Forex trading strategy #8 (Teodosi's simple system)

Hi Edward

I wish I could direct my questions to Teodosi. I see that he made this post in September 2007 but I do not see any follow up responses from him. Almost a year later, I would really like to know how well his system has been keeping up with the market. Is he still able to maintain an average weekly profit of 1500 pips?

Only last month I started a blog wherein I post my trade for trade results dating back to January 2008. I also trade on an hourly basis and I trade the EUR/USD pair. I have a monthly target of about 50 pips in order to realise my five year goal. I do not want to disrespect you by posting my blogging address and I would understand it if you screened it. My address is www.gladlefx.com.

Having seen the post by Teodosi, you can imagine how dejected I must feel. On the other hand I am also encouraged to see that people out there share my mentality of sharing for the sake of goodwill. I would ditch my trading system like a bad habit if i could be convinced that Teodosi's system works consistently because even on a good month I do not come anywhere close to 1500 pips, and he does it in one week.

It is only fair therefore that I would want to know about the consistency of his winnings. Has he made any other posts since this post? Can I see his results since then? This is not a challenge, it is a simple request. If his system works consistently, it can only serve to boost his reputation.

Dean Gadle

Hi Hanz,

The stop for GBP/JPY is 100 pips.
Trades are closed when there is a signal to initiate an opposite trade.
If you prefer fixed targets, go for at least 150-170 pips.

Regards,
Edward

dear ed,
what should be the TP for this system for gby/jpy and the SL?
by the way i try this system for other pairs and work fine but i use a very low tp but it is safe.
waiting for your reply
hanz

Hi niem,

You may use Full Stochastic or Slow Stochastic here.

Preferred time for this Forex strategy would be from 3GMT to 21GMT.

Regards,
Edward

i read this system and am really excited about tryng it... could you answer a couple quick questions tho?? what stochastics are you using (fast, full, or slow)? also i know its best to trade this currency pair during the active market, but is there a preferred time in GFT? i appreciate this site and am looking forward to hearing back from you soon!

niem

Hi David,

Thank you for your notes and ideas. I find them very useful.

As about my trading, I tried the system to some point, but never fully traded it in order to get 1500 pips a week. However, while talking to Teodosi, I learned that with this system he looks for at least 100 pips a day; but it could be much more.

Regards,
Edward

Thanks for your answer, it quite cleared all my doubts about the system. Well during some of my backtesting I found that sometimes when the market was in a big trend, the system seemed to take a lot of false signals. I mean, if there is a strong trend in the hourly timeframe we get a great profit, but if there is for example a strong daily or weekly trend then the system tells us the price has already reached the limit and thus close the trades and open new ones. The problem is that the market instead of returning the other way as the system expects, it continues on the same direction it was resulting in loss after loss. I thought there might be a way to correct this, maybe checking bigger timeframes or adding a MA or two to see if there is a big trend in the market. I was making some tests with MAs to see if they helped, by measuring their slope and watching how they reacted. However right now I was a little busy so I don't have much time to do those tests anymore.

Well those were just some ideas
Anyways, thanks for your help, it's very appreciated.

BTW, have you tested this system yourself? If so, how were your results? Are the 1500 weekly pips realistic using the strategy?

Regards,
David

Hi David,
nice to have you here.

It's been a while since Teodosi's last comment; as an author Teodosi could've given you precise answers.
What I can do is just provide my review.

According to the author we have a trading signal when RSI and Stochastic are in the overbought area or close to it.
So from the beginning there is some approximation. In order to code it you'd need to stick to some certain level. I'd use either 70 and 30 or 65 and 35.
As I see it, same criteria apply to both Stochastic and RSI.

I'd use just one candle for the main rule. And then probably add another rule: when both Stochastic and RSI are deeply oversold or overbought (say, above 75/25 or 80/20), we would look at two candles result in case one candle doesn't produce a signal.

If the stop is hit no opposite positions are taken till a new entry signal is formed.
Trailing stop can be used, I think it is a goods idea.

Looks like nothing much to add. I have no suggestions about the human factor, but, there is one thing you may add here: I'd encourage you to learn about trading Stochastic divergence. Since you'll be watching this indicator anyway, you may get additional trading edge taking Entries after a signaling candle (as per Teodosi original rules) once divergence between price an Stochastic occur.
You may check about Stochastic divergence online or start with indicator info at: http://forex-indicators.net/stochastic
Hope this helps.

Best regards,
Edward

Hi Edward,
I love how you're maintaining this site, it's been a lot of help for me and surely for many others. I'm fairly new to Forex and I was very happy when I found this strategy. Looks like a very profitable one and I've been backtesting it a little. I've had many great profits, but there have been many times when the market doesn't react as expected and there have been lots of losses too. I'm aware losses are a normal part in any strategy, but they seem to be more than what I expected. I think I might be doing something wrong. By the way, I know a little MQL4 programming and I was planning to make this strategy into an EA if anyone is interested or willing to help. Any help would be very appreciated as my programming skills aren't that great.
Correct me if I'm wrong, but for what I've seen the Stoch has to be oversold (30) or overbought (70) at least at one point since it crossed the 50. I've noticed the RSI doesn't move so easily to oversold or overbought, does the same criteria than in Stoch applies to the RSI? I also noticed that Teodosi in the screenshot took into account two bars that together were at least the middle of the last one, so should the EA take into account two bars or just one? If he used two bars because he thought it convenient, which parameters should I take into account to know if I use one or two bars (that can be programmed too). Also, if the stoploss is hit, do I have to open a new trade immediately or do I have to wait for the next signal? An idea I had was to implement a trailing stop instead of a static stop loss in order to reduce losses, is that a good idea for this particular strategy? Last question, is there any other human factor that you need to take into account to "ignore" a signal? If so, which are them? (slope of the Stoch or RSI, whether they have completely crossed the 50 line, any tolerance to the middle of the bar or to the 50 lines, etc)
Thanks in advance, it looks like a great strategy. I seemed to have difficulties following it when the market wasn't in a trend and it was going sideways. I hope the answers for this questions help other people too. Thanks Teodosi for sharing your great strategy.

PS: sorry if my english isn't that good, it's not my first language.
David

Hi Juan,

This system should perform same well with GBP/USD pair.
One of the main reason why Teodosi suggests GBP/JPY is probably because this pair has wider daily range and therefore trading profits are expected to be larger.

Regards,
Edward

Hi Edward, what about this system for gpb/usd? I doing some tests and its working quite well, I´d like to know your opinion.
Congratulations and thank you again for this great web.
Juan

Hi Chris,

It certainly can be used for other currency pairs, however, while trading with other pairs, you will be often looking at smaller price shifts comparing to GBP/JPY, which will ultimately mean less pips per trade and possibly more break even trades.
Other than that, everything should be fine.

For stops you may pick smaller gaps - around 50-60 pips.

Regards,
Edward

Hi Mr. Edward/Mr. Teodosi

Please receive My appology for not making my earlier request very formal.
I'm Chris from Nigeria. I want to know whether this same strategy can also be used for other currency pairs. If yes will the stop loss be the same value.

Thanks. CHRIS.

THANK YOU MR. TEODOSI FOR THIS GREAT STRATEGY. PLEASE I WANT TO KNOW WHETHER THIS CAN ALSO BE APPLIED TO OTHER CURRENCY PAIRS.

Let me answer this.
High volatility means that the currency is shifting up and down a lot, providing more opportunities to trade and benefit from the moves. On the other hand, high volatility also means that one should be careful about placing stops and controlling losses overall, because price shifts are quite wide, which carries high risks of resulting in large losses if not treated properly.

Currencies with high liquidity in Forex are those that are popular and traded widely among traders. Low liquidity pairs are ones that traded less actively, are less popular, here belong all exotic (uncommon) pairs.