Hi folks, I’ve been backtesting my strategy on ForexTester3 trying to see if it works and get some practice charting. Here are some of the issues I’ve seen so far - if anyone has any tips to tweak it then fire away!
Before I go into the issues, here’s what I’m basically doing:
Plotting major S/R on weekly charts
Switching to daily, checking S/R levels
trading pullbacks on trends (when they end and the trend continues), looking for either a 2-bar reversal, engulfing candlestick or pin bar then a candlestick in the right direction to confirm before entry
Range trading on 24H chart based on weekly S/R lines, waiting for price to bounce from a level (with the same signals as above) with another candlestick in the right direction to confirm
I think that covers my basic strategy. I haven’t lost money in the test so far, but there’s about 11% profit over a 2-year period so far which doesn’t seem like enough return unless I find 100 grand under a rock any time soon. So here we go - these are the issues I’ve noticed so far.
Trend spotting is hard.
I’ve had some great success on long-term trends, but once they go into a consolidation period I’m finding it almost impossible to find any new trends emerging. When is a trend a trend? The school of pipsology method of 3 higher highs/lower lows seems to never happen before it reverses again, and waiting for this to happen on the daily timeframe can result in no trades for months at a time from all that pesky ranging, meaning no profits.
Range trading is also hard.
Sometimes the range is easy to spot and using the 3 candlestick patterns I listed I can make a few pips, but a lot of time the range won’t stay even. It’ll tighten, it’ll widen, it’ll break out for a minute then change its mind. Having a plan for these is tricky…
Waiting for trades is (you guessed it) hard.
I’m waiting for things to happen a lot. I’m pretty sure this is why I’m not generating much profit - there’s something missing. You’re midway between 2 S/R levels, waiting for a level to approach so you can trade the bounceback. Then the price goes the other way for a bit. Then the other way. Then… you get it. It can become too tight a range to trade on the 24h chart, so should I look at lower timescales when this happens? 4h chart maybe?
Anyway, if you’re still reading at the end of this post then thanks for your time. Any critisism welcome - tear it apart, go for it. Be nice though - I’m only a newbie
but a pretty perceptive, realistic and insightful one, judging by both your observations and your questions
good question - you need a really clear, “scientific” way of answering this, to fit your own trade entry parameters
if it isn’t sacrilege, to a PA trader, to use indicators just to define “trend”, you could say (for example) that a trend is a trend, for your purposes of looking for PA-based entries, when the 20MA is above the 50MA and both are rising, and the ADX is above 20 and rising
not too popular with the type of PA trader who dislikes all indicators, but it does work
there’s nothing at all wrong with using PA to identify entries and indicators to define “trend” (just for the purpose of deciding whether you’re looking for long or short entries according to your PA parameters)
true, this
as a newbie, you should probably want to trade only with the trend, not to trade ranges, which is way more difficult
Hi @flamingoproxy - thanks for all the tips! I haven’t got much experience with moving averages yet, so I’ll definitely do some reading up on it.
Sounds like a good plan - I’m guessing you need to understand break outs pretty well (and the patterns leading to them), so I definitely need to swat up on this too!
I’ve also found looking for trends hard and it’s very difficult to tell when in a range.
I think a good way to do this is to look at the 200 EMA and if above only look for buys and if below look for sells! I do the same kind of strategy as yourself although I have a stochastic and sometimes Bollinger bands.
I think Bollinger bands may help you in a range market as you can see the level of deviation it has and they normally range between the 2 in a ranging market.
When is a trend a trend? - as @flamingoproxy puts it so well its something you need to define before you go looking for it. A trend is a trend when you say it is: and you say it is because what you’re looking at right now fits your strategy.
For me, an uptrend is when the 20EMA is above the 50EMA and both are sloping upwards. I don’t use indicators but to firm up my conviction I also look at -
how many weekly bars overlap? - the smaller the total the more energetic the trend
what sort of candlestick was the last weekly bar? - bullish, bearish, neutral, hammer, shooting star, outside bullish, outside bearish, inside
did last week’s bar have a higher high and higher low than the previous?
I also notice how many of the base and counter currencies 50EMA slopes are upwards or downwards. It would be unusual to take a long if 5 or 6 or 7 out of 7 base currency 50EMA slopes are downwards and 5 or more counter currency slopes are upwards.
