I’ve not been quite happy with the indicators for Elder’s SafeZone that I found, and after a bit of thinking, I’ve decided to switch my trailing stop method until further notice.
Instead of SafeZone I’ll be trailing a stop based on 70% of the ATR, with a 5 day period.
Btw, if EUR/USD closes anywhere near where it’s at right now, that means the stop will be protecting a profit.
This is a trend following system, detailed and invented by Dr Alexander Elder. First published in his book �Trading for a Living�.
It is not just a system but a method, or if you like a philosophy of trading.
Here is how I will apply it:
The system dictates that every possible trade go through three screens, before the trade is initiated. The screens are: Long term for determination of the greater trend, Intermediate for finding the right time to open a position, and the Order screen where you place your limit orders
My intermediate screen is the daily time frame, which means that weekly is my long term time frame. Daily also becomes my Order screen.
Screen 1 � Long term trend
The first step is to identify the current trend on the weekly time frame.
For this, I use MACD, standard settings, and a linearly weighted moving average (LWMA) set to 26 periods.
These indicators are applied to the weekly chart, and only when both LWMA and MACD Histogram agree on trend direction, is a trend considered to exist.
Any and all subsequent trades will be only in this direction.
Screen 2 - Intermediate
The second step is where I will seek to buy on a pullback from the larger trend on the intermediate time frame
To identify these pullbacks, I use a LWMA of 22 periods and the Force Index indicator. Force Index is set to EMA, two periods.
The LWMA is a visual way of identifying candles that pull away opposite to the general trend direction.
Force Index measures the strength behind these moves by combining price change and volume and is the primary indicator for identifying pullbacks.
If trend is down, a positive Force Index value gives a sell signal, and vice versa.
Additional positions may be opened on further pullbacks, on the condition that all previous positions have reached break even.
Screen 3 - Order
The last screen is used to place the stop order (different brokers use different names and order types, what I mean by stop is that when the stop price is reached, the position is automatically opened in the desired direction)
If the pullback of the signal day was up, and weekly trend is down, this means that a sell stop order is placed two pips below the low of the signal day. The reaching of this point suggests that the main trend has been resumed and the pullback is done.
If the pullback of the signal day was down, and weekly trend is up, this means that a buy stop order is placed two pips above the high of the signal day. The reaching of this point suggests that the main trend has been resumed and the pullback is done.
[I]Stop Loss is placed and adjusted for every new bar at a distance of 70% of the Average True Range, set to five periods. It is measured from the close, not high or low. The S/L may only be moved in the direction of the trade, never against it.[/I]
[I]Profit is taken either when this stop gets hit, or when the trade is closed manually if Force Index closes with a counter trend value (eg positive in a down trend).[/I]
Italics mark the part that’s been changed.
S/L was moved at the end of yesterdays candle to 1.3035 (70 of ATR, 5 per, from close). 95 pips of profit locked in so far.
The stop was almost hit today, but right now the retrace seems to be over and at this moment todays candle looks like a gravstone doji.
Since trade 1 is a guaranteed profit, money management rules allow new positions to be opened.
AUD/USD is retracing against the weekly trend quite a bit today. All the conditions check out, so I’m placing a sell stop just below todays low, with a S/L of 70% of the ATR.
If prices continue higher tomorrow, the sell stop will be moved to just below the low of tomorrows candle.
Trailing stop was hit and it ended with a profit of 98 pips, including spread.
System: +98 pips
Currently reading Bill Williams Trading Chaos after finishing Alexander Elders two books.
I’ve skimmed through several others and I’m surprised at how much poor literature there is in the field of trading. Trading chaos seems like a good read though. And I highly recommend Elders books to anyone interested in learning more than babypips can offer. For me, his books connected all of the dots and I believe I understand the trading world a bit better now.
Well, using ATR seems a bit artificial to me. Bill Williams suggests just using a really simple method of placing the stop one pip above or below the high or low of the previous bar.
I like the KISS way of doing things, so I’m going with that. I’ve done a very little bit of scrolling through charts and it seems quite unusual for such a stop to get hit in a trend.
Otherwise i have to say that there are some thought provoking ideas in his book Trading Chaos, but there are also some parts that do not attract me. I know it’s almost blasphemy to say, but I’m not a very strong believer in “divine ratios” such as fibonaccis, gann numbers and elliot waves. I’ll keep reading, who knows - maybe Mr Williams can convert me.
Didn’t like it. Either my intellect isn’t sharp enough to digest it, or as I choose to believe, it’s a very confusing book.
There’s a lot of rambling all through the book and you sort of get that “guru” feeling that makes the hair on the neck rise. Big promises about how chaos theory studied by the author and his team for years has resulted in the perfect approach, which then turns out to be a couple of indicators designed by him and similar to what others have made before him, plus Elliot waves…
Some parts are useful, such as the discussion about so called fractals, but in all this wasn’t a great read for me. To much fuzziness and babbling about non-relevant stuff.
There’s even a chapter about, wait for it: the human nervous system. Like I said, maybe it’s me, but maybe it’s the book.
I knew beforehand that Bill Williams is a much debated person, some praise him and others call him an idiot no good know nothing. I will not join either side in that, but I’ll not read anything more from him in the foreseeable future.
I have to admit, that I realized that I’m not quite ready yet to continue demo trading. Not because the system doesn’t work, it does - I backtested it manually bar by bar from jan 2008 to the end of april and at that point I was up about +300 pips. Going through the entire year what with the crazy second half would surely bring profits up substantially.
No, I’m not pausing the system demo for that reason, I’m pausing because I’ve had somewhat of a revelation.
Support and resistance matter. A lot. And Triple Screen ignores it entirely.
I’m beginning to think about trying to learn to trade without oscillators. Some call it trading naked, some call it trading the price action. From what I’ve come to understand that the few traders on this site that are on a professional level seem to focus on channels/trend lines and support and resistance levels primarily. Also a skilled trader such as tymen, who uses dynamic channels and macd ( I seem to recall, may be wrong) pays much attention to the raw price action, in his case in the form of candlestick formations.
Earlier I’ve shunned S/R and just thought one could do fine ignoring it, but I’m beginning to think that I may have been wrong. Maybe my focus should be ON those very things: price action, S/R and trend lines, maybe linear regression channels/lines ( I became instantly fond of them). Perhaps also Bill Williams Fractals along with chart formations will fit in. I don’t want to clutter things though. I like the KISS way.
I’m going to read and try to understand the entire “Alternative technical templates” thread started by Tess, and I’ll be looking through mp6140s thread as well as Kenneth Lees thread “Don’t make it harder…” Also I’ll be rereading NickB:s old pdf “the nickb method” and read up on the subject in the books that I have.
If this turns out the way I hope, I may find a way to trade with a much higher risk to reward ratio. What I’ve finally have come to understand is that you CANNOT predict where price is going. You can only react to what it is doing. Another nice part would be the ability to trade both trends and ranges using the same tools.
I couldn’t resist trying a trade using nothing but Linear regression channels and it worked.
I shorted Eur/Usd as price was touching the upper channel line and it bounced as expected off the line and went down. I took 307 pips out of that trade as I closed it yesterday night before weekend.
Couldn’t have done that with Triple Screen for sure.
I’m becoming more and more convinced that this is the way to go. For one, it’s the method not used by most newbies. And since 95% lose, it’s a good idea not to do what most do.
Finally weekend and a short break from the rat race. Will use this time to study price action and S/R in horisontal and trend line use. Linear regression is very tempting to me.
Right now I’m battling it out between linear regression lines and ordinary trendlines.
The problem with regression is that you have to stop redrawing it somewhere, and frankly trendlines seem simpler and are used by more traders, increasing the chance that they will be respected.
Trendlines have the upper hand right now, since they’re really just S/R lines at an angle.
From Triple Screen I’ve learned several things, but one in particular will stay with me as a mandatory rule, never to be broken - trade only with the larger trend, never against it. However, in ranging mode you can still trade using S/R as floor and ceiling, but this is something that I need to study a lot more. Fading the breakouts or acting on them? Pros usually like to fade, so likely that’s the most useful approach.
During work weeks I rarely have enough energy left in the evening to do anything really useful, but I’m thinking that trendlines along with candle formations and horisontal S/R ought to be enough to build a simple and profitable trading method.
Strange really, but one of the most obvious things get mentioned very rarely. Trendlines and horizontal S/R-lines are exactly the same thing, only angled differently.
From what Ive seen, many don’t realize that. In fact, it took me a while to figure it out, even though it should be obvious.
Regarding strength, there are certainly trendlines that are as strong as some horizontal lines at key levels.
When combining these lines, sometimes you can draw two lines that converge at a point, indicating that price will be forced to break either one or the other.
The more I look at these simple, low tech lines, the more I see what is actually happening with price.
Determining trend or no trend by using the equally simple concept of higher highs and higher lows for uptrend, or lower lows and lower highs for downtrend, or lack of such pattern for a range, is something I’ve picked up from Tess wonderful thread Alternative Technical templates.
It’s so simple that it’s suddenly hard to believe that you’ve been fiddling with MACD histograms and ADX and what not! The answer is literally staring you in the face all the time, if you just know what to look for.
This is all so basic that almost all beginners, me no exception, skip it over as if it’s part of the museum of old useless stuff. Well, it’s not. In fact, I’m wondering if it’s not all the cool and strange indicators that are useless lagging and whipsawing no end.
I’d recommend anyone to at least have a look at the basic old concepts of trendlines, zig-zag behaviour (higher higs and higher lows etc aka peak trough) and why not chart formations too.
Work week is again killing the mind. There are limits to the joy of drilling people’s teeth all day…
As far as the study of pipsology, I’m looking at and test driving a method of trading that’s so simple it’s almost unbelievable. basically I’m using fractals to place very short term S/R lines, and trading their breaks.
It’s work in progress, but it’s so simplistic that it appeals to me. I like to think that I’m pretty smart in most ways, and one thing that I’ve learned is that complicated stuff almost always fails to outperform simple methods.
If or when I manage to make something out of this, I’ll post it here. But just because it’s simple, doesn’t mean it’s easy money. It’s taken me many long evenings to get to where I’m at right now, which could be described probably as being not the beginning pro, but an ending beginner. Best case…
I’m planning to use 1H and 4H (I’m using MT4 right now so there are limited time frames to choose from) to place short term S/R lines according to the rules that NickB put forward in his pdf called “The NickB Method”. Just google it if anyone reading is interested.
After doing that, I’ll move down to 15min to either fade the line if candle formations suggest that price will turn and move away from the line, or trade the break of the line for about 1/4 to 1/5 of the ATR of the time frame used to place the line.
I’ve tried to find currency pairs with high ATR and reasonable spreads. In Alpari’s MT4 demo, this was the result: EUR/JPY, EUR/USD, GBP/JPY, GBP/USD, USD/CAD, USD/CHF.
EUR/USD has the lowest spread generally, so that’s going to be my standard.
Well, like I’ve said, this is work in progress. But that’s where I’m at right now. Going to test this system for a while now. And oh, of course only trade in direction of the trend! Only the god-like should counter-trend trade and I’m not exactly there yet.
Just thought I’d put this screenshot up which shows quite well how price breaks resistance at 1.2600 and then goes on to retest that level. It holds, so far anyway, meaning that it’s now acting as support.
This is a 1min time frame, but I’m putting it up to illustrate the phenomenon, not to find a text book example.
When placing S/R lines, I’m finding that round numbers are more useful than odd ones.
In the spirit of KISS, I’ve decided to focus on just one pair.
I guess that I’ll have to learn to crawl before attempting to walk, so I’m going to follow EUR/USD exclusively.
I’ve read in several places that every pair has it’s special personality and I’ve decided to make everything as absolutely simple as possible.
There are so many things in life to do and so little time, so I’m going to focus my “pip” time on just this pair. I think this is a wise choice.
This log is mainly for my own benefit, but this advice is for any fellow beginners out there - focus attention on just one pair in the beginning.
Flipping through TV channels and jumping between web pages in seconds tend to give us all a bit of attention deficit disorder, I’ve noticed this impatience in me - didn’t use to have it - and this hurts learning capacity.
One way to fight it and try to stay on target is… just one pair, no flipping to other pairs to “check” what’s going on there.
Hi MH,
I have read most of your posts though many of them went over my head.
I am a beginner (i hate the term ‘newbie’) and my opinion of your trading was they they were too complicated, and you were putting a great deal of emphasis on candlestick patterns. I have seen many a bullish engulfer have little effect on a trend
It seemed you were using an enormous amount of indicators.
So it was an enormous relief (for me, not you) that you are simplifying your system, because if I needed to do what you were doing to be successful, then I was beaten before I started.
You mentioned using the Linear Regression channel and had some success with it.
I tried using it but gave up because all it did was add more lines to an already congested screenful of s+r, fibs and trendlines.
But if this is the system that beginners dont use, then pray, tell me more.
First, I totally agree with you on the word “newbie” - I hate it as well and don’t use it either.
The first stumbling step for me after crawling around a lot and falling down came after reading Dr Elder’s books and then in particular reading about the Triple Screen way of trading.
I tried to apply it and I also backtested it bar by bar. It was profitable, but not at all to the extent I had hoped for. Often the system would allow entry just before the trend was all done and about to reverse. Also it became apparent to me that Force Index simply could not be used due to the unreliable info on volume in Forex. So, all in all, I placed Triple Screen on the shelf, took with me the best wisdoms and went back to looking and thinking.
I have several times looked at James’ Inside/Outside bar system and I’m keeping this as a form of last resort, should I fail in creating a method of trading that is my own.
After briefly reading in the Alternative Technical Templates thread a few times since I began looking at trading, I decided to read a bit there to actually understand it.
And so came the next stage in learning for me, when I had to realize what it seems that few do - the vast majority of all indicators will never get you anywhere. They lag, cause whipsaws, contradict each other.
I began to look at the naked charts again and saw that Tess & co were correct in their thread: price tends to move between S/R levels on higher time frames. I decided to try to cut away everything that is overcomplicated and just use things like S/R lines, candle formations, peak and trough behaviour, chart formations.
Although I didn’t like his way of writing in general, Bill Williams’ book “Trading Chaos” gave me the fractal, which is an interesting indicator. What it does is mark any bar where the middle bar of five has the highest high or lowest low. It’s basically a way of marking swing points.
This of course also marks a support or resistance level and therefore one would expect a break of this level to cause a breakout movement of price. As always, better reliability on higher time frames.
Linear regression is a beatiful tool, but with two drawbacks: 1. You have to decide when to stop redrawing it. 2. It’s not that commonly used by traders, which means that it’s less of a self fulfilling profecy than eg fibonaccis or S/R lines
I guess that’s where i am right now. It’s been a lot of fun and I’ve learned a lot. So far I’ve not lost a cent nor have I made one. I’m still on demo and that’s where I’ll remain until I feel I’m ready to put hard earned money on the line.
Most beginners probably never get to the “price action” level in learning. They get stuck on some “when this crosses that, do X” system, or even worse they buy some robot like FAPTurbo and think that they’re gonna get rich quick. The only one getting rich is of course the guy selling the robot.
I’m trying hard to not do what those 95-99% do, and my guess is that what they don’t do is - put in the hard work of actually learning. So that is what I’ve decided to do. Nothing comes for free in life and with the possible rewards in trading, I’m willing to work and study hard for a future in it. Read everything you can get your hands on, most will be placed in the “whatever” department, but a lot of the time you’ll be able to learn something you hadn’t thought of before. There are many books on trading and I suggest reading as much as possible.
Most are not investing real effort, which is why they fail.
It’s like in school - if you’re at least average intelligence you can glide through classes, but if you do, you will never excel in anything. Only hard work produces winners, unless you’re one of those one in a million naturals. I know I’m not, so for me it’s going to take many more hours yet.
I’ve seen that you follow Ken Lee’s thread, so I’m sure that you’re on the right track.If my thread has been able to give you anything, I’m glad.
Best regards
Hi-I am sorry I just saw you already had a thread called My Trading Log did nt want to hijack your name.
