Challenge: Profits from indicators :)

[GladiatorX]

I've set myself a challenge; to document the success of an indicator system with the goals of showing people that trading doesn't have to be difficult, should be simplistic and that indicators, when used with logic, can be used effectively.

Support and Resistance and Fundamentals is #1 in my books however i've found indicators can be used effectively to gain profits and this journal is to prove just that.

I will start by developing a strategy, backtesting it, demo'ing and finally live trading... I hope to be in profits within a month to show people it doesn't have to take years to become consistantly profitable

 

[GladiatorX]

I've researched Moving Averages, This is what i've found =
'Moving averages are used to smooth out short-term fluctuations, which can assist in highlighting longer-term trends.'
'To calculate a moving average you sum the price inputs for a number of time periods and dive by the number of periods :-

Moving Average = Price 1 + Price 2 + Price 3 + Price / Number of bars

To demonstrate this as an example, a 2-moving average would be

800 + 802 / 2 = 801 '

'Don't worry if you struggle with maths, you will never need to calculate a moving average because your charting software will automatically do it for you'

'50 day moving average and 200 daily moving average and 100 daily moving average are common amongst the trading community - for identifying long and medium term trends'

'Two common types of moving averages are simple and exponential :

Simple moving averages calculate the average of the prices with the given period with all the periods given the same weighting

Exponential moving averages apply more weight to the recent prices relative to the older prices and therefore reduce the lag that is common with moving averages'

'Moving averages can become support and resistance if enough market participants use them'

'One idea for using Moving averages is to only buy when price is above and sell when price is below'

My conclusion from this material is that moving averages is a simple calculation that is calculated by most charting applications, it comes in two forms, exponential which seems a more appropriate option because it reduces lag, rather than simple. Moving averages give price trend through comparison to OTHER MA's or PRICE. Moving averages can be used as support and resistance, therefore i can use them as resistance becomes support and support becomes resistance too.

I presumre therefore that Moving averages alone, as they won't always act as support and resistance need confirmation to ensure the entry into a trade has momentum.

Information taken from website, now going to turn that into my own idea and plan
- Going to use a 100 moving average because its in the middle of two popular ones 50 and 200.
- Going to use exponential moving average because it reduces 'lag'
- Going to use it as resistance and therefore use it for breakouts and use it as support for lower breakouts, through doing this i am trading with the trend and following a continuation setup.
- Because EMA's don't always act as support and resistance i want further confirmation that price has momentum and is a genuine 'breakout'

Day 1 over. Research on moving averages complete.

Tommorow i will find free charting software to use, a suitable broker and develop my entry more.

 

[ian23]

Good luck, will be following progress. What market are you looking to trade?

 

[GladiatorX]

Found Igindex -
My understand of spreadbetting comes from 'The financial spreadbetting handbook' by Malcom Pryor - On the back of this book it says £19.99 and therefore my current trading PnL is
-£19.99
Spreadbetting company that you can open an account with very small funds and therefore it would be appropriate for those new to the markets and furthermore you can trade as little as 0.10 pence per point. From the looks of things, Spreadbetting doesn't really compare to DMA but in the right circumstances and context can be used to trade as if 'normal'. Problems are wider spreads to cover the additional 'hidden' commisions, non-transparent pricing, as your not trading on the actual exchange i don't understand how slippage would work... I guess it would be made up. Can trade a variety of markets, easy platform and free charting (Needed for the new trader who doesn't want to pay for software with no certainty of gains), possibility to be stop hunted, stop loss has a 'minimum' distance from price which could be annoying if attempting scalping - In fact i think scalping is out of the question with SB (except MAYBE forex) ... You can login from the internet and therefore those who trader with owning a computer could use an internet cafe or a friends house or parents house :S, you can trade online or by phone.

So it seems an appropriate platform for new traders although you would look to move to trading on real exchanges or forex retail or forex ECN as soon as your ready.

Real-time charts are provided by Igindex free but you can also get advanced charting which costs £30 per month unless two trades are made during that time. So i am going to get this so that i can use it to backtest the strategy...

Current costs:
-£49.99

I'm going to assume wildy that new traders have atleast £1000 capital to trade with and therefore my starting account will be £1000, hopefully thats realistic... I will say that my maximum outgoing is £200 for equipment, learning, books etc etc...

To try make this as fair as possible i will add internet costs, so an additional -£20 per month,

Current PnL therefore stands at:
-£69.99
That covers books for learning basics, internet costs and charting.

 

[GladiatorX]

Good luck, will be following progress. What market are you looking to trade?

Deciding between Stocks, Futures or forex - What do you think Ian? What would you like to see traded and we'll go with that?

 

[Plaste]

Deciding between Stocks, Futures or forex - What do you think Ian? What would you like to see traded and we'll go with that?

It looks like your trying to capture some trends so I would recommend currencies, bonds, STIRS, maybe the grains. Beware of softs - some trend well, others don't. Avoid stock indexes unless you decide on a very long time frame.

Tom.

 

[GladiatorX]

It looks like your trying to capture some trends so I would recommend currencies, bonds, STIRS, maybe the grains. Beware of softs - some trend well, others don't. Avoid stock indexes unless you decide on a very long time frame.

Tom.

Trends, choppiness - Doesn't matter really... Trying to prove indicators can work succesfully, choosing a 'preferable' market condition wouldn't be a fair test, so really whatever Ian fancies i will go with.

 

[Charlton]

Trends, choppiness - Doesn't matter really... Trying to prove indicators can work succesfully, choosing a 'preferable' market condition wouldn't be a fair test, so really whatever Ian fancies i will go with.

NOT choosing a 'preferable' market condition could also be considered NOT to be a fair test of trying to prove indicators can work successfully.

Indicators fall broadly into 2 categories - those that follow trend e.g. MAs and those that indicate overbought and oversold conditions e.g. CCI.

"choppiness" may well be an example of consolidation and indicate price switching between OB and OS.

To work with indicators successfully it is necessary to understand how they work, what they are telling you and when certain indicators should be followed or not followed.

Not taking these things into consideration is one of the main reasons why people cannot be successful using indicators.

Charlton

 

[TAjammy]

try stocks come on skype you fool we have much to talk about.

edit: individual stocks can show great trending moves, that guy mr charts makes a living from price action, following small parts of trends using level 2 buying/selling pressure etc.

 

[GladiatorX]

Okay i've been working hard making this system... Live Trading WILL commence on Monday.

 

[wackypete2]

Good Luck!! Keep us informed.

Peter

 

[Pat494]

I am hoping you will use the S&P500 index as it trends well and is widely known

 

[PokerBrat]

Would be interested to see the results of your backtesting. And also to know what your confirmation signal/momentum signal is going to be. Seems like this adds a discretionary element to your system, which is where a lot of traders fall down.

 

[Pat494]

Might be best to post the forecast BEFORE i.e at 8 a.m.

( not that I would suggest any improprieties )

 

[GladiatorX]

No trades today.

lol.

Its entirely systematic.

Decided to trade ES, E-mini S&P500 contract (CME exchange) ... This is a market i'm very familiar with and therefore in creating the system i was using my knowledge accumulated from watching this market for many hours...

 

[Dinos]

I will start by developing a strategy, backtesting it, demo'ing and finally live trading... I hope to be in profits within a month to show people it doesn't have to take years to become consistantly profitable

KISS, doesn't have to de over elaborate or complicated. I trade 3 indys only, whilst I'm aware of fibs, S&R levels, my trades are initiated and closed using indicators, simple, uncomplicated and very effective.

 

[GladiatorX]

KISS, doesn't have to de over elaborate or complicated. I trade 3 indys only, whilst I'm aware of fibs, S&R levels, my trades are initiated and closed using indicators, simple, uncomplicated and very effective.

Thats interesting, i already trade indicators profitably (My own self-made indicators)... I'm just not willing to share them strategies... This 'challenge' is just to create ANOTHER indicator system based on the generic indicators avaliable to the public to show others that they can work and also to share with the public

What is the main basis of your setup? MA's

 

[Pat494]

No trades today.

lol.

Its entirely systematic.

Decided to trade ES, E-mini S&P500 contract (CME exchange) ... This is a market i'm very familiar with and therefore in creating the system i was using my knowledge accumulated from watching this market for many hours...

Excellent choice
EOD and/or intraday ?

 

[GladiatorX]

Excellent choice
EOD and/or intraday ?

Both if you'd like ? It will work on all time-frames. All tick charts.
I was thinking Daily, Hourly, 5-minute and 233-tick chart setups.

What i've actually developed is much better than i expected when i begun this challenge - I'm very confident.

I actually backtested it on multiple markets, time-frames etc etc... The best was the DAX weekly, which over the last 10 years gave a 100% win percentage. Setups are rare... Probably one per two months on the weekly chart.

I must confess that this isn't entirely indicator based... It includes price action, however that is also systematic and non-discretionary, therefore a robot could execute the trades... the thing about indicator setups, is even something like stochastics oversold and overbought can work with discretion, people just overcomplicate things and want a 'definate' way of doing things... If you trade ONLY the EMA crossovers that from your analysis look like good setups then you'll do alot better... However i stress that this is entirely mechanical, however would work better with discretion.

 

[Dinos]

What is the main basis of your setup? MA's

Having taken many years to get to this level, and many weeks and months of hard graft, I dont give set up info away these days, sorry.