Developing my own bullet proof system to trade FOREX.

[zupcon]

There's also a reasonable source of currency data at

GAIN Capital Rate Data Archive

 

[No one Knows]

Hi Mark - Well done for setting up this system - Forex is not my field but I am interested in your entry/exit rules. I have a simple system for the FTSE and Dow, currently 70% and 65% reliable respectively. However, my exit signals are simplistic 2% from entry for both stop and profit target, so the winning and losing trades make or lose the same amount each. How do you ensure your winning trades will make more than the losers lose?

PS - I find that if I reduce the % stop and target limits from entry to 1%, the win rate really suffers.

Hi, can you give abit more information. What sort of entry system are you using and over what time period. e.g ( price breakout system over 1 hour charts, moving average crossover, countertrend etc?

Are your exits set in stone so you aim for 20 pips for example and take the profit striaght away, if that is the case you might be leaving alot on the table in the winners.

regards Mark

 

[tomorton]

Hi Mark - I am taking price reversal over 1 hour charts: I do hope to add other criteria such as MA as a trend indicator or anything else that works but nothing so far seems to increase these win ratios. Hence my interest in maximising the winners. All I can do at present is close half position at 2% profit and run the remaining half another 1%, usually works. Stops are set initially at 2% net loss then trailed at -2% from best price achieved once price has gone into the black by 1%. I do see that I am leaving some profit on the table - I can live with that, but if I can build in an objective trade management rule set that takes up some of this money I would like to. Once you're well ahead on the trade, what are your rules to maximise gain?

 

[No one Knows]

Hi Mark - I am taking price reversal over 1 hour charts: I do hope to add other criteria such as MA as a trend indicator or anything else that works but nothing so far seems to increase these win ratios. Hence my interest in maximising the winners. All I can do at present is close half position at 2% profit and run the remaining half another 1%, usually works. Stops are set initially at 2% net loss then trailed at -2% from best price achieved once price has gone into the black by 1%. I do see that I am leaving some profit on the table - I can live with that, but if I can build in an objective trade management rule set that takes up some of this money I would like to. Once you're well ahead on the trade, what are your rules to maximise gain?

Hi tomorton, After thinking about your original post and then reading this i have some thoughts that i will share that should be considered about your system.

The stop -Obviously this 2% stop is allowing for the random noise you get in the markets so you are not stopped out. You could trade 1% of your account just decrease the contracts traded or Amount per pip and keep the same distance stop loss ( this would decrease your risk but also your reward).

Trailing stop- Im not a big fan of these, i was considering using one on my system to lock in profits, but the problem with countertrend trading is there will be alot of indecision between traders at the point of the signal and you normally get a prohibitively sized Candle thats high and low are outside the trailing stop and therefore you must assume you would have been stopped out of that trade. (I'll show you a chart of why i think there not a great idea in my system at the end of this) Also i am very surprised that you are 65-70% accurate even after adding a trailing stop.

Im not sure why you have a set target of 2% in every trade, (the old adage "Let your profits run, cut your losses short" is being denied here. Whenever you make a trade you should be aiming for 2-3 times sized winners as losers. Although your not trend following you still need to let profits run.

My exit strategy as of the moment is using the RSI oscillater (which i also use as a setup for entry). Once i have entered, once the RSI crosses the 50 (Neutral) level that loads the gun then if it carries on going in my direction (great) more profit, once in the opposite (Oversold/Overbought) area once it crosses back above or below (which ever is the case)(pull the trigger) i cover the position. If the RSI fails to reach the opposite (Oversold/bought) then when it crosses the 50 level is the exit point at a small profit or loss(pull the trigger).

On the chart you can see there were 2 signals that were false and the third was good, first 2 lost about 5-7 pips (taking worst prices on the 5 min bars as a guide) and the third made about 50 pips profit. Note that if id have used a trailing stop i surely would have been stop out at a loss on a price spike on the third trade.

regards Mark

 

[tomorton]

Mark - you're asbsolutely right, I must go back over the system's results and see how running profits beyond 2% would work, I can see my backtesting and trading has not yet been fully developed.

However, I suspect that holding for much beyond a 2% gain would take the holding period outside FTSE100 and NY market hours before the target is reached, and this strategy has so far been able to avoid overnight positions - using SB for this I find that their quotes outside the exchange hours will often spike up or down to my stop. So I suspect I might squeeze another % or so but that's probably it. Nevertheless, what you say has motivated me to this research. Best wishes.

 

[tomorton]

Mark - Very cursory check back over recent charts suggests that 2 out of 3 trades that make +2% will go on to make +3% but only half these will then go further to make +4%. The trades that don't make the 3% or 4% targets are stopped out by 2% trailing stops so make small gains, but it looks to me at this stage that going for a 3% target is viable and brings a small increase in profit, whereas a 4% target brings no increase in profit at all. It seems +3% is the maximum I can target with this strategy under prevailing market conditions.

 

[No one Knows]

Mark - you're asbsolutely right, I must go back over the system's results and see how running profits beyond 2% would work, I can see my backtesting and trading has not yet been fully developed.

However, I suspect that holding for much beyond a 2% gain would take the holding period outside FTSE100 and NY market hours before the target is reached, and this strategy has so far been able to avoid overnight positions - using SB for this I find that their quotes outside the exchange hours will often spike up or down to my stop. So I suspect I might squeeze another % or so but that's probably it. Nevertheless, what you say has motivated me to this research. Best wishes.

Hi, Glad i could give you some ideas, when you said you were using 1 hour charts i assumed you were trading 3-4 day swings. You might need to use smaller time frames possibly for day trading.

During exchange trading hours the price must follow the exchange traded with spread betting firms. (it is a legal requirement) But not sure how it works outside of these hours, they will probably closly correlate the pirce movement to other indice like US S&P but not sure if it will be a legal requirement for them to follow that price, and therefore they will move the price spikes in there favour to stop out the people with close stops.(this is just an opinion).

This is one reason i am focusing on short term trading during market hours but with Forex its 24 hours monday-friday(Outside 7-5 the spreads increases considerably with spread betting firms i find even with forex thats a 24 hour market). Being stopped out after market hours might be solved by simply getting rid of that trailing stop that you mentioned you use.

P.S Im new to this website can you give me some reputation points, dont like being classed as and unknown quantity. thanks. Good luck and let me know how you get on (if thats ok).

regards Mark

 

[No one Knows]

Mark - you're asbsolutely right, I must go back over the system's results and see how running profits beyond 2% would work, I can see my backtesting and trading has not yet been fully developed.

However, I suspect that holding for much beyond a 2% gain would take the holding period outside FTSE100 and NY market hours before the target is reached, and this strategy has so far been able to avoid overnight positions - using SB for this I find that their quotes outside the exchange hours will often spike up or down to my stop. So I suspect I might squeeze another % or so but that's probably it. Nevertheless, what you say has motivated me to this research. Best wishes.

I like this statement you mentioned. "So I suspect I might squeeze another % or so but that's probably it". Lets not forget that going from 2 to 3 % is a 50% increase and if this system is still 65-70% accurate that sounds pretty dam good to me. Wins will then be 1.5 times your losses so you only need to have an accuracy of above 40% to be profitable.

regards Mark

 

[tomorton]

I like this statement you mentioned. "So I suspect I might squeeze another % or so but that's probably it". Lets not forget that going from 2 to 3 % is a 50% increase and if this system is still 65-70% accurate that sounds pretty dam good to me. Wins will then be 1.5 times your losses so you only need to have an accuracy of above 40% to be profitable.

regards Mark

Thanks for the praise Mark but life jusn't isn't so simple - this trading game is harder than even we think sometimes. I might have 60 winners every 100 trades, and each trade wins or loses 2%. I am finding that increasing the target to 3% but leaving the stop at 2% brings me 40 winners at 3%, but 20 losers out of the 60 are now stopped out between 2 and 3% by the trailing 2% stop, each having a net gain therefore of about 0.5%. And I still have the original 40 losers at -2% each to pay for. So increasing the target by 50% increases my reward by only 25%. If my win ratio is 70%, my 50% increase in target is going to make a 65% increase in profit. But as the win ratio only had to be improved by 17%, I think this is the area I should focus on rather than chasing better exits. A good exercise which has made me sit down and think this through, thank you.

 

[Splitlink]

Today i decided to put pen to paper and write out what i would like to achieve and how i would go about doing this as Van K. Tharp suggests in his book "Trade your way to financial freedom".

I ended up writing for about 3 hours and unintensionally wrote out a complete system based on my beliefs. I ended up designing an oscilator trading strategy that i would like to use in forex.

This is the first system i have attempted and have done a quick test on 3 currency pairs (by hand) on 5 days of 5 min data. They came back looking pretty good. with about 60% winning trades and twice the size wins as loses. Im trying to be very carefull at this stage (of dare i say) "Optimization" as i just guessed 25 pips as a good stop level.

I obviously need to test this system against alot more back history on forex if anyone can suggest where i can get 5 min data for a couple of years on the popular currency pairs for as little as possible and what anyone thinks about trailing stops to lock in profits as i think this could help my trading system alot ( will need to add to my test).

Regards Mark

I would not divulge your system too quickly. If you have a winning edge it is best kept to yourself.

Split

 

[tomorton]

I have been wondering lately about divulging winning systems (if had one). Its unlikely so many traders would find out about and trade the system so as to make it unviable for me to carry on, through it becoming a target for counter-trades. But my main thought was, what if the system is based on SB chart TA / quotes etc. and my SB firm starts to take painful losses and they track this to the system I had freely broadcast? I suspect they would close my account for all time: I think they reserve the right to do so with impunity. I also suspect there will be some implied duty arising from our contract that I act in good faith and not seek to damage the interests of the counter-party, in which case, they might seek damages.

Who's been in this boat, and what happened?

 

[No one Knows]

I would not divulge your system too quickly. If you have a winning edge it is best kept to yourself.

Split

The way i look at it is for example; Tiger woods could write a detailed book telling you how he plays golf and wins, does this mean that everyone who reads this book will beable to play like Tiger? (I think not).

What system is right for one person will certainly not work for most other people, you need to have the psychology and understanding to trade that system rigidly. A winning system is only a very small part of an overall successful trader. ( I believe)

regards Mark

 

[No one Knows]

I have been wondering lately about divulging winning systems (if had one). Its unlikely so many traders would find out about and trade the system so as to make it unviable for me to carry on, through it becoming a target for counter-trades. But my main thought was, what if the system is based on SB chart TA / quotes etc. and my SB firm starts to take painful losses and they track this to the system I had freely broadcast? I suspect they would close my account for all time: I think they reserve the right to do so with impunity. I also suspect there will be some implied duty arising from our contract that I act in good faith and not seek to damage the interests of the counter-party, in which case, they might seek damages.

Who's been in this boat, and what happened?

Hi Tomorton,

If you start winning consistantly then the spreadbetting firm will surely start hedging your bets into the market place instead of taking the risk themselves. Even if your not winning consistantly and your bet is large enough i.e 10 pound/point or more they will hedge the risk and make a profit on the spread.

Futuresbetting firm make a point that they hedge every bet into the market place for complete transparancy of your spreadbets, so what do they care if you win or lose. Really they want you to win so as to keep you trading, the more trades you make the more money they make in spreads. Although i can see your point that there may be some unscrupulous companies out there, that will do there best to stop a winning better from trading with them. Bottom line If you dont trust your spreadbetting firm you shouldn't be trading with them.

regards Mark

 

[Splitlink]

The way i look at it is for example; Tiger woods could write a detailed book telling you how he plays golf and wins, does this mean that everyone who reads this book will beable to play like Tiger? (I think not).

What system is right for one person will certainly not work for most other people, you need to have the psychology and understanding to trade that system rigidly. A winning system is only a very small part of an overall successful trader. ( I believe)

regards Mark

From that point of view, I agree, perhaps I belong to the old school. Perhaps it does no harm to tell others one's tricks, but most teachers tell everything about the system except the essential bit. That essential bit is your "edge". Perhaps, as you suggest, it cannot be taught.

 

[No one Knows]

Hi,

I finally got around to downloading metaquote so i could use the historical data to test my system . Still dont know how to use the software fantastically will have to get use to it and then learn how to program an Expert Advisor to give me the signals. As i am in the very early stage and dont know how to put my ideas into code, i thought id just do it by hand for a 6 month test on GBP/USD 5min chart.

Results: From 17.6.08 to 19.12.08 337 Trades signaled with a total of +207.5R There was a 22 streak of losing trades

Doing this by hand really helped show where improvments need to be made i think. It became obvious My Exits need some serious consideration as i am only using my initial stop and then a profit target at the other oscilator extreme. Almost everytime my signal got the timing and direction correct, but i cant tell how much the move is going to be.

In some cases the trade would go 7-8R in my favour and then fail to reach the oscilator extreme to signal my exit, and then would fall and hit my stop. I need to figure out the best way to lock in these profits without giving too much back but still allowing the 'profits to run' as the saying goes.

The very long 22 streak losing period, 'gees' that would be very painful on the mind i think as it lasted about almost 1.5 weeks. Might need to find an indicator that will help filter these false signals. This occurred when the dollar was in complete freefall against the pound so dont expect my system to preform well but could do with filtering at least some of these bad trades out.

Any suggestions?

Regards Mark

 

[theroguetrader]

heres mine for free - Merry Xmas.. !!

get a ruler/straight line
try " WITHOUT ANY " indicators - (they all lag - by the time its signal is generated, the price has whipsawed) -
draw trend lines - (support/resistance/horizontal AND DIAGONAL)
PRICE ACTION
TREND


If the trend is - UP - You are only looking for " buying opportunities " on a test of SUPPORT - !! (DEMAND)

If the trend is - DOWN - You are only looking for " selling opportunities" on a test of RESISTANCE..!! (SUPPLY)


" BUYING or SELLING CLOSE TO A TREND LINE" is where your risk is " L O W E S T "..... !!
(because the distance between your stop and your entry is " C L O S E S T " .... !! The risk is small, so you have an " excellent " risk/reward ratio - !!
(and you can " still " maintain profitability if your loosing trades are more than your winning trades)..


Really small time frames are hard - its been mathematically proven that no trends exist there..!! - ALL short term volatility is " random " - trading there and running the risk of getting stopped out on random " noise " is crazy. I try and wait for the next level/break-(CROWD TO SORT THEMSELVES OUT) on a wider chart - one thats trending.. !!

 

[No one Knows]

get a ruler/straight line
try " WITHOUT ANY " indicators - (they all lag - by the time its signal is generated, the price has whipsawed) -
draw trend lines - (support/resistance/horizontal AND DIAGONAL)
PRICE ACTION
TREND


If the trend is - UP - You are only looking for " buying opportunities " on a test of SUPPORT - !! (DEMAND)

If the trend is - DOWN - You are only looking for " selling opportunities" on a test of RESISTANCE..!! (SUPPLY)


" BUYING or SELLING CLOSE TO A TREND LINE" is where your risk is " L O W E S T "..... !!
(because the distance between your stop and your entry is " C L O S E S T " .... !! The risk is small, so you have an " excellent " risk/reward ratio - !!
(and you can " still " maintain profitability if your loosing trades are more than your winning trades)..


Really small time frames are hard - its been mathematically proven that no trends exist there..!! - ALL short term volatility is " random " - trading there and running the risk of getting stopped out on random " noise " is crazy. I try and wait for the next level/break-(CROWD TO SORT THEMSELVES OUT) on a wider chart - one thats trending.. !!

Hi,

Fair points made here. I have simply made a very basic backtest and taken every trade and the system is still quite profitable. I did this because i didn't want there to be any subjectivity if i would make that trade or not in real time(so everyone was taken).

Obviously once I start trading in real time and are sat at my computer i can use My brain to figure out weather to take the signalled trade or not, this should decrease the amount of false signals. Taking into account trendlines, Larger timeframe charts, News Events.

Regards Mark