Long term trend following

[quinc]

Hey Everyone

I have been messing around with writing EA’s for a few years now. I think at last count there were well over 1000 that I played with. I used to find a trading system, and code it to see if I could get it to make good profits. Some were very wildly successful for some years of back testing, and then bombed very fast when the “perfect” trading conditions ended. I tried pretty much everything I could get my hands on. I would say that the EA’s that made money in back testing usually only made about 5%-10% profit a year, and I wasn’t interested in those. I wanted to find the holy grail. Yes… I know now… it doesn’t exist. Okay, maybe not in the way I want it to exist.

Anyway. I found a thread here on Babypips that looks pretty promising to me. I know I am really no expert, but I am curious what others think, and the thread I saw died after only 11 posts, way back in 2007, but I think it deserves more attention.

It is here… http://forums.babypips.com/newbie-island/8778-my-fathers-amazing-forex-system.html

If you don’t want to read it… The system is actually pretty simple. The thread starter’s dad used this system to turn his $20k into $190k in 12 months. Well, that’s what he said anyway.

All you do is pick a currency that has a long term established trend, and trade in the direction of that trend. By long term I mean a trend on the weakly, or at very least daily chart trend. Obviously you need to make sure that you limit your risks, using a small lot size. The thread starter says that his father uses this system without stop losses, but I’m not confident with that approach.

I have decided to test this system out in a demo account for a while. It looks promising, but I have only had my trade open for 2 days… The trend has been down for ages, with a few blips upwards, but keeps heading back down, so I opened 5 short trades at 1.27264 and the EURUSD is currently trading at around 1.26432. That’s a little over 80 pips profit per trade, making a total profit of over 400 pips in 2 days.

I set a 600 pip stop loss and a 1200 pip take profit. I also have a trade manager that I wrote that is set to keep a 600 pip trailing stop loss.

What do you think of this idea?

[Rambo35]

Well, for some people can be good and for some not , in the end it is your decision. But only two days trying period is very short time you establish is the system good or not.

[quinc]

I have now been trying this system out for 3 and a half weeks.

I have made a grand total of 105 trades.

My chosen currencies are EURUSD, GBPUSD and AUDUSD. As you can see from my graph below, things have been going pretty well. $230 profit, in 3 and a half weeks, is pretty cool if you ask me. I only started with $100.

Yes. I know there are going to be those of you out there that are going to say that I’m testing in a demo account, and this makes my results pretty much useless. Okay… you have a point, but what it tells me is that this method of trading works in principal. I know that psychology may make things work out differently when I move over to a real money account, but this method seems to work well for me for now.

The great thing, in my mind is that the profitable trades are quite large, and the losing trades have been very small.

My method explained further:

Use the daily chart with 3 Smoothed Moving average indicators (5, 10 and 20 period) applied to median price, to show the trend.

Always trade in the direction of the trend. I look at the daily chart, and decide if I feel the market will move in the direction of the trend, and if I feel it will, then I open 5 X 0.01 lot trades.

Stop loss - 200 pips
Take Profit - 400 pips
Trailing Stop Loss - 300 pips

One thing I have been doing, that I didn’t mention in the first post, is not leaving my trades to hit the stops or take profits I have set in place. I have been watching the trades,p[ every few hours, and if I feel they aren’t going to go positive, I close them, and wait till I see what looks like a good time to trade. This usually makes my losses small. If a trade gets to around 50 to 75 pips in profit, I close 2 or 3 of the original 5 that I open, and wait to see if the remaining open trades improve further. If they do, I leave them till I feel they are going to begin going the other way, and then close them.

I’m going to keep trying the method out for the rest of the month, and then if it is still positive, then I’m going to open a small live account to see if I can make duplicate the results with real money.

Do you have any thoughts about the method?