Mechanical trend trading

Hi

Ive had a few inquiries about this so I have been looking at a mechanical way of trading trends using just trend lines..

Its quite true when they say put 10 chartists in a room give them a chart ,ask them to draw trend lines and you will get 10 different answers..

This has always been way to subjective for me and so I have been looking at writing a set of rules which if adhered to will give you a mechanical foundation to draw trends execute trades and pick potentional TP and SL areas

We all know about higher highs and lower lows..Im looking more at when to draw the line .. and when to stop

Idealy the signals when they come should give a risk reward of 2:1 or 3:1 any thing else will not be entertained.

The trend lines will be drawn on an hourly chart TP and SL will be taken from the hourly chart with execution taking place on a 5 min chart.

If when I return and the tread develops I will restrict the posting to these 2 time frames alone with trend lines just on the 1 hour chart.

I have utter respect for those who draw 1 hr 4 hr daily weekly and monthly trend lines but for me its a no go area..I want my trade to be reactive to whats happened in the last hour not the last week.

I know most books look for 3 points of contact I will look for 2 but a mechanical way of doing such.
For a short TP will always be the last swing low..with my stop 2/3 as small.

The following chart shows £yen 1 hour the 1st point of contact was done mechanicaly and rule based and is highlighted at 1..after contact at (1) I wait for the swing low (2) and a return to my trend line.

The 2nd chart now shows our 5min time frame..it shows the contact point at 1 which was marked on our 1 hour time frame and it shows our potential TP line also marked from the 1 hour time frame..and our entry at the arrow ....From this I have calculated SL and marked it on the chart.I post post rules when Im happy that its mechanical the strike rate is good and the RR is acceptable.

Point A is a 2nd short but we would of got in at the top of the peak with hardly no draw down due to rule based reasons regrading the trend line..as you can see the TP at B and the SL at C were mechanical made from the 1hour chart and was calculated on 3:1 RR

The end of this project should see a mechanical way of pulling up any 1hour chart drawing a trend line to rules and then switching to 5min for entry knowing before hand your TP and from that your SL.

Paulus

A long all mechanical

Nice and simple Paulus, keep them examples and LIVE ones coming and people will surely follow.

Juicyt

Thanks

Im aiming to come up with a process that can be used on any time frame but in a mechanical way and free from interpretation

ie weekly chart set ups to trade the daily chart ..but for now I need to see signals and trades so I'm using the 5min for entry on the 1hour set up.

Ive also got an EA which will trigger a trade on a trend line touch .simply draw the trend line and name it..a buy or sell will then automatically be triggered..stop and tp are fixed so nice and simple.

Paulus

Hi Paulus

On your 1hr set-up chart in post 1 do you require the swing "low 2 and TP" to be lower than the previous swing low or you take it if equal or even higher?

On the 5min trigger chart is entry merely the touch of trend line?

That sounds like a handy EA Paulus. If you decide to post it I will certainly put it to use with this strategy.

Juicyt

There's already a trendline trading EA floating around somewhere that I recall seeing. Paulus' value-add would be SL and TP placement I'd think.

I don't know in your intended system but in general I find that beyong a 2:1 reward to risk ratio the strike rate drops so much that although you are more likely to end up a winner over a basket of trades (than someone who uses negative reward to risk ratios) you have to go through quite a number of trades before you can turn a decent profit.

The only other issue I see with this is that if you are using set stop and targets your entry has to be consistent..every single time you have to be able to say yes or no entry has been triggered. No easy when using trendlines.

Great idea to use longer and shorter time frame to work the trendline!

Best wishes,

Catpreacher

Hi

For now yes when the signal comes we need to have a lower low so each TP should be lower than the one before it..if not we have a wedge forming and the down trend stopping for a while.

In the final cut only 2-3 signal will be taken per trend..this goes back to my option trading days when we only took bounce 3-5 on a trend before that not established after that getting exhausted..again its mechanical.

Yes just a touch to enter the trade and hear what your saying about RR but Im sure its possible

P

Paul, welcome back, its been a while.

I'll certainly be listening to anything you have to say.

A new Paulus thread!

Signing up....

ok bear with me here I have limited time so for now Im posting whats happened on the swaps I'm following ..8 in total trend lines set on the 1hour chart with entry on the 5min.

New rules are springing to mind these have to be mechanical and have to apply to all signals but the basic principle is the same.

I will give a list of signals and outcomes for yest and today so far..the signals are quite frequent in some instances but it gives me a good idea on strike rate etc without having to wait for daily signals..but I would think a principle used on 5min 1hr should with stand the move from weekly to daily charts.

bearing that in mind dont forget these are fixed targets I have not looked at following a signal with a trailing stop again things will get complicated fast I want a clear cut in and out for now to look at the strike rate of what may well be a 1st TP and the SL

USDJPY 16,10,27-10
USDCHF 68
USDCAD 55,37
GBPUSD 81,75,58,60,-24
GBPJPY 95,82,75,65
EURUSD 25,-5,-8
EURJPY 62 currently short 130.40 TP 129.62 SL 130.66
EURGBP 28,24

This will take some time to make mechanical and I need to see alot of trades going through to help me compile them.

the signals listed above were generated 24hrs a day obviously some of them could not of been taken BUT if the principle and the mechanics can be moved to weekly for trend line daily for entry then we should be ok

here is the link to the EA to buy or sell on trend lines http://codebase.mql4.com/1024

Cheers

P

Paulus,
Can you elaborate on these numbers? Are they TP, and SL per pair? For example USDCAD 55,37 means 55 TP and 37 SL or is it two trades that won 55 and 37 pips respectively? What about USDJPY 16,10,27-10?

Thanks,
Kostas

Hi

Sorry

its

USDJPY +16+10+27-10= +43
USDCHF +68
USDCAD +55+37=+92
GBPUSD +81+75+58+60-24= +250

etc etc

P

Hey Paulus, that TrendMeLeaveMe EA is a trendline *break* EA, not a trendline *following* EA.

*later* OK I played with it some and it will follow trends. The author's examples aren't that good.

Were you envisioning placing a buy limit order on an upsloping trendline? The TrendMeLeaveMe EA places a buy stop order above current price after the trendline is touched.

Ah ok steve there are many others out there and Im in no way ready for it yet any way..but thanks for the heads up...


USDJPY 16,10,27-10
USDCHF 68
USDCAD 55,37
GBPUSD 81,75,58,60,-24
GBPJPY 95,82,75,65
EURUSD 25,-5,-8
EURJPY 62 currently short 130.40 TP 129.62 SL 130.66
EURGBP 28,24

the outstanding signal in red hit its TP making 78 pips..we had another entry on the same trend line today I have posted the chart below..yellow was the signal above and blue is todays signal

Update on signals

USDCHF +30
USDCAD +32
GBPUSD +55+60
GBPJPY -33
EURUSD +45
EURJPY +70+40

Its going to take time to make things mechanical but Im sure it can be done..an EA wont beable to place the trend lines ... but an EA will be able to take our trades off of our trend lines and then work out the TP and from this the SL


P

Paulus,

From the charts you posted I don't see yet where the M5 comes in -- trendline and TP are from the H1, and SL is a function of TP, so it does not actually matter on what timeframe you watch the trendline being touched.

Unless, that is, you use the lower timeframe for reversal signals around the trendline; but I can't find that in your explanations so far, and there seem to be no such indicators on the M5. Am I missing something?

For reversals, I personally like to use the cross of EMA (5, close) over EMA (6, open) -- nice, fast, and reliable if used only in the trend direction from the higher timeframe.

In your trading, do you require reversals to happen at or beyond the trendline, go beyond the trendline and cross back, or is getting reasonably close good enough for you?

Cheers,

jesper

You can't go wrong with this system. I can imagine the most astute traders trading like this. Are you still using the carmen indicator?

I'm considering abandoning all indicators and just trading like this.

Check out AUD/USD