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The Daily Fozzy Method

  • #2,001
  • Apr 25, 2007 2:48pm Apr 25, 2007 2:48pm
Bytebodger............thanks for posting this. How would you use this data?

In the past we have discussed 'retrace' in the context of what happens after the Daily candle opens and the Fozzy cross signals a profitable trade. How much does the price 'retrace' before it turns around and heads in the right direction? This value can be used to establish a workable S/L for each pair that will consistently keep us in a good trade and minimize the loss in a non-profit trade.

Quoting Bytebodger
This isn't really a Fozzy subject, but I have read several times in this thread where people were wondering how much retracement is exhibited by pairs on a daily basis. I completed analysis today that gives me some concrete numbers. For each pair, I first calculated the average range (day's high minus day's low). Then I determined each pair's retracement value. If the pair closed down (closing price lower than opening price), then I considered the retracement to be the day's high minus the day's opening price. If pair closed up, I considered the retracement to be the day's opening price minus the day's low. The following values were calculated based on data going back to 1998 for all of the major crosses. Some of the minor crosses only had data going back a few years.
Hope this is helpful...
  • #2,002
  • Apr 25, 2007 5:01pm Apr 25, 2007 5:01pm
Quoting BeachBum
Bytebodger............thanks for posting this. How would you use this data?
Well, personally I was calculating this data because I am fleshing out the parameters for a completely different strategy - one that looks to catch price breakouts, and I needed to know how much of the reversal in a daily candle could be considered simple retracement (as opposed to a sustained price movement). But of course, it can be applied to almost any daily strategy, Fozzy included, when looking to calculate SLs.

Quoting BeachBum
In the past we have discussed 'retrace' in the context of what happens after the Daily candle opens and the Fozzy cross signals a profitable trade. How much does the price 'retrace' before it turns around and heads in the right direction? This value can be used to establish a workable S/L for each pair that will consistently keep us in a good trade and minimize the loss in a non-profit trade.
A few additional notes about these numbers:

1) "Retracement" is a somewhat subjective term. I think I have chosen an acceptable definition by using the portion of the bar/candle that does not contribute to the overall daily trend. However, an entire day (or series of days) can represent a retracement to the previous day's trading. My numbers obviously would not account for a retracement that encompasses one or more days. Then again, if you're experiencing a retracement that consumes an entire day or multiple days, you may expect to be stopped out anyway.

2) Remember that these numbers are averages. This means that on any typical day you can expect the price to retrace by at least this amount. This means that if you want to give your position some room to breathe without immediately getting stopped out, you need to set your SLs slightly higher than these numbers. I don't have any empirical evidence yet, but my anectodotal review of the numbers suggests that 1.5x the retracement level is a good level for your SL. If the price "retraces" more than 1.5x this number, there is a reasonable chance that you are caught in a genuine price reversal and you don't want to ride one of those for too long.

3) I was struck by the fact that all of the pairs exhibit such a tight relationship between daily range and retracement. They're almost all 25%-27%. This is a whole new can of worms, but this opens the door for other strategies designed to catch a better opening price (rather than opening directly at the start of the day). Of course, as soon as you start trying to squeeze extra pips out of a position, you run the risk of missing the move altogether, but it's worth thinking about...
  • #2,003
  • Apr 25, 2007 5:40pm Apr 25, 2007 5:40pm
Quoting Bytebodger
2) Remember that these numbers are averages. This means that on any typical day you can expect the price to retrace by at least this amount. This means that if you want to give your position some room to breathe without immediately getting stopped out, you need to set your SLs slightly higher than these numbers. I don't have any empirical evidence yet, but my anectodotal review of the numbers suggests that 1.5x the retracement level is a good level for your SL. If the price "retraces" more than 1.5x this number, there is a reasonable chance that you are caught in a genuine price reversal and you don't want to ride one of those for too long.
Thanks for the detailed response........

I'd like to add something, not as a contradiction, but as an additional observation on this matter of "retracement":

For the purpose of Fozzy trading, I have backtested all pairs with an eye on the "retracement" value I refered to in my last post, for the purpose of establishing a realistic, useable S/L. Example: my S/L for GBP/USD is currently 85, an amount that is approximately 2.4 times your value of 36 for this pair. Allowing for broker spread and a small amount of 'breathing' space, I am still not very close to your value of 1.5 times 36 (54). I am going to look at my backtests again to see what affect using your value would have had on my trades. Interesting.................
  • #2,004
  • Apr 25, 2007 7:17pm Apr 25, 2007 7:17pm
Quoting BeachBum
For the purpose of Fozzy trading, I have backtested all pairs with an eye on the "retracement" value I refered to in my last post, for the purpose of establishing a realistic, useable S/L. Example: my S/L for GBP/USD is currently 85, an amount that is approximately 2.4 times your value of 36 for this pair. Allowing for broker spread and a small amount of 'breathing' space, I am still not very close to your value of 1.5 times 36 (54). I am going to look at my backtests again to see what affect using your value would have had on my trades. Interesting.................
That's a good point, and that's partly why I stress that this is an average. For those familiar with statistics, they know that an average on its own can be a very flimsy number. In fact, now that I think about it, I need to go back and re-run the numbers, this time calculating the standard deviation in addition to the average. An average with a very tight standard deviation can be a very useful number. But if the deviation is large, the actual average becomes less meaningful.

Regardless of whether the deviation is large or small, the final verdict should probably be a factor of X deviations above the average (just as a Bollinger Band is two standard deviations above and below the moving average). This would be much more meaningful than me simply picking an arbitrary number such as 1.5x the average.

With regard to GBPUSD specifically, I know that this is a more volatile pair and it probably has a large standard deviation, so your number of ~2.4x average might very well be optimal.
  • #2,005
  • Apr 26, 2007 2:56am Apr 26, 2007 2:56am
When we enter a trade, 75 to 80% of the time, the price travels against our direction before it eventually comes back in our favour, if it is coming at all. This is MAE (max adverse excursion), I have been using this to get a better entry when trading daily fozzy or any other daily bar method; as a rough and ready rule I have been applying a 20% AE of the candle body for this purpose, that is to say if the current bar closes and I was supposed to go short on the open of the next candle, I would place a limit sell entry 20% higher into the body of the closed candle, no calculations just by looking at the bar.

Around 75-80% of the cases you get in at a better price and consequently smaller risk, of course you would miss some trades as well.

The retrace figures set out in the previous posts shows that the 20% has been in fact in line with these figures.

On the subject of stops, we note from the retrace figures that they are all in the region of 25% of ATR, therefore it makes no difference if we set our stop at ATR for example or at 4 times of the retraces. I do not see any point in changing the term.
Regards
  • #2,006
  • Apr 26, 2007 4:10am Apr 26, 2007 4:10am
G'day BD,

Quoting Bytebodger
Second, if you cut your TP to a very low level you are essentially turning the fozzy system into a scalping method. I'm not saying that such an approach is not feasible (although I personally doubt it), but the fozzy system is basically the antithesis of scalping. Fozzy relies on relatively few trades held for relatively long periods of time and monitored on a very scant basis. Scalpers make many more trades, hold them for much shorter periods, and often sink many hours into staring at their monitors. So I am skeptical about any approach that applies scalping methodology to the fozzy.
And yes, your R:R observation is valid. R:R management is probably most problematic for the scalper because it is so easy to wipe out a day's, week's, or even a month's worth of good returns if you're not very careful.
Fozzy trading (or any trading method based on daily bars/candles), is designed to hit the "big moves". You make some here, you lose some there, and then one day you wake and found that you've made 200+ pips on single trade.
Again, I'm not saying that your idea is invalid, but I would have to see some hard backtesting (and forward testing) results before attempting to pursue it.
Spot on! I believe in taking partial profits from a trade. But, at a certain point it becomes non-functional. For example, aside from EURGBP, I take partial profits at +40 pips and move my SL to BE. No matter what my SL was previously, it becomes 40 pips after I hit TP1 - not a small SL by any stretch. If you were to do likewise but take profit at 20pips, what do you do with your SL? Move it? 20 pips aint a lot to play with in the more volatile pairs. Do you leave it? If so, why take a TP in the first place.

My philosophy is you take a partial profit to LOCK in some pips and give yourself a FREE trade with the remaining lot/s. JMHO.

Cheers,
Art...
  • #2,007
  • Apr 26, 2007 5:12am Apr 26, 2007 5:12am
BB,

I agree with Bytebodger about his analysis of daily range movement i built a spreadsheet to calculate what he is talking about i used it to formulate my SL and then TP. For the GDP/USD it measures the 20 day median daily range and also how much it moved before reversing and going further in the opposite direction for the day. Also i discarded all Sunday bars to remove there erroneous data.

Enjoy
Ademac
Attached File(s)
File Type: zip average range.zip   39 KB | 570 downloads
  • #2,008
  • Apr 26, 2007 6:29am Apr 26, 2007 6:29am
Bytebodger, howard, Artamon, ademac...............excellent insights; I appreciate your observations and I think the on-going analysis and posting of data is very beneficial to all! As appropriate, let's keep the discussion alive.

ademac................I will look at your work later today, thanks for sharing!
  • #2,009
  • Apr 26, 2007 4:57pm Apr 26, 2007 4:57pm
Quoting BeachBum
For the purpose of Fozzy trading, I have backtested all pairs with an eye on the "retracement" value I refered to in my last post, for the purpose of establishing a realistic, useable S/L. Example: my S/L for GBP/USD is currently 85, an amount that is approximately 2.4 times your value of 36 for this pair. Allowing for broker spread and a small amount of 'breathing' space, I am still not very close to your value of 1.5 times 36 (54). I am going to look at my backtests again to see what affect using your value would have had on my trades. Interesting.................
I went back and rewrote my program. Rather than calculating the standard deviation and throwing another number back at you, I decided to provide a list of results that allows you to see the full range of possible retracement values for GBPUSD since 1998:

1 / 21 / 0.9%
2 / 30 / 2.3%
3 / 28 / 3.5%
4 / 37 / 5.2%
5 / 34 / 6.7%
6 / 31 / 8.1%
7 / 40 / 9.8%
8 / 37 / 11.5%
9 / 34 / 13.0%
10 / 37 / 14.6%
11 / 41 / 16.5%
12 / 33 / 17.9%
13 / 34 / 19.5%
14 / 43 / 21.4%
15 / 34 / 22.9%
16 / 46 / 24.9%
17 / 45 / 26.9%
18 / 45 / 28.9%
19 / 33 / 30.4%
20 / 84 / 34.1%
21 / 37 / 35.8%
22 / 34 / 37.3%
23 / 33 / 38.8%
24 / 45 / 40.8%
25 / 44 / 42.7%
26 / 33 / 44.2%
27 / 40 / 46.0%
28 / 39 / 47.7%
29 / 36 / 49.3%
30 / 35 / 50.9%
31 / 30 / 52.2%
32 / 36 / 53.8%
33 / 25 / 54.9%
34 / 39 / 56.7%
35 / 36 / 58.3%
36 / 31 / 59.7%
37 / 32 / 61.1%
38 / 21 / 62.0%
39 / 32 / 63.4%
40 / 55 / 65.9%
41 / 20 / 66.8%
42 / 25 / 67.9%
43 / 30 / 69.2%
44 / 25 / 70.3%
45 / 25 / 71.5%
46 / 23 / 72.5%
47 / 21 / 73.4%
48 / 29 / 74.7%
49 / 13 / 75.3%
50 / 17 / 76.0%
51 / 23 / 77.1%
52 / 15 / 77.7%
53 / 21 / 78.7%
54 / 22 / 79.7%
55 / 13 / 80.2%
56 / 19 / 81.1%
57 / 12 / 81.6%
58 / 20 / 82.5%
59 / 18 / 83.3%
60 / 31 / 84.7%
61 / 12 / 85.2%
62 / 16 / 85.9%
63 / 8 / 86.3%
64 / 8 / 86.6%
65 / 13 / 87.2%
66 / 10 / 87.7%
67 / 13 / 88.2%
68 / 16 / 89.0%
69 / 3 / 89.1%
70 / 11 / 89.6%
71 / 11 / 90.1%
72 / 8 / 90.4%
73 / 12 / 91.0%
74 / 7 / 91.3%
75 / 9 / 91.7%
76 / 8 / 92.0%
77 / 3 / 92.2%
78 / 8 / 92.5%
79 / 4 / 92.7%
80 / 17 / 93.5%
81 / 4 / 93.6%
82 / 4 / 93.8%
83 / 5 / 94.0%
84 / 6 / 94.3%
85 / 5 / 94.5%
86 / 4 / 94.7%
87 / 4 / 94.9%
88 / 7 / 95.2%
89 / 5 / 95.4%
90 / 2 / 95.5%
91 / 2 / 95.6%
92 / 3 / 95.7%
93 / 7 / 96.0%
94 / 2 / 96.1%
95 / 4 / 96.3%
96 / 2 / 96.4%
97 / 2 / 96.5%
98 / 2 / 96.6%
99 / 2 / 96.7%
100 / 10 / 97.1%
101 / 2 / 97.2%
102 / 3 / 97.3%
103 / 3 / 97.5%
104 / 2 / 97.6%
105 / 1 / 97.6%
108 / 3 / 97.7%
109 / 1 / 97.8%
111 / 2 / 97.9%
112 / 1 / 97.9%
113 / 2 / 98.0%
115 / 2 / 98.1%
116 / 1 / 98.1%
117 / 1 / 98.2%
118 / 1 / 98.2%
119 / 2 / 98.3%
120 / 1 / 98.4%
121 / 1 / 98.4%
123 / 1 / 98.4%
124 / 1 / 98.5%
125 / 1 / 98.5%
126 / 2 / 98.6%
130 / 3 / 98.8%
131 / 2 / 98.8%
132 / 3 / 99.0%
140 / 1 / 99.0%
141 / 3 / 99.2%
144 / 1 / 99.2%
145 / 2 / 99.3%
146 / 1 / 99.3%
154 / 1 / 99.4%
156 / 1 / 99.4%
321 / 1 / 99.5%

The first number is the amount of daily retracement in pips. In this dataset you can see that the smallest retracement is at the top of list - 1 pip. The largest retracement is at the bottom of the list - 321 pips.

The second number indicates the number of days in which this particular retracement was experienced. Working from the first row down, you can see that there were 21 days when GBPUSD experienced a retracement of only a single pip, 30 days when there was a retracement of 2 pips, 28 days when there was a retracement of 3 pips, etc.

The third number represents the cumulative percentage of results at or below that level. For example, there were 37 days that experienced a retracement of exactly 10 pips. But for all the days in the data set, 14.6% of them had a retracement value of 10 pips or less.

You can see that as you go farther down the list, the percentage naturally grows ever-closer to 100%. (It never actually reaches 100% because days in which the opening price equaled the closing price were excluded.)

So looking at your current SL for GBPUSD of 85, you can see that this would protect you from 94.5% of all daily retracements. Whether or not you move that SL is dependent upon your own tolerance for risk. If you move it down to, say, 71 you would still avoid 90.1% of all daily retracements. For that matter, you could raise the SL to 125 and avoid 98.5% of all daily retracements. It is a personal trading decision.

Of course, I will reiterate my warning that this only accounts for that retracement which is encompassed within a single day. This method does not account for retracements that span several consecutive days.

I am going to create a new thread in the main forum where I can post the numbers for all the major pairs. This is a lot of data and it's not directly related to fozzy - so I don't want to litter this thread with the data. But when I'm done, I'll come back here and drop a link to the new thread for all who are interested.
  • #2,010
  • Apr 26, 2007 6:27pm Apr 26, 2007 6:27pm
http://forexfactory.com/showthread.php?t=27335

I posted the retracement data for 19 different pairs in this thread. Of course, you can use this data however you want, but this is my suggestion. Find a retracement value (risk vs. reward) that suits you - let's say it's 85%, and then find the retracement value for each pair that corresponds to that risk percentage and use that as your SL.

Obviously, you can pick a very high percentage, but this will mean that you stay in losing trades longer and subsequently lose pips on moves that go against you. You can pick a lower percentage, but this will mean that you are stopped out of more trades that eventually would have turned in your direction. The only "correct" answer is that which fits your own personal tolerance for risk/reward.
  • #2,011
  • Apr 27, 2007 7:06am Apr 27, 2007 7:06am
Outstanding Bytebodger............

Thanks for all your work and your willingness to post for our benefit! I hope there are traders who appreciate the tremendous value that comes from having this data available. As you explained, this is a great tool for selecting an appropriate S/L for each pair.

Quoting Bytebodger
http://forexfactory.com/showthread.php?t=27335

I posted the retracement data for 19 different pairs in this thread. Of course, you can use this data however you want, but this is my suggestion. Find a retracement value (risk vs. reward) that suits you - let's say it's 85%, and then find the retracement value for each pair that corresponds to that risk percentage and use that as your SL.

Obviously, you can pick a very high percentage, but this will mean that you stay in losing trades longer and subsequently lose pips on moves that go against you. You can pick a lower percentage, but this will mean that you are stopped out of more trades that eventually would have turned in your direction. The only "correct" answer is that which fits your own personal tolerance for risk/reward.
  • #2,012
  • Apr 28, 2007 5:50am Apr 28, 2007 5:50am
Trying to set up my daily fossy charts and put BB's across the RSI and MA.

1. Cannot get them to project across the existing chart - keep wanting to produce their own chart frame even when it asks if I want to include it into the existing one - I use the Visual Trading platform. Can anybody please tell me what I'm doing wrong.

2. Do i use BB's or EBB's and do I use Fibo's???

Any help would be greatly apreciated.

Thanks all.

Keith
  • #2,013
  • Edited 4:36pm Apr 28, 2007 4:25pm | Edited 4:36pm
Quoting howard
When we enter a trade, 75 to 80% of the time, the price travels against our direction before it eventually comes back in our favour, if it is coming at all. This is MAE (max adverse excursion), I have been using this to get a better entry when trading daily fozzy or any other daily bar method; as a rough and ready rule I have been applying a 20% AE of the candle body for this purpose, that is to say if the current bar closes and I was supposed to go short on the open of the next candle, I would place a limit sell entry 20% higher into the body of the closed candle, no calculations just by looking at the bar.

Around 75-80% of the cases you get in at a better price and consequently smaller risk, of course you would miss some trades as well.

The retrace figures set out in the previous posts shows that the 20% has been in fact in line with these figures.

On the subject of stops, we note from the retrace figures that they are all in the region of 25% of ATR, therefore it makes no difference if we set our stop at ATR for example or at 4 times of the retraces. I do not see any point in changing the term.
I like this idea, i always hate to get into a trade and then watch it immediatly go against me. This could be useful for trying to trade the hiccups against a long term trend.

cheers,

jms

P.S i am curious as to what indicators people are using to determine overall trend and catch the retracements that turn out to be bad trades during a trend. As in these last 2 weeks. I am currently using a MACD histogram but there seems to be no methodology to it.
  • #2,014
  • Apr 28, 2007 4:56pm Apr 28, 2007 4:56pm
Quoting keithf.ed
Trying to set up my daily fossy charts and put BB's across the RSI and MA.

1. Cannot get them to project across the existing chart - keep wanting to produce their own chart frame even when it asks if I want to include it into the existing one - I use the Visual Trading platform. Can anybody please tell me what I'm doing wrong.

2. Do i use BB's or EBB's and do I use Fibo's???

Any help would be greatly apreciated.

Thanks all.

Keith
Keith,

Have you looked at Visual Trading documentation to find out your answer? Remember, this is a trading method forum, not a charting one!

As for #2, you're asking if you should use BB, or Fibs, or whatever... there is a very thorough document that should take you several minutes to read and it has already been posted several times here. Anyone except an extremely lazy person would go read that, and if you were a studious forex student you'd read this entire thread. Something tells me that if you had, you wouldn't still be confused about how to put BBs on your chart. I started on this thread 24 hours ago, stayed up until 7AM, to my girlfriend's dismay, went to work this afternoon for 6 hours, and have done nothing else except read this thread and play with MetaTrader setting up my charts. And you know what? I got it done in 24 hours. I completely understand the method, and I'm ready to go. Sorry if I sound rude here, but I've read about 5 posts where you do nothing but ask for answers. The answers are there man. Just look for them!

Sorry for the little outburst there, but it shows the lack of appreciation for everyone's hard work here when people are unwilling to just read the information.

On that note--hello everyone, I'm Josh, and I am in love with "The Foz" method (as I've dubbed it mentally hehe). Thanks so much for everyone's hard work. No questions here, just a sincere THANK YOU!!!
  • #2,015
  • Apr 28, 2007 4:58pm Apr 28, 2007 4:58pm
Quoting geneticsjms
P.S i am curious as to what indicators people are using to determine overall trend and catch the retracements that turn out to be bad trades during a trend. As in these last 2 weeks. I am currently using a MACD histogram but there seems to be no methodology to it.
Genetics, I have yet to go live with this, but I am already using Phil Nel's 4-hr MACD method and it uses a 5,13,1 MACD, and it is a great system and indicator. There is a colored MACD version of this on FF--give it a try and let me know what you think! Knowing Phil's system is a great help here I think... Phil identifies MACD patterns like TC (trend continuation), RT/RB (round top/round bottom), ZB (zero bounce), and so on, and these correspond nicely in many cases as a confirmation to Fozzy's method.
  • #2,016
  • Apr 28, 2007 5:55pm Apr 28, 2007 5:55pm
Could you send me the MQ4 FILE or template of the Phil Nelīs indicator ?

thanks a lot

Juan M. avila

From Colombia South America
  • #2,017
  • Apr 28, 2007 7:03pm Apr 28, 2007 7:03pm
Quoting jumavilap
Could you send me the MQ4 FILE or template of the Phil Nelīs indicator ?

thanks a lot

Juan M. avila

From Colombia South America
http://www.forexfactory.com/showthread.php?t=20349

Search the thread or look for attachments--I think the newest version is 103, not 102.
  • #2,018
  • Apr 28, 2007 9:12pm Apr 28, 2007 9:12pm
Quoting JoshDance
Genetics, I have yet to go live with this, but I am already using Phil Nel's 4-hr MACD method and it uses a 5,13,1 MACD, and it is a great system and indicator. There is a colored MACD version of this on FF--give it a try and let me know what you think! Knowing Phil's system is a great help here I think... Phil identifies MACD patterns like TC (trend continuation), RT/RB (round top/round bottom), ZB (zero bounce), and so on, and these correspond nicely in many cases as a confirmation to Fozzy's method.
do you trade fozzy on daily or 4-hour, or just use the 4-hour indicator on the daily chart for your use.

cheers,

jms
  • #2,019
  • Apr 29, 2007 12:13am Apr 29, 2007 12:13am
Quoting geneticsjms
do you trade fozzy on daily or 4-hour, or just use the 4-hour indicator on the daily chart for your use.

cheers,

jms
Well like I said, I've been researching and doing backtesting/looking with daily, and I plan on doing fozzy this way. Phil's proven MACD strategy is based on 4-hr charts, but it works quite good as well on daily charts, so I'm attaching the 5,13,1 MACD on my daily fozzy charts as confirmation.
  • #2,020
  • Apr 29, 2007 12:41am Apr 29, 2007 12:41am
hello to be able to help me to insert the pointers in the same window? rsi, bb, ma? not to succeed to put in the same window of metatrader.
thanks
marcello
italy
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