Need help with my simple system

Hi guy's, i'm using a simple system to trade with success.

I want the help of you guys because i'm newbie on forex and don't know how can i filter false signals.

The system is simple:
On the 5minute chart i put an 200 SMA and sell when price cross it down, and buy when price cross it up.

Now my question is, how can i filter false signals as they appera on the chart?

I mean, there is some price action, or some indicator that can help me to discovery if the cross will be a strong move or weak move?

Of course this image is just an example, but there are many more fake crosses that happen that are not in the image.

Kindest regards,
Thomas

Just looking at that chart i can tell you those weak crosses were at some significant area's of support and resistance. In other words the crosses were crossing into an area of resistance or into an area of support, which is why they didn't work out so well.

Simplest way is to be cognizant of market structure. Look at the classic Elliott wave structure laid out here. In both cases your bad trades are caused by trying to trade corrective waves. The appropriate place to trade is at the beginning of impulse wave 1. You can spot the waves using a 5-34-5 macd. Wave 3 is biggest macd hump. Wave 5 is always divergent from price. Elliott gets a bad knock, partly because of Robert Prechter, but without you have no idea of which direction to look for trades. A lack of understanding of market structure is the main reason moving average systems usually get whipsaws.

3 things;

 

1. First of all, most systems will have "false" signals from time to time. You will most likely never find any system that will exclude false signals so the quicker you accept that any chosen system will produce false signals and accepting that losses is some of the inexorable part(s) of trading.
2. Learning some basic technical analyses like S/R would never hurt. 1 of your short signals was near the bottom of the price-range (potential support)
3. You need to ask yourself if you think that this system would give you any "edge" toward the worlds largest casino (market) in the world.

Back-test at least 1000 trades and make notifications when price closes above/below that magic MA and see what makes this system bad/good. Boy, you might say that this sounds like hard work. May I be the first to introduce you to the reality of trading

The first thing you must do is define "false signal".

Ok all this is cool, but i already tried these things.

What i'm looking is some indicator that can tell me if market is strong or not, because before the news usually the market stay like in some kind of indecision making an alert up and down.

This system is working cool i loss about 60 usd on the indecision crosses but win 80 or 160 on the right crosses. But if i can avoid loose that 60 or more would be cool

Like yesterday before win 500usd i needed to loss 300.

Any help?

You may want to look at not taking the trade until it breaks the last low or last high. Convert to a "breakout strategy w/ an MA cross pre-requisite" - rather than just an MA cross strategy.
Just a comment based on the above posted charts. I haven't reviewed this methodology - but may have to give it a look.

hi

This is a small program that i find useful to give me a quick reference as to the current condition of the market, the M1 & M5 give you the short term info as to reversals or retracements, the M15 & m30 give the medium condition, and the H1 & H4 give the daily trend condition. If the H1 & H4 are the same color the trading range is generally large if different the range is generally smaller and the trading tends to be choppy

If all the lower timeframes are turning GREEN then a reversal or retracement is on the same for RED

you can use to confirm your system

Try Waddah_Attar_Explosion.
See this neighbor's thread for further reading.
Good Luck.

Thank you guys will start tests on monday and let's see how it goes.

Kindest regards,
Thomas

I have developed a simple new system and the requirments are as follows

EMA 1 Yellow
EMA 2 Red
EMA corss over indicator Fast 1 Meduim 2

Attach the above to 4 TF and enter for trade once you receive the cross over signal of 1 and 2 . You should enter in the next candle. The cross over
signal arrow up or down will appear after the candle is closed

To be on the safe side use only 4 TF and Ifound it be very good in
US$/JPY Euro/USD
I am attaching the JPY/usd chart

There is no way of filtering false signals because there is no way of predicting the future.
All indicators show signals of equations, and the equations use the periods BEFORE the present.
Moving average: 100 cars pass in front of your house every day in average. You measure this for a year. How many will pass on monday?
Zero, exactly.
Why? Because they closed the street due to reparations.

There is no way of filtering false signals because in a certain way there is no such thing as 'false signals'. I think this is why I haven't found a reliable indicator that I can do a EA with. Maybe I'm just plain dumb, but maybe there is not such thing as a reliable indicator.

Hi i think you are wrong, indicators always help and will help people on trading any market.

Some people say indicator are useless, use price action, but even price action is an indicator techinique because you use the candles or bars as price action, and these are indicators too, indicators of price.

Unless you trade forex with all charts close and use some kind of magic or gamble technique you can't trade without indicators.

I'm the guy that believe indicators help people on decisions, and the more you learn how to filter false signals the more you win and get money. If indicators was just usuless how the guys that create the RSI, MACD etc, became all millionaries?

The truth is that you only need to know how to use the indicator in the right way and filter the false signals from it and you are one step closer to became a millionarie just like them.

One guy came to the thread and said, "first define what is false signal", wish i knew, if i knew that i wouldn't need any help, and the post would never exists.

Kindest regards,
Thomas

Hi turbano.

Actually, you're on your path. What you used now will be your ration for further application usage. Well, I'm not trying to be a coach for you. But I really appreciate, -if possible-, please kindly don't neglect any resources you received, even though it "sounds" a sarcasm for you.

Each trader is his/her own guru. Each person is unique, some people can answer the question 'completely', but some may have not this kind of ability. That because not every clever person can become a good lecturer.

Anyway, I'm not blaming you or taking defense on someone's answer.

What he said -as you mentioned on your last paragraph-, I believe you may start digging from it. Take it as a good starter clue to find the answer, and honestly, only you can find the answer, by yourself. Because only you know how appropriate a system was, with your trading personality and decision-making.


goldrushrush

thanks for the tip's, i'm doing searchs and reading every usefull info about systems that i can

That is correct his answer inspired me to define what is a false signal and i'm doing it every trading day to refine the system and make more profits.

I talked to some people and they said that i'm on the way but i think if i can avoid loose 300 to make 500 will be great because i will end with 800 instead of 200 of profits. So i'm seeking like crazy every way :-D

Thanks for the help

Hi Turbano:
It's a very nice way of putting it and I think you're right about this. In fact I think you're right about me being wrong from that point of view.
I think I'm right because indicators won't work all the time, but I absolutely see (and share) your point and makes me wonder if it's me who is asking the wrong questions instead of spending months and months in front of a screen trying to develop a profitable system with no other result than frustration.
I don't know if inventors of certain indicators have earned millions because of that indicator or maybe other they didn't publish. Take ADX, Stoch, or the both you mention (RSI and MACD). If I follow specific rules using those indicators I don't win consistenly:
RSI: buy when it goes above 50
ADX: Buy when green crosses over red
Stoch: Buy when signal crosses 20 going north
MACD: Buy when histogram crosses 0 line.

It may work in very specific situations, but after some nice market movements you will be chopped to death. Which makes you wonder: if I'm asking the wrong question instead of looking the right answer, wouldn't it be better for me to find out when those indicators work and focus on that?
I mean, isn't it better to know that twice a day you have 1 hour to scalp using ADX cross than to "think" ADX cross may work when you sit down?

Two questions:

1. If indicators are right 70% of the time why is it that with a TP=10 SL=10 I can't scalp effectively and lose every single time in the long run?

2. Which indicator works the most? Intresting there's not a study here in FF showing the average success rate of different indicators. My question would then be "Which indicator has the higher success rate?"

Dear Batoobah, i don't know why FF don't focus on making good research about indicators, and yes, if you read books of great investors and they are millionaries they use ATR, they use MA's, they use RSI and are making millions until today.

Of course i can not assure you that they are making, but i can believe that at least half of the winners use at least one of these indicators, if not as an indicator of trend, they use it as an Stop-loss indicator, or a Take profit indicator etc.

It would be nice if people just focus on simple system like this one i've made because i believe that trading don't need to be that hard.

You mention, this, and i think that its interesting to answer:
"1. If indicators are right 70% of the time why is it that with a TP=10 SL=10 I can't scalp effectively and lose every single time in the long run?"
My answer to you is that trading as far as you want to disbelieve is a way of gamble. Why? Because you have a Cassino (The forex market) you have the House (Your broker) and you have the odds against you (The spread). But trading is by far most easy to beat than a cassino because on cassino you can win forever, after you make a series of win you are out of the house, after you became famous you are not allowed to play anymore.

But on the trading enviroment if you win ,and win using a gamble strategy or a long-term strategy, or a short-term strategy you can still play. But you may ask why do you loose so much making scalp right? By a simple fact that you have the odds against you right on the open of a order. Wouldnt' be much easir if you open an order and it start 2 pips positive? But no, the brokers made the odds against so you can loose more fast than win, but you can beat the odds by making your SL and TP larger, this way the broker can't beat you anymore. Brokers will love people that open a bunch of orders many times a day or hour, because they win for every order executed who wouldn't love this? And of course if you have a tiny SL it is even more easy to hit it because in a blink of an eye 7 pips can be moved as easy as you thinking even without intervention of the broker.

If you take the negative side of using an indicator and it point wrong your orders ok, but if you think that when you open a buy using the MACD as example, and let's say an SL of 30 pips, and this buy goes wrong, well, the indicator pointed for you to buy, but you are human you know that SL was hit, open a SELL and get back your money or make even the double.

Another thing people make mistake in my opnion is trying to catch every pip that market move, like you said, you want 10 pips on every of your order, but you never stop to think that you can get only 60 pips a day and be much happy than trying to catch only 10, because the odds of getting 10 pips is much worse than the odds to get 60 pips.

Look at this example:
Trying to catch 10 pips a day (spread 3 pips USD/JPY):
TP = 10 (Market need to move 13 pips for you to win)
SL = 10 (Market need to move 7 pips for you to loose)!!!!
13/7 = 1.857 : 1
As you can see odds of success on this type of trade are against you 2:1 (almost).

Now changing the odds in your favour:
Trying to catch 100 pips a day (spread 3 pips USD/JPY):
TP = 100 (market need to move 103 pips for you to win)
SL = 100 (makrket need to move 97 pips for you to loose)
103/97 = 1.06:1

This is much closer of an odd of 50-50 then trying to catch 10 pips only.

I hope this helps you in your path.

Kindest regards,
Thomas

Hey Turbano,

Thought I would add my comments. This is my first post on FF but I have "lurked in the background for a bit".

I agree with Batoobah in that I dont think you can avoid getting false signals when relying on indicators.

My feeling is that you need to use a combination of basic indicators and incorporate support and resistance levels and trends (which are really just rising or falling support and resistance anyway).

You then might want to add some Elliott Wave theory and Fibonacci retracement levels.

Then of course you have to be wary of news releases.

The most important thing to understand is that there is no set of indicators that will give you the "holy grail". There will always be wrong and/or conflicting signals the more you add to your charts.

I hate to throw out the standard cliches but...

"Always cut losses quickly and let profitable trades run (use trailing stops)

"Dont overtrade"

"You have to accept that losses will be part of your trading"

I too have spent countless hours and I mean $%^& loads looking for the right combination of indicators and always find that in the end there is a downfall to any and all of the combinations I have tried. It has to come down to your discretion as to whether you want to enter the trade or not based on all of the above and then manage the trade.

All the best in your trading.

Turbano,

A couple things I notice from this image.

5 minutes is a little small as far as a time frame, the candles arent very large (compared to the spread) so this may be a little difficult to apply but ... I will go for it anyway.

- Do you enter on the open of the candle after the cross? If so, try doing so on the close of the candle. Set a criteria such as "Bar must open and close above line." When the bars/candles are dancing about the line, opening above and then dropping over next five minutes to close, thus open again below, just giving them the extra five minutes or so may save some entries. Of course, it may also send the price +20 pips if you would have gotten in, it is all a matter of priority I suppose.

Further, try to set a stop loss. I know the system may not call for it, but consider this. I will give a scenario looking at the first RED arrow.

- You enter the trade short, you set a SL for the HIGH of that bar. Given that ALL "false" signals occur due to localized chop around the MA, putting the SL in can keep the trade alive for a while and stop you from taking all those trades that just go back and forth, back and forth. Wait for both an OPEN and CLOSE of a candle above the MA before closing the short trade, or, simply open a new trade in the other direction and set a 1/2 TP. Why hedge?

- It really isnt a hedge, as both trades now have a SL and a 1/2 TP target. If the bar for the short was large enough you could get the long to take half of its profit without getting stopped, then it goes down, stops out the second half of your long and moves below the MA again, hitting the 1/2 TP for your short and then ... instead of chopping, just continues on down. You now are even on that long trade you took (lets say +20 and -20) and still carrying half the short that is now +40. Setting the SL and the 1/2 TP can save some trades that occur in chop.