Well, after just under 2 months of testing the rainbow strategy on a demo account, I thought i’d note down some thoughts and comments ahead of me going live with this method later this month. Ingot has obviously not posted for a while and cgjedi who was working on some good adaptations of the indicator has been forced to leave - but i’ll still be popping back to see how the thread is doing so hopefully people will keep posting!
[B][U]What have i learnt[/U][/B]
This is a very good swing trading approach which keeps things relatively simple and helps to identify very high probability winning trades, BUT
It will only work if you exercise a very high level of patience and self control! When trading forex, it is extremely tempting to be continually looking for potential trades. If you are using a different strategy, then frequent trading is fine. However, day trading the rainbow method means trades are much more seldom.
To assist the method i think it is very important to have targets for profit taking and use a multiple lot strategy. Moving stops should also be considered (although I know Ingot doesn’t agree with this!) See Cosgroves earlier posts for details of his approach which I feel works well.
Don’t search for potential trades where they don’t exist (see the details of my trades below!) This is a repeat of 2 but i think it is so important that it needs repeating. If you want to trade often then this method is not for you!
[B][U]How have i Performed[/U][/B]
Since Dec17th i’ve made 8 trades with 6 no loss and 2 that were stopped out (i use 200 pip stops). Of the 6 winners, 1 was for negligible profit, 1 was for around 100 pips (so less than risk taken) and 4 were for profit greater than risk staked.
I’m not posting full details (it’s not relevant and people don’t need to believe me if they don’t want to!). Basically, I have had 7% tax-free return (as would use a spread-betting account) in under 3 months which i am very happy with.
The key point is that the 2 losses were those where i entered through lack of patience - i.e. i found a trade where there wasn’t one!
[B][U]How I see this method working going forward[/U][/B]
My thinking is that you should concentrate on the majors and expect no more than 2-3 trades per-month. These would be trades where everything lined up well and therefore the success rate should be very high. With decent money management you could expect around 250 - 300 pips per trade and hence a very respectable pip total per year. This is certainly what i’ll be trying to do
In summary then:
- small number of high probability trades
- disciplined money management for profit taking
- patience, patience, patience
Finally - as an aside - the current time is a good example of the need for patience. A quick scan of the different currency pairs shows masses of fishnetting - time to switch the computer off and play golf (or type out overly long messages on babypips!!)