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4H 5EMA System

  • #1,101
  • Nov 14, 2008 7:24am Nov 14, 2008 7:24am
El Dee

The candle marked 5 on your chart is treated as a Setup bar in my EA because it meets the requirements of Rule 1, "Price must go above/below the EMA by 5 pips for it to be considered a Set up bar." Therefore the EA would have entered a Sellstop which would have triggered in the next bar.

Have I interpreted the rule correctly?
  • #1,102
  • Nov 14, 2008 7:42am Nov 14, 2008 7:42am
Quoting Duncan
El Dee

The candle marked 5 on your chart is treated as a Setup bar in my EA because it meets the requirements of Rule 1, "Price must go above/below the EMA by 5 pips for it to be considered a Set up bar." Therefore the EA would have entered a Sellstop which would have triggered in the next bar.

Have I interpreted the rule correctly?
No, the bar marked 5 is not a setup bar, the last setup bar on El Dee's chart is the one marked 4 ( the long green one) and it has failed (after 2 bars)
Regards
  • #1,103
  • Edited 7:46am Nov 14, 2008 7:43am | Edited 7:46am
Duncan - My understanding is that as the high of candle 5 has not exceeded the previous candle, the previous candle remains the setup candle. The candle following a setup candle must either exceed its low by 5 pips to become the reversal or exceed its high to become the next setup (for a short order). If it does neither, it is discarded.
Same applies to the next candle; if they are both discarded, the setup candle is now also discarded and we wait for a new setup (which only has to exceed the 5 EMA by 5 pips - all previous candles are now irrelevant). Hope this is clear!
You don't have to be right, just don't be too wrong
  • #1,104
  • Nov 14, 2008 8:08am Nov 14, 2008 8:08am
Howard

I can find no reference in the rules to Setup bars “failing”. The only similar stipulation is in Rule 4 but this relates to Reversal bars – not Set up bars. Bar 5 meets the requirements of Rule 1 and so does bar 6 – if Rule 1 applies, these are both Setup bars. If I am wrong about this, could you explain where this is explained in the rules.

El Dee

Rule 1 does not state that the high of the last bar must exceed the high of the previous bar in order to qualify as a set up bar. (Rule 1) The bar merely has to exceed the 5EMA by 5 pips and must not touch the low EMA. It succeeds in both these respects and therefore must surely be a Setup bar.
  • #1,105
  • Edited 8:31am Nov 14, 2008 8:17am | Edited 8:31am
Quoting Duncan
Howard

I can find no reference in the rules to Setup bars “failing”. The only similar stipulation is in Rule 4 but this relates to Reversal bars – not Set up bars. Bar 5 meets the requirements of Rule 1 and so does bar 6 – if Rule 1 applies, these are both Setup bars. If I am wrong about this, could you explain where this is explained in the rules.

El Dee

Rule 1 does not state that...
Duncan,
They are right on this.

Read rule 3 of the "entry" rules.
It explains that, if after a proper setup bar, the bar makes an higher high (without having triggered the trade, of course), it now becomes the new setup bar.
And failing setup bars are mentionned in rule 4 (the next one).
  • #1,106
  • Nov 14, 2008 8:19am Nov 14, 2008 8:19am
Duncan, rule 4 states that the reversal bar (for a short order) must have a lower high and a lower low than the setup. On my chart, the first bar marked '5' doesn't achieve this so it is a failed reversal bar. It also does not exceed the high of bar 4 so it does not replace it as a setup. Neither does the next bar so we have two failed reversals , as per rule 4 and now wait for a new setup.
You don't have to be right, just don't be too wrong
  • #1,107
  • Nov 14, 2008 8:28am Nov 14, 2008 8:28am
Tonirai

Rule 3 says that if the price keeps going in the same direction, new setup bars are formed. It does not say that, if the price reverses, new set bars which meet the requirements of Rule 1 are not valid.
  • #1,108
  • Edited 8:45am Nov 14, 2008 8:35am | Edited 8:45am
Quoting Duncan
Tonirai

Rule 3 says that if the price keeps going in the same direction, new setup bars are formed. It does not say that, if the price reverses, new set bars which meet the requirements of Rule 1 are not valid.
quote rules:
3.) (...) In the case of a long setup bar (price below the 5 EMA) if price keeps going lower in the following bar that now becomes the setup bar. The same applies for a short. As long as price keeps going further in a direction you have new setup bars until a reversal bar triggers the trade.
So by this rule, candle 4 being a setup bar to a short, candle 5 cannot be one (because it doesn't go higher)

4.) In addition to the reversal bar making a lower low and a lower high than the setup bar, or in the case of a long entry, making a higher high and a higher low, it must also be within 2 bars following the setup bar. If a proper reversal bar does not follow the setup bar within 2 bars the trade is not taken, and you wait for a new setup bar which can be as soon as the next bar. (...)
By this rule, and because of the previous, we check if bar 5 is a reversal bar (it's not);
After, we check if bar 6 is a reversal bar (it's not)...
So two bars after the setup bar have passed, we must start looking for a new fresh setup bar.
  • #1,109
  • Nov 14, 2008 9:02am Nov 14, 2008 9:02am
Tonirai

I can see what you mean but, the way that I read it, the reversal bar is overruled by the creation of a new setup bar (Rule 1). In reading rules it is normal for an earlier rule to take precedence and this is a case in point although I don’t know whether a different interpretation was intended.

Rule 3 does not say that if the price reverses, new setup bars do not apply. In fact, this is to be applauded because by reacting to the new setup bar the system follows the reversing of the trend. Backtesting my EA shows that the system would have gone short at 1.2723 and that trade is still open.

The problem here is the interpretation of the rules and I have spent quite a long time with this in creating and EA. I accept that I may have interpreted them incorrectly but I can only deal with the words as written. Hopefully Sterling will clarify this matter before long.
  • #1,110
  • Nov 14, 2008 9:43am Nov 14, 2008 9:43am
Quoting Duncan
Tonirai

I can see what you mean but, the way that I read it, the reversal bar is overruled by the creation of a new setup bar (Rule 1). In reading rules it is normal for an earlier rule to take precedence and this is a case in point although I don’t know whether a different interpretation was intended.
Trust me on this, it's more than discussed in previous posts.
But I don't agree on earlier rules taking precedent over the next!
For example in tax rules, when you read, you start having the "general" case, but have the specific cases (in which different or variation of the rules are presented) after.
In this case, rules start by being "general" rules, getting to more specific ones, once you advance in the rules.
Quoting Duncan
Rule 3 does not say that if the price reverses, new setup bars do not apply. In fact, this is to be applauded because by reacting to the new setup bar the system follows the reversing of the trend. Backtesting my EA shows that the system would have gone short at 1.2723 and that trade is still open.

One case doesn't make the all picture...
And rules are rules - I believe we first must build an EA by the rules, and maybe only after consider testing those variation.

You are not understanding rule 3 (be aware it talks about a setup to a long):
For a short, it tells you that if you have a setup bar (as in your chart), if next bar has an higher high, it will become your new setup bar - this isn't your case, in which the next rule applies (having two bars to reversal).

More: you can have two pictures of what is hapenning if, after the setup bar, price fails to go higher (not making a new setup bar) or lower (not triggering your sell) - it can be either resistance or consolidation.
So we can't tell if price will consolidate and resume the previous long movement, or bounce back in the resistance and go south.
So you can't be sure it's best to go short. This is why we have two bars for the reversal, orelse we look for another setup bar to define the current situation.
Quoting Duncan
The problem here is the interpretation of the rules and I have spent quite a long time with this in creating and EA. I accept that I may have interpreted them incorrectly but I can only deal with the words as written. Hopefully Sterling will clarify this matter before long.

You're right, it's a problem of interpretation.
And it's great that you've been dedicating your time to this, we all appreciate it.
I assure you that, if you had spent half a week manual trading it, and following the thread "live", before making the EA, you wouldn't have made this confusion - rules get discussed and absorved!
  • #1,111
  • Nov 14, 2008 10:56am Nov 14, 2008 10:56am
Quoting El Dee
Sterling, thanks for earlier reply - I've seen examples now where not placing the reverse order till the bar is closed would save me so I understand the reason now - swings & roundabouts!

On the chart shown you can see we are flat during the rally but there is no valid entry for the reverse at the top. Would you enter on the 50% level shown (as if it was a reversal order if you had been long thru the rally) or wait for a fresh entry setup?
No I dont enter on a 50% retracement just use it to lock in profit and then wait for the next setup and reversal.

-Sterling
Founder of Day Trading Forex Live
  • #1,112
  • Nov 14, 2008 10:57am Nov 14, 2008 10:57am
Tonirai

Thanks for your detailed reply.

I have looked back at post #419 where Sterling explains a situation that mirrors yours and it is clear that he wants the system to work in exactly the way that you describe.

On this basis I have amended my version of Rule 1 to read:

1/. Setup bar.
To be considered a setup bar for a long entry, the price must go below the lower 5EMA by 5 pips, the low must be lower than the previous bar and the bar must not touch both EMAs. For a short entry, the reverse applies.
  • #1,113
  • Nov 14, 2008 11:02am Nov 14, 2008 11:02am
Quoting Duncan
Howard

I can find no reference in the rules to Setup bars “failing”. The only similar stipulation is in Rule 4 but this relates to Reversal bars – not Set up bars. Bar 5 meets the requirements of Rule 1 and so does bar 6 – if Rule 1 applies, these are both Setup bars. If I am wrong about this, could you explain where this is explained in the rules.

El Dee

[size=3][font=Times New Roman]Rule 1 does not state that...
Hes got it right Duncan. Its like if the market keeps going down every new bar that makes a lower low becomes the setup bar. When price stops making new lower lows it has two bars to trigger a buy and if it dosent that buy order is cancelled and the third bar just has to meet that basic requirements of a setup bar and dosent have to break the previous low of the failed setup bar. Hope this clears things up. Sorry I havent emailed back yet Ill do that today. Also how do I delete the lines the EA leaves on the chart?

-Sterling
Founder of Day Trading Forex Live
  • #1,114
  • Nov 14, 2008 11:16am Nov 14, 2008 11:16am
Sterling

to remove the lines, click on tools, options, charts and then uncheck "show trade levels"
Regards
  • #1,115
  • Nov 14, 2008 11:20am Nov 14, 2008 11:20am
Quoting howard
Sterling

to remove the lines, click on tools, options, charts and then uncheck "show trade levels"
Ok cool sounds good thanks.

-Sterling
Founder of Day Trading Forex Live
  • #1,116
  • Nov 14, 2008 11:28am Nov 14, 2008 11:28am
Sterling

Thanks for the confirmationon the rules. I have amended the EA and it backtests better. An update is on its way to you.
  • #1,117
  • Nov 14, 2008 1:18pm Nov 14, 2008 1:18pm
Quoting Duncan
Tonirai

[size=3][font=Times New Roman]I can see what you mean but, the way that I read it, the reversal bar is overruled by the creation of a new setup bar (Rule 1). In reading rules it is normal for an earlier rule to take precedence and this is a case in point although I don’t know whether a different interpretation was intended....
Hi Sterling,
Thanks for giving us the opportunity to take part in this exercise. Although you have set your rules for the trade, I believe that the aim of all this is to fine tune the rules to make the system more profitable. In the chart under review, Candle4 was a setup bar but the next candle that failed as reversal bar should be the new setup bar.


The reasons are as follows (1.) If we do not use the next candle as the new setup bar , we have to leave our S/L at 5pips lower than Candle4. (2.) If price continued going down we would not have been in the trade. (3.) The next setup bar may be when price passes the lower 5EMA by 5pips.


If I were on that trade, and I see candle4 close with that long shadow, (1.) I would closed the trade at the open of the next candle. (2.) I will wait for that candle to close. (3.) Using it as my new setup bar, I will place Buystop on top (+8pips) and Sellstop below (-5pips). This will get me back into the trade. Is it acceptable? If not, please tell me why?

Kindly Respond.
  • #1,118
  • Nov 14, 2008 1:41pm Nov 14, 2008 1:41pm
Gregoga

I'm glad that someone else read the rules the same way that I did. However, I have modified my EA so that it conforms with the rule as intended by Sterling and it does backtest better so it must be right.
  • #1,119
  • Nov 14, 2008 1:50pm Nov 14, 2008 1:50pm
Quoting gregoga
Hi Sterling,
Thanks for giving us the opportunity to take part in this exercise. Although you have set your rules for the trade, I believe that the aim of all this is to fine tune the rules to make the system more profitable. In the chart under review, Candle4 was a setup bar but the next candle that failed as reversal bar should be the new setup bar.


The reasons are as follows (1.) If we do not use the next candle as the new setup bar , we have to leave our S/L at 5pips lower than Candle4. (2.) If price continued going down we would not have...
Your welcome to trade the rules as you like. That being said this is a system that has proven itself and averages over +500 pips a month. If you trade live I doubt you average +500 pips a month or more. So my questions is why not just trade it the way it is and then while your doing that and making money backtest new ideas like what you had. This will allow you to see if the way you propose is more profitable or not. Hope this helps.

-Sterling
Founder of Day Trading Forex Live
  • #1,120
  • Nov 14, 2008 1:52pm Nov 14, 2008 1:52pm
Quoting Duncan
Gregoga

I'm glad that someone else read the rules the same way that I did. However, I have modified my EA so that it conforms with the rule as intended by Sterling and it does backtest better so it must be right.
Thank you Duncan...your hard work is very much appreciated and I am testing the method right now on the 5M chart to see if it applies the rules correctly or not. Ill get back to you with an email tonight. Again thank you very much for all the hard work!!!

-Sterling
Founder of Day Trading Forex Live
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