Hey all!
It’s my first time posting on here so I’d love any feedback that I can get!
To give a little background - I’m currently in my first month of demo trading. I finished the babypips course a month or so ago, and have been reading forums, books, and watching youtube videos as much as I can. It’s been a tough start getting used to everything, but after combining a lot of what I’ve learned, here’s a strategy that I’ll be testing this week for the first time. I’ve been backtesting it a lot and it’s been going very well so far.
There seems to be a lot to it, but it all makes sense in my head. It’s not finalized, I’m still working out what I need to add/delete from it. As of now, I’m not using as much price action/significant levels as I think I can in the near future, and I haven’t added Fib levels to it at all yet. Let me know what you guys think I should add/delete!
The strategy (in an uptrend for example): I first start off with the Daily chart to get an idea on what the overall market movement is looking like. Then I drop down to the 1hr chart to draw any significant levels that I see necessary. From there, I drop to the 15 to look for entries. I use the ichimoku indicator as my primary indicator. When I see price break above the komu and the kijun (and chikou above price action), I look for a bullish engulfing candle on or near the kijun to enter. I also use the stochastic as a complimentary indicator to reassure my entry - although while backtesting, the ichimoku seems to be much more important. So far while backtesting, a 1:1 risk/reward seems to pan out nicely, although it’s not optimal… I’m still working on exits as I’ve found plenty that ride up to 3:1 and sometimes more (maybe this is where significant levels/fibonacci’s can come into play). I’m also testing best spots for S/L placement but below the recent swing low seems to be a good spot as price hasn’t reversed much during my back testing.
I feel like I’m missing something, but that’s the jist of it. I’d love to hear your thoughts or if any of you have a similar strategy. The Ichimoku indicator mixed with the engulfing candle seems to be the most important parts of this strategy, but like I said, I’m still working on it.
Thanks for reading, I hope to hear from some of you!
-Jared
Hello Jared,
You are getting a lot of stuff right. Especially by completing the baby pips school and your use of multiple time frames. Two things do come to mind. One, your strategy seems a little complicated by combining ichimoko and Fibs. Personally I think simple is better.
The other thing that I noticed was your mention of an exit strategy. Obviously its a critical part of any trading strategy. My exit strategy is based on technical analysis. I dislike profit targets because no one ever knows how far a trade will go and a trader simply can not afford to leave money on the table by exiting early.
Thanks for the reply!
I’m fairly happy to hear you wouldn’t combine Fibs with my strategy as I thought it was getting to be too much as well…
As for the exit strategy, that seems to be the last piece of the puzzle for me… Maybe looking for the next opposite signal to get out is a good one? What are your thoughts, and what do you use for your exits?
Exits can be complex and may exceed what I can adequately discuss here on the forum. It might be a good topic for my blog if I ever get it finished. LOL.
Here are some of my thoughts to get started. Keep in mind that I trade trends and look at what comes next in that context.
A trade will have more than one type of exit. The exit strategy will change as the trade evolves. For example. If you enter long and the trade immediately goes against you the exit will likely be your stop loss. If the trade goes in your favor it will likely retrace a little. Most people get out here fearing that they will give back thier unrealized profits. Thats the first thing to fight through.
Take the pull back. Yes this may turn your trade into a wash trade or small loss and will be frustrating. Its about profit at the end of the month not todays trading.
During a retrace I drop down to a lower time frame. I look for price action to either form nearly parallel closely spaced S/R levels. If they do I exit.
If not I ride out the retrace and stay in. Until I do see what I described above.
If price closes below the lower timeframe support level (long example) its an immediate exit.
Drawing a trend line from swing level to swing level on the ENTRY time frame can help give you context and the courage to stay in the trade.
I hope this helped somewhat.
While I never really bonded with the Ichimoku, I really wanted to, so I put a fair amount of research into it. There is a very good pdf/ebook out there that I would encourage you to track down (it’s free) if you like this indicator.
Keep in mind that the Ichimoku is a trend following indicator. I would not have thought that the stochastic (which is a momentum oscilator) was of a great deal of use as a complementary indicator; a trend will often go through several oscilation cycles before ending. The best use is probably to time entry points (ie, on a retracement/pull-back), but the Ichimoku already has rules around entry and exit.
With regards to exits - @Traderjohnsblog has already given you some good advice here - I would encourage you to keep in mind the 5th rule of trend trading: trend traders realize that they will necessarily sacrifice some pips at the beginning and end of a trend as they wait for confirmation that the trend beginning and end are authentic.
Good hunting.
Yeah, it always seems a lot harder to get thoughts (especially forex thoughts) into writing. Although that did make plenty of sense and is something I’ll keep in mind when continuing to build my system!
Thanks a ton!
Side note - where can we expect to find your blog?
I’m in the same boat as you. Right after I finished the babypips courses I wanted to use the Ichimoku as my primary indicator no matter what…
I threw on the stochastic as it seemed to make sense to me but I guess I’m wrong…What do you use as a confirmation indicator? I do enjoy having something at the bottom to double check my entries.
Any idea what the free ebook is called? I’d really like to learn more, and was planning on paying for a book on Ichimoku on Amazon.
Thanks for the reply and your thoughts. I’m glad I posted here. I love figuring out that I’m wrong about something earlier than later - and the learning never stops!
This should be the ebook I was referring to. I can’t remember where I got it, but it exists in a number of different forms scattered about the web.
IchimokuWiki.pdf (466.4 KB)
Keep in mind that the Ichimoku is unique in that it is intended to be a complete, stand alone indicator. That does not mean that you can’t use other indicators, of course, but simply that it does not require one.
Like all indicators, it is more reliable on longer time-frames, and you should adjust the settings to suit the instrument you are trading and the time-frame you are using. The chikou span and the kumo are somewhat difficult to backtest, simply due to the offset, but playing with the settings until the kijun sen and tenkan sen show a good fit for recent data is fairly easy to do.
And like any indicator, the better you understand it, the more effectively you will be able to use it.
I look forward to hearing how you get on.
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Its kinda a work in progress but traderjohnsblog.com
When you reach the full understanding of Ichimoku, you will never add any other indicator no matter how sophisticated it is. The basic philosophy of Ichimoku I would like to share with you is the parameter 9 and 26. Goichi Hosoda, the founder of this system created it in order to understand human behavior in the market in addition to candlestick patterns. So, he chose 9 to reflect the time that most human stays in the womb of our mother and then 17 as the number to reflect of being an adult, and add them to be 26 as the mature adult. The numbers do not reflect days of trading at all. I have been using this Ichimoku without any other indicators no matter how sophisticated they are like Supertrend, Hodrick Prescott, Fractal, etc. I am successful with it. I enter trade when I am sure I will win, Thank you.