Hey all, I have decided to post this system because so far in the preliminary testing it has shown much promise. Please be advised that this is not a system authored by myself, I have graciously received it from someone else and I am sorry to say I am not sure who came up with it.
Additional things to keep in mind: I will attach a word document (containing the system in a more orderly way) and a zipped excel sheet. The excel sheet is vital to the system; in actuality it is THE indicator so once you read through the system, make sure to grab the excel sheet ;). It is extremely recommended that if at all possible you view the word document. While its the same info as below, its much easier to view and comprehend. Plus the charts don’t suck as my attachments do (sorry).
Last note: I do hope you forgive my blatant plagiarism that is about to come. I do seek to share this with everyone, but I cannot give credit where it is due unfortunately do to a lack of information about the author.
ADDITION: I have attached the original word doc containing the system and the excel sheet. Also in the system which I have also copy/pasted below, I have marked the corresponding charts and tables and three asterisks (*) then the right table/chart. Since there is a maximum of five attachments, the rest of the charts and tables will be in my replies that follow this. Sorry for the inconvenience!
[B][I]AND NOW YOUR FEATURE PRESENTATION[/I][/B]
"This trading system is built on the concept of applying a weighting to the individual currencies under consideration and trading a pair that contains a very strong currency against a very weak currency. In this way, we are more likely to take advantage of a strong move in a predictable direction. I use the eight major currencies that are traded on the forex market: USD, GBP, EUR, JPY, CHF, CAD, AUD, and NZD.
In weighting the currencies, I use the Alligator indicator developed by Bill Williams. This consists of three moving averages. Williams has labeled them the Jaws, Teeth, and Lips. They are all Smoothed Moving Averages and based on the midpoint between the high and low of the price bar. The Jaws is a 13 bar MA shifted 8 bars to the right. The Teeth is an 8 bar MA shifted 5 bars to the right. And the Lips is a 5 bar MA shifted 3 bars to the right. Here is an illustration of the three moving averages that comprise the Alligator indicator. The blue line is the Jaws, the red line is the Teeth, and the green line is the Lips. The pair is the CADJPY on a one hour chart.***See Chart 1***. In working with a single moving average, if the pair crosses from below the MA to above it, this is an indication that the first currency of the pair, the one on the left, has strengthened relative to the second currency of the pair, the one on the right. In using three moving averages, I derive a four point weighting depending on where the currency pair closes relative to the MAs. If the pair closes below all three MAs, the first currency has a value of 0 and the second currency has a value of 3. The illustration below shows bars labeled “0” that have closed below all the Alligator lines. ***See Chart 2***.The next bar after this series of zeros has closed above one line and below two lines. Hence, it has a value of 1 for the first currency, the CAD, and a value of 2 for the second currency, the JPY. It is labeled with a “1” above the arrow on the chart below.SEE CHART 3.
An example of a value of 2 comes from earlier in this series. Note the candle labeled “2” above the arrow has closed above 2 lines and below one line. This means the first currency, the CAD, has a value of 2 and the second currency, the JPY, has a value of 1. It does not matter what order the Alligator lines are in.SEE CHART 4.
When the bar closes above all the lines, the first currency has a value of 3 and the second currency has a value of 0, as is the case in the string of candles that have closed above the Alligator lines below. These are labeled 3 in the chart below.SEE CHART 5.
By adding the numbers for each currency from all the pairs, we have a measure of the overall strength or weakness of that currency with respect to the others in the array. For the 8 major currencies there are 28 possible pairings. However, most forex brokers have fewer than all 28 pairs so one must adjust the relative calculations according to the number of pairs supported by the broker.
As of this writing, Windsor Direct has 27 of the 28 possible pairs. The only one it omits is the EURNZD.
I have designed a Microsoft Excel spreadsheet for tallying the currency strengths with this system. The formulas in the cells are quite simple.
In the lower part of the spreadsheet one enters the value for the first currency of each pair depending on whether the pair has closed below all lines, above 1, above 2, or above all 3. One enters these values in the cells of column G in rows 19 through 45. Then the formula in column H will calculate the value for the second currency of the pair. When one is finished, the totals and percentages will show in columns H and I, respectively, for rows 10 through 17.The values in this first illustration are for May 26, 2009 at time 17:00 on the chart. This coincides with the first break and close above the lines for the CADJPY as shown by the arrow in the next graph below.SEE TABLE 1 AND CHART 6.
The Aristotelian Alligator Forex Trading System requires that one currency must be at an extreme level of strength or weakness, i.e. either 0% or 100%. If one of the constituent currencies of the pair is 0%, the other must be at 60% or greater. If one of the currencies is at 100%, the other must be at 40% or less. And we have a signal for entering a trade the first time these levels are reached after the currency pair has made a cross completely across the Alligator lines. Hence, they must have closed completely below and crossed the lines to close completely above as in this case. Or they must have closed completely above the lines and crossed to close completely below the lines.
In the present case, we have a new cross but we do not have the requisite values from the Aristotelian Alligator weighting system, so we wait another time frame, in this case another hour. Below are the calculations for the next hour 18:00.SEE TABLE 2.
We still do not have a currency that is at either 0% or 100% so we continue on with the next hour. However, we have an example in this tally that illustrates a possibility that sometimes arises. In developing a trading system, it is important to consider how trading decisions are to be made in all eventualities. I have described how the currencies are weighted depending on whether they close above or below the lines. What about when they close exactly one the line? In this case, I give it a value of .5. Therefore, if the pair closes on the bottom line, the first currency has a value of .5 and the second has 2.5. If the close is on the middle line, each currency has a value of 1.5. And if the close is on the top line, the first currency has a value of 2.5 and the second has .5.
If this case I have highlighted the AUDNZD in yellow because it has closed on the line. Actually, it has closed on two lines. When there is a question and one cannot clearly discern the value from visual inspection, the data window on the Meta Trader 4 platform can be opened by holding the Control button and pressing “D.” Then when the cursor is hold on the candle in question, the values of the Alligator lines and the open, high, low, and close of the bar will be shown in the data window. The chart below shows this display for the AUDNZD. Note that the close and the values for the Teeth and Lips are all at 1.2599. The value for the Jaws is 1.2596 so it is above 1 line giving it 1 point. Landing exactly on each of the other two lines gives it .5 for each of those, so the total would be 2 (1 + .5 + .5 = 2). ***SEE CHART 7***.As we continue to the calculations for the next hour 19:00 we have the following numbers.SEE TABLE 3.
We now have two currencies at an extreme, the JPY at 0% and the NZD at 100%. So we have several pairs that meet our criteria. With the JPY at 0%, we have the CAD, AUD, and NZD all at 60% or greater. And with the NZD at 100%, we have the USD, EUR, JPY, and CHF with which to pair it. We have been looking at the charts of the CADJPY so let’s note what would happen with a trade there. SEE CHART 8.
When we have the signal to enter the trade, we enter at the opening of the next candle, in this case the opening of the 20:00 candle at price 84.65. It went to a high of 85.72 at the top of the candle labeled with a “thumbs up.” This would be a movement of 107 pips minus the 10 pip spread which would yield a maximum of 97 pips. However, we must have a definitive system for exiting the trade. For the profit target and the initial stop loss, I use the 25 bar Average True Range of one time frame higher that is a multiple of approximately 5 of the time frame I am trading. I also add in the spread to this value. The ATR (25) for the 4 hour time frame at the time of our trade was 61 pips. We add in the 10 pip spread to get 71 pips that is used as our initial stop loss and our target.Yes, I use a 1 to 1 Reward to Risk Ratio. The strength of the trading system lies in a high win ratio. Therefore, if our entry is 84.65 our stop would be 84.65 – 71 pips = 83.94 and our target would be 84.65 + 71 pips = 85.36. On this trade our target was easily achieved. But I add an insurance measure by also using a trailing stop of 60% of the target value. In this case, I would take 71 X .6 = 42.6 or 43 pips as a trailing stop. This means that if the trade gets 43 pips into a profit, the original stop loss would immediately move to break even. If the trade went only to +43 pips exactly and then plummeted back to a negative value, the trade would be stopped with no loss and no gain. Once initiated, the trailing stop would follow exactly 43 pips behind until the target is reached or until the price turns around and intercepts the trailing stop. Not all of the signaled trades hit their targets. Go back and examine the outcome of the other pairs that signaled entries at this date and time. Then look at other dates and times. Also, examine the currency strengths for higher time frames like the 4 Hour and Daily time frames. This system does not appear as reliable for time frames under 1 Hour. Even with the higher probability time frames, the reliability of the system can be enhanced by noting chart patterns and multiple time frame relationships. Do back testing and forward testing on a demo account and then with a small live account as you perfect your trading skills."
Hope you enjoy!
…Collecting Pips Is A Way Of Life…
Alligator Calculator.zip (8.29 KB)
) But I do not think that this issue is isolated to this system. Unless your using an EA (which I do not use any) there will always be some delay.