This is basically a �filtering� system that at the moment seems best suited for scalpers. I was trying to come up with a way of taking advantage of the great volatility of the GBP/JPY without it taking advantage of me. In back-testing, I�m not too convinced about its reliability so far, but on the 15 minute charts, it seems to work well on most of the majors (when excluding anything paired with the CHF). So far it seems to love the EUR/GBP. Perhaps the parameters just need to be tweaked to take advantage of the other pairs.
One problem with the system is that it doesn�t seem to get much of the price action (at least on the 15 minute chart). However, since it�s basically a �filtering� system, adverse price action won�t get much of you. Therefore, I conclude that it�s a decent scalping system.
Much of it I borrowed from Dark Knight (Tunnel of Five�s) and PipSurfer (Stochastic settings & EMA choices). I don�t know if either of them would approve of what I did with their systems, but I�d like to give credit where credit is due.
[B]System Set-up:[/B]
� 15 Minute Chart
� 160 EMA applied to the close
� 80 EMA applied to the close
� 10 EMA applied to the close
� 5 EMA applied to the close
� 5 period Smoothed Moving Average applied to the High
� 5 period Smoothed Moving Average applied to the Low
� Slow Stochastic Indicator with the settings 10,3,3
� Chaos Awesome Oscillator (with green/red Histogram) with settings at: 5,34,5
� A knowledge of how to read candlestick patters (especially reversals)
� A general knowledge of Fibonacci levels and Support/Resistance Levels
The EMA (160) and EMA (80) are the Trend Indicators. Basically, they give you on one chart what looking at the EMA 10 & 5 would be on a 4 Hour Chart. If the 80 EMA is higher than the 160 EMA, the trend is Up. Conversely, if the 80 EMA is lower than the 160 EMA, the trend is down.
[B]To ENTER a long trade in an Uptrend:[/B]
Condition 1:
A candle closes with at least 30% of its body ABOVE the 5 period Smoothed Moving Average (applied to the High). If this condition is not met, forget about Condition #2 through #8, you are not in this trade.
Condition 2:
The 5 EMA has just crossed (or is ABOVE at the close of the candle) the 10 EMA
Condition 3:
The Chaos Awesome Oscillator is showing a GREEN histogram bar
Condition 4:
The Slow K% line on the Stochastic Indicator is ABOVE the Slow D% line.
Condition 5:
Neither line of the Stochastic Indication is in the OverBought Zone (>80%).
Condition 6:
The current price is not within 11 pips (+/-) of a significant Resistance Level
Condition 7:
There is nothing in the interpretation of the current Fibonacci Levels that would suggest that there is no room left to make a move to the upside.
Condition 8:
The Candle that you are watching did not close as a reversal candle (that would defeat the point), nor is it a significant NEWS candle or a candle preceding or just after a NEWS candle.
Ok, so if these conditions are met (and they won�t happen every day, even on a 15 minute chart), you�re in the trade.
[B]Where to put your Stop-Loss:[/B]
Some interpretation of the market environment is necessary here. If for some reason you were going to walk away from your computer, I�d put it 2 pips below the 21 EMA (I know its not listed on the indicator list, but I generally wouldn�t be walking away from the screen while trading on a 15 minute chart).
Another place to put it would be at the 5 period Smoothed Moving Average (applied to the Low), so long as it wasn�t more than 30 pips away from you Buy price.
The best place to put it would be just below a significant Fibonacci level, if one exists.
[B]To EXIT a long trade:[/B]
Read the candlesticks. If you start seeing a reversal patter, get out. Back-testing has shown that one has very little breathing room to exit once a reversal candle rears its ugly head. Otherwise, ride it up and out.
[B]To ENTER a Short Trade in a Downtrend:[/B]
[I]
All the conditions listed above, except in reverse.[/I]
If anyone tries this out (and I�ll be posting my results at meetpips.com/tonyl226 ) please let me know if you have any better settings on the indicators. As I said earlier, in back-testing this system seems to miss much of the price action. However, the draw down is very low.
Thanks all.