Developing a system #7 (Simple trading any time)
Submitted by User on November 3, 2008 - 16:32.
Submitted by trader.
I have been trading a fairly simple strategy which is the result of my frustration with indicators, progressive systems and marginally profitable ideas that turn negative due to dealer spreads.
My general "dilemma" in forex is that most strategies work well in either trending or ranging markets but not the opposite. Also, I do not have the patience and stamina to sit and stare at the screen all day, so I was looking for a strategy that I can enter at any time and that has pre-defined exit points for either profit or loss, so I can enter into a trade and walk away.
Here is my idea: The market rarely moves in a straight line. Most trends show pulllbacks and ranging markets are nothing but a constant back and forth. To me this means that there is profit in betting on a small move in either direction. If a stop is set at twice the distance from the current price as the limit, the limit is twice as likely to be hit as the stop is. This is mathematical theory only and would result in a "balanced" result since we win 2 small amounts and lose one big one.
However, in Forex I have found that small pullbacks happen not twice as often as a "big moves" but up to three times. Therefore my simple strategy looks like this: I buy or sell a currency and set stop loss at twice the distance as my limit. This in itself has generated 1311 positive and 599 negative trades over the last month for me. I entered completely randomly without regard for trend or currency movement. I traded with a 3 pip spread which I ignored in my limit and stop (meaning I started with a disadvantage). My net gain therefore is (1311- 599*2) 112 times the limit. I set my limits at 10, loss at 20, so I earned 1120 pips. It is important to use currencies with a low spread.
I am sure the strategy would be even better if we didn't enter randomly (coin flip) but with an existing trend to increase our chances of the limit being hit instead of the stop.
Any thoughts, tests or opinions would be highly appreciated. I like trading this way because my losses are limited, I needn't worry about sticking around the computer all day but can just set new positions whenever I have a second, and the rest just works by itself. Give it a try!
Edward Revy,
http://forex-strategies-revealed.com/
Copyright © Forex Strategies Revealed
I like the KISS method at all times. Keep It Simple Stupid has always worked for me.
July 30 Poster,
Please share your minor modifications. Also, how long is your 100% win rate been over? #of trades?
Robert
I am also using this technique with some modification & my success rate is 100%
Hi Robert,
regarding volatility, here is the history trend for the past year: http://www.currency-forecasts.com/average_daily_range/24/
Regarding the candles with no lower/upper wicks, i referred to heiken-ashi candlesticks, and there there should be literally no wick for an entry signal to be valid.
Best regards,
Edward
"If to go without any indicators, we can simply try changing regular candlesticks to heikin-ashi candlesticks. We would be interested to Buy after a close of a bullish candle that has no lower wick, and sell after a close of a bearish candle that has no upper wick."
Regards,
Edward
Edward,
I had a question, when you say bullish candle "no" lower wick, or bearish canndle "no" upper wick, do you mean that litteraly none, or was that short hand for very short and much less than any wick at the opposite end of the candle.
Thanks in advance
Robert
Thanks for the feedback. I'm glad to see somebody is still checking on this thread. Maybe we can even attract Edward to join us again with his expertise.
I am going to back test a few strategies off the original poster's system.
System 1- 5 min Heiken-ashi candles. Follow the last candle up or down for buy or sell. Exit PL-10, SL 20. I will try 5-10 of the large pairs. Also, when time permits experiment with slightly higher amounts ranging from the 10-20 up to 25-50. The idea is to find the best pl/sl given the pair's level of volatility generally.
System 2- I am going to do some investigation, and look for 1 indiator to add. I would like to add an indicator to improve winning percentage without making the system dependent on a trending market. I would rather see if I can get a system that is extremely simple and can perform in trending and ranging markets first.
If these stops prove to be poor exits, I will experiment with adding a single indicator for exit signals.
Any ideas on which pairs generallly are more volitle then others? This way I can determine which pairs might work better with a little higher PL/SL than the 10 and 20. Also, any ideas on a good indicator to add to the Heiken-ashi candles? Thanks for the help.
Once I find something above that works then I will forward test. Even if nothing along these lines can be profitable, I think the practice of trying to develop a system from the most simple compentents and only adding as needed might be a good exrercise.
Robert
Forgot to add.. Heiken-ashi are perfect for 5 minutes, are perfect for 1 hour, are perfect for 30 minutes and for 4 hour too. I had several heiken-ashi based systems for each time frame (just heiken + 1 indicator) and I couldn't choose which time frame to use - they all worked. My point: depending on how many hours you want to spend in front of the monitor, your time frame will be 5 minutes or 4 hours...
Probably you're right. The problem is that keeping a cool head and doing simple math works only for beginners to whom "first time lucky" applies too much too often to call it an accidental luck. When you come from the side, uncompromised and fresh, you can see that even "Simple trading any time" method like this works.
The reversed risk/reward (more wins, few losses) also works. I've been shown an account of a scalper, whose trading history looked like +3, +3, +3, +3, many many more +3s before -30 and another -30... Despite the 10 times higher risk ratio, the account kept growing and growing.
There is no universal correct method of making profits in Forex. The goal can be reached in many ways, but it takes a cool-headed calculated approach, and certainly not a desperate or scared trader, into which many of us turn after a few months of trading.
Question. What time frame would some would use if they wanted to apply the Heiken ashi candles, or some other technical analysis? I saw one post above that mentioned 5 minute chart. I would assume using the small 10 L 20 SL would suggest looking at short time frames, and maybe I could try with a lille longer time frames and might be able to increase the limits say maybe 20 L 40 SL.
Just some thoughts on the system, and the suggested improvments.
One, if the original non-technical pure mathmatical sytem works what does that say about all the predominant focus on technical analysis as the basis of winning strategies. Maybe as traders, we are failing to examine the use of mathmatical modeling to expliot large numbers of random events to come up with winning systems that are much less vulnerable to changes in market conditions. Just a thought.
Two, the use of a single technical tool such as the Heiken Ashi or MA's may be good tools to increase winning percentages, but I think it is important to check how much these additions reduce the # of trades, and I wonder if the introduction of these technical tools then reduces the effectiveness of the strategy, because these extra indicators work mostly in trending not ranging markets. One of the strengths of the original system is that it works in all types of markets, and may not be volunerable over years of trading, because is not subject to market conditions such as technical indicators are typically.
Third, I wanted to make a comment about risk/reward ratios. It seems to be one of the major assumptions is that a trader should seek at least a 1/2 ratio and preferably better, even if this means having a lot lower percentage of winning trades. I really question the assumption. In general trading systems with a poor ratio of say 2/1 but with very high winning percentages are going to have lower variance then the opposite way around. This allows for more steady growth. Yes you get the occational siable negative drawdown, but moost days you are hitting new highs, which is much easier on the traders pyschology. Also, a system based on high percetages of winners with poor risk to reward ratios can be determined much quicker if it is a winning strategy or not, because standard deviation from norm will be so much less than a system where you win 25-40% of your trades but win 3-5 times as much as losing trades.
What are your thoughts?
As far as I know Heiken ashi candles comparing to regular candles offer an advantage, read increasing odds.
A smoothed version, could further improve the odds, if that's what you're seeking for.
Further odds improvement can be achieved with money management, where you make sure that profit targets are 1.5, 2 times higher than stop losses.
how would you recommend using Heiken Ashi to increase odds? It seems to me a slight uptick over50% on winning trades makes this profitable. Furthermore, if you set s/l to t/p at 2 to 1.1, this would mean that roughly 73% is required for winning trades. This is doable.
My advice it to upgrade to Heiken-ashi smoothed first.
I'm attaching the file:
Heiken_Ashi_Smoothed.ex4
cheers
Rich
Using Edward's suggestion of following trends with Heikin-Ashi candlesticks, could you limit risk without forfeiting winning trades? For example, instead of a stop loss 2x the profit, how about 1.5x (or equal profit and loss stops)? Has anyone tried this variation in live trading?
I've had success with the 2x profit stop system, but, as always, would like to improve. Any help is appreciated.
Stay away from MB trading if you wish to hold overnight positions. They charge an arm and a leg for those positions. I left Interactive brokers a few months ago after a dispute regarding a technical issue on their side. They did not want to rectify the situation. I'd buy one full lot and it gave me 2 lots.
Not familar with PFG, I do current hold accounts with FXCM and Fastbrokers. So far so good.
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