This all sounds fantastic! I am glad the testing is going well, and that you are being so thorough. Patience and attention to detail are definitely important in this venture, if I had approached it with your level of seriousness and dedication - it probably wouldn’t have taken me so many years to get over the hump and into profitability. Do you think you’ll have enough top/bottom patterns to trade off of? I guess that depends on what time frame you are planning to trade primarily, or if your system works in the lower time frames. With 115 pip winners/100 pip losers - I’m guessing you’ve been back-testing in the higher time frames.
@jseymour84 The gaps CSC speaks of between the MA and the bars can be found using the Bollinger Band formula or setting, Bollinger Bands as standard are 2 x Std Deviations away from the Moving average and something around 90% (you can look it up) will be contained within them.
At this point, I look to be getting about 2-4 trades per week on EURUSD. If that holds, then my entire portfolio should generate about 8-16 trades per week, with an average of 5-10 profitable trades or roughly 500 pips profit per week (averaged over the long run). If I end up with a $10 per pip average value, that will be a very nice income 
Right now, my main focus is the 60-minute charts. I do plan on testing the 5 minute and the daily charts with the same patterns to see which one makes the most money. The detailed plan is to finish the EURUSD backtest, then demo trade that while back testing the GBPUSD. After I finish backtesting each pair I add it to the demo trade plan until I backtest the EURUSD, GBPUSD, AUDUSD, and USDJPY pairs. Once that is done, then I will start live money trading with a $2,000 account and letting my returns increase my account balance and therefore my position size. While live trading, I will start with the 5 minute backtests and then progress through to the daily back tests.
I went with the 60 minute right off the bat because I had the idea that it would give me a good balance between trade frequency and average movement size.
Just out of curiosity - what IS your average movement size on th e 1 hour ?
In most trades that I have taken during the backtesting, I closed an average of 80-100 pips. Average time in trade is running around 30 minutes. I haven’t really taken any stats regarding length of legs or anything like that, but a rough eyeball makes it look like moves that last for 200 pips aren’t out of the ordinary on the 60 minute charts.
That’s a lot ! Are you really meaning pips - or pipettes ? (10 pipettes to the pip - they are the 5th decimal place)
Maybe, but in all my backtesting trades I am closing between 40 to 130+ pips and I am not catching full legs. My spreadsheet automatically calculates pips by subtracting the price difference between entry and exit (assuming long position) and multiplies by 10,000 to get the number of pips.
For example, one trade I went short at 1.3188 and exited at 1.3026 - would that be 162 pips then?
Yes it would - but that would be a while back as well - can you give us a date ?
Admittedly I’m new here, but that kindof volativity is huge - I think we’ve only had about 30 pips all day today !
That is probably it - I am still back testing 2013 data right now.
You caught that also my rotund friend, I thought I was the only one.
The Ever Wondering VIPER
Yeah the pip count seems large, but the concept is one that is worth thought.
One of the theories on this type of divergence is that it signals loss of momentum.
I remember a guy a few years back when teaching this concept remarked that on the losers, i.e. when the divergence gives a false signal then price will accelerate rapidly in the opposite direction.
Right now, cable will give a sell signal around 1.3180 (currently 1.3172) and Fibre - the signal was breached at 1.1782 by a mere 5 pips so still a valid sell (currently 1.1782) - lets say a realistic target at 1755 - sell at 1780
Cable - a target of 90 pips - let’s see…
Edit: Btw for learning/demo only - no live trading on this.
Hey J Brohiem, what does your risk modelling look like?
The Ever Inquisitive VIPER
Time to confess ignorance. I am not sure what you mean by risk modelling.
If you mean money management, I am using a flexible position sizing system that incorporates a delta and slowdown multiplier. I can’t even pretend to understand it, I just have a spreadsheet I based off an article I read somewhere and trust the formulas.
If you mean risk to reward on a per trade basis, I try to aim between 1.5 to 2 for risk-reward although I don’t have any specific rules that I am following during backtesting. I am using a two target trade where I take half my position off at the 31.2% Fibonacci retracement of the previous leg and the other half comes off at the 61.8% Fibonacci retracement level. Stop loss is placed at the 113% Fibonacci extension of the previous leg as my trades are all reversal trades.
If you mean something else, please elaborate.
Sorry, I will simplify. How do you control your losses, and defend your capital.
“If you mean money management, I am using a flexible position sizing system that incorporates a delta and slowdown multiplier. I can’t even pretend to understand it, I just have a spreadsheet I based off an article I read somewhere and trust the formulas”.
It is my observation that this procedure may be a mistake. First you really have to be able to understand how all of the parts of your trading “system” functions individually, and then how they interact with other parts. You cannot take anything for granted. Second, Delta is generally applied to options, also I have never heard of a slowdown multiplier, sounds like a gamer programmer thing to me.
But what do I know, just some annonymouse guy on an internet forum. But if you do not have a clear plan on how to deal with losses, you are setting yourself up for disappointment. Oh, you do know you will take losses right?
The Ever Anonnymouse VIPER
I do know that I will take losses - that’s why I am doing all of this testing and not just diving in feet first.
The money management system I am using is the one in “Small-trader money management” by Thomas Stridsman (Active Trader, April 2006). I am testing that money management system against my backtesting data that I am generating which is how I am coming up with my profitability estimates.
The slowdown multiplier controls how fast position size is allowed to increase. With fixed ratio systems you eventually end up with huge position sizes. The slowdown multiplier controls how fast those position sizes are allowed to grow so that you are not trading 1,000 standard lots in a single trade.
The delta refers to the change in account equity. The system also takes into account the number of pairs being traded in the portfolio to ensure that total risk is appropriate. For example, if maximum risk is defined as 2% of account equity my spreadsheet will allocate the total 2% across all the pairs I am trading whether it be 1, 2, or more pairs so that in the event I have open positions in every pair in my portfolio my total maximum risk isn’t exceeded.
My losses are controlled with stop orders being placed when I enter the trade. For example, if I enter a short position after a double top I take a 113% Fibonacci extension of the leg leading into the double top pattern as my stop level. This may not be optimal but I don’t have enough test data yet to make a judgment call on that. The stop is placed as a limit order so that exiting my position at that level is mandatory. My trade rules do not allow me to enter an order without corresponding stop and target limit orders.
My goal is to do all my thinking before I take a position so that my responses once the position is on are nearly automatic, like how an athlete trains muscle memory.
Did that answer your question or did I misunderstand it again?
Ah ok, I’m glad you have been able to come up with a plan. Sometime it’s the last thing folks think about.
The Ever Interested VIPER
Becoming a full-time trader (and by that, I mean earning the majority of my income from trading and not necessarily spending the same amount of time trading that I do at my day job) has dominated my thoughts and dreams for the last 2 years. I have always had an interest in the markets and as a kid in school, I would participate in every single stock market challenge I could get my hands on.
In fact, I even maintained my own candlestick charts by hand for a brief amount of time in middle school for a few stocks by checking the quotes daily in the paper. After a nearly lifelong obsession I am not going to let something stupid like being a cowboy trader derail me now
I am hazarding a guess that a slowdown multiplier would resize your bets periodically. For example, if you set your risk at the forum standard 2%, then if you won, the 2% would be recalculated upwards, but if you lost it would be resized downwards. position sizing would then be adjusted accordingly. (I think I saw that principle in Van Tharp - but that was a long time ago 
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From the article I cited earlier:
This part of the formula subtracts the initial equity (cell D2) from the current equity (cell M8) and multiplies the remainder by a “contract multiplier” (cell H3), then divides the result by the account equity increase (cell H2) required to add new contracts. The result tells us how many contracts to add to the original fixed-size portion of the entire formula.
My spreadsheet calls it a slowdown multiplier because it, in essence, slows down the growth of your position size. The higher the multiplier, the faster the position size grows. For example, if you have a slowdown multiplier of 0.5 then position size would grow half as fast as if it had been set to 1.0.
In fact, here is the entire article:
Smoothed_Ratio_Money_management.pdf (649.3 KB)
Hello again,
Just wanted to mention that it’s my opinion that you should shoot for a higher risk-reward ratio. For example if it was 1:3, you could lose about 2/3 of trades and still break even or come out slightly ahead.