Advanced system #5 (Trend Lines Breakout System)

This to the person from Melbourne (I am in Melbourne now, return to Brisbane Thursday evening). I will try and post the chart again. What I have worked out is that my first candle (I think!) starts 2 hours before what Edward says to use. I know that sounds funny, but I have tested quite extensively over the last few months and the results are very good. However, if the person from Melbourne can compare to their charts and confirm, that would be appreciated. To Chris, using the 5 candle set up window (although I think I have moved it forward 2 hours by accident), the system has worked very well. I am planning to go live with this system this week or next week (time permitting).

Regards,
Darren.

Yes, I do, Chris
and use it exactly as described in the original rules, no add-ons.

Regards,
Edward

Hi Edward,
I'm curious if your still using this strategy exactly as shown here? I did some back testing and it seemed to me that this method as I am interpreting it has struggled recently, as there have been very few good breakouts. Could you please confirm if you are still using this method on a day to day basis?

Regards,
Chris.

Hi,

I use NY time, which is EST. New day starts at midnight NY time. Whenever there is a daylight saving time in effect, I don't adjust hours, since London also adjusts, so we're inline with trading sessions and hours.

Hope this helps,

Regards,
Edward

P.S. I wasn't able to find your charts, but you can drop me a line using our website contact form.

Can't see your chart but it looks like you're in Australia, just like me (Melbourne). I suggest you forget about EST and GMT altogether, and focus always on London local time, as it is the London market opening that this system relates to (regardless of daylight savings). You might have to adjust your own chart reading to accommodate this, but you make your reference always as London local time then you should be consistent throughout the year.

On that basis, I believe the 5 candles that Edward uses are 0500 through to 0900 (London time), meaning the 5th candle will not close until 0959. Please see me post above 5 posts back re validating swing points around this time (as I'm also keen to see Edward's perspective on my question there).

Keep in mind that the London session is often the reverse of the Asian session and that's why I think maybe the 0900 is good as the 5th candle (especially if you're showing good results with that???). Also keep in mind the London pull back or rubber band effect which occurs around the open, which in essence can be a false breakout which you're trying to filter.

Does this help?

Hi Edward,

I just posted a comment about daylight savings and moving the 5 candles 1 hour forward. I am thinking I have my times incorrect. I am in a little confused as I am at GMT+10 and so out of sync with both EST and GMT. I have posted a chart that shows the lines I have been back testing offline for this stategy and they work well. The first blue line is my starting line. Can you compare that to your charts and tell me if I am starting at the same time as you would do? Before I go live with this method, I need to get this confusion out of my head :-) Also, is New York midnight EST midnight?

Hi Edward,

I have looked at this strategy in detail from Jun-09 to Sep-09 and the results are very impressive. This strategy was submitted in June 2007 and a couple of years latter, it still appears to deliver very good results. In my testing, I found that it appeared to work better moving the 5 candle range from 0am to 4am EST (4am to 8am GMT) to 1am to 3am (3am to 7am). I thought about the reason for this. My conclusion was that we are looking for a trading setup condition in the 5 candle range leading into the London open. The 5th candle is 8am GMT (following your rules). However, in Londan, daylight savings started on Sunday 29 March 2009 and finihses on Sunday 25 October 2009. This means that trading starts 1 hour ealier. So, do you take daylight savings into account? That is, when the London open occurs one hour earlier due to daylight savings, do you move the 5 candles forward one hour so the 5 candle setup is the same, relative the London open?

Thanks Edward for clearing that up, much appreciated. Also excellent website!

Re my post above on 'true validation', today was a good example on GBP/USD as it was the 0900 (London time) candle which was the swing point, and it was subsequently validated by the 1000 candle. The 1100 candle is currently in progress and no breakout to either side has yet occured, so its a good example of where you might have to use the actuall 0900 (5th candle) for the swing point and in this case it genuinely validated by the following candle, without any early breakout to confuse the discussion.

Cheers, Johnny.

Hi Johnny,

I always take the very first swing high/low within the 5 candle range.
Basically, treat it this way: if you have a swing high on the 2nd candle, everything you'll be able to see is three morning candlesticks, so you draw trend lines and prepare to trade. If after 2 hours there is another swing high on the 5th candle (which of course means we'll be able to see it only after the 6th candle is closed - 5th candle would then be valid to draw a trend line through)... so if after 2 hours you have another swing high on the 5th candle, then, first of all, you'll be already in the trade, e.g. your entry Buy order will be triggered by then; second, you may use a new swing high with the same success, especially if you came late and missed the first swing high.

Regarding other trading pairs, the strategy can be used there as well. I would learn how to use it on EURUSD and after that you can trade any pair, or rather to say any pair where the trend lines + line up of pivot points are the most credible for the day.

Best regards,
Edward

Hi Edward,
It appears to have been a quiet week for this method on the GU and EU. I was wondering if you or anyone you know has tested this method on any other currency pairs, as you mentioned "other pairs may also be used" within the initial method description.

Hi Edward,

Re the true validation of swing highs and lows ... if the 5th candle has a higher high (or lower low) than a 1st, 2nd, 3rd or 4th candle swing point, I presume you discard the earlier swing high or low and think about using the 5th candle one instead? However, the 5th candle new high or low cannot be truly validated as a swing high or low until the close of the 6th candle ie. to confirm a lower high (or higher low) either side of the 5th candle.

Is this how you trade the system, or do you discard the trade for that particular direction if the 5th candle takes out a prior 1st, 2nd, 3rd or 4th candle high or low swing point?

Thanks, Johnny.

Hi Doug,

if a current swing low is lower than a previous swing low, we look back as far as we need to to get another swing that will allow us to draw a trend line.

Here is a good example. Notice how we found a swing that would allow us to connect our today's swing Low with it. It turned out to be further away, and we had to discard few swings low before it.

Regards,
Edward

Hi Edward,

I have a question regarding the swing highs/lows. What do we do if the valid swing high is higher than the previous swing high? The trend line couldn't be a downtrend line. Also for a valid swing low during 12-4AM EST, is lower than the previous swing low, a trendline couldn't be formed. Are these invalid days to trade?

Any help appreciated.
Rgds Doug

Hi there,

You've done everything right.
My pivots today were few pips higher (that's a normal case for Mondays, because some platforms will trim more data on Fridays than other plus a small difference in Close price).

The exit was made today after the third candle, because, as you've correctly pointed out, the Pivot line was too close to breakout level to satisfy our profit goals.

Best regards,
Edward