We all know that forex currency pairs move in cycles going in one direction then reversing in the other. The goal of this method is to capture those reversals. My idea is to take a trade when a currency pair has moved a certain number of pips or greater over a certain time period and to take the trade in the opposite direction of that move. The factors to vary include the currency pair, the length of time to look over for pip change, and pip difference requirement for a trade to be taken. I am very certain there are variations of this method that would yield profits, but backtesting this is very time consuming so I am asking what would be a good way to backtest this more easily.
There is no easy way out. Only the laborious way.
I use excel sheets. Input those numbers 1 by 1.
Using weekly charts mainly, searching thru ALL the major pairs, looking for those that get smaller in high low range as compared to previous weekly candlesticks. Calculate percentages of overlap. Zoom in on daily charts or 4 hrs charts. When price deviate a certain percentage point. I counter trend trade and average to mitigate risk. Stop loss are a certain percentages point above or below Weekly high or Low.
Assumption here is high chance price will overlap again. However, when price breaks out of range, bite the bullet, scream with pillow in your face to mitigate your frustrations. Current news will be important to get a feel of market condition.The more mixed they are, the better for counter trend trades.
What’s your idea by the way? Care to share?
Sounds like you have your own method here that I don’t really understand. I said my method but I didn’t do a good job explaining it so I will try to explain it again. My strategy is to test things like if the eur/usd has moved 500 pips or more over the past 7 days take a trade in the opposite direction for 2 days or if usd/jpy has moved 800 pips or more over past 10 days take a trade in opposite direction for 3 days. I want to test variations of that varying the currency pair, length of time to look over of pip change, amount of pip change required to take trade, and length of time to take trade. Then take the most effective and use it to trade.
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Interesting, i will take note. Thanks for sharing.
Interesting idea. But is there any theory that says after certain number of pips or certain number of days price pull back. I think you need to do research manually. You pick a single pair and research on it to see what pattern it is following. Every pair has its own unique patterns. You may find some of them while researching.
Not quite in terms that simple - unless you count Buzzy Swartz “Magic T” (Pit Bull) , But the principle is well known and one of the most controversial of all the greats - WD Gann, uses the principle extensively in his writings, which are examined by Hyerczyk in his book “Pattern Price and Time” - Do be aware though, that it is somewhat “Deeper” than you may be thinking at the moment and also prone to be quite Heavy Going ! ;
All the “Cycles” theories accept the principle of time being “of the essence”, whether it be the “Presidential Cycle”, The 54 year “Konrdratiev Cycle” (Altough why it should be 54 years — ? ) to the findings of the more esoteric Delta phenomenon and even the Bradley Sidereograph consider time to be vitally important.
Richard Wyckoff taught that the number of periods on his Point and Figure charts, spent in Accumulation or Distribution, to be predictive of the monetary movement of the Price to come.
One of the problems is that as we know the markets are based entirely on Human psychology, and travels in waves just as crowd psychology is wont to do - Hence “Elliott Waves” hold themselves to be predictive f things like World Wars and STock MArket Crashes, as well as the price of Soybeans tomorrow !
And just like the markets, with “Elliott waves” - the main difficulty is anticipating which “Subcycle” event is causing the “Movement” NOW !
That is the area of frustration I foresee in the OP’s hopes. However, I think the area of “Time” is another of those areas which is far, far under-rated in importance currently.
I would also suggest a pointer towards Divergence trading. I’m looking for a solving challenge when multiple divergences occur as I encounter lot of stop-outs in that case. I’m unable to get an answer for the puzzle.
What do you mean? Could you explain more or put in different words.
Divergence trading is one of the methods that aims at getting involved in a trade during early stages of trend change (i.e. tops/bottoms). When price movement is not backed by momentum, price movement is likely to pause/reverse. Based on this indication and few other confluence factors, counter trend trade can be initiated. For identifying divergence, momentum indicators/oscillators are used, their peaks and valleys are compared to highs & lows in Price. If they don’t match, then its called divergence.
Babypips education university has done splendid work by illustrating this method.
Please refer to link: Trading Divergences in Forex - BabyPips.com
I’m facing an issue in this strategy that couldn’t cater to multiple divergence. i.e. Price doesn’t give pullback or reversal even after multiple divergence. This leads to frequent stop-outs. When price finally gives that pullback/reversal, I’m not having confidence to reenter the trade.
Hope this explains the post briefly.