Let me preface by saying that I’ve been trading Forex for 9 years or so and I have tried about everything! I’ve been breaking even for a long time. I guess that’s better than losing but I’ve been trading no better than 30% up or 30% down, like I said, for a long time. Too long to still be here looking at forums where I’ve spent too many hours of my life already. I don’t contribute too much but you would find my user name here and there in these forums very sporadically. I would guess that some of those reading may be in the same place as me and no doubt this has all been said before.
I’ve come to the point that the only thing that I really want to do is to follow my rules exactly, because if I do then I’ll know that forex is beatable and my system is profitable. How do you know unless you follow the rules and 9 years of this tells me that rule following is always not as easy as it sounds!
I’ve developed a system that I believe has a clear edge and it looks profitable. I thought if I exposed myself so to speak I would be under greater pressure to follow my rules exactly, and I believe honestly that this system can make money and I wanted to share it.
The system is simple, it uses only two indicators. Take profit rules call for a 1:2 Risk/Reward and my back tests show that it wins more than 50% of the time.
The first indicator I use is the Linear Regression Channel set in the following way.
Zoom out as far as possible on your MT4 chart. Now zoom in twice and set the Linear Regression Channel from the left side of the screen to right. Make sure all platform tool bars are closed on the left such as Market Watch or Navigator. You want the channels to stretch across the whole screen. As a result on the 4 hour chart you will be looking at a little under 400 bars or candlesticks or about 2 months worth of data.
The Regression Channels are our trend filter. They move with the chart as price progresses. When you check the charts you will readjust the channels to stretch forward to the current price and then readjust the back end to the back end of the chart. This will give you an up to date trend direction determination. A completely flat set of channel lines is a pretty obvious indication of flat market, at least within the last 60 day period.
At what point you decide that the angle of the channels is acceptable to determine a trend decision, either one way or the other, is really the only discretionary part of the system. Generally the steeper the angle of the channels the better chance of a follow through with price in your direction.
The second indicator, the entry trigger, involves the Stochastic Oscillator set to 28,8,8. Simply, if the trend direction is up then the entry trigger is a cross up of the Stochastic while it is below the 20 level, and I mean below by either the Stochastic line or the signal line of the indicator. If a cross up is that close to the 20 level, or 80 level for a sell, then I’m counting it as a valid signal. Those are my rules. It’s a reasonable trigger. You have to have some trigger to get in. I’ve seen this work pretty well and it gets early entries. Opposite for shorts.
Those entries should create the needed edge on the market.
Money management. I trade only 4 hour charts. As far as a stop loss I’ve found that “last swing points” often get taken out, by just enough. No doubt big banks are accumulating and wiping out stops near round numbers, swing lows and highs, etc. I always want good Risk/Reward because trying to win too often will kill your nerves and your account. I determined, and I’m testing, that a 100 pip stop you can get you a 200 pip win at the rate you need to be profitable. 100 pips on a 4 hour chart is wide enough to avoid stop hunts normally and again, allows price to follow through in the trend direction toward your TP. You’ll find that it will usually be set well away from a last swing point that could be a potential “big money” target. It seems to work that way. After I reach 50% profit I move my stop to breakeven.
I’ve back tested it on a bunch of pairs and the following seem best. Back testing is not real easy because you have to adjust the channels as you go along.
I trade EURUSD, GBPUSD, AUDUSD, GBPJPY, AUDJPY, CADJPY, GBPCAD, AUDCAD. I trade 3% per trade but I would strongly suggest less risk. I have seen regularly that 6 or more pairs have open trades at once exposing me to probably more risk than is advisable.
I do not have any stats, percentages etc. It’s very simple. You may find all kinds of improvements to do with it, but keep in mind that it’s designed to provide a certain edge to get in, and a certain edge to make more than you lose via a good RR. That’s all you really need in this market. The rest is psychology, and good luck with that!
I’m not posting this with a whole lot of experience with the system. I am posting this and saying that this simple manual system should be profitable based solely on the principles it is designed on, or maybe the market will only let you just break even!
Here are a couple of screen shots of current trades.
