I have been trading for 12 years now, and for most of this time I've made my living from the market, or from market-related business. I have traded many systems, of mine and of others, with various levels of success. For about 4 years I have settled on this system, which fits my financial objectives, my trading style and my psychological profile. I have consistently been successful trading it, and for years I felt no need to try any other on my live accounts.
I have decided to make the step towards sharing and discussing it, for 2 reasons: one is to give back to this community, where I've been lurking for many years, and from where I took many ideas and learned a lot. The second is more selfish: I'm looking for help in coding an EA for the system, since the technical work is probably not too difficult and the benefit for us all would certainly be worth it. And also, I'm looking to share what I know so far in successfully trading it manually, in order for us all to make it a success in automated trading as well. My schedule lately is more and more busy, I want to keep trading but at the same time I feel like manual trading is starting to be a burden for me, and because I have extensive experience with this simple system and already took almost everything I could from trading it manually, i feel this step is the logical one at this time.
The System – General Stuff
I started trading as an Elliott Wave guy (a method I still value a lot and prefer for market analysis, for its detailed insights into all kinds of scenarios), but at the same time I have always been fascinated by MA crossover systems, for their extreme simplicity. I always thought I could find the "perfect" MA crossover combination that would work universally, and spent years trying and testing such crossovers. As you can probably guess, I found there is no such thing I have started to be successful with MAs when using the Rainbow template (which I still consider very good for identifying levels and diagnosing trends), but it needed "analysis", and I wanted something even more simple, faster, easier to trade on the go.
Then, about 4 years ago, a simple idea crossed my mind: the MA crossover systems are all perfect in trending conditions, but their main (and major!) problem was their repeated small losses in sideways markets. What if I could find a way to avoid that noise, and filter most of it out? That's how the idea of channel trading the MAs was born.
I tested, and immediately found it to be a huge improvement, even at a first glance. Without much concern for the "perfect" MAs, I chose a channel defined by MAs I had used before (55), and I made a few days' testing to find a signal line. I applied it retrospectively on some pairs, and it seemed to work. Then I introduced a few more rigid rules, and it worked like that as well. I started trading it live (taking into account the rainbow levels, too) and within a few weeks I was consistently profitable. Then I started to trade this system exclusively, and since then I only traded this strategy, with a few minor variations (money management, stops, scaling in, choice of pairs).
The system is extremely simple.
M15 Chart (but the principle works on larger charts as well)
55 EMA, applied to low + 55 EMA, applied to high = the channel.
33 EMA applied to close = signal line.
Long signal: signal line crosses above channel (33EMA applied to close crosses ABOVE 55EMA applied to high)
Short signal: signal line crosses below channel (33EMA applied to close crosses BELOW 55EMA applied to low).
Hard stop: 40-50pips (depending on pair and situation)
No stop: close & reverse at opposite signal.
Fixed tp: 40pips, with SL moved to break even when price reaches 20-25pips profit. (needs a lot of management, and only works if you handle few pairs)
Flexible tp: set at 210 pips, and trade closed at the end of the session (I do this many times, and it seems the best option).
No tp: trade is closed at opposite signal in profit.
There are 2 entries:
Normal Entry: the crossover happens within regular volatility conditions, with price close to the channel (a SL placed at 40-50pips distance from entry would be placed on the other side of the channel, so the channel becomes a "barrier" between current price and SL). The trade is executed immediately according to the rules.
Delayed Entry: the crossover happens as a result of extreme volatility, with price far from the channel (more than 40pips), so an attempt to put a hard SL would result in the SL being placed inside the channel, or on the same side of it as the entry. In this case, the trade is not immediately executed, and instead a pending order is placed at the level of the signal MA (the order should fill when price touches again the signal 33EMA). The order remains valid for as long as the signal is valid, and usually is filled.
The delayed entry is meant to ensure that there is enough room and power for a move in favor of a signal, and that we do not enter at the end of a push. I have found the channel to be a pretty strong obstacle, especially in such situations, and so I always aim to have my stop protected by the channel.
- Simplicity: quite obvious, no need for further explanations.
- All trading is done in the direction of the short-term trend. Absolutely no top or bottom picking: very good for traders who struggle with discipline.
- Controlled risk, but high profit potential (if used without fixed 40pips tp)
- MA noise and false signals filtered up to 80%, while still receiving early M15 signals to ride the big moves.
- Possibility to use as an entry system only, with analysis done on larger timeframes (for those already fond of other analysis methods, longer-term).
- Even if there are many failed signals, the losses are small and the losing trades get closed out quickly, while the correct signals (more in number) can make profits of 100-200pips easily, every week.
- Possibility to trade a basket of currencies, with focus on overall equity and not the individual signals (the option I'd like to explore with you guys here).
I want to use the system on a larger basket of pairs, but was unable so far because it's difficult to take all signals and manage them if trading is done manually.
I read and appreciated a thread here in FF, something like "set and forget basket trading". Those guys do exactly what I plan to do here, with the only difference that their signals are given by other indicators, and are the same for the whole week. I liked their work, and I admired their system, which in spite of its rigid setup seems to work pretty good.
The channel system could be more versatile when traded as a basket, and we could enjoy the benefits of basket trading while still being very quick in adapting to market conditions, because no matter what the market does, we are NEVER against the trend for more than 40-50pips. If the market makes large moves in favor of a certain currency, all the pairs involved will bank in hundreds of pips (over 4-5 correlated pairs more than 1000pips can be reached within the week). In choppy market conditions the system does ok, breaks even or can even make small losses, but in strong trends (on any currency) the system makes huge profits. Considering that each currency has its own time of rally which may not coincide with the others, with a good EA we can be there EVERY TIME the market moves rapidly and never miss any large swing, because the small chart it works on (M15) will push us in very early.
The EA would have to take the rules into account (especially the delayed entry), have an option for taking all signals/crossovers or just the first one (the one that changes the bias from long to short and viceversa), and have the option of hard SL/TP or flexible (close at next signal). We can discuss all that here, I hope.
I would love to offer any kind of feedback to those of you trying it out, and also to work together towards making it an automated system generating a minimum of 500pips monthly (in manual trading I usually got more than that). Please share your testing and let's make some pips together!
Expert Advisor (thanks to Damiend):