The "You can't be serious" system

Hi Ycbs,

Could you share your indicators and template?

Thanks

OK

keep in mind 4t stepma dont repaint but its color maybe change till closing of every htf candle
for example 4h candle color mybe change while its open yet, but after closing it never change
its ok thing with all MTF indicators.

Good stuff, YCBS. Thank you for your contribution.
Let me see if I understand your strategy. I guess that after you filtered the Asian time zone, you check if there is a signal on the 2 MA slopes of the Simple Mechanical Strategy (SMS) and then you also check if these signals are confirmed by the higher time frames indicator. If they do, you enter and apply your money and trade management rules.

I am not sure how the “stepma” indi calculates the histograms and if you need to see all 4 bands red for a sell or blue for a buy. Nor I understand if the range number of the Asian session have any relevance. But that is not important.

What is important is that you are creating a strategy that suits your needs, personality and preferences. This is crucial, as it will help you trusting your system in good and bad times. The next step is to test it and test it to see if it gives you consistency. If you have these two elements, you are on a good path to success.
Stick to what you like and works. Every time you change or add anything, make sure you test it and still like it

I hope you do not mind if I use your trades as an example for a couple of points.
Trade 2 was good because you left it on overnight and during the Asian session. This is perhaps because your target is always 2R, with a trailing stop. That’s OK. If you didn’t, and even if you did and once you are flat you can re-enter, there was a long entry signal that fulfilled your requirements just after you closed trade 2, on that spike. That would have been a loss. Perhaps you use a wider buffer (I counted 4 pips above the last high) and you were lucky.
I mention this to highlight that if you do your testing manually, you need to be brutal with yourself and always assume the worst has happened. For example, if my buffer was 5 pips and I do not know for sure, I would assume I was hit (on the spread) and I would have made a loss.

But well done on your trades. Keep us posted!

Thank you for your comments Sir
Here I have to make a few things clear.
First of all, I am still testing different ways to improve this style of trading, because I like this method and i try to keep it as simple as possible

Yes as u said i Enter when all Red, all Blue happen after Asian range ( Asian range number doesn't matter )
I enter exactly 1 pip above high or below low of the candle that made all bands blue or red

And i breakeven my trade after 20 pips ( 20 pip comes from Back test data ) , trail may stop till tp or sl hit
I use Fixed spread account so i don't mind if my trade run over night

Since i see Good Win rate in testing maybe i use 1.5 R or even 1R for TP

All this things are based on Back tests
And there are a lot of room for improvement

Sorry for my bad English

Today I will do something different. I will focus only on the Price Action filtering of signals and give a more detailed explanation of how I may have read the GBPUSD 5 m chart. It is going to be long, boring and, perhaps, daunting and demotivating. I warned you! You can go safely back to @wallstreetbet , Reddit and your twitters
Also, I hope some of you will appreciate how, in my self-harming anti-marketing mode, I refrain from using examples from the DAX, the DOW, gold and oil, all of which would have had a fantastic day.
This is the situation you would have faced just before Frankfurt open at 7 am London time.



I have drawn the levels that I think are important. I see from HTF charts that buyers may have some problems up there, as they look a bit overstretched and there is a bit of an uncharted territory up there. This is wrong, of course, as I should not have any bias. I should trade what I see. But I can’t help it. I need to be aware of this and be ready to change my mind if I see buyers’ strength. Many traders will be stuck with their first impression all day, often with lethal consequences.

But I have some confirmations: I can see that the trend (as measured by our indicators) is down. I can see that R2 is a strong resistance. I can see several lower highs.
So, if I go short, what should I expect to find on my way? The first area of potential problem is the green level very close to where we are. The second area is another green level that is also a BRN at 1.4200 (orange line). This has a blue line (Pivot Point-PP) just below it, so that may be a very important area of support, where the Bulls will probably fight hard. Off we go.

This is the situation at the end of the day.



Briefly:
1. I would not take it, but if you are a more aggressive trader you may try it. You may get a scalp for about 1:1, if you like it. Notice anyway that there is a strong rejection at that level. So, if you got short, and do not take the scalp you may now be flat at Break even.
2. Rejection and bounce from support, buy signal. A long is possible as buyers now may want to re-test the highs and perhaps R2. After some shy attempts, where they are stopped at previous lower highs, it is probably a good idea to save your ammunition: BE.
3. Now it really depends on what kind of trader you are. You can be quite aggressive and, re-assured by the failure of testing the highs, you give the short another chance to clear the green area that was support before, entering on the signal (3a). Or you may be a more prudent trader and really wish to wait and see if the bulls have actually left their previous positions. In this case you enter after the Break-out of the previous low (3b)
4. This is really funny. If there was a place where I would have expected to find strong support it was (as I said before) the 1.4200 area: BRN, level and Daily Pivot! Well, absolute rubbish. Cable did not even pause for a second. Hey! What do I know?! This is a good point to talk about targets. That one was obviously a great place for a target. If you did, you would be now fully immersed in what I call the trader’s “whinging syndrome” . You should be happy, as you made money. But you are not, because you exited too early. Traders are never happy! If you did not set the target, now you would be riding it. You may have trailing stop, perhaps. I would put it above pivot, perhaps. But you run the risk of giving back too much. A different target may serve you better, but what if it turns out to be exactly like this one, where you got out only to see the market plunge further? you see? Whinging!
5. Notice that the sellers managed then to get to S1 and even to the lower green level there, drawn from the day before, and have a reversal bar right there. That was a good place to get out, IMO. The more experts among you may have taken the failed re-test of pivot after 4 as a further sign of weakness and gone short again.
6. Trouble! We really do not want to see that buy signal there. The overall market is clearly bearish. You may even be still short from 3. On the other hand, you see a reversal–ish bar on green level (5) and it may well be that the bears are tired. You also have another pattern loved by Technical analysts: the break of a trend line (plus some other stuff). That is a decent trap laid by the bears. If you fell into it. You would have had a loss.
7. New short signal, but it is too close to S2 and support level. Bad idea. A better entry is after the support level is broken. After that you see that sellers are really tired. After a lot of Dojis, a trade usually becomes a 50/50 chance. You have no edge. BE.
8. Another long signal. It has 2 uncomfortable features. One, obvious, is that you would be buying into that resistance area that would have generated a loss earlier. The second is that you have 3 long bullish candles in a row and you may expect to see some reaction from the sellers. Which you did have, right on clue, on the green level. Notice that, as in 1, some of you may have gone in for a scalp. That level was tested various time The market then entered a range between PP and S2.

Just scratched the surface of PA. That’s my take on having fun! This stuff, IMO, will give you the best opportunities, once you master it. But you see how much involvement and focus was needed. It is extremely costly in terms of time and energy.
On the other hand, you have the simple mechanical strategy (SMS.) You would have very little (if anything) to do, but I calculated that you may have had a flat-ish day. This is where you may use the other advantage of automation: diversification. But that is an entirely different story!

What’s better? 2 pips a day doing nothing at all (–ish) or many pips but staring at your screen all day? Now, if only we could find a suitable compromise between the 2 hands…..

Some more fun stuff on PA. Cable 5m again. I promise I will change instrument soon.



Here I show how the first filtering of the signal by our "superior knowledge" would have been a strike of genius!
Here I also show how the second filtering of the signal by our "superior knowledge" would have made us look like idiots.
You never know where the market is going to go, folks!
We entered on the break-out of the support area but the market did not move much and printed a series of bottoms, creating a new support.
The third signal (long) had no obvious reason to be filtered and it would have been a loss. But we recovered some with a reversal on the further break of the support area that reached ...ah, surprise! S1.
Then there was the last long. As usual, the signal came a bit late, and I do not like it. But it came just after a very shy (and failed) attempt by the bears to stop the bull's army (the first green circle.) Get on the train!
The second green circle shows how the bears this time tried a bit harder, but to no avail. It would have been weird at this point if the bulls did not try to get to the resistance area above. So, we stayed in. Only then the bulls took a breath.
Where did the bears manage to push the market down? You guessed it: the green circle. This is a sign that the bull have consolidated that area and are ready to defend it. They pushed back up. The bears tried another pull back that failed. There was then a big chance that the bulls would go for the big magnet: the Daily Pivot (PP.)
Incidentally, if you follow LauraT's thread, you will notice that this exact level was also the ADR high and the 200 MA (ok, on 15 minute). The more "psychological" points you have in one spot, the more of a magnet it becomes.
So, a further long just above the green area to test the pivot was a high probability trade (and you were with the trend.)
Now, code that! Sorry, you know I love mechanical systems, but I could not help it this time !

Now I propose a quiz.
This instrument has not been very nice with us recently: gold, 5m
I have drawn a couple of lines on the chart. You can try to find out why, look for others or draw your own.
What would you have done?
Ok, it's with hindsight. Easy to cheat, but the exercise would be totally worthless. So, up to you.

capm...you're a champion,I need a quiet place like somewhere on a private island,below a coconut tree and a hammock to relax and study all this data.....this thread is so powerful man....thanks so much,if traders still does not understand well rewind and come again.We are on lockdown/curfew and all the bad things from from a very indisciplined island,so I'm happy to be reading and trading while at home,keep up your great input......after reading i'll ask,if there are any questions,your explanations are clear as daylight though.

well, scsstnt, thank you. Your post made my day!
It also made me a bit jealous: coconut tree? hammock? I am in a very undisciplined island too! But no coconut trees or hammocks!
As a consequence, you won't be getting any super-discount at my soon to be created "YCBS academy for proficiency in trading and not taking things always too damn seriously"! You can tell the brand name was my idea
Thank, man!

Well, no prize for guessing how the Simple Mechanical Strategy (SMS) would have performed today. In any time frame! Fantastic results!

Genius? Nah, come on! It is a trend day across all instruments. How would you expect a trend following “algo-ish” perform? It’s like having the right sails for the right wind, the right shoes for the right terrain, the right Elon for the right Musk (sorry, apparently adding Elon Musk to any post increases its popularity!)

If I were more marketing savvy and eager to sell my stuff for half a billion, this is the day I would pick to show how unbelievably cool this strategy is. I would highlight the fact that you just have to turn on your PC, let the magic begin and come back in the afternoon prepared to count your $$$$$$. I would have plenty of nice charts to chose from. I would call it "the Holy Grail" or the pipmachine or, (even better!) the "Tesla blockchain Gamestop reddit automatic" strategy, for no reason whatsoever, but, hey, who needs reasons to buy this stuff, right?

Since the SMS has already proven how amazing I am at building strategies, I won’t dwell into the PA add-on today. But if you are curious to see whether it would have outperformed the SMS or not, why don't analyse it yourself, as an exercise? If you are not too shy, post your charts here.

capm you are a very good marketer. You sell reality. It's a niche market, not many people are in this market.

I'll go for it. For me USDCHF on H4.

Ycbs scsstnt and other silent readers, post your analysis. We all learn from each other. I can't wait to see the analysis of the other participants.

Thank you, Ex
I had other plans for this warm evening, but your effort deserves a prize! And perhaps we can further confuse Setzer27
You surely pick weird stuff! I have not touched USDCHF in ages. Plus the 4H time frame has the bad habit of changing depending on which broker one uses.
But let's have a look.



Well done identifying the green area of support/resistance. You will also notice how this pair observes the BRNs.
I have numbered the possible trades.
1 would have been my classic favourite trade: Break of BRN and green area, no obstacles and a nice potential ride to BRN 0.90. Notice how the less you have to think about a trade (the more it jumps out at you) the smoother it is. A word about stops (the red lines) A more aggressive option would have been to place the stop just above BRN 0.91 and green area. It would have been well protected. A better protection was where I draw it, above the previous Break-out. If the trade fails and bulls are in charge, they may want to test that level. Target was at 0.90 BRN, where it stopped.
2, The signal came late, so we may well ignore it. However, there was a good chance that buyers would push the market up to the green area/BRN. Good for a scalp. Here again, the stop could have been more aggressive.
3. Too tight. Selling into resistance. A possible entry would have been 3a, on the break out of that level (and previous low). A couple of things, here. Notice how the SMS would have entered much earlier and enjoyed the break-out. So, with our discretion we may have been too smart by half. Also, as we entered quite late compared to the signal, I tend to keep these trades on a tight leash and trail the stop or get out a BE.
4. The long was not triggered. Here is the importance of a suitable buffer: we want a bit more sign that the trend is confirmed.
5. short triggered. It immediately prints a lower low (bad, as it retraces) but the retracement is stopped at BRN, twice! (good.) The bears should be firmly in control now but look at the orange circle. That is not a good pattern, and we should be vigilant. It is followed by a Doji and we then have a higher low. I would get out when I can, probably with a small loss.
6. Buying into a BRN that has already acted as a strong resistance : bad idea. Now, a bit of an advanced trade: 6b. Notice that there is a possibility of a scalp there. The retracement from the BRN did not go far and it actually formed a higher high. There is enough space for a 1:1 scalp on the retest of the BRN, or even more if you place the stop more aggressively.

And then we get to your "trade". My observations would be that the stop is a bit aggressive. This is part of personality and there is nothing wrong with it. The idea however is to place the stop at a place where you think the bears (in this case) would be stopped, would encounter support. Below BRN is fine, but the most obvious point is below the last low.
A word a bout the entry. I have drawn a trend line. Notice how assertive the bears have been in rejecting it . An entry above it would be safer. Even better if it is above the last high. The good thing is that there is no obvious obstacle till the green area above. The only thing I would check is what happens right at this level, where there may be some resistance, as there was when we discussed point 4.

OK, this is not really the most simple stuff. I just wanted to show where a good grasp of PA could lead you.

So, a very quick analysis to reward Ex for his contribution. I am not sure how many of these I can do (my dinner was cancelled tonight) but any question, please ask.

Hi Setzer27
Could you please be more specific? Can “what” be explained in a simpler way? The simple mechanical strategy (I certainly can) or the Price Action (hmmm…..tough call!)?

Just to recap:
I have started with a very simple strategy (SMS: Simple Mechanical Strategy) that could be automated and left on its own. It is a trend following strategy, so in days like today, when you have good trends, it works very well. It is mechanical. You try it and test it and get statistics and you decide if it works in general and if it works for you.
But automated strategies are a crude tool. I have showed how, many times, it makes you enter at pretty silly places, gives back too much profit, etc. Can we try to improve? Enter Price Action (PA.) One can follow and adapt to what the market is telling by identifying support, resistance, obstacles, patterns, etc.
But PA is not really code-able and needs discretion. This puts an “hybrid system” (let’s say a semi-automated one) into a separate category: basic rules+ discretion. This opens a lot of issues.

If you have more specific questions I will try to answer.

Hmmm, I must be rather intimidating....

Anyway, a different kind of post today.

Ah, I love this stuff! It’s a numbers game, folks! I am sorry, I am going to confuse everybody with this, but today is a great example from many points of views.

So, let’s start with the thought that there is one great thing that we, small fry traders, can do that hedge funds managers can’t: do nothing. Today was NFP day, coinciding with G7 meeting, Lagarde and Powell talks, and it came after a glorious day like yesterday. This is a great opportunity to preserve our capital, especially, but not only, if you trade shorter time frames.
So, the sensible thing to do for me today was sitting on the fence. Most of the systems I follow and use were idle today. Was it a good decision?
It certainly was for some. A quick scalping system (nothing to do with this one) that I use would have been butchered by today’s lack of direction, lack of volume, plenty of spikes and traps.
Other would have worked rather well, if only I had used them! Do I feel bad about it? Do I have the "trader’s whinging syndrome"? Not really, because I don't look at just today. Today is a random event that makes sense only if seen in a long series of data. I have plenty of statistics on my systems that tell me that on average, staying out in these days pays off. I also know from experience that if I enter on big news like this the slippage can be enormous and I would probably be filled where I wanted to take profit. The good trades today would have been those where I would have been already in when the events happened. That means that I would not have been a genius: I would have only been lucky. And I know they may have well gone the opposite way and slippage would have eaten through my stops big way.

We can’t predict the future; we can use what happened in the past to infer probabilities of possible outcomes. It is a risky game, based on very strong assumptions, but it is the best we, well, I, can do. The sooner we realise this, the better, IMO. Hence my emphasis (some students of mine called it obsession…ok, I can see why) on trading journals and collecting stats.

But now let’s imagine that we are totally sold on the idea that we know nothing about where the market will go, and we laugh out loud when we mention our “superior analytical skills”. Of course the latter is just an assumption: I know I have superb analytical skills. Basically I need to, otherwise I should reckon that I wasted 20+ years of my life! That is a form of endowment bias, for those who are interested.

Let’s also imagine that we have tested properly (and I mean, properly!) our simple Mechanical strategy (SMS) and are happy delegating all our trading to it.
After all, if we know nothing about the market and we know the SMS is indeed blissfully oblivious that there are important events scheduled and that yesterday was a great day, the only difference between us and SMS is that SMS has been properly tested with strict rules, where we can’t be sure we will be able to apply our PA skills in a consistent and objective way. So, in a way, SMS should be more consistent than us.

This is what would have happened to our SMS, applied to a default portfolio of 6 markets on 5 m charts.
FX: GBPUSD and USDCAD




Equity: DAX and Dow




Commodities: oil and gold



From the look of it, the SMS was great (with the possible exception of DAX- there would be a lot to talk about it, but, it’s Friday evening!)

So, how should we feel about our decision to stay out today? I am still fine. I have long years of experience (backed by excel sheets) to know it is usually better to stay out in days like these. I do not have enough stats on this particular version of the strategy (I am using it to illustrate my points.) So, I can't tell for sure. But this will be added to my stats and I am prepared to review my fundamental beliefs if I see hard evidence that this works on such days. It will be interesting to see what happens to the next big news days or NFP days.

The lesson is: do not be a fundamentalist, be humble, do not take dogmas too seriously and always test your ideas. Have a great week end.

I would like to confuse you just a bit a more, because we all need to understand that trading is not that easy thing they want you to believe. I know it is hard to accept it. No Holy Grail? Really? Well, I am not here to win a popularity contest. You can keep dreaming (I still buy lottery tickets from time to time, so, who am I to judge?!) or you can start doing something about it.

I will illustrate some points picking one FX pair at random, AUDUSD 1H chart (honestly, the first one that came out when I logged into the platform) during last week.



SMS
Point 1. Let’s say you let the SMS (for those who can’t afford to read past posts -good luck to you!- it stands for Simple Mechanical Strategy) to trade for you in an automated way. If you make some calculations yourself, based on the simple colour change of the histograms (arrows), you will roughly count: +7, -12, -16, +13 and you may close the last long before the week-end for +15. Total: about +7. Not much, but with automation all you had to do was to switch on the strategy and make sure occasionally that it was still working (PC on, running trades updating, etc.)

When you do your analysis, say at the end of the week, you may be furious with having left on the plate a big profit on you last short (from Thursday), almost entirely wiped out by that big bullish bar on Friday.
Or you may be relaxed, knowing the limitations of this SMS strategy, accepting them for what they are, and confident that your long lasting tests (not mine: yours!) have showed that it is a viable and profitable strategy (otherwise you would not be using it, right?) So, according to this strategy, 7 points was all you could get from the market this week. Remember, it is automated, the PC does all the work, so you can apply it to many instruments, especially uncorrelated ones, and benefit from diversification. long story. Some other time.

Point 2. You may want to be just a tiny bit more pro-active and hugely smarter by adding 1 rule (that you can even code into the SMS): stay the hell out on NFP release! (if you do not know what NFP stands for you should not be here, really.) No matter what. As I said yesterday, staying in a position on NFP release is the equivalent of going to the casino, minus the free booze and side entertainment. Had you stayed out, you would have gone out of your last short before the NFP release, for a profit of 68 points, or even the night before, for a profit of about 80. Now, that is quite a change!

Manual + PA strategy

Let’s now assume that you trade this strategy manually, adding some Price Action (PA) analysis to guide your trades and hopefully improve your probabilities. Let’s also assume that you are based in the European time zone, and you have a bit of a life apart from trading so you trade from 7 am to 5pm London time “only”. I have highlighted in pale blue the areas where you do not trade and get out if you have an open position.



A. On Monday (OK, so you don’t have a great life if you are trading on bank holiday!) you have a boring day and make 4 points.

B. On Tuesday, you still have a long signal, the market forms a pin bar at 7am and you may go long to see if it re-tests the overnight high. Which it did. Now, what kind of trader are you? You may:
a) take your 19 points there; or
b) leave it on to see if it breaks the high, but moving the stop to BE just in case. So, you would have indeed a break-even, or
c) leave it on to see if it breaks the high, but doing so makes you endure the agony of seeing the profit evaporating, the market going down almost to hit your stop and then thankfully re-testing that high, at which point you definitely get out, also because it is the end of the day.

After the BE, you could optionally re-try a long, but by the time you have a long signal again it is too late.

C. On Wednesday, you have a sell signal just before the 7am start, and it would also be a break of the overnight low, so you jump in. Again, what kind of trader are you? You may:
a) get your 20 points at the third attempt to break that support, or
b) see if it finally breaks it, but moving the stop to BE, or
c) leave it on and hope and close the day with a loss (but that would tell you that you need to learn much more about Price Action, man!)

D. WARNING: this is longer: twitter lovers, look away now! On Thursday (D) you have the same situation as the previous day. Now, how smug would you have felt with option “a” yesterday? You felt like a genius, right?! Today it did not work that way, did it? Yes, with option “a” you would have a had a +18 trade. With option “b” it would have been a Break even. But option “c”, that I mocked and pooped yesterday, would have been the best one today! Not feeling like a genius today, are you?

So, what to do? Well, you should be OK if you “traded your plan”. You are using your trade plan because you feel comfortable with it, you tested it and it works. Whatever the plan is (a or c), in two different days, it worked once and failed once. No need to feel like a genius or an idiot. Substitute these feelings with “was I disciplined and follow my rules or not?” and if you didn’t, ask yourself why so you can learn and improve. There you go, a free trading psychology lesson too!

So, let’s assume that you opted for option “a” or “b”. Why did you do it? What is the logic behind it? Answer: Price Action: because there is a strong support there! That implies that if the market finally breaks that support you should be happy to go short, right? Now, notice how you are still on a sell signal and finally the market does break that support (in orange). A re-entry on the short does fit your strategy and your logic. If you are that kind of trader, there will be rich picking for you on that short that goes all the way for 60 points.

E. On Friday, as I discussed at length, you should be spending some of your hard earned money for yourself and your family rather than gambling it on NFP, whatever the outcome!

Over and out.

No talking today, you'll be pleased to hear. Too busy.
Just a few charts on a default portfolio of 3 FX GU, UC, EA, 2 indices (DAX and DOW) and 2 commodities oil and gold). 15 minutes chart. 7-16 London time.
Arrows are the SMS entries. I left pivots, S R and Big Round Numbers on the charts for those who wish to do some exercise/thinking.

FX 15 M


Equity 15 M


Commodities 15 m