I would go so far as to suggest that price will behave in a certain way when in a trend and a certain way when its not in a trend. But when in a trend, price behaves less randomly. But as a trend-following trader, I do not get into a trade if the chart does not show a trend, so a study of what price does which includes non-trending market periods is irrelevant,
What I admit is random, at least as far as I can tell, is when the next trend will start, how long it will continue and whether it will be up or down.
this is not a “snipe” i think it is an interesting post.Its seems your in the same boat as the vast majority on here searching for a profitable system .Otherwise what other motive do you have ?Or am i totally wrong and your just intrigued why and how the markets move ,a subject which has probably been questioned millions of times.
@tommor - The trend trading strategies I used seem to be the best ones overall providing you can get the parameters right for when there is a trend and when there is not. I ran a lot of MA crosses and they seemed to do well but what did better was what I call “MAOrder”. This is where you use the price and a couple of moving averages. If the price is above the fast average and they are both above the slow average then look to buy. That coupled with using Bollinger Bands but the multiplier set for 1.0 instead of 2.0 for entry signals worked the best over the various currencies.
As a freebie here is the top performing strategy that I tested…
MAOrder - The price has to be above the moving averages and the faster moving averages need to be above the slow one to look for buys, the reverse for sells and if the order is mixed up then don’t do anything.
MAOrderBoll - EMA - 50 - 100 - 200 - 3.00 - 1 - 20 - 1.0 - True 2022-01-19
EMA 50, 100, 200 - All must be in order including the price to look for a trade.
Take profit is 3 times the stop loss distance giving a 3:1 profit/loss ratio.
Using the last 1 candle for the stop loss (low or high based on buy or sell).
Bollinger Bands set at 20 for the moving average.
Bollinger Bands set at 1.0 for the multiplier.
Buy when price and moving averages are lined up and when we are below the lower bollinger band.
Sell when price and moving averages line up and we are above the upper bollinger band.
Let trades run until the stoploss or takeprofit are hit, do not get out any other way.
The interesting thing is the bollinger multiplier set at 1.0 instead of the default 2.0. It gives more frequent and better signals than using the 2.0 value. You will notice that there is no specific point in time like a crossover, it is just when things are above/below each other.
Disclaimer
All of the variables listed above were tested with different values and these came out the best. Your mileage may vary, void where prohibited, not valid in the state of confusion.
I like this approach, its very close to what I’ve long been doing and trying to convince newbies to at least try it. I don’t use MA crossovers or indicator signals for entry, just two consecutive counter-trend bars and set an entry order at the extreme of the second bar’s range, in the direction of the trend. It works.
Price in a trend continues the trend more often than it does anything else. But over a year say I agree that a forex D1 chart is random.
@tommor - Hmm, I am going to have to add that strategy to my list. So it is two consecutive bars with a body greater than 50% of the bar moving counter to the trend? Then you open a trade in the direction of the trend? Where do you put your stop loss?
As an example, let’s take an uptrend. On the D1 time-frame price recently has been printing daily candles each with a higher high and higher low than the one before. Look for 2 consecutive daily candles with a lower high and a lower low: set the entry by order just above the high of the second candle.
There are two obvious places to set the stop-loss - just below the low of the same candle, or based on volatility, say 1 or 2 x ATR14 below the entry.
If you want more confirmation, look for 3 consecutive weaker candles. And you can build in a rule to require lower closes. And you can allow a percentage or ATR-based margin added onto the high of your final candle so that your entry is not an immediate breach pf the high. Or you could enter only on a close above the final high etc. etc. Either way, the principle is that your entry order is only triggered when price moves from a recent lower value upwards in the direction of the uptrend, suggesting its resumption.
The trickiest question is as ever when to exit and bank the profits.
NNFX advises to start off using 1.5xATR(14). The rest of what you both agree with is also included in his analysis, but he says pick two indicators, and try to optimise them for back and forward testing, but do not try to overoptimize. This, of course, is a trend following plan, and will not work in a ranging or consolidating market. The sixth part of his six part plan is to choose an indicator as an exit indicator, either one of the two used for entry, or a different one.
He says he has tested over 2,000 indicators, 1,900 of which were worthless
I’m finding its quite common for periods of time my 2ATR14 trailing stops get hit, so I’m thinking of pushing them out to to 3. Either that or just use a more selective set-up. Or both.
@Mondeoman - I prefer to use a SL/TP way to exit a trade instead of another signal. That way it happens automatically without me having to do anything so if I am not online for a few days it does not matter. I guess it is possible to have a SL/TP set up just in case but also use an exit indicator.
@tommor - I did a run on a limited set of pairs and against a limited but similar set of strategies (same trend identifier but using RSI or Bollinger to enter a trade) yours came out on top for the average win percent on trades across the 36 popular pairs (combinations of AUD CAD CHF EUR GBP JPY NZD SGD USD). It was definitely in the running for best overall and made the top for the following pairs (NZD/USD, NZD/JPY and NZD/SGD). I would avoid GBP/CAD for a while if I were you
I backtested on the daily timeframe using 500 candles which is just shy of 2 years worth of data.
@igillman
Have you tried to test this strategy on DOW, Nasdaq and S&P500.
These have an inherent upward bias.
Would be interesting to see how they perform for long trades only.
I use a similar system (trends) on 5min charts, though it would seem to work on higher timeframes and certainly on lower (2min and 1min) Instead of Bollinger I use Keltner 20sma with a shift of one. I use moving averages - 8EMA (very important and the trigger line) 20SMA (on Keltner) plus 50SMA - the 100 and 200 SMAs can be added, I find these useful as dynamic support and resistance. Entry similar to tommor’s pullback system for when trend is in progress .
Now here’s the punch line - I colour the the Keltner ‘fill’ light blue, so it looks like a river. Only enter when the 8EMA and is out of the ‘river’ and proceeding north or south - never trade in the ‘river’ as this will be a range. Out of the ‘river’ signifies good momentum.
I have said this before - the system is a bit like MACD but without MACD.
I tend to only trade indices but it works on currencies.
Daily pivot points are good S and R.
Never set targets (sorry but I don’t have a crystal ball)
Exit - easy - when it comes back into the ‘river’!
In more than 12 years this is the nearest I have found to the ‘Holy Grail’ and that includes years of Fibonacci grid trading!
