The "You can't be serious" system

@le celte

The more experienced traders know that there is nothing really "new" in forex after so many years.
Most of the concepts or systems are well known (Trend following..Mean Reversion etc.) and there were
a lot of serious investigation on price action patterns, Fibo, S&R etc. which all have shown that there is not
"the one and only method" to succeed in this business.
If I remember right trend following is a very good approach to fight in this market.
Maybe someone can learn a lot here by following the ideas...you never know.
(and I love the style he is writing )

@ baxter01
Salut,
Oui je sais. Je suis entièrement d'accord. C'est pour capm qu'il faut dire ça.
Il pense qu'il a quelque chose. En fait, il est avant tout un écrivain (qui écrit bien). Il doit aimer se relire. Ça montre.
Un écrivain qui tourne la sauce, du moins il a essayé ... Et pour finir par donner naissance à une souris ... finalement très discrétionnaire.
Mais bon, j'imagine que pour certains de ses lecteurs ça pourrait être intéressant.
Santé
jf

Thank you shouma for your answer.
I think capm will confirm.

Salut à toi l’ami !
On est tous du même avis le celte.
baxter01 résume très bien la situation. Je lis de façon sporadique des nouveaux sujets sur forex factory et celui là m’a particulièrement interpellé c’est la raison pour laquelle je vais me prêter au jeu. L’une de ces raisons est sa façon d’écrire (et de digresser). Je pense qu’unanimement nous ne pouvons pas lui enlever ça.
capm le dis lui-même il n’y aura rien d’extraordinaire, mais je suis curieux sur la façon dont il va articuler ça. Laissons-le digresser s’il le souhaite, c’est son sujet et puis ça rajoute un coté plaisant.
Au plaisir de te lire.

Je serais un peu plus mitigé sur la question. Le monsieur a ouvert un thread, il a peut-être trouvé un filon qu'il veut soit partager pour en faire profiter la communauté, soit faire une sorte de workshop pensant qu'il y a quelque chose à développer à ce sujet. Peut-être qu'il a raison, peut-être qu'il a tort. On ne peut pas l'en blâmer. Ca fait partie de l'esprit d'un forum après tout. Perso, je n'ai pas d'expérience sur le sujet et ca ne colle pas avec le style de stratégie que je cherche à peaufiner mais ce n'est pas le premier et ce ne sera pas le dernier. Il y a un site en anglais (voire il y a même certaines pages en malaysien/malais) qui grouille de stratégies en tous genres un truc avec forex et resources je crois qu'il s'appelle. Il y a plein de stratégies bidon mais il y en a plein d'autres qui sont très intéressantes. Elles demandent quand même de l'expérience pour mieux comprendre comment ca fonctionne.

During the time we spend reading CAPM literature, responding to it, we do not trade.
While we are not trading, we are not losing!
It's all profit

To your good health guys
jf

I don't want to fill this thred with additional blahblah..therefore only a short remark.
Avoiding unnessessary losses is one of a very sound goal of every usefull trading system.
It's more important than finding the absolute "best entry point"and also important to know
when to get out of a trade.
I'm expecting those "values" from CAPM in his hopefully ongoing explanations.
There should be a lot of pages in his never written book about the main success factors of his
trading approach.
Sorry for too much words.
Best greetings

Interesting thread capm. I'm enjoying your posts.
Looking forward to learning more from you. Thanks
Subscribed!

EMA SMA ANGLE
This MA angle measurement indicator may be useful for those interested in this CAPM strategy...
In addition to his two MAs. Additional filter

https://www.forexfactory.com/thread/post/12337159#post12337159

Take care of you
jf

Oh, mon dieux, de nouveau!
People, I hope you appreciate the unmatchable level of sophistication this thread is achieving! Rarely a thread has been more international, providing multilingual services, and not just any language! French, adding that sense of “je ne sais quoi!” Let’s give credit where credit is due: without le celt, we would not have reached these levels, so our gratitude should go to him.

This may be another one of my infamous digressions, but there is something I am particularly proud of, which unfortunately those readers who may be “French language challenged” (perish the thought!) may have missed. Le celt actually paid a compliment! I think this must be a world first! Here for you, folks! On this very thread!

Not only that. He paid a compliment to me!!!! Ok, admittedly for my writing skills rather than for my …..trading? educating? whatever skills, but still, it is something I will treasure for ever! You see Le celt? You can be nice, if you try.

As a token of my appreciation, I will try to repeat in French two messages that still seem to be challenging for you.
From Post 1: La mauvaise nouvelle c’est qu’il y a des couts: il faut endurer mon style, y compris les longues explications, l’humor inutile, le manque apparent de gravite’.
Throughout the thread: Les regles mechaniques sont bonnes, mais peut-etre pas suffisantes. Nous devrons peut-etre ajouter notre experience. Cela signifie utiliser discretion. Mais la discretion a des couts.
My personal touch: Peugeot, Bardot, au bientot!

Deep apologies for the lack of accents (you, see, French take them very seriously!) but French is not my native language. Neither is Uzbekistani (in case anyone is tempted.)

On a more serious note, I appreciate the support (or at least the suspension of judgement) of our other French friends, hoping they have a sense of humour.

OK, end of entertainment, let’s go back to my business of cheating you all with my charlatan blurb.

Let’s get our hands dirty and lose more readers. Ready for binge thread porn?

Ex3m6 (surely a nerd even more than I am, with that nickname! Kidding: thank you for posting and asking!) posted 2 charts. Let’s take the GBPUSD 4 h charts. I pick this simply because I counted 10 signals instead of 15 on AUDUSD, so it’s shorter. This is a very good example to compare a mechanical system based on too simple rules against what you can achieve with some knowledge of PA.

Stage 1: let’s identify all the “mechanical rule based” signals. I see 10 of them. I have indicated them with blue and orange vertical lines and numbers. The orange vertical lines are the signals that have not been triggered, because you should place an order “x” points above or below the High or Low of the bar that generated the signal. On orange lines this did not happen.

Now, I have to make the first of a long line of digressions. I know, but you will tell me later if it was necessary or not. In my super simplified rules I said “place the buy or sell order 2 points/ticks/whatever above the high of the bar that generated the signal (and the opposite for a sell signal.) That is obviously to introduce an element of break-out. This is an oversimplification because:
1) 2 points for AUDUSD are not the same thing as 2 points for GBPUSD or for DAX or for the DowJones. You have to account for the volatility of the instruments
2) Equally, when you have MAs based on data generated by a 1 or 5 minute chart, 2 points may be fine. But when the MAs are based on 4H or daily charts, 2 points could be a nonsense. You have to account for the volatility of the instrument in the time frame you chose. Told you: it is never that simple!
There are several ways to try to “fine tune” the number of points. They are all fallible and I have digressed enough here to talk about them.

So, let’s say we use 5 points buffer here and continue with the explanation.

So, signals 4, 5 and 7 are not actually triggered, in an always in strategy you should not reverse and the system waits for the next valid signal. I have made some quick calculations on this chart. The “stupid” mechanical strategy would have lost 137 points from these trades.

Stage 2. Let's put some psychological levels on the charts and see what happens.

Now, let’s look at trade 1. You enter short at about 1.3745, say. In between 2 BRN, good enough. Nothing happens for a while and then there is a spike down that penetrates the 1.3700 level, but it is soon rebuffed by the buyers. You are still short. Then you have another attempt by the sellers and where do the buyers stop the sellers’ advance? At the same level they did before (first green area.) That is Price Action (PA.) In our super simple stage 1 we told the system to just look at the MAs. The system does not know anything at all about this last double bottom information and it ignores it completely.

Another digression:
What can we do about it?
a) We can create a new mechanical rule that identifies, say, BRN (easy) and double top and bottoms (good luck with that!), and automate it into the system. But, automate what exactly? A single rule or a Series of “if…then” rules? No time or will to discuss various options here, but if someone is interested we can open a different thread. Imagine!!!
b) On the other hand, it takes one or two glances (depending on how expert you are) for a trader to spot that level on a chart. Not only that. The trader can look at other elements of PA and decide each time whether to close trades, or take partial profit, or move to Break-even, or keep the short.

NOTE: I remind you that in doing so you may “improve” (or not!) the system, but: a) you need to sit in front of the charts b) your stats on the simple system 1 are not valid anymore: you are using a different system now, based on mechanical rules and PA based, more discretional ones. You need to create your own news stats. c) each trader will have different results according to his/her style/preferences. Etc,etc.

Back to our short. Say that you are still confident that the signal is right and the market will go down. There is third drop that does not even test the previous lows and is stopped at BRN. Again, the simple system does not know that, but by now you should be quite confident that you are pushing your luck with your short. Let’s say you would go out at break-even. 41 points saved. A different trader may have been more active and took profit at the second low, on the double bottom, transforming the original loss into a win. This aspect is related to individual psychological traits, the trickiest of subjects, but let’s move on.

Trade 2: you are flat and have a buy signal just below a BRN. Not a great idea. In fact, you see how the market does not really clear the 1.3800 BRN and it is actually pushed down after 2 – 3 attempts.

At 2a the signal is refreshed and you actually have a decisive bullish candle that passes the previous highs. Again some traders may wish to wait a bit longer for confirmation. The more expert will have a nice entry point on the small pull back that follow that break-out. To each his own. The point is that histograms are blue, so you can only go long and can’t think of going short: that is your discipline.

After that you have a nice run to…where? Hmm, yeup! another BRN, 1.4000. The market stops there and then it retraces. Those who are more familiar with PA will have notice some big bullish candles (one almost qualifies to have a funny name: Marubozu, but I digress). This big acceleration wanes at around the 1.400 BRN, where, after a reversal pattern, it starts going down. Remember: long signal still, we can’t go short (if we follow the rules) but we can take profit after the reversal pattern. The +71 win becomes a +150. Once again, some traders may have taken some profit at the first BRN encountered: 1.3900. They may be dissatisfied with this, but if they followed their rules, they should not. Next time it may be the other way around.

Are we geniuses? Winning all the time? Of course not. There is little even I () could have done on trade 3.

Entry short was OK. Sellers even broke the previous support and there seem to be good chances that they will go and test the 1.3800 area. Well, it wasn’t to be. The only thing I would have done is perhaps move the stop (accepting that I am wrong) above the resistance line (green area on the right of the chart), saving 30 points (losing 80 instead of 109.)
Notice that I can’t go long yet on the bar that penetrates the resistance area, as I do not have a buy signal yet. I have it on next bar, so the Long entry (trade originally nr. 6) would have been at the same level it was before.

Trade nr. 6. Is it a higher probability trade? Let see: entry would be at about 1.3960. We know there was a strong resistance at 1.4000. That should be our first reference point. We also know that there is support at 1.3860. This would immediately ring some alarm bells, as in terms of PA you are “likely” to make 40 points if you are “right”, but lose 100 points if you are “wrong”. So, I would think twice and actually try to see if there are other reasons for me not to take that trade.
One could be a weekly R1 level at 1.3990, Giving you a 30 points upward “space” but the weekly Pivot would still be at 1.3900, 60 points down and in the middle of the previous range. I will omit Pivots for now because we are already covering a lot.

Anyway, let’s keep things as simple as possible and let’s do something very “unmarketing-like” (I do not have to sell anything here) and assume I take the trade and put my stop below the support area, and I am “wrong” and I lose 100 points.

Next short signal (orange circle) should be, by now, a no brainer: right into the 1.3800 that has been a resistance and could well now turn to be a support, as it duly did.

Let's move on.



Next, we have trade originally nr. 8, a short signal. Again, it makes sense, Risk-reward is not fantastic, but there is a good chance that it could re-test 1.3800. It did not. Choppy markets=no trend=trend following strategies fail.

Now we have an interesting problem. The long signal, to reverse the short (originally trade nr. 9) is in an awkward position. It is very close to BRN and in the middle of a range. There is even a trendline (if you like them, in purple) that would suggest not to enter there. I think the message is quite clear, but we are still short! If we move the reverse point and enter long much higher, we would lose more than the original simple strategy would have and (worse) we would be still short when we have a buy signal! These sorts of trade-off are common in trading and quite agonising and, once again, the decisions you take depends on what kind of personality you have. You can leave the short on and move the stop up to a place where you are more confident that the short was wrong and where you would reverse to long more comfortably.
Or you can exit the short but wait for a better place to enter long. Let’s do the latter, so we would have the same loss of -69.

Now, where would we enter long? Let’s see. Let’s wait to see a break and re-test of that trendline. When that happens, buyers are stopped at the resistance level we traced before (green area) and that gives us another useful indication. So, as soon as we have the right signal we will go long above that level. After a very hairy moment (due to news, ah the news topic!) where the previous support held anyway, the buyers take control.

Now we are flying! And rather than giving back a pretty big chunk of profit waiting for the reverse signal, let’s look at PA and see where to maximise profits. Notice how the 1.4000 level acted as temporary resistance, but the bulls where too strong and wheezed past both that and the next level 1.4100.
Look at what happened later. There is a wide range with highs at 1.14175 and lows at 1.4100. If you like those things, there is even a "head and shoulder" formation that should tell you where to get out of the long. A win of +155.

End of thread porn.

So, we may have got a 56 points profit overall. Nothing to write home about, but certainly good from a chart where we have 2 moves and a lot of sideway action and certainly better than the -137 points loss of the simple stage 1 strategy.

This is just a sample of how one could improve on the downsides of too mechanical strategies. They have a role in terms of giving basic information and forcing to exercise discipline. If only we could effectively code all the PA based nuances we talked about here! For how much I tried, I could not find a better way to improve on performance than using good old PA. That is why I am still stuck to a hybrid system (Damned! I should have called this thread the Prius system!)

I am not sure how many readers will be left after this marathon, and I really just touched upon millions of topics that we could talk about. Anyway, I hope the examples are clear. Please ask questions if interested, leave if not, read and be silent if you are here just for entertainment.

After reading that all I now know why your "book in your head" has so many pages.
You must say that it is really surprising that there is enough space in your brain to fullfill
the expectations born here by following your thread.

Those who have expected a moving average strategy might be strongly disappointed
and those who thought you might not need any experience in -what I call "chart reading"
will be surprised too.
I don`t wnat to make a new language input (german) so better excuse my poor English.
And nver forget: what goes up must go down ( Isaac Newton strategy..:_) )

Ha a little teasing! Unfortunately I don't have a 45 chapter book in my lice box like you! That's why I'm here.
Anyway, thanks for your answer capm and for today's case study.
Your digressions are welcome capm because we need to be able to fully grasp the subtleties for each trade.What I remember is to have extreme adaptability based on a mechanical logic. Take the best of both worlds (discretionary and mechanical) to have a competitive advantage over others.
There is a lot of work to do!

Ah, another dissatisfied customer.

First of all, thank you for refraining from using yet another language, BTW. My German is worse than my French.

I am sorry for the disappointment. I have to say that it is a bit unfounded though.
If you wanted a moving average strategy, well, you have one. Test it on your favourite timeframe and instruments, change parameters the way you like it and see what happens and if it works for you. It’s free, BTW.

In addition, I have never said that you do not need any experience in chart reading. On the contrary, I am maintaining that simple mechanical strategies could be made more effective by applying chart reading knowledge. This needs to be learnt and practiced, if you want to adopt this idea, the same way you may need to learn how to join pipes if you want to be a plumber.

I would add (brevity is not my forte, as you may have guessed) that basically I have showed examples with a MA strategy and Round Number filtering, with a splash of horizontal lines at supports and resistance levels. I would say that the level of chart reading required is rather elementary here. Not really rocket science. But that’s just me.

I invite you to try (if you are interested, of course) and use the other example Ex3m6 has showed, on AUDUSD. It is not that difficult. I’d be happy to go through it too, when I have time.

And I will leave you with another principle I will never forget, attributed to Einstein (you know, among big brains…..) : everything should be made as simple as possible, but no simpler.