If anyone is just coming in new, with a pretty low capital starting point like myself, this strategy does work as written, but there’s ways to tweak it just a bit. Even though the stops should be kept tight, you can add another confirmation. I’ve been studying this strategy for a while and have found that if you’re trading the 1 minute chart, when the signal is a GOOD signal, there shouldn’t be a lot of heat on your trade. You should be able to take your stop to BE relatively soon.
I’m infamous for entering a short signal and watching the next candle close green and either stop me out, or I close it because I don’t want it to hit the stop. I’m getting over this by simply WAITING for one more candle to close. Yes, this can potentially make the TP closer, and the SL farther away, and you may take less trades, but the chances are they’ll be better trades.
Backtest…look at the charts and see if some of the trades you got stopped out in would have been non-trades if you waited just one more candle to enter.
@AmericanTrader I would like to thank you for writing about the octopus strategy, I like it and it makes profit so far. It’s not that I don’t like your strategy and its simplicity, but as long I am forced to place trades in office while doing other stuff, this other strategy is easier to use.
@Vaczak
Glad you are enjoying the Octopus. I use many strategies myself, so whatever you prefer is absolutely fine. It makes me happy that you are having success!
I found this thread a few days ago and have been reading three the last few months-worth of comments. Thank you for everything you’ve been sharing. Unfortunately, when I backtested this, I got chopped up pretty bad with the tight stop losses, so I must not understand the system correctly.
Quick question: If the 6 EMA crosses down through the upper 32 EMA but chops around in the channel without crossing the lower 32 EMA, do you go long again if it crosses back up through the upper 32 EMA? Or is that an invalid signal?
Okay. So not taking those trades would’ve saved me from some of the whipsaws. The advantage of this strategy, as I see it, is 6 ema crossing both 32 EMAs or the 14 EMA crossing the nearest 32 EMA will require a certain degree of momentum that will hopefully continue. Using a channel instead of just a single 32 EMA seems to prevent signals from being given when things are moving sideways. Is that basically the logic behind the system?
To answer your question, I’ve been trading MACD crossovers below the zero line in the direction of the trend with a fixed 1.5 RR with the stop loss below the recent swing low. I’ll trade against the trend if the MACD crossover is a divergence. It’s given me about a 50% win rate. I trade the divergences to produce more signals. I can only trade in 2 hour windows once or twice a day. So I’m looking for a system that can produce one or two signals in that time on a 1 min chart preferably.
@SurprisedMoose
I have come to think that many strategies can work far better than what’s the back testing shows. The channel strategy allows me to win over 80% of the time. But that is through active trading so I am closing when in profit, even if I miss out on the remainder of a trend. If I make 20 pips a day, I can live with that. But if I have the time to trade I can usually make more than 50 per day. If I just follow the strategy and accepted the tiny losses and let the big trend of the day run, that is where the potential for big money is. But if we rely on a static risk/reward number or a static number of pips and a static stop loss, then the win percentage goes down. The human element must remain.
Strategies with a very high win rate tend to have very few signals. This channel strategy gives us the opportunity to have a few signals per day the reasonable expectation of having a profitable day, everyday.
My goal since starting the channel strategy at the 5 minute chart is to find a way to get it to the 4 hour and daily charts so that I can simply have two or three trades open and ride those trends with a larger stop loss that accommodates a daily chart. I’m getting close.
I like the logic. A lower win rate with more signals will be more profitable for a given amount of time, assuming it still has an edge. My charts currently have the channel emas along with the MACD so I can watch both. I’m considering using the MACD rolling over in the opposite direction (if it’s on the other side of the zero line) as an exit strategy after a sustained trend. What’s happening now on the EUR/USD 1 min is a good example of that.
Sorry, one more thing to add. In the past several months it has been undeniable that I miss out on far more income by ignoring signals. The key is to learn to accept a tight stop loss and to just let it stop out. If you re-enter when it moves back in the right direction, think of that as all being one trade. It was down for a little bit and you lost a few dollars momentarily and 10 minutes later you were making three, four, five, 10 times what you lost. That is the psychology necessary to work the system to the best profitable outcome.
When you do re-enter, consider that the pullback has already happened and your new stop loss is even less likely to be challenged.
Thank you very much for sharing your strategy and for your time and effort with the thread, much appreciated.
A couple of questions if I may please? When trading off the 5 min chart, do you look for upper timeframe confirmation or do you prefer to trade just the 5 min trend? You talk of tight stops, what size stops do you like to use? How are you choosing the markets you like to trade?
@noccin
Hi nick. Thanks for visiting the forum and posting your questions. Glad you found us and hope we can become better traders together.
I am constantly looking at multiple time frames. It’s not necessary for the strategy. I’m just trying to get the most out of it.
If you are using the strategy’s 5 minute chart, and you enter on the yellow 14 EMA crossing above the lower 32 green EMA, the stop loss can be just a couple of pips below the lower green 32 EMA. If you are entering when the six white EMA crosses both green 32 EMAs, your stop loss could be just above the lower green 32 EMA. If you are entering when the yellow 14 EMA crosses over the upper green 32 EMA, your stop loss could be just a pip or two under the top green 32 ema.
If you can follow all that, you have graduated course one. Haha.
