Cosgrove … you make me smile … always enterprising… and alert for a nice set-up!
I haven’t responded prior to tonight (OZ time is 10pm 01-01-2008) because of technical stuff (had to rebuild my MT4 templates and am now wary of another crash in the Virtual Machine I use inside Mac Safari. So far so good…
All I can comment is to not try to pre-empt the chart direction - just trade the set-up as it presents. Go back over this thread:
and read it (print it out in full if you can). I was going to say to read specific post numbers in that thread, but it is all so valuable, it must ALL be taken on board. This will make you a confident trader. I can not thank this person enough (Spudfyre) - he seems to have left that forum.
You can see that the Stochs are very “frayed” as if the “rope” is unravelling.
While this condition is OK once you are IN the trade, it is NOT OK to use as an entry … even if a shorter TF is looking good.
You can see that the 14/3/3 Stochastic (the heavy mid-line stoch) is wandering in no-man’s-land, and when it is like this, it can go either way. Trying to trade when this condition presents, is likely to end in tears at some point.
Keep your patience and your head. The more you can discipline yourself to obey the rules, the stronger trader you will become, and the more you will commit the “right” conditions to memory.
This will make for a very confident trader over time, and there are days when you will need that confidence.
The USDCAD is indeed in danger of turning around.
Both the monthly and daily charts are running against a short position, and the WEEKLY is getting into Fish-netting.
Time to go, mate. I would take my pips off the table, but be prepared for the next set-up. One good thing about a rally in this pair now, is that any correction will have more pips for us in its next move.
One of the warning signals is that long tail on the green candle on 1st November. While it is not a classic reversal candle, it IS a warning. Then the doji candle (December) which has just completed, is the reason for all the fish-net developing on the Weekly chart … indecision.
When you see that fish-net - close out the trade. (Weekly chart)
The DAILY chart certainly does look like a tradable “LONG” setting up. Good for scalpers, if any of you blokes still have any ST or scalping blood left in you!
However, the 4H is telling us it is really “too late.”
The MONTHLY chart has that little indecisive doji too - just like the USDCAD did. “Indecision Ahead” is what it is warning us, and indeed both the Weekly AND Daily charts are looking more like developing the Fish-net pattern each day. The daily is looking very indecisive.
There is a good chance (maybe 70% at a bush-man’s guess) that the January candle may be green too, so I wouldn’t close my position until it begins to show its hand.
Of course, the risk is that there will be a correction, and wipe your pips away.
In such a situation, as you already have an open trade, you COULD accept that risk, with the probability in your favour of a further rally, but at the risk of current pips+.
However, this is one for your own discretion … I think the Fish-net Rule would cover it, and say: “CLOSE IT”
Stay cool - there are heaps more pips ahead … and it is far better to scoop these into the bucket and move forward in search of more fertile pip-ground!
At this point I have refrained from pointing out trades as they set-up. This is for no other reason than I would rather comment on what folks are putting forward. I think this is better - dig for your own gold!
I say that with all seriousness, because you have landed in the right place at the right phase of your trading life.
Normally folks graduate from Stock trading to Forex through a variety of paths. But regardless of how you became interested in FX trading, the important item to note is that you are in a LONG TERM (LT) thread.
Experts will say that new traders should hone their skills on LT trades before they attempt the roller-coaster thrills of ST trading, or even swing-trading. I fully agree with this, having discovered it to be correct in my own experience and evolution as a trader.
Our brains simply struggle to handle the fast-pace of leverage, especially when we are new to this. The pips (and thus dollars) flow in and out of our a/c at an amazing rate. Of course we want them to flow IN to our a/c.
But the very worst thing that can happen to ANY new trader is to have success at the first attempt.
Why?
Because straight away, the head comes off and on goes a pumpkin … we begin to think: “How easy is this? How long has THIS been going on!” And we become bolder and more reckless than we ought.
Why not … we really haven’t experienced the events that keep us awake at night if we haven’t had a loss. But this is NOT about winning or losing as much as it is about Trade Management, or rather Risk Management.
When you have the keys to the company coffers, you are employed as a Risk Manager. If you lose the firm’s money, you get the sack … right?
So why be less careful with your own money?
I know you will do OK with this (more than OK really) because you have had the drive to go out and have a go at getting something that works. This one is free, and I will say it is simple and works. Nothing to complicate it except our own impatience and perhaps being a tad greedy to harvest pips more quickly than the market is prepared to hand them over to us.
Before I go, (it is almost midnight here in the East Coast of OZ) I have to say that my input may be a bit restricted for the near future. I am going back to some serious study, and will participate where able.
In the meantime, run with it yourselves, and feel free to either PM me, or write a question on the thread. I will try to keep up with the thread.
I am certain you have enough info, especially if you keep in mind the MAIN TRENDS and do not trade against these trends.
Further, please read and re-read Spudfyre’s thread here:
and if possible, PRINT is out and keep it on your desk to refer to frequently.
DO not OVERTRADE - just take the trades that are there, and try to specialise in no more than 4 of the majors - limiting your expertise will make you more focused and an expert in the few you DO choose to trade.
Restrict your use of leverage - try to learn more about leverage and its effects on your trading capital, and do try to keep your Stops wide. Manage risk sensibly and you will not only prosper and thrive in this, you will experience a joy that has been lacking.
Finally, try not to introduce any more indicators … they really are not needed and only introduce other variables that will distract us. Eventually we will be able to dispense with even the candles, though I still like to defer to them briefly as I eyeball the majors.
I think you’re probably right Cosgrove that i mixed these trades up slightly - but so far has worked out ok so will leave open!!
What is your opinion on entering when the stochs are already in the overbought/sold regions. I went long EUR/GBP yesterday at 0.7436 with 200 pip stop. This is based on the very strong trend as the driver and the fact that the stochs on weekly and monthly are very tight and still rising whilst the daily stochs are rising and tightening again.
Doing very rough analysis of past data, when a strong trend starts, the stochs can stay in overbought/sold for quite a sustained period. Therefore possible scope to still jump on (even if we’ve missed the initial burst).
Another question for you is - given Ingots comments on stops - are you moving stops when testing this strategy. For example not reducing the 200 --> 250 pip gap but moving it as you (hopefully) generate large profits on trades. Especially interesting as the NFP data tomorrow could cause a bit of turmoil and the two conflicting arguments are:
keep original stop and possibly make a loss if hit by big movement (but conversley stay in the long term trend if it reverts back to that); or
move stop to break even or above so increase chance of getting stopped in the volatility but at least keep the profit already made
i’m going for 1 at the moment on this demo account but will see how it goes!
While maybe a good trade, I won’t be trading these setups just for the sole fact that they don’t follow any type of “system.” Sure, it could be a profitable trade, but you never know. I think there will be plenty of setups using the hard rules of Ingot’s system, so that’s where I will throw my (play) money in.
One could make a counter argument that E/G is so high that a correction/retracement is possible anytime now and you’d be buying in at the very top right before a fall. That seems to be the problem in this business, when people trade on instinct/hunches without a [B]solid[/B] reason, or years of experience with one pair.
When I’m ~200-250 pips up, I will be moving my stop to break even. Also, if that never happens (say, an exit signal at +100p profit), here is my overall profit taking/stop moving strategy:
Initial position will be 3 whateverlots (in the case of my current demo account and most likely my first real account, micro lots), exiting one on a normal exit signal, moving the remaining stops to break even, exiting a second lot once we have another 100-200p profit depending on local S/R and what stochs are doing, and trailing the third 100-200p until it gets stopped out. I will exit a position with all three lots if there is an exit signal before my stop is hit and I am negative or breakeven profit.
I think the important thing to take away from Ingot’s post on stops is to keep them WIDE, wherever they are. The question is, if I’m up 60p or so, and there’s an exit signal, is it better to:
[ol]
[li]exit all three lots (+180)
[/li][li]exit one or two, move stops to BE (+60)
[/li][li]exit one or two, move stops to 200p away (-220)
[/li][li]exit one or two, leave stops untouched (-340)
[/li][/ol]
The number in () is worst-case profit in total pips (pips*lots). I’d appreciate anyone’s input on that that feels they would like to weigh in. I think moving the stops to BE when only 60p away is most likely a bad move…not enough room. I think I will be closing all three lots out then. There will always be more opportunities to trade, and positive pips are always better than chasing pips “that could have been” yet ended up nothing.
I hardly know what I’m doing now, let alone with all that advanced money management like fixed fractional vs. fixed ratio. If anyone wants to try to explain these, it’s probably a good idea to do it in another thread unless Ingot himself wants to give it a shot, seeing as how it’s his thread.
This thread has been more of a leaning process to those involved, and not strictly a “here’s the rules, GO!” kind of deal. I’ll try and summarize them, seeing as how we don’t know how long Ingot will be away.
Ingot has never posted all of the conditions of the entries/exits he takes, but I have included the for-sure ones, as well as the ones listed by Spudfyre. Please remember that all of this is also derived from the posts at forexfactory by Spudfyre, and there is continuing discussion on that forum as well. The links should be on the first page of this thread, posted by Ingot54. Please someone point out errors and flaws when you see them:
Chart setup
Refer to the templates in this thread, and your charts should look something like Ingot54’s
Trend determination
Look to the timeframe ABOVE the one you are trading in for the direction of trend and only trade in that direction for that pair. Ex: weekly MA rainbow is consistently pointing up, so only taking long positions on the daily chart.
Stops
Make your stops wide, at least 200 pips. Do not trade this method if that is more risk per trade than your account can handle (babypips.com recommends 3% of account per trade or less.)
Entry[ul]
[li]Long: All of the stochastics are bunched up together and below the 23.6 level. Enter on the close of the bar where the 14 period stochastic breaks above the 23.6 level. Various degrees of “spread out” stochs are acceptable, as long as the stochastics are “combed.” The tighter the “rope” is, the higher the chances of a successful trade. Do NOT enter the trade if the stochastics are forming what could be interpreted as a “fishnet.” Please read the Spudfyre links if you are not sure what any of this terminology means.
[/li][li]Short: Same as long, except you’re looking for a crossing down of the 76.4 level by the 14 period stochastic. [/ul]
[/li] Exit[ul]
[li]You should always exit when the stochastics start to “fishnet”
[/li][li]You should always exit when the stochastics cross out of the opposite overbought/oversold zone that you sold/bought in. Ex: buy as they cross up 23.6, sell once they go into overbought and come back out, crossing down 76.4.
[/li][*]Spudfyre explains an exit strategy of always exiting when the lower time frame stochastics cross over the 14 period stochastic in the opposite direction of your trade. He calls this “breaking the wall.” I think he explained this on 1h charts though, where price did not stay in overbought/oversold for too long. On daily and weekly charts, it can stay there for quite a while, and you will have the “breaking of the wall” while profit continues to come in. Use this rule at your discretion.[/ul]
I did forget that promise, and there is a lot more I promised or alluded to, in getting this method smoothed for easy use.
I hope by now some of you are getting a good grasp of the principles and are becoming used to resisting the temptation to close your trades until the Stochastics warn about an imminent reversal.
The Demo is the very best way to do this initially, but eventually the little Eagles must fly.
So it is good to have a go with the minimum possible, and just let it run. If you follow the outline (rules) you will not do too much damage. Always check the spread when entering in case you happen to lodge an entry right over the top of a news release.
But even if that unfortunate event occurred, it is not the end of the world - provided your set-up is sound, it is unlikely you will lose over it.
Firstly I want to also offer Cosgrove a sincere “thank-you” for compiling such an easy-to-follow display of the rules. Not much missed there. Well done there - a great effort with so many posts to go through to achieve the list.
Secondly, regarding the Ryan Jones’ “Fixed Fractional Trading”: I have had another look over it, and I think it is just a bit complicated right now to apply.
However, it is good to keep in mind, and if someone is enterprising enough, or can precis the method for ease of application, then it would be a bonus.
Also there is a bit of info on Babypips regarding issues like Pyramiding, and scaling-in-out of trades, as well as getting the best out of a trade with a sound (? anti-martingale) plan and so on.
My purpose in suggesting the Ryan Jones thing was to provide a “Trade Mark” plan to go with this nice method, so that it would be easy to operate while giving you back your life; and that the “staking plan” (not sure I agree with terminology like that) would also be unique to this method.
Put it this way: When you have a winning method, it is only reasonable that you also be able to exploit it to the max using a decent money application strategy. Remember the story about the man who put on $250/pip and looked for only 15 pips/day?
Then how would it be if we gave this man our method … 400 pips x $250/pip! ($100,000)!!
Well - scale it to your own comfort. I won’t be far away - I do log in regularly, and I won’t be unhappy at anything you suggest or attempt. The main job is complete here. But I will add what I can when I can - and yes, I will bring a decent money management strategy to you if I find one in my searching.
Just want to add what a pleasure it has been to build this with you all in such an accepting forum community. Nothing but encouragement and contributions. I am sure we can take this to another level - run with it.
This is absolutely fantastic. Your strategy, Ingot, has given me a renewed outlook on Forex. I’m actually excited about trading again, just like I was when I first got interested a year ago. All the “systems” and indicators I had looked at complicated things way too much for my liking and I started feeling like Forex trading was a job. Now, it’s fun again.
BTW, thank you from me, also, cosgrove, for that summary of the “rules”. I’m putting it in my official Trading Plan doc, so I can refer to it daily, as I have a tendency to forget some things and hurry into a trade. I’m sure as things develop I’ll be able to relax more and not be in such a hurry.
As I had mentioned before, I’ve been applying this strategy to trading the Daily charts, mainly because I’m still at the point where I like to see actual profits in my account every day. I know, it’s a psychological thing, and I’m slowly getting over it.
In fact, having read the recent posts, I’m seriously thinking of trading the Weekly charts now and letting trades run for the whole week (or until an exit signal displays). It’s a huge change in mindset for me, as I’ve been looking at shorter time frames all this time, but I like the idea.
My thought is possibly a 500 pip S/L. I know, it seems large, but I had already been thinking in that area before I came across this thread. Of course, at the time, I was trading GBP/JPY, which is much more volatile than the GBP/USD that I’m trading now, so I don’t know if 500 is too large. As far as I’m concerned, the minimum should be 250, since I noticed the other day that I would have been stopped out with a 200 pip S/L. Any thoughts on this are welcome.
In the meantime, I really enjoy this strategy. Thanks, Ingot, for sharing this with all of us. This is definitely my favorite thread in any Forex forum.
I’ve been reading this thread with more than casual interest. I’ve been trading live for the last year and have been trying different indicators in varying configurations to find a “system” that fits my style. This use of the stochastic indicator on multiple time frames and multiple measurements on a given time frame has given me excellent feedback as to when to get into and out of my trades. Thank you Ingot and Spudfrye for the development and application of this knowledge!
I hope to add a little bit of knowledge to this great indicator. I’ve added three more measurements per TF to assist me with gauging the overall initial push/force of movement after it begins and to assist with gauging the length of a trend as seen on a specific TF. The three new stoch settings are 50,3,1 100,3,1 and 200,3,1. I find them most useful on the 4H and daily TF.
I’ve found that seeing the bigger picture is made up of smaller pieces and I offer the above as a small piece to an already great picture.
Thanks Cosgrove for that summary of the strategy. I’ve re-read Spud’s thread a number of times and I agree on your interpretation of his ‘breaking the wall’ method of exit. Used in our longer timeframes, this could miss out on a big portion of the trend.
I think the key concept from Spud to apply to the Rainbow strategy is the ‘peaks within trends’ which is exactly what you’ve summed up well.
One question for you/Ingot (or anyone else - Pelican?!) is whether the 14 stoch dropping out of the overbought(sold) in an up(down) trend should be an immediate exit or just one to be monitored more closely. The reason for asking is that on the EUR/USD trade I have open, the 14 stoch dropped out of the overbought but immediately turned and climbed again (see attached chart).
I kept this trade open because I hadn’t fully grasped the strategy at that point (rather than any skill on my behalf!). Would you say that this is one to chalk down to experience (and just follow the rules in the future) or can we look at a lower timeframe and check whether things really are moving or just wobbling slighlty (eg see the 4H chart from the same period where the HTF stochs pull the rope back up and keep the trend going).
My thinking is that I’ve been lucky and should just concentrate on finding those good setups on the daily/weekly charts and follow our simple rules but i just wanted to see what other people’s views were.
Also interested to hear more about how to use the very HTF stochs that Merlin has mentioned.
I think it is a definite exit signal when the 14 drops out of(comes up from) the overbought(sold) on a long(short) position. If you look back at the charts, yes there are times when the trend has simply continued; however, there are also times when price has dropped like a rock. This questionable price performance is why I’m simply taking partial profits on my positions when this happens and moving stops to breakeven. I don’t think it’s a particular kind of famous money management that I know of, but on paper and in my head, it seems to be a winner.
Secondly, Are those tiny little bars on your daily chart the bars for Sundays (eastern time)? I would think with those being disproportionately shorter in time and volume that they would throw off the whole basis of TA charting. I’ve attached my Alpari chart for daily EURUSD where stochs didn’t fall back through the 76.4 level, take a look.
cgjedi, I would also probably post that question on the official MQL/MT4 forums if you can. Also, might want to distribute the indicators in source code form instead of compiled form, and just tell people to restart metatrader.
The original MT4 template files are found a few pages back. I wanted to take it to the next step and write indicators for the method. What this allows is:
Easier customization of the various parameters
Easier access to the data when writing EAs
The zip file contains 2 parts: the indicators themselves and the template file that specifies the indicator settings for a chart. Just place the unzipped directories into your existing MetaTrader directories.
[U]The Rainbow MMA[/U]
The RainbowMMA is split into 5 indicators. This is because an indicator is limited to only 8 data buffers but the MMA has many more than 8. Each indicator displays a portion of the entire Rainbow. Each has a StartColor and an EndColor that the indicator will automatically determine the range of shades between. You can also tweak each individual MA period, the MA method and the price type it is based on.
The included template file contains color settings from Ingot’s original doc. The colors have been modified slightly since the indicators automatically determine the range between the start and end colors. But it should not be that noticeable. In any case, this would allow someone to come up with their own color scheme and save it to a template quite easily. For example if you would want, say, a range of grays or a sepia tone scheme or …
[U]Stochastic Threads[/U]
This indicator also is split into separate indicators. There’s an ‘LTF’ (Low Time Frame), ‘HTF’ (High Time Frame), and ‘MTF’ (Mid Time Frame). Again, this had to be done because of the 8 buffer limit per indicator. The MTF is just an indicator to catch the mid-time frame stochs as well as the all important 14 time period.
Each indicator has a start and end color setting. Although it’s not as important as for the Rainbow MMA, giving a slight range of shades to the LTF and HTF does make the behaviour more clear and easy to follow for the various periods.
The next step? Writing an EA to give an email alert when a pair generates a signal.
[U]Some Programming Questions[/U]
While this goes a long way to improving customization, I was stumped by several things. If someone can give me some pointers, I’d appreciate it. Since an indicator is limited to only 8 buffers, there seems to be no way to write an indicator of indicators ie. an indicator that would collect the 5 indicators and apply settings to them all at once. I tried looking at what “scripts” can do but they have no access to displaying indicators at all. There also is no access to programatically save/load template files from a script. If anyone has any experience with these things, could you give some tips?
Thanks Cosgrove - I think you are absolutely right about the exit rule. It may well be the Sunday and Bank Hol bars on my MT4 platform that are distorting things a bit. I have no idea how to remove them - any ideas anybody??
[B]cgjedi[/B]
Thanks for the MT4 templates - again may be stupidity on my behalf but the stoch windows don’t seem to have the 76.4 and 23.6 indicator lines??
