4 Hour Strategy (MACD)

Hello again!

Has anyone looked back over historical history for this MA pattern and noticed anything strange? I just looked over 4 years worth of data and found similar patterns in both Feb. of 05 and Feb of 06 .... maybe currencies have "seasons" too?

Yep, I was going to wait and see what happens at that trendline...whether it holds or if price breaks&closes above it.

Phillip,
I really enjoy reading about your trading strategy. If I could only make the gains that you are, I'd be looking at a very early retirement. I am new to the forex and am still trading on demo accounts, but your strategy and the results you post look very promising. However, I can't seem to get the gist of it. I am constantly faked out while using the system, and I am sure there is something I am missing with it. I have backtested this system on about 8 previous months between 2005-2006 using Metatrader 4. I do it by picking a mont, advancing one candle at a time, looking for your patterns, and then buying or selling based upon the patterns, while setting stoplosses according to the EMAs, recent candle shadows, support and resistance, and trend lines. And I am constantly losing pips.

I really think this system is a winner and I would really like it to work for me. I must be doing something wrong. I re-read your examples, thought I understood them, and re-read all of your PDF files, and attempted another back test starting for the month of May 1, 2006. I would really appreciate your insight into what I am doing wrong, so I kept a strict diary of my trading. If I would have traded for real in May of 2006, I would have lost 162 pips in 8 days. Here is my journal, with a screen shot of what I did for those days. Your advice would be greatly appreciated. Thanks.

In the image below, I only drew lines where I lost pips. I actually did not trade on a couple of trades and made pips on one trade. Below that is the journal.


http://img.photobucket.com/albums/v6...yan/Philip.jpg

Trade 1

5/1/06 at 00:00 (EST)
Sell. It appears that there is a "high probablity trade" as you mention in deal 1 in the example exercise. The MACD is well over .0045, the candlesticks appear to be a very similar pattern to your Deal 1 in your example. A big move crosses over the 8 and 21 MAs, only to bounce a bit back. I thought it was a high probablity trade. The price is at 12610 I set my stop loss at 12643 (a couple points above the previous high shadow), looking to take profit at around 12539 only to have the price stop out at 12:00 EST at 12643.
33 pip loss.

Trade 2

5/1/06 at 16:00 (EST)
Sell. MACD appears to be a lower high with a close price of 12619. 69 pips. I'd consider a stop loss at 12688 (previous candle high) and a 50% take out at 12577 (avg between the 8 and 21 MA lines) for a possible 44 pips, with the rest closing where the trend lines are at 12476, for what would look to be 143 pips. 44 pips + 143 = 93 possible pips. Good risk/reward.
With the next candle we get our selling point of 12577 (for 44 pips) as hoped, and sell off 50%. Since there is no long shadow on that candle I'd bet the price is going down more, so I would change my order to close out on the rest at the original sell short price.
Next candle (5/2/06 00:00) raises a bit. Followed by a drop down at 04:00. At this point I don't know what to expect, but I will leave my order in as I already have 22 pips in the bag. At the 8:00 candle I am stopped at the original sell price.
22 pip gain.

Trade 3

5/2/06 at 8:00 (EST)
Buy. I notice what appears to be an MACD continuation pattern, so I look. The previous low was 12557, and the previous four candles show decent support there, while the recent high (6 candles ago) is 12688. Current price is 12642. Stop loss would be 12557, or 85 pips. Even a trend line at based upon recent high and lower highs gives 12707 as resistance., which is 65 pips. 1:76 risk/reward ration. NO DEAL AT ALL.
Sure enough, a spinning top forms in the next candle.

Trade 4

5/2/06 16:00 (EST)
12616 Close price. Looks like a lower high. Recent upper support at 12666, so possible loss = 50. Recent low is 12557. Trade is 60% take out at 12557, with the rest at support level 12535. 59/81 = 67 pips. Good risk/reward ratio. STOPPED OUT at 12666.
Loss of 50 pips.

Trade 5

5/4/06 12:00 (EST)
Buy. Return from zero. - Probable buy at 12644. Classic reversal pattern. Currently has support from lower trendline. Recent high trend says 12671, previous low says 12569, signal candle too low, 12644. Risk/reward is bad.
No deal.
(would have made 26 pips at least on this one)

Trade 6

5/5/06 8:00 (EST)
Sell. Round top. Probable buy at 12689. 12720 is recent support level above. Risk is 31. 50% takeout is between support line and 21 MA at 12638, with recent low tail at 12607 @ 12:00. Good risk/reward ratio.
Price goes the ceiling with next candle, loss of 31 pips.

Trade 7

5/5/06 12:00.
Buy. 12745 with continuation pattern. Signal candle is low 12675. Resistance then becomes support as resistance is broken through and also offerred around that same level. Risk of loss is 70. However, trendline from recent highs is over 100 away. Good ratio.
Stopped out at 675 on the 8th.
Loss of 70 pips.

In eight days I have lost 162 pips in total.

Please let me know what you think I am doing wrong. Your help is greatly appreciated.

that's really funny since you are the Time Lord!

Interesting concept. I am very familiar with seasonality in the stock market world (my area of expertise) but being that I am very new to the forex world, I don't know if this would be the case or not. An intriguing thought nonetheless...

Haha, I suppose so!

You have the right idea!

Whyd would you think AUDUSD may fall?
For the benefit of all please post your reasons so that we can learn and also comment.
Thanks.
-Chandra

If this wasn't asked already.

I read things about chart patterns, and some have much higher success rates than others. And some experts have what percentage of the time each pattern works. This method has a lot of different potential patterns on the MACD. I think I have a favorite that I've noticed on a few time frames after reading this plan the first time that I now notice.
If we aren't looking to trade every trade, or we want to slowly work our way through the system(it's a very big system), has anyone done a study on which set-up has the highest probability and then work from there?

It's a bit overwhelming if you can't give 100% of your time, and I think such info would be critical.:surprised

Hi rp0029!!

Great job on all the testing and retesting!! I love your style

I can tell right off where the losses occured from your posted chart. Did you notice the Moving Averages? The major trendline is also a definate trend! MACD signals are dangerous in trending environments. Try retesting with the idea of waiting for buying opportunities when you see that type of pattern and avoid contra-trend trades.

I can tell from all the work you've put in this far, you will be very sucessful (and rich) from your trades!! Don't forget us little folk.

Betcha 100 pips the answer is probably not....But I think you have a great idea if everyone contributes a bit. Still think Support and Resistance are the basic, most critical along w/trend detection. Those pieces alone should give us high probability trades w/MACD confirmation.

Every now and then I go back and see what has happened w/similar patterns on the EUR or GBP for the last 3 - 4 years. Mostly looking to see price direction. Discovered Price does not fall too far past 365 unless the 21 and 8 are below and pointing down. As soon as they turn upwards, price rebounds. Maybe this will help someone make a decision when a MACD signal is given around that level.

Phillip,
Regarding posting of RP0029 (Posting #743).

May I ask you to disect each of his seven trades and comment? All of us will be benefitted from your explination.
Thank you. -Chandra

RP0029,
you have done a great job by posting it. Phillip's response will help the whole community here.
Thank you.
-Chandra.
PS: I wish you success in your trading.

Sure, no problem. I'm very new to this, so please tell me if I'm simply wrong, but I think the AUDUSD might fall for the following reasons:

- peak followed by a lower high on the MACD (trending lower?)
- reports that carry trades on the AUDJPY might start unwinding, therefore negatively impacting other AUD pairs

As I said, I could be wrong, just trying to learn myself...

Hi pips4uandme, is the reverse true? If price goes way above the 365 and are above pointing up? Then, as soon as they turn downwards, price rebounds?

Seems like what's going on with the EUR at the moment.

yes ... 1st target .7812

Hi Tw0eleven!

The answer is sort of. Yes when the 8 turns, price turns too. I don't think I'd consider the Eur pattern a turn down yet, it's more like a flat line...again reminds me of consolidation rather than correction.

& notice too, that the 89 is just now crossing the 200 and 365. They are pretty close together and I don't know if this means the upward move will be shortlived.

These are just my observations...don't know the validity of them since they haven't been tested (except perfect order as trend indicator)!

Thanks - are you actually in this trade yourself then or is that just what others have been saying? If it's the former, what are your entry and TP points?

I am thinking of entering a short position with a small lot... perhaps I will wait for the next candle in a couple hours...

I went short @.7847
tp 1 .7812
I think his best target .7767 (.38 fibo and also 89 EMA)

Thanks, good to know I'm not completely out to lunch... As I said, I might enter with a small lot as a test and will keep your quoted price targets in mind.

Thanks.

I follow your analysis. You skipped this short trade because the stop loss (to the trend line above the price) was too big.
Now onwards, I too start considering skipping a tarde if it goes beyond my reasonable stop loss. It is a great thing emotionally that I can do myself .(SKIPPING A GOOD-LOOKING TRADE!!!).
Thanks for the great chart.
-Chandra.