Simple, Effective Daily Swing Trade System

Trading Systems Free Forex Trading Systems
1

So with the input of many people here and many hours of study, I came up with a simple, daily swing trade system and after 6 hours of back testing, it seems to be very good.

First the system itself.

Daily charts, (I will be using 3 hr charts to time entrances and exits, but for the backtesting I just used daily chart and took the closing price).

10 and 20 EMA, RSI, MACD and Full Stochastic

Rules: Use 10 and 20 EMA to find trend swings, if 10 EMA crosses (with confirmation of next candle) 20, go long or short depending on the direction of the cross. RSI, Stoch and MACD should confirm the trend shift.

Money Management: SL is 250 pips, Capital risk/trade is 3%, note the initial account balance was $100, (what I plan to fund my Oanda account with if I this works out).

Currency Pairs: I was backtesting with USD/CHF, USD/JPY, GBP/USD and EUR/USD but I’m pretty sure you can use any pair, (I plan to when I start live demo trading this system starting monday).

Here are the results of 6 hours of number crunching with a spreadsheet, (I am keeping meticulous records, so it takes a while for each trade).

Time: 3.5 months
Trades completed: 10
Average leverage: 1.683:1
Record: 6 wins, 4 losses, all losses where Stopped out
Total Pip Gain: 5485
Avg Pip Gain/trade: 548.5
Reward Risk Ratio: 2.2:1
Avg % gain/trade: 6.59% return on total capital

Worst Trade: 12/15/08 Shorting of GBP/USD, stopped out in a day for a loss of $4.11 or 3%.

Best Trade: Shorting the GBP/USD on 9/30/08, trade went through 12/15/08, 2.5 months and resulted in a profit of 2094.9 pips, (including spread) for a monetary gain of $23.67, a 25.18% return on total capital.

Tomorrow I will backtest through about April of 2009, and continue back testing all 4 currency pairs simultaneously until I finish on Tuesday. I will keep this thread updated once per day on both the backtesting and the live trading that begins next week.

2

Might I suggest a (much) longer sampling period.

3

Trades completed: 10

Thats a good start but you need to get that number allot higher. Keep in mind good systems are a dime a dozen, the execution of the system by the individual trader is what makes it work. If all it took was a few rules and some indicators someone would have programed an EA and be raking in the cash. I don’t know maybe someone has:rolleyes:.

I am not trying to shoot down your system but you do need to be prepared for the fact that trading with real money is different than back testing with Excel. Your sample time is short, the market my change and knock your system out. Be ready for that and have a back up plan to fall back to. It may just mean staying out, or it may mean using a totally different system. Recognizing when to follow your system is where practice will come in.

Good luck
Keep us posted

4

Show what happens if you only trade long. Then show what happens if you only trade short. See what effect that has on draw down, number of losses, and win percent. Make sure each loss is a constant.

5

Thanks everyone for the advice. I know that backtesting is much different than demo trading which is different than real money account trading and that it takes proper money management and trade discipline to make any system work. Its just nice to come across a system that seems to work as advertised.

I have a friend who’s spent the last couple of years dabbling in Forex, (he actually turned me onto the idea to check out baby pips) and he lacks the patience to trade long term, preferring to try scalping systems. He’s always going on about how Forex is financial alchemy and how its rigged against retail investors. I hope to prove him wrong by focusing on long term trends and proper money management.

As for the suggestions:

  1. When I say through April tomorrow, I mean it will take me a couple of days to finish testing with the 4 pairs I mentioned.

  2. I may just switch to recording the entries, prices, SL, and so on. Leave the profits to later. This will allow me to keep adding more currency pairs so that I can get a much more signifigant sample size.

  3. Each loss is a constant, 3% of capital.

6

Today ThePhoenix introduced me to the Ichimoku Kinko Hayo tool and after 6 hours of research and back testing 5 currency pairs over an 18 month period I have to say I am a believer. 23 trades, 15 profitable, (65%) with an average profit of 629 pips/trade.

I will continue to back test this method and update this thread tomorrow as I add currency pairs. When I get through with all of them, (23 possible so it will take about a week) I will crunch the actual numbers in terms of total dollar profits that would have resulted from 18 months of trading, (one has to take into account the compounding effects of profits).

Tomorrow I plan to add another 5 pairs to my backtest log, (which covers every major pair). Tomorrow’s update will also include a description of the exact system I am using.

Good night and good luck next week to all Forex Traders :smiley:

7

So today I realized just why the Ichimoku system seemed to predict the future so well, because it literally was using 20/20 hindsight!

The system I based it off of said to only enter a trade if all 3 conditions were met.

  1. Tinkan-sen crosses Kinjin-sen
  2. The candles close under or over the Kumo
    AND
  3. The Chikou Span is under the candles for shorts, or over the candles for longs.

Well, today when I tried demo trading live I noticed that the Chikou Span was missing. Doing some research I learned it was because the Chikou Span was the price close projected 26 days back.

In other words, my system had me only entering trades that were guaranteed to make money! That is why 70% of the trades were profitable and I avoided fake outs so well!

Well, I just spent the last 2 hours back testing 2 of my currency pairs that I had previously done, this time ignoring the Chikou span, (as you have to do when live trading).

When just the first 2 conditions are met the number of trades doubled for the USD/JPY and tripled for EUR/CHF, (which was ranging most this year).

23 trades for these two pairs, and only 4 of them profitable. Overall 698 pip loss.

Now its back to the drawing boards, to see if this the Ichimoku can somehow play a role in a profitable, long term trend strategy.

8

ArmyDoc,

Trust me…I have been a student of ichimoku kinko hyo for a long time, and I can tell you that one ignores the Chikou span at his/her own peril. It is on the charts, but it is shifted backwards in time on purpose. The whole point of the Chikou span is to see the relationship of current close prices to the price action 26 periods ago.

It does make it hard to backtest, as you have to be searching for the chikou span 26 periods before whatever point of the chart you’re examining. But you get used to it.

Trust me…ichimoku works. That’s why nearly every japanese brokerage uses it. It just takes a little more practice.

9

Thanks for the help everyone, it took me all night to figure out how to use the Chikou Span to confirm TK and Kumo breakout signals but I finally got it.

Tommy C, you’re right, back testing is a challenge with Chikou but I am done back testing, live testing from now on. Here is what I have devised is a good system for me, in terms of risk, personality and time commitments.

Enter trades: Buy or sell if Tenkan-sen is properly positioned over Kijin-sen + price is properly positioned above or below Kumo+ Chikou Span confirms bullish or bearish trend and is trending in the same direction.

Money Management: 1% capital risk, stops placed at either first or second Chikou Span support or resistance level, (depends on how far away that is, mostly I go with the first level but if that level is less than 50 pips away I go with the second).

Exit strategy: T/K crosses in opposite direction of the trade I entered, UNLESS Chikou Span is properly situated such that it indicates the long term trend will continue.

Pairs eligible for trading: any pairs not ranging (this currently excludes EUR/CHF and EUR/GBP for now) but I am open to hearing other bad pairs not to trade with the Ichimoku system?

I have spent a total of about 200 hours on learning forex, devising a system and back testing it. Now is the time to just trade my plan and see what happens.

If it is succesful over the next month I will open a $10 account with Oanda and see if I can make some real, all be it, small money and increase my account size over time.

Thanks for the help everyone, here’s hoping that Japanese statistics and disciplined money management and trading can make us rich.:smiley:

By the way here are today’s trades: (note I know that there is a lot of correlation but for testing purposes I want to maximize my number of trades, so any valid signal, other than EUR/CHF and EUR/GBP is a go).

AUD/NZD Long
EUR/NZD Long
NZD/CAD Short
NZD/USD Short
NZD/JPY Short

Forcast for tomorrow:

AUD/CAD: short, Kumo is being broken as I type this, T/K is crossing under and Chikou Span is under price curve and headed down. Almost certainly a shorting oppertunity for tomorrow but of course I am waiting for the candle to close to confirm.

10

You’re learning. Sooner or later you’ll “see the light”.

Feel free to stop by THE FOREX STORE.

11

Xtraction, the quote you refer to was regarding two pairs that were traded with a different Ichimoku system one that didn’t utilize the Chikou Span at all, (at the time I didn’t understand how to use it to confirm trends).

I did some back testing on the USD/JPY and EUR/CHF as well as the AUS/USD and found that almost always the Ichimoku was able to predict trend shifts, but I wasn’t able to get the 70% Profitable success rate that I had when I incorrectly used the Chickou that was right above or below the price curve, (thus trading on future information).

The reasons the trades were not profitable despite the correct prediction of the Ichimoku were mainly two.

  1. For the EUR/CHF there was a lot of ranging going on and so even if the trend was correct, I often had to exit it at a loss, or was stopped out after a month or two due to some news causing a massive pip move.

Lesson: don’t trade pairs that are ranging, meaning EUR/CHF and EUR/GBP.

  1. My exit strategy was the same as my entry, wait for all 3 Ichimoku signals to confirm before exiting a trade. This resulted in me staying in too long and leaving most of my profits on the table and sometimes, even exiting at a loss after a month in which the Ichimoku had been right about the trend.

Lesson: Use Tenkan-sen/Kinjun-sen cross against your trade as an indicator that trend is coming to an end and get out with most of your profits intact.

The only exeption to this is when the Chickou Span indicates that the trend is strong and will continue.

As an example here is a graph of AUD/CAD, note that on Aug 20 all 3 Ichimoku signals confirm an uptrend.

On Oct 16 or so their is a T/K cross, but the Chikou Span is showing continued upward trend. On Nov 23, another T/K cross occurs but this time the Chikous Span reads neutral, meaning the uptrend is at its peak.

Under my new system’s rules I would exit at the T/K cross, where my old system would wait until a new downtrend was confirmed. Thus I get out with about 20-25% more profit than in the previous system.

We’ll have to see how the system does, I am sick to death of back testing and as Tommy C pointed out, Ichimoku backtesting is tedious and slow work and I have had about all I can take of it. From now on its live demo trading only.

On that note, its time for an update.

I had been eyeing AUD/CAD as shorting oppertunity all day and tonight I got my wish, T/K cross down, Chikou Span confirmation and candle close beneath Kumo.

What’s even more exciting, when I checked the 3 HR charts, I saw the same 3 signals, all showing bearish, 1HR, 30 Min, 15 Min and 5 Min all showed the same!

So I was able to enter a new trend from the very beginning AND it appears I entered at a time when the long, medium and short trends were all bearish!

I have attached the graph of AUD/CAD, the Tenkan-sen is white, Kijun-sen is blue and Chikou Span is purple. The yellow line is the stop, 105 pips above the entry price, at the first Chikou resistance level, as can be seen on Nov 2.

As for the forcast: Over the next 1-3 days it appears as if Shorting oppertunities will present themselves for the EUR, GBP, CHF pairs.

ScreenHunter_09 Dec. 08 02.58.jpg700×438 42.1 KB

ScreenHunter_08 Dec. 08 02.37.jpg700×438 42.8 KB

12

Well while checking AUD/CAD today I realized I made a mistake yesterday in opening a short position.

The previous candle had not closed below the Kumo and only the current one had, but since that had not closed it was not a valid entry. Today the candle is now up into the Kumo.

In fact, the 1 day chart for AUD/CAD actually shows the price closing at the Senkou Span B and now has bounced off it, which means that the price did not break through support and in no way should I have shorted this pair.

I have removed the pair from my practice account on Oanda and from my spread sheet. Lucky for me I caught this mistake early so it didn’t screw up any of the profit loss of the valid pairs, (oanda allows you to reset profit/loss and account levels and since I have not exited any of my valid trades, the performance of my test portfolio and its findings won’t be affected by this mistake since my 5 valid trades are all unrealized profits at this time).

BUT this mistake has taught me 2 very important lessons.

  1. ALWAYS, ALWAYS double and triple check the 3 entrance indicators before making any trades and make damn sure that the candle that is breaking through the Kumo has closed.

  2. In real life, there are no mulligans or do overs. If I open a real account with Oanda I better come correct and not make such amateur mistakes, or it will cost me.

13

Since I am essentially trading the Ichimoky Kinko Hyo system described in the thread of the same name, I am moving the daily log of my demo trading performance there.

Hopefully, the log can serve to bump the thread and keep this wonderful system in the forefront of the free trading systems sub forum.

14

I just Stumbled onto your post. Are you still trading?