I am waiting for a signal to form on GBPUSD (Imgur: The magic of the Internet). It has been two days since the last signal, which kickstarted a very nice bullish move I unfortunately missed. I am glad I resisted the temptation of getting in long after the signal has printed.
One thing that Iāve noticed about USDJPY, is that signals are much less reliable if they came shortly after another failed cross. This is suggesting me it might be a way for the system to tell me the market is unsure about where to go, and Iām considering adding it as an additional filter. Something along the lines of: entry only if the signal has not been preceded by a failed cross in the past 10 candles.
Another thing. I happened to stumble upon a video about the Volumes Indicator (which is actually based on Tick Data). It seems like this can be used to measure how easily a candle is formed, representing the struggle between supply and demand. That could be a very nice addition to my price action analysis, although I fear I might be filling my charts with indicators.
Itās not as bad as I thought. Yes, I do have a lot of stuff to do everyday (work, college, my side business), but I do find that most of the signals I trade happen a few hours after I wake up - so that I can trade them right away in the morning. Other than that, I just check my smartphone once every two hours. If I find a signal, I open a position or just take notes. Since Iām only watching four pairs, and since my MT4 app has already been set up, I only need about ten seconds per chart. Thatās less than a minute every two hours. Itās manageable.
Iām also developing a habit of splitting candles in half before entering a position. I look at M30 charts to see how the candle Iām basing my entry on was composed. That kept me out a couple of bad trades today - and for that I thank my price action knowledge!
Interesting point! I am sure that is a worthwhile technique, especially with large candles where it is often recommended to wait for about a 50% pullback for an entry.
There is often debate about which is better, indicators or PA analysis. I have never understood why these have to be considered as separate, or in some way mutually exclusive. We use whatever works and only keep whatever gives added-value. You have a great grasp of that!
I have decided to add a 60 periods simple moving average to my setup, which will be used to tell whether the market is trending or ranging. Guess what? My failed USDJPY trades happened right as price stalled on top of the 60sma, showing clear congestion.
I think you will find adding a longer term MA very useful, almost essential, in highlighting the underlying trend and avoiding (some) false crossover type situations - I also do this (you can actually see that on that chart that I posted yesterday )
The only time that it can be frustrating is whenever the longer term trend is starting to fade and turn because, obviously, the follow-through on the short EMAās will then inevitably be shrinking in the direction of that trend. So, as the main trend progresses through its natural cycle, beware of the waning phaseā¦
This is one aspect of your trading that we have not looked at yet.
The selection of the most suitable pairs is something that is relevant to any trading method and can impact on its overall profitability without actually changing the method itself. As you have already noted, this 5-10ema crossover method is vulnerable on days where the market is stagnant. So therefore it is logical to always seek the pair that offers the most potential for moves - even if it is a cross pair rather than just a major.
One way of doing this is to also carry out a strong/weak currency analysis, which may help in identifying which pairs are currently offering the most potential in divergence.
You may like to look at this thread which seems to produce some good advice regarding currency pairs and see how trading your method using its SW pairs compares with your own standard pairs that you mentioned. For example, it may have produced better, more probable, moves by trading the GBPJPY rather than USDJPY - the issue here is: does this add-on analysis give you an extra edge?. Personally, I think so.
This thread is not a trading method as such. It just concentrates on highlighting how the major currencies are currently moving. Any trader can use this data to their advantage in whatever method or style they prefer.
Hmmm. Now this is becoming a bit tricky. I havenāt commented on the RSI because you said in your OP that:
and I didnāt want to immediately start casting doubts over its components. I have already assumed that you have dropped the MACD (as you donāt mention it). But I felt that if I comment on these other indicators then it would be dismantling the original method a lot. But since you have raised the matter, I would say that I totally agree with you about the RSI value. (You are trading on demo so there were no actual losses here).
I do have my own method for short term trading (mainly 1H and 15m) and I only use a 14-period RSI (using typical) for the reasons you state - it is too similar to the MAs themselves.
Now that I have started I guess I should also add that I donāt really like the 5-10 pair either as they react a little too quickly for my liking. I have preferred 6-12 MAs. There is only a marginal difference but even a small improvement here can make the difference between a win or a loss.
But you are trading an established method with a track record in a blog - and I wonāt now add anything else now as I am digressing into something that is significantly drifting off your original plan and has no place here anymore.
But just as an example, I am not sure when you bought the USDCAD but I would not have had any signal for it even though the MAs crossed because a) the 14 period RSI did not cross and b) the underlying trend was clearly still down (pink region).
Regarding the USDCHF, it was a better looking trade and I guess you simply got stopped out? For me, this pair was still in a flat to negative underlying situation and I wouldnāt have taken it.
Apologies again if I am interrupting here too much - Iāll take a break for a while and let you do some research and decision-making!
I still use the MACD, but it has the same problem of the RSI. There is always confluence between the two.
This brings me back to the point Iāve made about me needing to have a deeper understanding of what Iām using. I lack the expertise to tell which one, between the one Iām using and the one youāve proposed, would be the better one.
Iām here to test the method, not to use it to make money. If something is wrong with it, Iāll change it or adjust it. Yes, itās an established strategy, but whatās also true is that the post is almost ten years old and the author vanished. No updates, and Iām assuming a system canāt remain the same for a decade.
I did get a signal. RSI crossed with the EMAs, and then both crossed again in the opposite direction a couple of candles later. I guess price was still below the 60sma, meaning I shoulāve looked for short trades alone.
Again, Iām here to find something that works - not to have people tell me how good I am! Without your input I would not have been able to confirm my doubts about the system, for example.
This is the point discussed earlier. You cannot ātestā a method over just a few days. If you start tweaking values and components too soon then there is no continuity and no value to the testing. Similarly, just adopting other peopleās opinions will not help with either the testing or your understanding of the basic priniclples.
Consistent profitability is obviously the ultimate objective of anyoneās trading and it takes time and practice and a systematic development to evolve what basic parameters suit each trader best.
For example, my short-term trading method is in overall terms similar to this method but it also has some big differences in how I apply it - which, as many commentators confirm, means that if you give the same rules to 10 different traders you will get 10 different results (unless it is a 100% automated system). For example, I do not apply any R:R ratios at all. When I get a signal then I look for the most suitable SL and TP levels based on what one could call PA (e.g. recent high or low, or S/R level, etc). If the respective P/L of these levels is not good then I leave it or wait for a pullback to a level that does work.
Your method here has a āset and forgetā approach whereas I nurse my short trades constantly. I only look for 2 maybe 3 trades a day, one from the London session and one from the NY session. When I am in a trade, it usually only lasts a couple of hours and I am nearby it all time. If it doesnāt seem to be performing after a while I will scratch it and wait for the next session, etc.
My longer term trades are very different and I only look at them seriously at EOD (although I monitor them a bit on the 4H chart as well). I am gradually doing more on longer term nowadays as the years are changng me more from a trader to an investor mentality! ;D
My point here is that there is no real benefit to you to just follow what other people suggest. You need to be doing the decision-making based on what your testing is teaching you. This applies to both the charting components and the risk/money management parameters. Of course, it hurts a bit when losses occur, but just making short term profits is not the purpose of demo trading - it is to test and trial and deepen oneās experience of both the markets and the methods as well as oneās own pyschology and trading style - and the exposure management aspects! There are a lot of dimensions to progress with on your journey, and it needs to be both systematic and progressive - I think you are doing that
I would just like to check here, are you still proceeding with the same method or are you thinking of any adjustments?
With any learning method, it a question of compromise between the quality and quantity of the signals. I suspect you might find with such short-term MAs on a 1H timeframe that you will a) get too many fake signals and/or, even when the signals are ok, b) not enough follow-through to fully test your R:R parameters.
At the cost of getting fewer signals to learn from, you could adopt some changes to this methodās original components that just might help provide fewer, but maybe more useful trades to analyse? What do you think?
Iām aware of that. The reason why Iām doubtful is the fact that I can clearly see the filters are not working. After checking past performances, I can confirm that the RSI is almost always crossing when the two EMAs do.
Yes! So far, Iām learning that this method is lacking filters. The thing is that, again, since I did not come up with it myself, I canāt really tinker with it in order to fix it. If it can be, at all.
I am still testing the same method, although I wasnāt able to trade today. However, I am still looking for something else. The thing is that, while I donāt want to be that guy who switches strategy all the time, I also donāt want to be stuck with something that does not work on a mechanical level.
I was considering going back to naked price action, but I canāt seem to make it work. I like both the MACD and the RSI, and Iāve read that many people pair them together. I assume then can be profitable, then, right? I just have to figure out how to use them to enter and exit trades.
Absolutely, as long as I figure out how to fix the RSI as well. If I get fewer crosses, but the RSI keeps crossing on every one of them, then I might aswell enter on a cross and ditch the RSI.
The purpose (as I understand it) of this thread is to learn from a study of this crossover method/approach. I think the following series of comments is a good example of how this learning process functions.
@LukasVisser initially raised a good point:
Reinventing the wheel?
Maybe that would be the case if every question had a single right answer. But in forex nearly every issue will have a multitude of answers.
There is no progress made if one changes the tyres every time someone suggests a better set. One needs to know the technology and charactistics of the various tyre options in order to evaluate it personally and know what works best for oneself.
I donāt think thatās what I did, though. I realized that the filters kept agreeing on every single signal, which made me aware that they are not really working.
Exactly! That was my point. Sorry if it didnāt come across clearly.
I was trying to emphasise that your reaction to receiving good advice from Lukas was to study it and come to your own conclusion, which in this case was the same.
I was trying to say that yourās is a much better approach in the long run than just reacting blindly to comments (even when they do come from reliable sources) even though it may seem to others that you are just reinventing the wheel.
It was meant as a compliment to your study process
Oh! I thought you had moved on to scalping and Bollinger bands?
It is not necessarily a good idea to enter 4H+ timescale positions immediately on the start of Monday trading. The spreads may be evil and the direction unclear until at least the NY trading gets underway.
It seems quite many pairs saw covering late Friday including USDCAD. Since this pair has already been in a 400 pip trend i would like to see a candle close back down below the MAs before jumping back in. But that is just my take on it at the moment!
I have often wondered how some people can have the tenacity to intensively stare at 5 mins TFs for long enough periods to make scalping worthwhile!
I guess one has to either take very large positions or automate it or adopt a rather looser definition of what scalping trades are.
I used to trade both 5min and 15min but only during selected busy trading sessions. It is a good way of being able to switch on/switch off and only trade when one felt like it - but the intensity, discipline and precision required is immense and not everyoneās cup of tea.
The Bollingerās bands were part of that Black Swan thread if i remember rightly.
What a difference one day can make! 
