The "You can't be serious" system

The third example is DAX 5m. Again, SMS worked once a trend was established, but suffered without it.


Again, identifying ranges, especially in proximity of obstacles (in this case it was a R2 level) helps avoiding entering in choppy situations. I draw the MA lines here too, to show how they were flat.



Notice how the market moved once it broke the range and cleared those levels. Notice also how, after the first break-out south, it pulled back and tested R2 and the bottom border of the previous range. Quite typical.
If you do some study on your charts, you will also see that today’s trade was a gap filling trade. It took almost all day, but the gap with Friday was filled, exactly at the level (long green line at the bottom.)
Have fun!

I haven't read the entire thread, but I see! When both MA bars change color and are the same, you draw a horizontal line to connect the MA bars with the corresponding candle. Then a breakout or breakdown line is drawn at the high or low of the corresponding candle. If the MA bars are bullish, and price closes above the breakout line, then it is potentially safe to go long, and vice versa. I say 'potentially safe,' because anything can happen. So it might be a good idea to add another trigger for confirmation.

Based on what I see, it is a high probability trade setup. If you are trading from a lower time frame in the direction of a higher time frame, then the probability of winning increases. For example, you could draw your horizontal line at the signal on the Daily, and then look for a breakout or breakdown on the 4HR. Or, you could draw the horizontal line on the 4HR, and then look for the breakout of breakdown on the 1HR or 30 min. chart.

I could say more, but this is your thread.

Thanks for sharing such a useful indicator!

Yes, here2there, That’s the sort of idea. I know it is a lot to ask, considering my verbose style, but I invite you to read the first few posts where I try to explain the reasons behind this thread.

Just to recap:
One part is a super simple mechanical strategy. It is a trend following strategy and the trend is defined by the slopes of 2 MAs, crudely represented by the histograms. When both histograms turn blue there is a buy signal. This version of the strategy looks at the bar that gave the signal and places a buy order a few points (it depends on the instrument) above the high. That is the small element of break-out I mentioned. If it is not triggered, at the end of next bar it makes the same calculation and so on, until either the order is triggered or there is a different signal, or no signal at all. Vice versa for a short. There could be other versions of this simple strategy, for instance: setting the order at the highest high since the signal, so the Break-out is clearer.

This is the canvass and the basic reference to create discipline, especially for beginners, or lost traders.

The second part deals with trying to avoid/minimise the obvious pitfalls inherent in any crude strategy. So, I am giving some examples of how we can try improve by applying some PA knowledge. Alas, most of the times this implies that it has to be implemented manually, with all the pitfalls this, in turn, implies. Who said trading is easy?

PA is a vast topic and I have decided to start with some super simple aspects of it.

In a way, this is the basic idea of a car car, a sort of Model T . Obviously each trader has a different background, experience and personality. So, one may want to have 2 doors, some 4, some want an estate, some an electric one, some automatic, some manual, some Diesel and some (bad people!!!) an SUV, etc.

You seem to like a multi time frame approach, and it is OK. It is a robust analytical tool. Some may want to draw another MA (50? 200?) and take only long signals above it and only short signals below it. Some may want to add volume analysis to identify support and resistance points. Etc. etc.

Each trader may want to try and add his/her own thing. All is fine as long as he/she:
a) understands it
b) likes it, feel comfortable with it
c) has tested thoroughly the results and still makes sense
d) is confident and comfortable he/she can actually follow it

Pity I have not enough time these days. There were some nice examples today. A lot to talk about, potentially.

As usual, one for marketing (heaven!) : USDCAD 5 m


The interesting part is that the “superior knowledge” on UC would have kept us out of a big part of the trend, so it damaged the result this time. Remember what I said: when you try to solve a problem, you usually create new ones.

...and one for the reality and balance: nightmare. As it is customary recently, it comes from 5 m Gold:


Not even "magic" would have saved the day. There were ways to avoid most of the carnage. One day perhaps we will discuss these, if there is interest. But the best way to avoid these situation is to stay out. Remember you are trading trend. If you see no trend, there is nothing in there for you. Sure, you will miss the trade when the trend resumes, but so what? Think of how much you saved in time and pain!


Ask questions, but I really need to go now.

Hmm... either it is all crystal clear, or it is so dauntingly complicated that …well, why bother? Or competition is too fierce and much better. Or there is no appetite for this kind of strategies, or indeed this kind of topic.

Oh, well, I will continue to post some random results from 5 min charts for now for both the SMS and the “superior knowledge” application. I am always keeping track of what’s going on with every strategy. Perhaps I will post some stats over the weekend.

In the meantime, here are the usual money shot: Dow Jones 5 m. SMS made quite some money because uhmmm…there was a trend? Lost some money when uhmmm….there was no trend?



And this is the “superior knowledge” applied. What a genius!

But of course, in a spirit of balance and marketing defeating tactics (I am a pro on that!) here is the monster. Gold 5 m. Now, the most attentive of you may have noticed that Gold does not seem particularly suited for this strategy. Perhaps this is one a reason why I picked it?


The “superior knowledge” would have worked hard but rather well today.

Oooops, sorry, in post 147, the second chart is actually a USDCAD chart, rather than the Dow one. I do not seem to be able to edit that post anymore, so here are the two Dow charts:



And, since I mentioned it, here are the two USDACD 5 m charts. Here SMS and "superior knowledge" would have basically given the same result.
Yes, I like to confuse people! Sorry for the mess up.

capm.....Just so you know you are not talking to yourself.
I like to digest your content before asking questions that I probably can answer myself given a little while. I like to try to work things out in my head as being spoonfed is not my style.
Please continue your mission of enlightenment in your unique style if you would.
Thanks

After several chart analyses to assimilate the YCBS philosophy, I would like to submit an analysis of a possible short trade on AUDUSD daily.
2 MA red, BRN on support, and head and shoulders pattern formed. The probability that this possible trade will be won increases drastically. We will see what happens next week...
We need to refine the possible entry point but for the moment it's too early.

Thank you, herewego , much appreciated. I understand your point. I tend to be very much the same. Anyway, feel free to ask, even via PM, if you prefer.

Ex3m6
A few observations.
In general, you can tell that AU is in a range since mid April. Usually the longer the range, the more tension builds and the more powerful the break-out could be. The down side is that we may see one or more false break-outs before that happens.
Some expert eyes may see a little Head and Shoulder there, if you like those things.
Yes, you have a strong support there. On daily charts you can see if weekly pivots are observed. The last bar seems to have bounced on weekly S1.
I would adjust your green rectangle a bit down, as where it is now has been violated a few times.
On daily bars your buffer for entries should be much higher than the 2-3 points I used in some of my examples.
A final consideration: AU has been going sideways basically from the beginning of the year. Trend following strategies need movement. Perhaps right now AU is not really the best market to look at?
I hope it answers some questions

Let’s see a couple of examples for today: cable 5m



If you compare the 2 charts, you can see how the SMS (simple mechanical strategy)
a) entered at some pretty stupid points,
b) tends to give back quite a lot of open profit.

That is where a more close inspection of PA (Price Action) could help .



The first trade is probably a bit strange. PA alone may not have justified that BE so soon. I show this example to illustrate that experience (if properly tested) can give some edge. We were still before London Open. Many times “London undoes what Frankfurt did” (not as popular and catchy as “the trend is your friend”, but still usually valid.) In the absence of momentum (Bears did not even bother to test the Pivot point: the blue line), I think that it becomes a bit too dangerous to stay in.

We then have a buy signal on BRN, hardly a good idea. Soon after it we have a sell signal on support level and Pivot point: another bad idea. These are examples of a) above. We should filter these signals. BTW, these (BRN and Pivot points) are quite easy to code into the SMS, which could become just a little less "simple".

Second trade. Notice how the orange line, which is the BRN 1.4200, acts as a magnet and a resistance. There is a decent probability that the bulls will test it. It is a bit dangerous, but worth a scalp and it would have paid off.

The third trade is an interesting example of how our “superior knowledge” and trying to be smart sometimes does not work. The signal is in the middle of the range. There is a good chance that the bears will test the Pivot point, which rests on that support green rectangle. They do but they are bounced back up. There is, indeed still support there. So, I would get out at the second attempt. In doing so, however, I miss the rest of the move. Cable broke support and pivot and continued south. Who is laughing now, smartass?

One tactic that we could adopt (fiendishly difficult to code, BTW) is to re-enter on further break-outs in the direction of the trend. In this case, after the small range below the pivot point. Target is at the green rectangle at the bottom of the chart. Note that we drew that rectangle a few days back! Again, second attempt and we take profit.

Now, point b) above. The PA does usually a good job on this. Strategies based on MAs are open to risks of quick reversals, where the market travels a lot before the MAs catch-up and change signal. We have seen many examples this week. In this example, even if you let the market go, the signal to get out does not come until all profit would have been given back. In this case “let profit run” would have given you 20.8 point, while the “forget the clichés and trade what you see" attitude would have netted 14 +23= 37 points. Who is laughing at the end, smartnerd?

A similar story could be told for the UC 5 m. I think it is quite self-explanatory by now, but let me know if you have questions.

Thank you for your answer capm. Yes I know AU is not the good market for a trend following strategy.
This is not the wisest course of action, but I can honestly say it was involuntary.
In France we often say :” why make it simple when we can make it complicated? “

Ha, Ex3m6! Not just in France. In fact I believe that that sentence has been my life's motto!

Week-end thoughts.
I have gone through some simple stats on some instruments on some longer time frames. I will use here just the results for April and May on 1 hour charts applied on 4 instruments. Buffer is 5 points for FX, 7 for oil and 10 for Dow. I invite you to do the same (no cheating!) Go through bar by bar first with the simple strategy and then applying the filters. If you do, you will notice that, on our shamefully small sample, the simple mechanical strategy presents these characteristics:
a) It really sucks on FX and it looks better on oil and Dow
b) Whatever the result, just applying some simple rules to filter some signals gives hugely improved results.




It is not a meaningful sample by any stretch of imagination, but let’s play with assumptions. Let’s assume you have done all the tests on a large sample and on a long enough period of time.
You may decide that perhaps you may want to use the algo to trade oil and Dow 24/7. They give good results for very little effort (the PC will do it for you.)
You may even decide to test other indices or commodities (or indeed some other FX pair) to see if you can get the PC to do some more work (careful not to pick instruments that are too correlated!)
Before you do that, though, you must think about what you are getting into.
First is the risk management. As I mentioned, usually “always in” systems rely on a volatility target principle. Many hedge funds use it. Have you ever heard a professional hedge fund manager talking about “not risking more that 1 or whatever % of your account?” I haven’t.
However, volatility target and similar principles are too long and complicated for my already fatigued and scarce audience. And we are not hedge funds managers, I guess. So, let’s move on.

At the very least you have to see if you have enough capital to sustain the drawdown and the sometimes big stops. You also have to assess whether you are able to stomach this system’s behaviour. At some point you are down 380 ish oil point and 680 Dow points. Can you face it?
We are just scratching the surface here, but I hope I can convey the message that you need a lot, and I mean a lot of work to progress in this field. Reading threads and books and jumping on a strategy are just a tiny taste.

Note: this is perhaps off topic, but I guess a few developers may be tempted to “play around” with the parameters. This is what I have always done myself, so, I am guilty too.
It is very tempting to say: well, maybe it could work on those FX pairs if I find the “suitable” parameters. By all means, have some tests and try. I can even give you a clue: try GBPYEN on a 4H chart with the MAs slopes set at double the current value. And then perhaps double them again. Whatever you do, do not just use the “optimiser”. I have spent too many years battling with this sinister seller of dreams. Pick an idea that you think makes sense, try it with a number of parameters test it and see if it still valid. Do not optimise on the basis of past data.

What about the “filtered” results? They look good, don't they? I think it is because they are based on additional rules that make sense, are tested and seem to work. However, as we know, they have a price.

Digging a bit in the SMS results, we can notice that the MAs slopes are way too slow. The “let your profit run” principle implies that you have to accept big pull backs. Several times some good runs have given back much of the profit because the MAs slopes were lagging too much. Also when big, sudden spikes occur, especially during big news but not only, the signal is whiplashed long/short and trades are caught completely off guard. This has the effect of creating rather big losses 2 or 3 times in a row in a situation where at the end the market barely moved. It is a typical “flaw” of trend following techniques. All this leads to the thought that trend following strategies like this simple one may perhaps do a decent job at finding entries. But they are pretty poor at finding exits.

Here we open another can of worms. Many developers are adamant that having different rules for entry and exit is wrong. They have a point. The interference between conflicting rules creates big coding problems, impacts the rules themselves and they can’t be properly measured anymore. Moreover, it sounds a lot like rules fitting, which is a very delicate topic.
Another big problem with this approach is that we will abandon the “always in” system. This implies, as I mentioned, a huge review of the risk management aspects. And we need to ask what are we going to use instead. The easiest answer is usually the fixed fractional method. Perhaps one day will go into more detail, but if you can't wait, the web is full of talks on this point, including this forum.
Another massive issue is that exit rules are usually more difficult to code than entry rules. This leads us once again to the concept of discretionarily applied rules. But doing so will mean human labour (that means usually you) and human inefficiencies (biases, tiredness, lack of focus, other weaknesses, etc.) So, for example, in the results above, I isolated the trades that I could have physically taken if I were staring at the screen during the day. That means, in my example, from 7am to 4pm London time. Whatever happens outside these hours we do not care. We can't act on it. This also means that we close positions just after 4pm, so no overnight positions.
Basically we would be using a totally different system. More crucially, the trades I picked will not be the same you would pick, because, even if we have a minimum amount of discretion, you will see different things than I do. I may have made some mistakes. You may have judged a trade too risky.

Although it is not my intention to be deliberately negative here, I have probably alienated even the most dedicated readers by now. I am sorry. I am just speaking from experience. But I also know that with practice, commitment and a lot of work on ourselves, we may achieve results and satisfaction.

thank u MR capm

as u saied im working hardly to add some simple Filter to reduce lossing trades
So after filtering Asian Range that was a Good filter , i tried to combine it with an indicator that can cover higher timeframe , So we can ride with higher timeframe and reduce some loss trades
and i found " 4TF stepma pdf " indicator that is useful
So for now i use 30 min tf
ASian range filtered
added 4tf stepma indicator
i risk free my trades after 20 pip
i only trade EURUSD
and RR is 1:2

here is Some Recently trades


1 .BE (20 pip)
2 . Win 2R
3. Win 2R
4. Win 1R( by trailing sl)

again sry for my bad english