Spud's Lab Accident

I was working in the lab late one night when my eyes beheld an eerie sight....
(Lyrics courtesy of the Monster Mash)

This started as an experiment with MACD and has actually backtested well enough to put up here so that you may want to forward test this super simple system. It may need some tweaking but here it is in a nutshell:

M5 Chart EUR/USD
MacD (coloured) 5,13,1 (no levels)
Stochastic (%K Only): 100,3,3 low/high simple levels 76.4 and 23.6
Stochastic (%K On;y): 14,3,3 low/high simple
(Stochastics in the same window)

Long Entry Validations (all validations must be true):
1. The 100,3,3 (yellow) %K line must be below 23.6%
2. The 14,3,3 (red) %K line must have crossed from below the 100,3,3 %K line prior to entry
3. The MacD bar must be moving up (changed colour) -signal bar
4. There must be at least 4 MacD bars prior to our signal bar that have moved down (opposite colour)

Short Entry Validations (all validations must be true):
1. The 100,3,3 (yellow) %K line must be above 76.4%
2. The 14,3,3 (red) %K line must have crossed from above the 100,3,3 %K line prior to entry
3. The MacD bar must be moving down (changed colour) -signal bar
4. There must be at least 4 MacD bars prior to our signal bar that have moved up (opposite colour)

Must Exit:
When we get 4 MacD bars of the opposite colour as our trade in a row (we must exit at close of the 4th bar) or we must exit on an opposite entry signal.


The Theory:
The 100,3,3 Stochastic mimics the price movement, except it is converting price to a range between 0-100%. As such price near 100% is exhausted climbing and price near 0% is exhausted falling.
The MaCD and 14,3,3 Stochastic keep us out of oversold and overbought markets.
The MACD 4 bar rule is preventing whipsaws.
Overall, thsi sytem is catching price at the end of the trend and looking for a reversal....risk is minimal since this is a hit or miss strategy played with tight stop losses. Overall pips gained from successful trades should overcome small losses from misses. Drawdowns should be minimal. Challenge is to exit to maximize PIP gains before we MUST Exit.

Aggressive Trading - use less MACD bars, ignore the cross, use crosses below 38.2 or above 61.8.

Stop Loss - Entry Candles Low/High +0-20 Pips.

The chart below is an example of a long and short trade. The green line is the entry and the red line the Must Exit. You can exit at anytime you like with positive PIPS, but you MUST exit when signaled.

I've included the Indicator and Template as well.

Here's my last short trade.

I set a 10 PIP S/L from my entry candle high, and targeted 10 Pips net (14 pips with spread). I exited before a must exit signal appeared.

I cheated and took the stochastics meeting as a crossover.

Same trade window with Must Exit reached (4 green bars in MacD)

Hopefully we would have exited before this, but if not it is pretty much break even.

Your actual entry is at the close of the marked candle, correct -- the next candle?

Here's an agressive entry, not waiting for 14,3,3 to cross down 100,3,3:
(I canged the chart colours a bit for clarity)

My S/L is large at +20 above candle high.

Update: Way too early ...moved stop loss to 2657 +20 Pips of new high to ride out wait.
Update 2: Way too agressive and should have waited for cross. Taken my S/L to 2674..20 PIPS above highest high in last 5 hours. Will have to ride this out. Have a cross still waiting on MacD.
Exit Update: I bailed at -12 Pips when a quick drop appeared....will wait for a PROPER entry and not be so agressive.

Correct close of candle....I entered 5 secs before close

Spud,

I love to tinker around and see what else I can come up with. Admittedly, I've come up with some really wacko junk and once in a while a rocket goes off and fireworks explode.

Looks you had a fireworks moment. This lab fluke is a juice maker Spud. Nice one. And it's easy to follow. Any system with clear entry and exit helps the newbies.

I am going to fiddle with this on higher TFs to see viability for catching a slice of a trend.

btw, I love the 100 Stoch and have been using it for a while on my set ups. There something unique about the 100 stoch that produces a 'critical mass' ratio of the pips moved vs. the high/lows. I found that if I go with a %K line much larger than 100 it loses its swing capability and just acts like a long term MA that is slow to correct on the shorter term trends.

.

I agree the 100,3,3 stochastic has some interesting properties...and does move well in relation to price moves. I keep tinkering with the 100,3,3 for this reason and hopefully there are a few more discoveries to be made.

Here's the trade as it should have been (without being early and agressive):

Made 15 Pips.

This was a Short Trade (the text on the chart says Long Entry...my error).

I think you mean short entry, right?

Yes...just testing Ok, my boo boo. Good catch.

Thanks

Hi,
How many pip do you make per day?
and what about other pairs?
and other time frame like 1 min?

sorry my english is bad.

thanks

Hello Spud,

4. There must be at least 4 MacD bars prior to our signal bar that have moved down (opposite colour).

Is there a rule as to how far back those 4 MACD bars must be or not be? Such as to go long we have 4 red bars then a green, but our cross doesn't happen until a few bars later. Maybe even another red bar stuck in between a couple greens.

Thx,
Todd

I prefer them all together, the red bar between in your example is just a whipsaw, so technically you could take the trade still.

hi spud
thanks again
i entered long at the end of the blue candle , was it a right entry ?
regards

hi spud
the entry i have posted above has failed, maybe we should enter after the 14,3,3 has left the the 23.6 line , what do u think ?
thanks

Spud,

Have you tried this on longer time frames or other currency pairs? I like the look of the system, but I just can't trade the M5. I need H4 at least, but D1 would be better...

Or perhaps because the red bar and green bar were even makes a difference? A higher low on the green bar would be nice maybe.

is this a valid entry?

The 15 min looks pretty decent and even the 1min looks not too bad. Guess we'll see how well other TF's work in a sideways market.

todd