Developing a system #14 (A Simple Trend Follower) + Update
Submitted by Edward Revy on February 22, 2009 - 11:04.
My name is Clint, I'm 21 years old and from South Africa. I am a relatively new forex trader (3 months) and recently made the switch to forex, having traded single stock futures for 2 years.
This system is a simple trend follower.
a. Open a daily chart of one of the major currency pairs (e.g. EUR/USD or GPB/JPY).
b. At the close of the first day of observation, open a position in the direction of the most recent candlestick (e.g. if the day closed up, enter long).
c. At the close of that day, close the position (be it a profit or a loss) and open another, following the direction of the most recent candle.
d. Continue trading, following the candle closes.
A few of my own concerns are as follows: (comments/suggestions are welcome)
1. What about when the market is trending sideways (i.e. red candle, blue candle, red candle, blue candle)? This can translate into losses for days on end. I have thought about adding an ADX(50) indicator and only trading the system when this reads greater than 25 but I'm not sure how effective this would be.
2. Stop losses? Are they necessary and if yes, what should they be?
3. I have never been one for trading on Mondays (call it superstition) so perhaps the candle generated on Friday should be ignored?
The beauty of this system is that it is very low maintenance and one is ALWAYS in the market.
Hoping that some of you geniuses have suggestions for me!
UPDATE: March 14, 2009
I think I have improved this system and want to know what you/others think.
This strategy is called the Anti-Martingale and applies the Martingale theory but in reverse.
The basic idea is as follows:
1. Open a daily chart of any currency.
2. Wait for the ADX (14) indicator to give a reading of > 25. Once over this amount, a trend is indicated.
3. Open a trade in the direction of the trend at the end of the first day. Amount traded should be one lot.
4. At the end of the that day, close the trade. You will either have made a profit or a loss.
5. In the case of a loss, open another trade in the direction of the trend with one lot.
6. In the case of a profit, open another trade in the direction of the trend with two lots.
7. Consecutive profit days mean an increase in the number of lots traded (adding one lot each time), thus making the most of the trend.
8. This system can be traded perpetually so long as the ADX reading exceeds 25 and is constantly increasing.
Hence the name, Anti-Martingale. Martingale attempts to make up losses by increasing your position whereas this system attempts to increase profits by increasing your position.
VERY strict stop losses are required as you can end up with huge positions with huge potential for loss. Perhaps someone could give guidance on what these should be.
Please let me know what you think - good or bad. Suggestions or improvements are most welcome.