Fibonacci Expansion Trading System

(I am not a native speaker of English. Please pardon my wrong choice of words or grammatical errors.)

0. Name
This trading idea shall be called Fibonacci Expansion Trading System (FETS), or, Tokyo Reed System (TRS).

1. Rule
(1) Find a LL-HH-HL formation. See the attached image. A is a low price. B is a high price. C is a higher low price. B must be higher than A. C must be lower than B, but must be higher than A. This is LL-HH-HL formation. Of course the opposite (HH-LL-LH) is OK. I often use Fractals in order to find out A, B, and C.
(2) Apply fibonacci expansion to A-B-C.
(3) Place a pending order by the following rule: Stop Loss is C, Entry Price is ABx0.618, Break Even Price is ABx1.000, and Take Profit is ABx1.618. That is to say, you must change Stop Loss from C to the Entry Price if the market price goes to the Break Even Price. Additionally, you must cancel your pending order if the market price goes below C without reaching the Entry Price.

2. Time Frame
I recommend 4H, 1D and 1W. (Because day-trading is a pain.)

3. Trading Size
Less than 1% risk per trade.

4. Backtest
The other day, I manually and roughly backtested this system at XAUUSD, EURUSD, USDJPY, GBPUSD, AUDUSD, and USDCHF.
The result is as below (PF means profit factor).

[time frame: 4H]
XAUUSD 108 trades PF 1.98
EURUSD 138 trades PF 1.41
USDJPY 156 trades PF 2.13
GBPUSD 167 trades PF 1.43
AUDUSD 147 trades PF 1.19
USDCHF 227 trades PF 2.23

[time frame: 1D]
XAUUSD 121 trades PF 2.20
EURUSD 167 trades PF 1.16
USDJPY 148 trades PF 1.36
GBPUSD 131 trades PF 1.75
AUDUSD 130 trades PF 1.04
USDCHF 138 trades PF 1.90

[time frame: 1W]
XAUUSD 42 trades PF 2.02
EURUSD 49 trades PF 1.84
USDJPY 48 trades PF 1.52
GBPUSD 43 trades PF 1.08
AUDUSD 40 trades PF 1.86
USDCHF 46 trades PF 1.83

I think this trading idea needs more improvement. For example, TP should be 2.618; Don't place a pending order when BC/AB is less than 0.382; Don't buy under EMA200 and don't sell above EMA200; Use trailing stop instead of break even... and so on. I expect a great deal of constructive or productive opinions.

Kindest regards.

nice concept...

waiting for more post from u

It is it?

how about the winning rate?

It is not correct. your image seems the traditional 1-2-3 trading system.
my system's entry price is not B but ABx0.618.

according to my rough backtest, about 30% is stop loss, about 40% is break even, and about 30% reach take profit point.

Excellent. Very simple system that seems profitable
Accurate simple rules. Clean job!
...I'll do tests of my own
Thank you so much

Quoting TudorIoan

Disliked

Excellent. Very simple system that seems profitable Accurate simple rules. Clean job! ...I'll do tests of my own Thank you so much

Ignored

thanks, tudorloan,
but, my manual backtest is very rough and maybe lacks accuracy.
i want improvement idea.
i wait your helpful suggestions.

Smart sys., perfect clean rules!
No improvement until more thorough tests.

nice concept, but what do you mean for break even? I think that price hit 100% fibo (from open position 61.8%) , it generate profit. ​

certainly.
we can take profit at fibo 100.
but, according to my backtest, we can take more profit if we place take profit point at fibo 161.8 or more.

for example, the attached image is gbpusd 4h chart.
i placed a pending order by the rule of this system (TRS).
TP point is not fibo 100, not 161.8, but 261.8.
accordingly, i took more more profit.

Hi tokyo-reed,

Thanks for sharing.

May I ask what period was covered in your back test.
I am in for possible automation next week maybe as I might have some free time then.

Thanks again and all the best,

Khalil

ok.
the period of 4h backtest is 2013-2014.
the period of 1d backtest is 2005-2014.
the period of 1w bakctest is 2003-2014.

i expect a great deal of help from you.

Sure.I think the main issue will be in determining ABC points, specially C point.

Just an idea: what if we divided our position into 3 trades at 38, 50 and 62% retracements of AB.

that's what I call break even
tokyo put it there on an intuitive shot, but he got it right
We can split the entry with a break even point insurance

oops ... I actually misunderstood the entry part.
Its all OK now, thank you.

​Got it, clear with your graphic. thx

thanks. good idea.
certainly, dividing position may stabilize our result.

thanks for intelligible graphic and idea.