This is a system I am currently refining. Not sure if there are similar systems but this definitely has elements of other systems out there.
Not too much to it and plenty of ways it can be personalized/customized.
I am doing this as kind of a personal journal and if others have suggestions or find it useful then all the better.
I use multiple time frames to funnel or filter out potentially bad trades. I do this very much mechanically on higher time frames not because I think it is a more accurate method of trading, but because it keeps me more consistent and helps keep emotional judgement from clouding my decisions.
It starts on weekly to get trend direction, Daily to get go/no go signal, 4h/1h to get entry signal, 15min/5min to get entry point and SL.
I use weekly chart and 5ema to get trend direction. A more aggressive intraday trader may want to use 5ema on daily. They may want to use 3ema on weekly. A more conservative longer term trader may want to used 10ema or 10sma on weekly. A 5ema trendline on weekly is what I am currently using.
I only take longs on the pair if 5ema on weekly chart is up. I only take shorts if 5ema on weekly chart is down.
Next I go to the Daily chart. If Daily is above it's opening price and weekly 5ema is up that is a green light to take a long trade on this pair. If the Daily is below the opening I do not trade this pair today unless the daily goes above it's opening. There is an unavoidable technical problem with daily bars because they vary with brokers. Some start at Aussie session, some at Asian, some at London, some at US. I use daily bars that start at London start (6:00 GMT). If your broker uses different time frame you can use 1H chart to determine the London start and that gives you opening price of daily bar starting at London session. Add horizontal trendline and make sure your trade direction is on the proper side of the line. Or maybe you feel more comfortable using Aussie start daily bars. It kind of depends on the hours you trade. These are things each trader needs to work out for themselves. The process of thinking through it will help understand the best way to interpret what they are seeing in the bars as well so it's a good mental exercise.
Moving on to the intraday time frames. I use these for entry signals and entry points. Now that we have determined that we will be taking a long position on this pair today because the weekly 5ema is up and the daily is above it's opening price, we now are looking for opportunities to enter a long with a small stop loss. There are many many entry methods one can use. A lot of people use indicators but I pretty much only use price action. In order of importance, candle stick patterns, s/r areas, whole numbers, fibonacci, trendlines.
So say, for example I see an inside bar on 4H or 1H, I then go to 15m or 5m and look for s/r areas and candlestick patterns to pinpoint my entry with a small SL. If price keeps trending my way I move SL to BE and add another long position. I will keep doing this till the intraday trend runs out of steam.
So that's basically it.
No predefined exits strategy as of yet. Currently I am holding positions for multiple days/weeks so I have plenty of time to think about exits. When weekly 5ema goes from up to down I will average out my longs as I take shorts on the same pair. Technically this is hedging but not really as the other side of the trade is at SL of break even so zero risk of loss on existing positions. Yes, some positions you worked hard for and held for days/weeks will be stopped out at zero pips after having been up hundreds. That's just a natural part of the process.
*Weekly to determine trend. Only trade in direction of trend.
*Daily to get green light/red light signal. If daily is above opening price and weekly trend is up that is a green light for a long and if daily is below opening it is red light. The reverse is true for weekly trend going down.
*Intraday time frame to pinpoint entry with small SL using a variety of methods depending on our preferences. 4H/1H to look for volatility/breakout/momentum signal. 15min/5min to pinpoint entry with minimal SL. Simple price action is the recommended method. If our bet works out we move SL to BE after price moves on and try pile on additional positions while the trend continues. But only one position at a time until we have moved our SL to BE and are in a zero risk position.
*If weekly 5ema goes from up to down we start to average out long positions as we start to take short positions or visa versa. If broker does not allow hedging then use 2 subaccounts. One for buys and the other for sells.
*Exercise proper money management at all times. Since we are stacking positions on low time frames we can use a small percentage to great effect while minimizing drawdown. Say 0.5% - 1% per trade.
I sense that it might have merit and I would be interested in helping you develop and fine tune your strategy.
Let me make sure that I understand you correctly:
Basically you are trading in the direction of the Weekly based on the 5 EMA.
You then trade on the same side as the Daily- long if daily is up and short if daily is down.
Then you use 4 hr/ 1 hr/ 15 m/ 5m to establish a good spot to enter the market based on candle patterns and pullbacks.
It seems like a good idea and I am sure that you could use a couple of effective indicators to fine tune the "Sweet Spot" for entry.
Bollinger Bands would probably be one such indicator that would be helpful.
The main challenge with this method and with any other method is to make sure that the "Math" works- meaning that at the end of the day or week when you add up all your profits and losses that you made money.
In order to do this you must have a r/r of at least 1 to 1 and hopefully even better.
I am not a big fan of keeping trades open with no profit objective though the idea of closing out part of your position for a quick profit and letting part ride for an even bigger profit is appealing as long as there is SOME profit target for all open orders.
I will play around with this idea and see if I can provide some useful indicators or price action patterns and most importantly see if I can come up with a favorable r/r ratio whether it is a 20 pip stop and a 30 pip profit target, etc.
Hopefully you can keep posting and let me know your results and ideas and I will do the same over the next few days.
I am looking forward to developing this idea.
r:r is much much greater than 1:1 if you position or swing trade. I am stacking minimal risk positions with a SL of maybe 30pips or less and 1% or less capital. If you do the math what several positions that survive over weeks might be worth you quickly see the r:r is off the charts! But that is more about position/swing trading in general and not so much about this system in particular.
If you are a scalper or intraday trader, I think the first part will still help many people avoid bad trades. After that initial filter they can continue on with their usual trading methods however they prefer. They can open 2 positions with one TP to cancel out the SL instead of having to move the SL. All the trading systems could benefit from the added long time frame filter IMHO.
There are already a few well established systems that used the weekly trend. The trend is your friend is a no brainer and that is all my weekly filter is trying to do. Using a 5ema is my way of easily determining that. Some people may prefer to just eyeball it. Some may prefer some other way of determining long term trend. Daily up or down from open filter is used by other systems. The Dibbs method (found on this site) for example. So probabilities as to effectiveness of that filter can be taken from success people have with that system.
But just from a practical point of view. It only makes sense that if the last few bars of weekly and last bar of daily are trending in the same direction, the probability of an intraday trending in the same direction is that much more likely.
Kindly illustrate your method with charts for better understanding, hope ok for you.
*Weekly to determine trend. Only trade in direction of trend.
*Daily to get green light/red light signal. If daily is above opening price and weekly trend is up that is a green light and ff not it is red light and visa versa.
Ok...let's see if I got this right so far...at this current time...the eurjpy is showing the weekly chart below the 5ema...so the trend is down...the daily price opening is: 109.45....as I write this, it now at 109.49...so we wait until it climbs down below 109.45 for a green light???
(and it is bouncing around now between 109.45 to 109.51)
I agree with you....very simple analysis and I like the approach to keep us more mechanical in our trading...look forward to your response and some trade examples at your leisure!
some results and charts please.
What do you do if on the daily chart the price keeps bouncing under and over the opening price and there is no clear direction on the daily bar?
sorry I don't want to be rude, and no offence at all, just want to make some toughts here...
I don't understand that "weekly" thing when you want to enter on 5/15 min TF, you will get blown by higher TF's volatility, you can be able to be right in longer term view, but i think you have not big chances to stay there and to not being hit. If I considered such method i would determine the trend on maximum 1h/4h TF but we are all different. You will maybe cover your losses with big winners, nobody knows, i wish you the best
any chance of some charts please?
I'll answer anyways. 1W, 1D, 4h, 1h are all on same trend with this system so how is that a problem? Just the opposite of your concern actually. You do not have to enter on 15min/5min. I guess I should have made that part of my explanation. If you see a high probablity entry on higher TF you take it. Only thing is you will need a bigger stop loss. But as a general rule, higher TF is more accurate. My point (which I did not explain so well) is that higher TF has disadvantages for entry. Namely big SL and much fewer opportunities.
I am not a scalper so maybe scalpers disagree with 1w/1d filter. I personally think it would improve probability of scalping. In any case, for my own use I am entering on low TF as a position trader. So I want my positions to stay opened and survive for days/weeks, not minutes or hours. But at the same time I want to stack multiple positions with small SL which is why I want to enter on lower TF.
Here is something I just did a few minutes ago. It's not a perfect example by any means but that's what the market gave me today.
Upper left is weekly. 5ema blue line is flat so weekly trend is neither up nor down. So I will add an addendum to my rules. If weekly 5ema is flat you can trade either way. In this case on the bigger picture, G/U has very strong weekly downtrend and what appears to be a retrace. Red line is 10ema which I am not using for anything at the moment. I am thinking about using it as my weekly trend indicator but haven't decided.
Upper right is daily. You see the daily bar is down convincingly so we have a go to sell. The screen captures were taken after the fact which is why price is now below 1.5600.
Lower left you see 4h has broken or is about to break several price action indicators (capture was taken after price broke 1.5600 but limit order was placed before that). 1.5600 support whole number, 50% fib, 2nd bounce off diagonal trendline. So we have strong entry indication IMHO.
Lower right 5m we look for entry point (as you can see I chart with MT4 but trade on a different platform). We have a continuation flag and all I did for first entry was enter a sell limit at 1.5995 and waited for price to break out of the 1.5600 support. It did so now the game is on. I waited for it to move about 15pips and them moved SL to BE. By that time price had already moved another 15pips or so so I entered a second order. This time a market order as momentum is strong so we are flying by the seat of our pants now. Shortly after it moved another 15pips or so and I moved SL to BE.
As luck would have it the breakout stalled and price retraced and I was stopped out at BE on both positions. Happens all the time. Nothing ventured nothing gained. Se la vie. I will continue to watch this for the next couple hours as most price action entry indication is still valid so bears could take another run at it. Update, at this moment I see a W pattern forming on 5m with resistance holding just below 1.5600 so I will keep a close eye on this. We are passed major news for the day and London is about to close so I don't expect any more dramatic moves today. I'll keep an eye on it just in case.
good work, thanks
Did you ever experiment with taking a quick profit on 1/3-1/2 of your position and letting the rest ride with a BE stop?
This way if price retraces to BE, like you said it does often enough, you at least have banked something on the trade.
A few more things I have on the go. btw in case it's not obvious, the triangle is an open position, the red line is my SL, a square is a limit order (in direction of trend).
Date stamp is Pacific daylight time. So London Opens at 12AM my time which is also new date stamp. Clearly, especially on the E/U chart, I am bearish on these 2 pairs. I would hope that my sentiment is based on real world facts and not my own belief system filter or misguided opinion. I would be interested in other peoples observations.
I would be interested if anyone has a mathematical analysis of the probability of opening 2 positions to cover SL risk as opposed to 1 bigger postion with fixed SL. Intuitively, I am of the opinion it doesn't matter in term of r:r but I would defer to a statisical analysis of the subject. How it affects a trader psychologically is another matter all together.
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