Hi, I use Windows 7 64 bit and it’s not letting me drag the indicator into the metatrader 4 platform. Does anyone know anything about how to fix this?
Ok I’m not sure I follow you. May be an explanation without the algorithmic jargon would help me understand better.
What I can tell you is how I would trade this particular example as there seems to be a difference.
One thing I want to point out before that is this; the area from 20 below is called oversold and not overbought.
Moving on, I would enter as you mentioned. I noticed the EMA crossover like you stated. But pay attention, there are three vertical lines on the chart. Count 14 bars from the second vertical line, you will see stochastic in oversold. I would have closed my position on the close of the 15th bar.
The other difficulty I’m having is that I cannot see the 100% retracement line. Because a close below that automatically has me moving stops to break even.
Another thing is that context is important but we can’t automate that, hence the RSI filter. If the RSI was not in the areas we mentioned, there is a very big possibility we wouldn’t take this trade and look for a better opportunity.
More specifically on your question. We do not care that the intersection happens in the oversold area. What we want to see is the slow K value less than 20. Even if the intersection if outside the area we will still exit.
May be that’s easier to code?
I was thinking of something, its not ideal and its a bit old school but it can work. If the stochastic is giving you trouble, I know a way to trade the pattern with just the two EMAs.
Buy
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20 EMA crosses above 50 EMA. (Sidenote: Price will automatically be above the two lines, you just have to trust me on that. This is the pattern.)
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Price closes below 50 EMA
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Buy when bar closes above 50 EMA. (On condition that 20 EMA is still above 50 EMA
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Use the same trail stop method.
For failed pattern
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20 EMA crosses below 50 EMA.
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Price closes above 50 EMA.
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Exit when price is below 50 EMA. (On condition that 20 EMA is still below 50 EMA)
May be this makes your life easier?
Thanks. Let me respond to your comments one by one.
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Yes, I mean Oversold, not Overbought, sorry about that.
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You are not seeing any of the retracement lines because the High Prior to the Cross-Under that started looking for the Short happened well before the Short occurred (not pictured in graph), and significantly higher than the Short entry position. Similarly the Lo that occurred after the Cross Under, but prior to taking the Short position is fairly well below the Short entry position, and unfortunately not shown on this graph either. I might add that this is a piece of a graph from a wild, volatile period in 2008; hence, the large price movements. Given the extremely large (Hi-Lo) Delta, the retracement lines are also not showing on this graph. Now realistically, these extremely wide deltas may have easily made the decision for us to stay out of the trade (or at best, scale position size to the bone).
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RSI was not in this implementation, but I do agree with you there.
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OK, now here’s one where we have a big discrepancy with the algorithm. From a prior question I asked you, if Fib Extension do not Stop out a trade, the rules are (for Short position):
a) The 20 EMA crosses above 50 EMA;
b) Stochastics move to Oversold area 20 (or below);
c) Cross of Stochastics occurs in 20 (or below);
QUESTIONS:
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So, are you saying just Slow K has to move below 20, and not Slow D? We should only be looking for Slow K to
move into this region? -
Are you saying the subsequent Cross of Stochastics can happen anywhere, and not just below 20?
Thanks.
If I don’t have to worry about Stochastics crossing in the Undersold/Oversold regions, then my original concern about the precise point of Stochastics cross is no longer an issue. I’ll wait for your answer to post above, before proceeding. Thanks again.
[QUOTE=“PhilipPirrip;689758”]Lads I want to say that I’m going into today’s event flat. I closed all my trades. I know that if the news come USD bullish I’m going to be an instant millionaire. Yet I decided to take my time on that project as a bearish USD will be devastating. Hope you guys do the same…[/QUOTE]
Good call on that. I closed out 7 profitable trades this morning prior to FOMC then got back into some lower volatility trades this evening. I’m currently long AU/CA and NZ/CA with a few green pips 
right click>attach to chart
Ok I’ll respond to the two posts here. On your question on stochastic:
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Yes we are only interested in K moving below 20. Although usually Slow D follows it there, but the position of slow D is actually irrelevant.
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We want to see K move below 20 then cross above D. Whether that happens in the oversold area or outside is also irrelevant.
On the second post:
Of course we worry about Slow K crossing into overbought/oversold. The second method I gave you was just a way of knowing the stochastic’s position relying only on the MA. I’ll just explain briefly:
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So when 20 EMA cross above 50 EMA, I know that stochastic will be overbought without looking at it because price will be above both 20 and 50 EMAs.
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When price closes below 50 EMA I know (with out looking at the stochastic) that price is now oversold.
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When price closes above 50 EMA I know that the slow K has crossed above Slow D.
So technically I’m using stochastic still, but without you having to go through the trouble of coding it.
What I’m trying to say if you are detecting bugs in the model due to the stochastic we can remove it from the coding and results will not be that different with the alternative rules.
OK, thanks for clarification. I had not interpreted and implemented #1 or #2 correctly then, so I will need to redo that. Not very hard to do. My original issue, which is no longer a concern now at all, was that I thought the Stochastics cross had to happen in overbought/oversold zones ONLY. And this resulted in programming issues to determine the actual point of intersection. Since it can now happen anywhere and I don’t have to determine the actual coordinates of where that intersection happens, much easier to implement. No need for me to dive into your 2ND method above. I’ll make these 2 changes tonight and then get back to the RSI and EMA100/EMA200 filtering test stuff.
I came across this thread whilst searching for something related to Ichimoku (can’t remember how, mind). Glad I did as you really seem to have something here Philip. And the backtesting Doug is wading through is pure gold. I hope in the not too distant future I can contribute to this thread/testing so I don’t feel so much like a voyeur, taking without giving all the time. That is after I spend some time back with the family after working through this thread over the last couple of days.
I have a question for you I can’t recall seeing the answer to. Relating to present NZDJPY chart.
Initial entry would be around the Pink Arrow. Following the exit criteria, though, the EMAs crossed briefly at the next high, then Stoch moved to oversold, then crossed back over it’s moving average. Hence the close signal is complete. But by this time the EMAs have crossed back over again and we are awaiting another sell signal with the stochs. Is it still a close or is that invalidated by the later movements?
A great friendly thread, and thanks everyone.
PS If this shows 2 images then ignore one - first post learnings…
My quick answer is that you wouldn’t close at that point. So let me repeat the exit rules for failed signal so they remain crystal clear. Let’s assume its for this particular trade:
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20 EMA crossed below 50 Ema. stochastic was oversold.
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Stochastic moved to overbought.
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Slow K crossed below Slow D. Enter on condition that 20 EMA is still below 50 EMA
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20 EMA crossed above 50 EMA stochastic is overbought.
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Stochastic moves to oversold.
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Slow K crossed above Slow D. Exit on condition that 20 EMA is still above 50 EMA
So applying these rules you see we wouldn’t exit because 20 EMA did not remain above 50 EMA.
I hope this helped.
Thanks - gets clearer all the time!
Phillip,
Another quick question…will you ever exit a position if Slow K goes Oversold/Overbought before a counter EMA cross occurs?
Thanks.
If I understand your question correctly, no never. I have to see EMA crossing in opposite directions first.
@PhilipPirrip, is it recommended to trade on one time frame only or is it OK to use this strategy on multiple time frames within the same currency pair? Example: If I sell EUR/USD on the daily time frame but then I see an opportunity for a EUR/USD trade on the 4 hour chart.
Hey Philip,
Really impressed with the system so far… Can you talk about how you decide on lot size? I know you mentioned earlier that you use the babypips calculator but I was wondering the mechanics behind lot size decisions for money management…
Lot sizing is simple:
You have three things you shoul know:
- Amount of Money you want to risk
- Your StopLoss in Points
- The current price for one point (= tickvalue) in your base currency (base currency = the currency you have your account funded with)
Example:
You are trading EUR/USD and your base currency is EUR, so at this moment your tickvalue is 0.936 EUR (5-point-prices).
Let’s assume you have a stoploss of 150 pips, with our 5-point-prices, this makes 1500 points.
So you can calculate your lotsize this way:
Ammount of Money you want to risk / SL in points / tickvalue
Let’s say, you have a 3000€-account and want to risk 3% --> 90€
Your calculation would be:
90 / 1500 / 0.936 = 0.0641
–> your lotsize for a 150-pips-SL would be 0.06, if you want to risk a maximum of 90€ on this trade.
Nicely said!
I wrote this on money management. But may be I’ll do something more ranging for the purposes of this post. Different money management and lot sizing techniques and everyone could pick the one that suits them.
I personally trade on the 4HR timeframe only. I like to look at the monthly chart every month to see if there is a decent opportunity somewhere.