extension and draw out a plan:

• Stop loss at 0.236 level
• Size take profit 1:1
• If price action retraces to 0.382 level, invalidate the trade and look into exiting

It turns out the price action did not retrace at all and it hit my tp after 2 bars!

Amazing! Interesting how my balance is now 5+ USD up from 1000 USD deposit, even though I felt like I took so many trades that ended up losers.

Maybe it’s the trades that I took which I cut straight away before hitting my SL, I will check this on my end of week retrospective.