I first saw this system over twenty years ago. It was intended for futures trading.
I have recently dusted it off and found it seems to work for forex.
I did a manual backtest on GBP/USD from 12/01/07 through 01/18/08.
There were 25 wins and 13 losses for a 66% win rate.
Risking 2% of account size on each trade would have resulted in an increase of 38% of the account.
A $1000 starting account would have ended with an account of $1380. This includes a 4 pip spread per trade.
RULES
The following terms will be used in describing the rules:
Up Close - A close that is higher than the close of the last candle.
Down Close - A close that is lower than the close of the last candle.
Four Bar Low- A low that is lower that the lows of the past three candles.
Four Bar High - A high that is higher than the highs of the last three candles.
I used 4H bars.
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LONG
A four bar low followed by an up close (the up close may be the same bar as the four bar low).
Then a down close that does not take out the low of the four bar low.
Now you begin watching the last two bars.
Enter long when price exceeds the highest of the two previous closes by 1 pip.
Exit on the first profitable close.
Stop loss is the low of the bar previous to entry - 1 pip.
-------------------------------------------------------------
SHORT
A four bar high followed by a down close (the down close may be the same bar as the four bar low).
Then an up close that does not take out the high of the four bar high.
Now you begin watching the last two bars.
Enter short when price falls below the lowest of the two previous closes by 1 pip.
Exit on the first profitable close.
Stop loss is the high of the bar previous to entry + 1 pip.
--------------------------------------------------------------
Stay in a trade until a profitable close or the SL is hit.
If a trade in the opposite direction occurs, take it also. Treat it as an independent trade.
I'm sure this system can be greatly improved on with better stops and a better take profit method.
I have recently dusted it off and found it seems to work for forex.
I did a manual backtest on GBP/USD from 12/01/07 through 01/18/08.
There were 25 wins and 13 losses for a 66% win rate.
Risking 2% of account size on each trade would have resulted in an increase of 38% of the account.
A $1000 starting account would have ended with an account of $1380. This includes a 4 pip spread per trade.
RULES
The following terms will be used in describing the rules:
Up Close - A close that is higher than the close of the last candle.
Down Close - A close that is lower than the close of the last candle.
Four Bar Low- A low that is lower that the lows of the past three candles.
Four Bar High - A high that is higher than the highs of the last three candles.
I used 4H bars.
--------------------------------------------------------------
LONG
A four bar low followed by an up close (the up close may be the same bar as the four bar low).
Then a down close that does not take out the low of the four bar low.
Now you begin watching the last two bars.
Enter long when price exceeds the highest of the two previous closes by 1 pip.
Exit on the first profitable close.
Stop loss is the low of the bar previous to entry - 1 pip.
-------------------------------------------------------------
SHORT
A four bar high followed by a down close (the down close may be the same bar as the four bar low).
Then an up close that does not take out the high of the four bar high.
Now you begin watching the last two bars.
Enter short when price falls below the lowest of the two previous closes by 1 pip.
Exit on the first profitable close.
Stop loss is the high of the bar previous to entry + 1 pip.
--------------------------------------------------------------
Stay in a trade until a profitable close or the SL is hit.
If a trade in the opposite direction occurs, take it also. Treat it as an independent trade.
I'm sure this system can be greatly improved on with better stops and a better take profit method.