This is probably the simplest method you’ll ever find out there. You can trade it with no effort and almost without any technical trading knowledge at all.
Pull up your daily charts at 00.00 every day.
What you are looking for is a “divergent candle”
A bulish divegent candle makes a lower low than the previous 5 bars and closes in green
A bearish divergent candle makes a higher high than the previous 5 bars and closes in red
When you have found a divergent candle place a pending order at the 50% retracement.
Stop loss is behind the divergent candle and tp is the double amount of the stop loss (1:2)
-If the entry isn’t hit during the next candle, then close the pending order
I have backtested the method on USD/JPY, EUR/USD and EUR/JPY and achieved the following results:
USD/JPY
Win rate: 47%
R:R: 1:2
Profit factor: 1.8
EUR/USD
Win rate: 59%
R:R 1:2
Profit factor: 2.87
EURJPY
win rate: 49%
R:R 1:2
Profit factor: 1.9
Putting in 2 targets and letting the other run can probably increase the win R:R significantly, but it also adds in some unknown factors.
Enjoy, and feel free to share your thoughts and improvements
I recall this method was discussed on FF a good while ago. The major problem with this method back then (and still now) was the inaccuracy. Money management makes the worst system look good. Reality is though that you prob. won’t be in the market all the time to get a ¬50% win rate. Thus not sustainable.
Trading trend line bounces,H&S,2xbottoms or crossover sytems and alike will give you a better edge than this. ‘Simple and Stupid’ is sometimes just ‘Simply Stupid’.
I have tested both R:R 1:1 and 1:3. For EU a 1:3 R:R gave a profit factor of 1.9 where R:R 1:2 resulted in profit factor of 2.87.
-R:R 1:2 is the ideal.
Kasravi it takes a minimum of commitment! Pull up your charts for 5 mins every day and you have a longtirm edge.
This system probably works much better in ranging markets (like the picture you showed in the original post). In which case just playing the S/R bounces would have equal merit. You’re really just playing a cruder version of “Price Action Candlesticks” with this.
It would probably be beneficial to filter out trades based on indecision dojis.
Have you tried different opening daily candle times for this strategy? Oanda’s default time is midnight EDT. I will be comparing the profitability of 3 different daily candle opens unless you have already ruled it out.
What about smaller time frames such as H4 and H1 rather than just the daily time frame?
Since trade signals for the 3 tested pairs are fairly sparse, I’m making very small live account trades on other currency pairs. Yesterday, there was a signal bar on Cad/Jpy. I set a pending order at the 50% retracement level which was subsequently hit…not much price movement since then…currently up a few pips. Anyone else doing this?
The Cad/Jpy trade hit its stop loss after making a prior positive move of 10 pips. However, there was another signal candle on Gbp/Usd that was hit and is currently positive 20 pips.
I don’t believe back testing is the best way of determining the profitability of a given strategy. Is trading $.01 per pip on a live account too much risk? :18:
Recieved an email that somebody had replied to the thread
Bob im not trading this method myself. I prefer trading “real” Price action being ULTRA picky with high probability trade opportunities and good money management.
With that said, there is nothing wrong with this system. It works, it is simple and it should increase your capital.
Instead of back testing the system, I find it more accurate and benificial to run a demo account live test.
Back testing a system can easily lead to information being twisted to squeeze in to a trade. Using a demo account to live test a system means that you are seeing how the system will react in a live enviroment.
Why do you need to be ULTRA picky?
Good traders can make money in any type of environment- chances are, you have a solid strategy but are fearful and thus missing out.
Do professional poker players ONLY play pocket aces or suited ace king?
For trading it all comes down to what you are comfortable with.
I dont see any reason to trade all enviroments if i can just wait for the very best setups and simply increase the lot size?
I look for the very best setups on the daily and weekly timeframes, scanning 81 currency pairs, a few futures and 3k stocks…
With such many equities i can afford to be picky.
I’m surprised that anyone would suggest that they trade a specific way. Most ANY trading plan gives you the ground work and then suggests you trade in a style that suits yourself. If being ULTRA picky is someones trading style and it works for them by protecting capital and increasing profits, then that person has the PERFECT trading plan for them. Missed opportunity, the thought or feeling of that just leads to a greedy trader and being ultra picky certainly doesn’t sound like greed will be a factor.
