For a while this was my most profitable trading system and I really had to scratch my head to understand why.
Until I got desperate and decided to just try things that were completely different from how everyone in books and on the internet told me to trade I was having mediocre, mixed results to say the least.
As far as I can tell there is a two-fold reason this system works.
It tends to favor whatever trend (may or may not be happening) in the market. Trends exist; they are harder to define than most traders, new and experienced, really understand, but they have been statistically proven. They are harder to spot than just looking at a rising or falling chart though. The good news is you don’t have to spot them or really pay attention to them at all, to benefit from them.
This method is so absurdly EASY to trade that it can be done in the hectic hours during work at your office, while the kids are crying, fighting, burning the house down, during meal prep, when you wake up to go to the bathroom, watching a movie - it hardly takes any time at all, requires no research and hardly any chart reading. The only skill you need is to be able to determine whether price is currently going up or down and almost everyone can do that. As a result its not taxing your decision-making, or cognitive resources at all. This makes it almost foolproof as long as you follow the rules. I encourage everyone to try to improve on this almost stupidly simple system but you should definitely demo test it a lot before making any changes, however trivial.
What you need:
- Nerves of steel
- An Iphone or similar smartphone with the MT4 mobile app
You don’t even need an iphone (I still use an old iphone5s) you just need to be able to scale your screen down to the size of an iphone and if your trading platform works in a browser you can get browser add-ons that will scale your screen down to phone size for you. You can also probably do this in some other trading platform but these instructions are for MT4 mobile.
I’m going to assume you know how to use MT4 and you know how to use the mobile phone version but just ask if you have any trouble. I don’t have any experience with the Android version but they are probably very similar.
- Go to your Quotes screen and select the pencil icon.
- Re-arrange all your instruments in DESCENDING order of spread. So, probably EURUSD and USDJPY are the lowest spread instruments you have (but some brokers also have very low spread CFDs that can go first) and they will be at the top of the list. Things like indices and crypto and exotics will likely be near the bottom.
- Go ahead and add everything your broker allows you to trade (select the PLUS sign on the top right) and arrange those by spread. The spread varies over time so some things will need to be re-sorted occasionally but as long as the low spread instruments are at the top and the high spread ones are at the bottom that’s good enough.
Rules for entry
- Go to the first instrument in your list and look at its chart on H1 fully zoomed out. What direction is it going? Not sure? Skip it and go to the next instrument. In this case EU is clearly going up. If you can’t discern that from this chart you should NOT TRADE AT ALL. No system is going to help you, just follow a signal.
- Now look at the chart on M15, again fully zoomed out. Looks like Fiber is still going up.
- Now look at the chart on M1, zoom out all the way and what do you see? Looks like EU is still going up but it has started to drop a little. The problem is it hasn’t dropped enough to satisfy the rules of the system. Since H1 was UP and M15 was UP, M1 price needs to be AT LEAST in the bottom half of the screen.
- Go to the second item in your quotes list and open its chart on H1 and repeat this process from step 1.
- Continue this until you find an instrument with ideal conditions.
Here are the ideal conditions for entry long:
- H1 is UP
- M15 is UP
- M1 is DOWN
For shorts H1 should be DOWN, M15 should be DOWN and M1 should be UP.
Don’t mess around with instruments that are ranging on any TF, only pick ones with clear trends.
This stock CFD could do anything. Avoid charts like this one.
It can take you a while before you find something trade-able but rare is the day when you will find nothing. However when you do find NOTHING, DO NOTHING. Go Fishing, play some video games. Don’t trade (or don’t trade this system).
Tip: To save time if you find any chart where the first two higher time-frames disagree you can skip checking the M1 chart. Also if you see any chart where price is going sideways, skip checking the remaining TF.
After a few minutes I find EURGBP is an ideal trade for this system.
H1 is UP.
M15 is UP.
Although it’s dropped under the MA lately the overall trend from one side of the screen to the other is still UP. You see that, right? If you are unsure look at the MA. It’s still going up.
M1 trend is DOWN. Price is in the lower half of the screen and MA is pointing down and price is under it.
This is the ‘dip’ that we’re going to buy in the likely event that the overall trend we saw on H1 and M15 RESUMES.
Position-size and TP level.
Enter using 5% of your equity. Yes, 5%. The odds of this trade succeeding are 80% (on average over time). You will never have more than 3 trades going at the same time. That means 15% of your equity will be deployed at any time. Of course, at first you won’t trust this and you will trade 1% and that’s fine. Adjust per your risk tolerance. I can’t recommend going over this amount though or trading more than 3 open positions. That’s an account-buster.
We must set a Take-profit level for every trade. The level is determined by the top number you see on the chart on M1 (for long trades) or the bottom number (for shorts). Basically we want to capture one iphone screen’s worth of profit. When you zoom out on H1 that’s not much and the pip amount will vary wildly between instruments. In our EURGBP example the top number is 0.88695 and that’s our target.
Open trade with TP in place.
Sometimes (actually often) your MT4 broker will not bring in all the past history for a symbol on every TF and you get a terrible DISCONTINUITY like this one. Since I haven’t visited EURGBP on M1 since last summer on this phone I don’t have any data prior to last summer and so the top number on my chart is WAY TOO HIGH. Either get the correct number from a different account or complain to your broker.
Bad data means the TP would be too ambitious, reducing the win rate %age.
Wait, NO stop loss???
Well, the original system did not use a SL. I was young. However since these trades have a TP and a time target (explained later) I find that a SL will usually just hurt the system performance. If you must set a SL, put it at the far end of the screen on M15.
Now that our trade has been placed, go ahead and find 2 more trades if you want, or just relax and do something else. This is important. Don’t watch the screen! Don’t get scared when price keeps moving away. Don’t exit early or take profit early. Give the trade time to succeed.
How much time? About 9-14 hours. If price is not really moving at all and you can still see your TP level on M1, then you might as well wait, but otherwise…
After a good night’s rest.
Wake up in the morning, and ideally, if you’re really lucky, all 3 trades are gone and are in your history as wins. Huzzah! However often you will not be that lucky and all 3 will still be there and all 3 will be angry red losers! Booo!!
What to do now? CLOSE THEM. End their miserable lives as they have not served you well. Shut them down without mercy, without a second thought. This is important. Whether the trades you placed yesterday are winners or losers, just close them down and try again today. Most of the time the trades will have won and crossed your TP. Some will still be open but are lazy and haven’t quite hit the TP; so just take the reduced profit. Some will have gone horribly awry and actually reversed right when you placed the trade. Just take the hit and move on.
Do this every trading day. And eventually your equity curve will look great.
One more thing.
After the first trade you need to think about CORRELATION risk. I don’t have time to do a complete essay about correlation so look it up. There are some good topics in the forums here and BabyPips school actually does a good job explaining correlation. You must not trade correlated pairs when adding to your 3 slots. You want 3 independent-ish trades and if you can’t find them just stick with what you can find.
I have written at least 100+ trading systems and this one still holds a special place in my heart, and I still make systems based on the principles of this one although I no longer trade it as I learn more about the markets I’ve just found things that work better. Still, I recommend this system to anyone, both new and experienced as most of the BEST systems usable by spot retail traders are DUMB - like this one.