Simple Manual Basket Strategy

[Ingot54]

On this thread I made the comment that technical Analysis isn’t as accurate as it used to be because of the influence of powerful Trading Robots (bots) driven by Artificial Intelligence Technology (AI).

How many FX-Men/Women Honorary Members are there now?

Thank you for the question, Panda Forex. I have tried using Robot EA’s but not with success. I had an acquaintance though, who used them with great success. He lived on the Sunshine Coast Queensland, and when I lived there, he invited me to watch it working. He had a problem with the Australian Taxation Office though, because he had not declared his profits, while his broker did declare them. I saw his trading accounts (he had four) and he had over AUD$160,000 total in those at that time. He …

My comment was a bit wry, but for me, nevertheless true.

However that does not mean it is dead and buried.
On the contrary, we all should understand Technical Analysis (TA), and find creative ways to use it to advantage.

I have done that today, and after looking for Basket Trading threads on Internet Forex Trading Forums, decided to create my own.

There are some very good and profitable Basket Trading systems to be found, but most are a bit beyond my level of expertise to construct and manage.

There is nothing wrong with just using TA to create a profitable basket of pairs, and when a target is hit - (nothing wrong with an arbitrary target) - simply close the whole lot of them thus locking in your profit.

Rinse and repeat

[Ingot54]

All of the pairs (9 of them) were selected by a process of TA in higher Time Frames (TF)
Originally there were 11 pairs, but I culled the two that hade moved in the opposite direction to the expected path. Both were closed after hitting an arbitrary $30 loss (total loss: $65.86.)

These 9 remaining have performed quite well ($200.42) in only around 4hrs as can be seen by the demo box of open trades.

The appeal of this method of trading is that it neutralises the effect of bot trading electronics.
No longer will price reverse on us before our fibonacci or pivot points or support and resistance levels are hit.

Observers will know that these days - unless price actually bursts through these levels - it reverses up to 10 pips before, when due to touch our calculated take-profit levels.
That can have the effect of leaving us holding a trade that is rapidly losing profits while price retreats.

Not a nice feeling.

So we have to play a different game, and outsmart the smarties.
We don’t have to pay $hundreds for our own bot - not having any guarantee of success.

I don’t intend to add much TA to this approach, because I would like it to be available to people who are struggling to make a profit in forex trading, without getting bogged down with Indicators and Expert Advisors and Scripts.

In some countries the cost of bandwidth is a major expense, and a road-block to potential profits.
So the fewer indicators we use, the lower the cost of computing for people in these jurisdictions.

Here is what is needed:

• MT4 Trading platform.
• Charts with Daily or 4H charts - own choice. I prefer DAILY because the trends are stronger in my view.
• About 12 to 16 (more if you wish) charts based on USD, GBP, JPY. AUD, NZD, CAD, EUR.
  No CHF, but you may use it if you like and even Gold, Silver and OIL are ok.
• 3 Exponential Moving Averages (EMA’s). I use 100, 21, 7 which give us a good idea of trend.
• An indicator that will show us where price is turning.
  I chose the CCI
• An Oscillator which confirms direction and turning points.
  I chose the 8.3.3 Stochastic.

Other Indicators:

• Bid Ask price indicator
• Candle Timer Indicator
  You can do without those - just bells and whistles which really do not add much to the strategy.

Shortly I will post what my charts look like, as well as the indicators if I can upload them.
:

[Ingot54]

Here is the chart as I use it.
Unfortunately I am unable to upload indicators or templates - maybe someone can tell me if this is possible?

Everything is available in MT4 charting except the version of the CCI that I use.
If you can search the Internet for the “FX Sniper T3 CCI Alert” (5) you will appreciate why I use it - the lines are very smooth. If you are unable to use the FX Sniper CCI, the standard CCI with MT4 will give the same readings if set to “8” instead of the “5” which FX Sniper uses. Google throws up several sites that offer it for free.

Trading rules are on the chart, and can be discussed if needed.

Set up the indicators on a chart, and save as a .tpl (Template) then set up all of the charts you intend to use for your basket, and apply the template to them, in either the 4H or the Daily charts.

To create your trades, scroll through your charts and select “Buy” or “Sell” based on whether the trend as shown is up or down.
Stochastic and CCI really need very little explanation.
CCI does a great job of indicating where price is turning from one direction to another, and if you are patient and can wait for the CCI to turn in the direction of the trend, you will be rewarded.

Trades can be closed when your arbitrary profit level is hit.
I close all trades at once using the Script: “Close all Open and Pending orders.”
This script is built in to MT4 and you only need double-click on it to close all trades that are open or pending.

Position sizing is up to the trader.
I used 0.05 contracts for each trade, in demo, which is outside of many sound money management guidelines.
When trading live, I will drop to 0.01 contracts since catastrophic news releases do happen, and unless trading with a stop-loss, an account can easily go into a margin call.
Under normal conditions this doesn’t happen. And if you are trading in the direction of the trend, it is unlikely your basket of trades will ever all turn against you.
Be patient and you will have a lot of fun with this.

I wish you good trading with this.

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Big Trading Tip

The CCI on the 4H or Daily charts will give you the best indication of a turning point in the market.
It can therefore be one of the hottest indicators to show smartest entry and exit locations.

If you get some practice at using the CCI in this way, on the higher TF charts, you should never struggle to make money in trading ever again.

That’s my view … we’ll see if it is correct.

Here is the AUDUSD 4H chart with entry points.
No need to worry about not getting enough trades - there are 28 pairs to choose from, plus OIL, Gold and Silver. Just be patient and you will easily find half a dozen to trade each day.

And here is the DAILY chart for comparison. If you miss the entry on the daily chart, simply drop down to the 4H chart and enter on a pullback in price.
BE PATIENT - YOU DO HAVE TIME TO GET INTO THE TREND.

[Panda_Forex]

Thank you for sharing this strategy @Ingot54! It sounds awesome.

How long have you tested it? Did you apply it to live account yet?

[Ingot54]

Will be going live next week, Panda.
Right now still in demo.
Has not been tested in this format for more than 2 weeks.
But have attempted similar with only MA crosses in the past without success.
I have not had great success with MA cross systems.
They work … until they strike a whipsaw … then they don’t
But have identified two trades out of 24 instruments and entered those about an hour ago.
Scanning for more every hour.

Short USDJPY from 135.571 from Daily chart

Short AUDJPY from 92.697 from 4H chart

Currently breaking even

[Panda_Forex]

@Ingot54

Will be going live next week, Panda.

Best of luck,

[Ingot54]

Having second thoughts about going live next week.
Still having very mixed results with this.
Just landed some good trends, but they were based around news releases with EUR.
That’s not the way I like to make pips.
Trading a Daily system off news results is not a system - it’s gambling.
Not good enough for me to resume live trading.
News is not TREND.

Had 16 positions open (under my entry rules, mixing both 4H and Daily) at 0.05 contracts each and closed them all 2 mins after the news for +240 pips.
Nothing to be unhappy about … except it did not validate my system.
All it validated was my luck - in this instance - in having the news go in favour of my positions - nothing more.
As far as I am concerned, I am still looking for a profitable entry to the trends.
In other words, I do not believe that a single news release proves (to myself) that I have an edge.

[tommor]

Its not a bad idea to suspend trading of any sort around major news impacts. Many profitable strategies incorporate this as a filter, no problem.

[Ingot54]

Normally - yes Tommor.
But I am attempting to develop a 4H to Daily strategy.
The basket of currencies/commodities selected needs to continue their individual identified trends, to the benefit of the basket as a whole, in higher TF.

Since I am still in demo, I really did not have to close those trades in profit - I should have allowed them to run the course of their reaction to the news, since they are not 15 min or 1 Hr trades, but 4 Hr and Daily.
In closing them all, I robbed myself of the opportunity to see if the trends would stabilise, and resume in the direction I selected them.

All is not lost though - I can manually follow them (all 15 of them) to see how they are looking in 4 hrs from now. Looking at a couple of them just now, after a pull back, the trend initiated by the news looks to be establishing itself in the direction most of my basket were traded.

I have not forgotten that when running a basket of instruments, the ultimate goal is to have them close in profit as a group not necessarily as individual successes.

[tommor]

This is rational enough. It reflects the eternally most difficult question in trading - when to exit. I guess the best answer is when you planned to exit and not before and not after.

[Ingot54]

Will not proceed with this thread until some time in the New Year.
The Bank of Japan shocked the markets today with their raising of the long term Bond rate.
My charts don’t know if they are Arthur or Martha!
And I may reboot the indicators I am using, as I am not happy enough with the reliability now of the CCI.
It is a lagging indicator - yes - but as we get into the higher TF like 4H and Daily, the lagging should not be as much a consideration.
It seems like that is not the case, and the timing of entries needs more work.

So I will wish everyone a happy and safe festive season, and will continue this in the early weeks of the New Year.

In the meantime, feel free to post your own thoughts on this approach.
The basic concept has been laid down, but the signals are needing work.

[ghamm]

I think over the years, I have determined a few things… 1. World currencies are affected by each other… Some are more generally correlated than others… usually because they are nearer or farther in proximity. IE CAD and USD for instance… Charts tell you very little… Banks and news move things… we are the sheep… So, does anyone really make any money? after 15 years in Forex, I dont really know anyone that has made consistent money… The most logical strategy to me is basket trading… Meaning, by basketing pairs together, and monitor in the movement as a group, you are in essence creating new currency relationships… that didnt exist before… So, being a software engineer, I created a basket analyzer to see how groups of pairs behaive when placed together, then over laying some VERY basic indicators on top… Mostly , MA and Heiken Aski… thats it… It actually creates a virtual tug of war between pairs… Ive gotten busy over the. last year, but have dusted it off and looking at it again. I wrote this app from scratch, and created a bridge to MT4 to trade… Heres a photo of the app.

[Ingot54]

Thanks so much for your contribution, Ghamm.
I would be very interested to follow your development of this.

Today I was fiddling around (in frustration) trying to de-bug my approach.
Even now I am uncertain about continuing with it, but for what it is worth, here is the current basket showing approx 900 pips aggregate, and the charting I used to get there. Position sizing is an arbitrary 0.01 contract per pair, which varies from 1 cent/pip for the EURUSD, to +/- that for other pairs.

Will it work tommorrow?
Don’t know, but it’s given me the green shoots of hope that there might be the bones of an approach here.

That’s the Basket … and here is the chart.
Have added TDI and ditched the laggard CCI
Have added a MACD with settings 4,21,1,5.
You can perhaps come up with similar on Google with some luck - I am unable to post the formula - sorry.
When there was doubt on the DAILY chart about trend/direction. I dropped down to the 4H for confirmation/clarity.

But if the DAILY is clear, like this one, don’t bother with 4H because it will only confuse since there are sometimes trends between 4H and Daily.
If still in doubt, just pass on that pair.
There are still heaps (as you can see) to choose from.

[Ingot54]

Forensic traders will notice that several of the pairs in this basket have gone against the trend … which seems to defeat the stated intent of the strategy.

Such is life.

Maybe what is going on is a trend reversal here, and the basket approach has uncovered that.
Who knows.

But if the indicators on a Daily chart are all moving against the trend … against the moving averages … then perhaps it is the trend that is changing and the moving averages are the sheep following along.

Remember, on DAILY charts the EMA’s are like vapour trails behind a 747 Jet …floating fixated in their place, while the object that created them is miles in advance, creating new trails.

That explains why traders sometimes get into a trend when it has almost completed its move.
At least on the Daily charts there will usually be a few crumbs left to pick up.

But another explanation could be that we are getting sucked into a pull-back and don’t see it yet.
In that case … where do we exit, to avoid giving it all back?

If we could melt down all these pairs and come up with ONE representative pair of the lot of them … then perhaps the fibonacci indicator might give us ample warning to liquidate.

[tommor]

I’ve been thinking about this strategy for several days and believe it boils down into the main problem (as ever perhaps) - not getting into low probability trades.

What about this filter? -
only go long (short) if the chart shows the last 20 closes were all above (below) the 20EMA
Even with the recent BoJ volatility, this gives 12 major forex pair targets available out of 28.

Refinements are possible -
e.g.
20EMA not breached intra-day (by wicks / by bodies) in last 20 days
etc.

Obviously the use of 20EMA is not carved in stone, other MA’s would work.

[ghamm]

Well, I see what you are doing… But you are looking at each pair and analizing them independently, then building a basket. This is certainly one way to look at a basket… But Since Pairs have correlation, and trend together, you could have 2 pairs, with the same signal, and you trade them together. In this case, if you are wrong, you are doubly wrong… In my idea… the philosophy is somewhat different… You build baskets FIRST, Then lay your indicators on the basket… (BTW, this is very hard to do in MT4, this is why I wrote my own.) Adjust your lot sizes on each pair (To account for actions, ATR etc). The object is to create a nice sine wave with the fewest pairs as possible (Because you will eat up margin if you dont)… Then you Trade the WHOLE basket at once… You can then scale other baskets on top of baskets if you like…but again you will eat up margin that way and possibly enter into dead hedges… The object to create waves, being able to take advantage of both directions of the sideways action… Baskets create a sort of push pull relationship between pairs. Like a Mutualfund for Forex… It is actually creating randomness by intention.

[Ingot54]

Have you been able to run some tests yet with your ideas?
I am gradually getting my head around what you are saying. There is merit in getting that smooth sine wave concept established. That’s a definite pattern that can be exploited.

In the past I had a bit to do with various currency strength approaches.
An acquaintance on a well-known UK forum (User: NVP) has the largest and probably longest-running thread on this - since Feb 2009 and still updates the thread weekly. (Correlation Trading - Basic Ideas and Strategies).

The basics are the same, but the intricacies are now highly sophisticated, and NVP seems to be nailing the trends well.
Back when I was involved, this was the pattern, without the dashboard on the side:

The addition of the dashboard along the way makes it easier and more interesting. We were looking at the 1H, 4H and Daily, creating our pairs trading weakness against strength. I still like that concept.

Sorry for digressing, Ghamm, but I introduced this as a way of illustrating a concept that could be used in your approach of “building a basket first” and then applying indicators.

Incidentally I am actually doing that (looking at various templates on my charts) as a management tool mainly to intervene early, in the case of a trend reversal in one of the pairs with a common denominator, such as the USD or JPY-derived pairs.

Another forum had a Romanian fellow who (unsuccessfully) attempted to convince equity traders of the merits of Gaussian waves. It was a good idea, but he chose the wrong time and a difficult audience to try to get development happening further.

Please keep contributing.
The thread title “Simple Manual Basket Strategy” I think can accommodate any ideas that will lead us to the application of a winning approach.

[ghamm]

Yes, I do all sorts of tests… and then I get burned out and get distracted and lay it down for months… Im not saying my way is a better way… I don’t know… Just another way to look at it… I would only say that building your basket individually would require some sense of correlations to manage your risk… IE, two pairs that trend the same is almost the same as trading one of the pairs with double the lot sizes… Or a cross pair with 2 majors… But, I think what we are all trying to do is manage our risk by creating diversity… So, I will enjoy following your thread. I like your ideas… I think I know of the Romanian guy you are speaking of… I think were many get tripped up is they always want me to automate it… Ive written dozens, maybe more, of EA’s… None of them can do what our minds do… So, whenever I discuss ideas… nobody wants to explore trading it this way… they always want to backtest it… automate it… Cant even go down that road (Which Im not convinced even works well anyway… Cant assume the robot is smart enough) you must manually test for a long time first. I digress,… I will enjoy your ideas on the thread…Thanks…

[ghamm]

Here is an energy analyzer I made… but No matter what you use, It Always has some sort of timeframe and MA. I dont find it that useful…

[Ingot54]

Same.
Lost count of the threads with good intentions along the way.

That Romanian fellow was Stefan STOIAN.
I think the old equities forum I met him on has closed now. The old equities traders have retired, capitulated or lost interest due to major market corrections.
Colin Twiggs ran it, and he runs a financial advisory now I believe. Newsletters I receive indicate something like that.
If you Google Rainbow 3D Moving Averages you’ll find the charts I developed.
Colin asked me if he could use them in his list of indicators. They have been copied countless times on various forums, but I don’t think they have contributed much to anyone’s profitability.

Stefan Stoian is on Linked In, and is occupied in the software industry even today (must be 15+ yrs since I communicated with him).

Unfortunately software development is out of my league. I have always liked manual trading using my eyes and a couple of indicators. A couple of attempts at using bots were not failures - just too tedious, since they were not particularly good ones.

You get what you pay for I guess, but the danger is always you don’t get what you pay for!

That bit of story-telling from the past shows my age a bit