Stumpy returns. Taming the beast...

....or getting eaten by it.

first up, a story of woe.

Last time I had the temerity to start a journal a combination of factors from moving house to being equipped with the luck of Job prevented me from declaring my wanton follies publicly.

A boiler, garden and a couple of holidays later left my lady wearing a serene smile and me wearing last years trousers.

A goddess of luck, however, caught sight of my haggard expression from her latticed window on Olympus and pointed me down the Path of Much Toil.

A hammer, chisel and a couple of plasterers later an enormous castle with three small bedrooms and a pokey lounge was erected near Portsmouth and passers by stared at it with flatulant disregard.

In place of the planned Union Jack a for sale sign peeped from the place where a turret might have stood but decidedly didn't. For weeks it tickled merely the fancy of worried sheep and winter birds until a muttering Mrs Kennedy and her walking stick declared it the perfect place to raise dogs.

A handsome deal was therefore struck whereby she got the house and I got not very much a little late.

My epic monstrosity is now a kennel, but Mrs Kennedy was my rainbow and my study is now brightened by a little pot of gold.

And so...

Donning dusty spectacles and plotting myriad lines on baffling graphs has somehow persuaded me that i invest a portion of this heap of pennies in currency speculation for the futile pursuit of great wealth and a life spent on idyllic beaches avoiding coconuts.

To that end I have created a truly terrible plan comprising whatnots and thingymabobs in glorious array.

These 'tools' emblazon my charts in picturesque anarchy and tend to tell me where not to lose money. I shall describe these thrilling weopans later, derision not being my greatest foe.

Every gallant knight (even short fat ones) needs a formiddable enemy.

The enemy

My fire breathing dragon comes in the shape of the GBP/JPY. It lollops about the place whimsically changeing direction and clumsily treading on everyone it meets.

Due to these similarities in our personality traits no love is lost between us however there is a mutual attraction which necessitates one of us becoming house trained.

to that end the following weapons shall be employed.

Battlefield

1 hr chart.


whatnots

100 SMA set to Open, with boundaries set at + and -50

25 SMA set to open with boundaries set at + and -50


Thingymabobs

S/R lines

Uncle points

this method was inspired by Yezbick's much simpler (and probably much better) one currently to be found loitering in the 'trading systems' section. Thankyou Yezbick, may your life be full of joy.

I have modified it to suit my own purposes and it goes as follows.

RULES

1) in normal market conditions only enter in the direction of the long
term trend (thankyou Jacko).

normal market conditions

buy: when price touches the upper boundary of the 100 SMA tunnel (only
the first time),subsequent entries will be based on a break of s/r lines
or a 'slingshot', which I will no doubt be blathering on about later.

sell: (hedge) when price retreats to the lower boundary, or price dives -100
from my entry price(whichever comes first).

As price inevitably continues to rise, the pending short follows the lower boundary of the 100SMA until such a time as it sits at the point of breakeven, at which time it is modified into a trailing stop. The only time this is not the case is in a 'surge condition'


'Surge conditions'

I define a surge as a movement of over 400 pips with scant evidence of retrace.

if price has rocketed the 100 SMA is so slow and retarded it can't turn its neck quickly enough to give us a decent exit signal.

Hence the utilisation of the relatively youthful 25 SMA.

If price has risen 400 pips then I move my stops to the -50 boundary of the 25 SMA instead


Adding Position

Simple(ish)

any surge past a previous resistance line by 15 pips, with no further resistance expected for at least 75 or

in the absence of such resistance lines a retrace of at least 30 pips from the most recent high, followed by a surge 15 pips higher.


Uncle Points

Surges are normally met with abnormally large retraces, which I define as being underway once a cross of the lower 25SMA has been breached. At this moment I offload all longs (even ones in the negative) and look for reasons to add to my open short positions.

The first such reason comes at a breach of the 100 SMA's lower boundary, subsequent ones in much the same way as I add to long ones.

Again, if the retrace is greater than 3-400 pips, i pay attention to the 25 SMA for exit, or, a bounce greater than 100 pips off a previous resistance line. Again whichever comes first.

As we are naked short at this point I place a 100 pip pending long to cover all positions, trailing at this distance until the lower 25 boundary is at least at braeak even. it is then replaced at a trailing stop, folloowing that lower boundary.

should price fall, then take out my stops, re-entry will be at a 15 pip breach of the previous low (in circumstances where no resistance lines are present, or at a 15 pip breach of such a line.

Rangeing market

I define a rangeing market as one where two consecutive longs have become losers. In such circumstances I remain perfectly hedged, adding position only once the high of the range has been breached.

I have looked into reversing the system at this time (ie sell at the upper boundary, buy at the lower, with T/P's being 100 or a breach of the opposing boundary and S/L's at 15 pips beyond the range high/low, but have not arrived as yet at a concrete descision.

but can't hope to follow your method, but I sincerely hope it makes you money and the dragon is tamed

Can you give us a chart?

Good Luck

I thought I'd start off with a failure.

Here's what happens in a rangeing market


http://img03.picoodle.com/img/img03/...1m_f2521da.jpg


the initial long at 1, loses at point 2, where our short acts as a hedge.

I then look to re-enter at 15 pips above the range high, seen as blue lines on the next chart.


http://img03.picoodle.com/img/img03/...dm_8795144.jpg


Alas, this also turned into a loser, as, indeed, did the next one. It does, however, filter out the majority of bad trades and this snapshot is of some of the rangiest moments of the last few years

Here I simply enter at a breach of the upper red boundary (at 1)

http://img02.picoodle.com/img/img02/...lm_573af09.jpg


The pending hedge cum trailing stop follows the bottom line of the 100SMA.
This is what is happening at the moment, though as I have just opened the account I am too late to be in the market.

I patiently await these with eager anticipation

http://img02.picoodle.com/img/img02/...em_0ee6252.jpg


At 1 I enter the market, the market runs faster than a granny winning lotto and crosses the lower 25 boundary at 2. Here I close all longs in anticipation of a retrace.

The retrace is confirmed (hopefully) by a cross of the lower 100 boundary, where I add to my short position.

The market finally crosses the upper boundary of the 25 SMA at point 3, where I close all shorts, leap in glee and party into the small hours.

in normal circumstances I would add position at a 15pip breach of previous resistance.

Where no such resistance exists, the folowing 'slingshot' method is used, though I am slightly uncomfortable with it.

http://img02.picoodle.com/img/img02/...tm_b6ba039.jpg


Points i, ii,and iii are the previous highs.

Points A B C the lowest points of retrace

Points 1,2 and 3 are my entry points, 15 pips in advance of the previous high.

Price retraces from points i, ii and iii to points A, B and C. Price then rebounds through my entry points

You can rate your own threads. I've given myself 1 star until it turns out I'm being successful.

There should be a 'moon' setting for negative progress, 5 bums for blowing an account.

it seems it might be a wee while until I can post a live trade.

Waiting for price to hit my pending long at 240.15, it would have been at 239.96, but I've been unduly influenced by Jacko's assertions about round numbers.

I'm fairly suspicious that a retrace may be underway, however, which means I'll have to wait until it ends before instituting my first long.

being a not to active participant of the forex isn't all it's cracked up to be. Still, I expected some sort of retrace so it's a case of drumming fingers and scratching head.

not trading is also taking a position

That's absolutely true, Peter, but a tedious one nontheless.

Fortunately my silly little system has given me a signal to;

buy: 1 lot GY @ 238.74

buy stop order put in for 239.87
pending short (hedge) set for 237.74


hooray!

opened a practice account to observe how the 'slingshot' method of adding position works in forward test.

buy 1 lot GY @ 239.31

(position now hedged)

238.39

position added

buy 1lot GY @ 239.79


immediately dropped like a stone.

position hedged

sell 1 lot GY @ 238.87


original position also hedged

sell 1 lot GY @ 238.23



self criticism

Although I followed my system, I paid no general heed to news. G8
summit this weekend tends to put carry trades at risk. This should possibly have made me more circumspect in adding position