As Easy as "PI"

Well here we are on a brand new year. Hope all goes well with everyone in the coming trading year and beyond.

I have decided to start another thread to share a strategy that I have been trying recently with some success. I've learned much here at FF, so if someone else can benefit in some small way, then that would be great.

But first, the standard disclaimers:
This thread is not a signal service. I am not going to be giving my entries and exits on my trades. Do not trade this on a live account. If you do you will probably lose all of your money! You have been warned.



So now...on with As Easy as "PI"

PI is a simple trend following system using moving averages It is not complicated, it is not a radical new idea. Just my slant on some old standbys.

I trade PI on the daily charts only. I know many will ask if it will work on other time frames, so let me preempt that question.
The answer is I don't know. I haven't really tried it. I'm sticking with the daily because that's where I think you get the long term trends that are profitable with this system. It also fits in nicely with my trading schedule.

The history:
As I'm sure is the case with many of you, I have tried many systems and indicators to try and catch good entries and exits on major trends. That's where I think the money is, or at least a good share of it.

I messed around with a lot of indicators that seemed to do a better or worse job of showing up the trends.

Finally I've ended up with a simple MACD crossover using the values in "PI", thus the name. As you may know, PI is expressed fractionally as 22/7. So.....I am using the MACD with 22 as the slow MA and 7 as the fast. (I'll let you more esoteric types ponder the cosmic significance of that )

I enter when the MACD crosses the zero line and close/reverse when it crosses the other way.

Take a look at the daily EurAud chart below for the last couple of years.

Some pretty great trends can be captured this way.

So the purpose of this thread is to discuss the strategy. I'll try to answer any questions. I'm not looking for wholesale changes to be implemented, certainly not adding multiple indicators to filter trades. For every bad trade you filter out, you'll probably filter out a good one.

That being said, there are always improvements that can be implemented and you all may have some valuable insights.

More on trade setups, stacking of trades and money management to come.

As with any system, money management and trade size are important.

Here's how I currently am applying these to this strategy.

Initial entry:

As mentioned I enter a new trade when the MACD crosses the zero line. I am currently trading this on a small live account so I'm using a higher trade size then I might with a larger account.

I am entering my initial trade based on 3% of my account equity based on a 100 pip stoploss.

100 pips is usually enough space so that I will get an exit signal from the MACD before the stop is actually hit.

While I use 100 pips for the trade size I am actually placing my stop at 300 pips. It's more of an emergency stop as I exit my trades manually. But it's there in case we have a market collapse or something.

Addon entries:

I like adding on positions in trend trading systems. 1,000 pip moves are great and all, but I'd just as soon have many positions I'm taking on the journey.

So I am adding a position at the break of each pullback, basically a 1,2,3 reentry.

I typically define a pullback as a daily bar of opposite color to the direction of the trade.

So for example:

I have a long trade going on EurJpy. It goes to 108.50 then pulls back to say 107.85 with a down daily bar. I place a pending buy stop just above 108.50 so that if the trend resumes, I have an addon position.

Below you can see an example of this on a EurJpy I have going right now. The market has moved about 1,070 pips since my initial entry on 11/16/12, but I have a running profit of 2,300 pips due to 5 total positions.

Selected pairs:

It's important to realize that I do not trade this system on a purely mechanical or technical basis. I don't take every cross or trade every pair.
Some pairs and market conditions just aren't conducive to a trend play position.

Check out the NzdUsd chart. Lots of crosses and a couple of trends, but extremely choppy. I'd just as soon stay out of these types of pairs until they look a little more trendy.

Here are my indicators and template file. Again, MACD is the only one I'm using for trades. The rest are trade information indi's etc. and a MA crossover alert if you want notifications.

It should be noted, and as you can see from the trade explorer attached, that it takes awhile for trend trading systems to get traction.

I've been trading this live since Nov. 16, 2012, so about 1 & 1/2 months. So I have some great floating profit, but have actual losses to date.

Again that's typical for long term trend systems. You have several short term and smaller losses trying to establish positions that don't work out. Meanwhile your successful trades haven't 'banked' yet as your riding what is hopefully a multi-month trend. We'll see how that plays out.

Thanks a lot for sharing !
I will try it on Demo Account.

Spyderman, great looking explorer, very well done. Hope you can enjoy some long term success with this system.

scfx

Thanks alot for sharing...will check it out and report back soon.

Edit:- what's the closing criteria? is it the appearance of opposite signal on macd? on second look just got my reply by re-reading the first post

Great results so far, i hope it keeps going for you.

jt

An other way to re-enter is when a candle close above MA7 for Long and below MA7 for Short.

The problem here would be that, in my mind, closing above the MA7 would not necessarily indicate a continuation in the trend. Your going to get more entries, but, when the trend finally does change and you get an exit signal, you may well have many positions underwater.

Remember using the cross as an exit, you are almost guaranteed that your most recent entries are in the red. Don't want too many of those.

I forgot to mention. On my addons, I'm using a 1% risk rather than a 3%.

Hi, Spyderman, congratulations!

While looking at your Trade Analyzer in more detail, I noticed that there are quite a few losses when trades were mostly
opened and closed the same day.
I am not to criticize, just to pass an idea - there is a thread opened by BlueMental "BMI-MACD Magic Monster", where he
gives a pretty good analysis in regards to MACD indicator's zero line. Might be helpful to avoid some losses.
Otherwise, very impressive. I subscribed, want to check how this will progress...

Good trading in 2013!
Lietuve

good mornnning spyderman....downloaded your indis,tpl etc..???s
regardless of the chart I attach the tpl to I have pos size, risk$, acct eqty, risk, USD/JPY ask etc..how do I get rid of it, or is it a necessity, or does the pair change???

+++++++++++++++++

My guess is you are missing a component. Until SMan clues you in, you can open 'Objects' on your chart, locate the specific entries, then delete.

"Today, I would like to become the man my dog thinks I am"! ~ Jack Thomson

Try going into the options and resetting. When you copy the indi over from one chart to the other it keeps the original settings which obviously don't make much sense on the new chart. Once you do that it should change (for example the "UsdJpy") to the current chart.

Hmmm...not sure which you are referring to. I went back and looked at all the trades and there were only a couple that had small losses early on in the system evolution. When I first started I was still tweeking the MM so that may have accounted for closing some trades the same day. I also had tried a few addons on the H4 time frame and that didn't work as well.

As it sits now, I only look at the trades once a day, so unless I place a trade on a cross and then the bottom/top falls out, then there wouldn't be an open/close on the same day.

Yeah, as he mentions the zero line is just another ema. In this case it's the 22 ema. When the MACD line (7 ema) crosses the zero line its the same as the 7 ema crossing the 22 ema in the chart above. It's just a more graphically easy way of seeing it and the histogram adds to that.

It seems GBPNZD would be a good pair for this on 4H or higher TF...do you agree, mr spiderman?

Lot of chop on the 4H. The Daily would have been great early this year but it's been a mess since August. It looks like it may be widening a bit so perhaps better days are ahead.