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4H 5EMA System

  • #1,281
  • Nov 19, 2008 3:25am Nov 19, 2008 3:25am
I just saw this thread today, and will try it out tonight....
have a good sleep Sterling.....and nice dream
  • #1,282
  • Nov 19, 2008 3:40am Nov 19, 2008 3:40am
[quote=Kristo;2359620]Hi Sterling,

Congrats on a great thread and all your efforts thus far. I have been following from the start and am also demo'ing on the 8 hour timeframe. As you can see, I don't post much...............but I do have a suggestion regarding rule definitions.

Rule # 2 - A proper Reversal bar should have a higher low for a long or a lower high for short.

My suggestion is that this rule be amended to read "A proper Reversal bar must have a higher low and a higher high for longs, or a lower high and lower low (than the Setup bar) for shorts."

I mention this because proper Reversal bars are so important to your system, especially when placing reversal stop orders. As an example, lets say we are Long the market and a Setup bar to possibly go Short closes. At this point we would move our SL for our Long position to 5 pips below the low of the new Setup bar and also place a Sell stop at the same price as our (Long) SL.
We dont know at this point whether price will continue on and post a higher high (and therefore a new Setup bar), or whether it will form a "proper" Reversal bar or a "failed" Reversal bar. If price posts a "lower high" a reversal bar is formed (as per Rule # 2), however, should'nt price also post a "lower low" for a "proper" Reversal bar to form otherwise it will be a "failed" Reversal bar.

If I understand your system correctly, if a "failed" Reversal bar forms then the status quo remains and a Buy stop is not placed as we are in effect still Long, however, if a "proper" Reversal bar forms (break of the Setup bar low by 5 pips) then 1. Our existing Long position closes, 2. Our Sell stop is triggered and we are now Short, 3. We place a Buy stop order at 5 pips plus spread above the high of the Setup bar, which is also our SL for the current Short at the close of the proper Reversal bar.

I know this may sound very obvious to regular followers of this thread and I dont mean to sound pedantic. I am just trying to look at the rules on page 1 from the perspective of newcomers. I visit the first page of thread quite regularly to review the rules and thought this might help.

Again, many thanks for your efforts.

Hi Kristo

There are a number of traders here who are interested in 8hr TF, if you are following it please post your trades with charts as they happen.
Regards
  • #1,283
  • Nov 19, 2008 7:08am Nov 19, 2008 7:08am
The Basic rules of this system are pretty much clear.Maybe we should focus on the Money Management now. I hate getting stopped out when my pips were +80 pips or so.We could use Take Profit 1,2,3 etc levels.(using multiple lots) like
Lot1:Take Profit=30pips, S/L=60pips
Lot2:Take Profit=60pips, S/L=60pips
Lot3:Take Profit=100pips, S/L=60pips

Scenarios are: 1.) All 3 profit targets are reached for a total of +190pips.
2.) The first 2 profit targets are reached (+90pips) and the remaining lot is stopped out (-60pips) leaving a total of +30pips.
3.) The first profit target is reached (+30pips) and the two remaining lots are stopped out for a total of -120pips.
4.) All 3 lots are stopped out for a total of -180pips.

Pip numbers are not written in stone so feel free to change them to your tolerance level.
Does anyone have other ideas for the MM part of this great system??
  • #1,284
  • Edited 10:28am Nov 19, 2008 10:04am | Edited 10:28am
I couldn't agree more...i think the system is great in giving good entries but I am leaving too many pips on the table because of whipsaw.

I do think that profit targets ultimately are the best way to squeeze more pips out of the system...unfortunately it leaves that decision up to the traders discretion. So it boils down to the trader and whether he/she wants to follow the rules without hesitation or whether they are comfortable in there ability to use support and resistance as a profit target.

So for the sake of this thread we should probably stick to the rules unless Sterling states other wise.




Quoting JokeR
The Basic rules of this system are pretty much clear.Maybe we should focus on the Money Management now. I hate getting stopped out when my pips were +80 pips or so.We could use Take Profit 1,2,3 etc levels.(using multiple lots) like
Lot1:Take Profit=30pips, S/L=60pips
Lot2:Take Profit=60pips, S/L=60pips
Lot3:Take Profit=100pips, S/L=60pips

Scenarios are: 1.) All 3 profit targets are reached for a total of +190pips.
2.) The first 2 profit targets are reached (+90pips) and the remaining lot is stopped out (-60pips) leaving a total of +30pips.
3.)...
  • #1,285
  • Nov 19, 2008 10:29am Nov 19, 2008 10:29am
JokeR & earret,

I'm afraid I disagree with both of you, I don't think it's a good idea to cap this system with a 190 pips max, as most of our big wins have been way bigger & it's the big wins that pay for the loses,

yes, the system is good at giving entries, trouble is most of them are bad.

where I feel we need to look is, how much does a good entry retrace when it happens?

maybe we can get away with a smaller SL?

just my thoughts.

Steve.
  • #1,286
  • Nov 19, 2008 11:20am Nov 19, 2008 11:20am
Quoting Arnold49
JokeR & earret,

I'm afraid I disagree with both of you, I don't think it's a good idea to cap this system with a 190 pips max, as most of our big wins have been way bigger & it's the big wins that pay for the loses,

yes, the system is good at giving entries, trouble is most of them are bad.

where I feel we need to look is, how much does a good entry retrace when it happens?

maybe we can get away with a smaller SL?

just my thoughts.

Steve.
I agree, if you cut the wins using TP, this system probably doesn't work. Here is what Sterling wrote about using TP's some days ago:

"... Ill say this again, this system only wins 60% of the time at best. So if you dont have the 3 big trades it ususally takes a month you will take a system that does make money and turn it into a loosing system. You have to have those big winning trades to be profitable with this system. The other 25 are going to work out to break even.".

I think that there is not much in the system that should be changed. Much important would be to have EA for testing different time frames, etc. I would also like try the system that runs for example four trading system parallel, only difference between them having where the 4H bars start. Using four parallel system, the start time between bars wuold be 1H. I think that that would smooth the equity curve, but of course, that cannot be tested without reliable EA.
  • #1,287
  • Nov 19, 2008 12:36pm Nov 19, 2008 12:36pm
Although I am not in favour of changing the rules to an excellent system I see nothing wrong in quitting while you're ahead and not allowing 800-1000 pip months end up with much less. It would also mean that the unsociable trading hours didn't eat too much into your life.The only downside to this would be if you are relying on a few 'mega' months to bump up the monthly average..
  • #1,288
  • Nov 19, 2008 1:21pm Nov 19, 2008 1:21pm
Quoting JokeR
The Basic rules of this system are pretty much clear.Maybe we should focus on the Money Management now. I hate getting stopped out when my pips were +80 pips or so.We could use Take Profit 1,2,3 etc levels.(using multiple lots) like
Lot1:Take Profit=30pips, S/L=60pips
Lot2:Take Profit=60pips, S/L=60pips
Lot3:Take Profit=100pips, S/L=60pips

Scenarios are: 1.) All 3 profit targets are reached for a total of +190pips.
2.) The first 2 profit targets are reached (+90pips) and the remaining lot is stopped out (-60pips) leaving a total of +30pips.
3.)...

I agree, it is the "Big Wave" that makes this system profitable.But i still believe locking some profits before that wouldnt harm anybody.Maybe we should let the Third lot run until a opposite reversal signal occurs?? Opinions???
  • #1,289
  • Nov 19, 2008 2:24pm Nov 19, 2008 2:24pm
I agree with the money management. That is what really makes the difference. The exit point.

Just one thing. Please do not forget that we want to have a look at the charts ONLY every 4 hours or so.


Thanks
BR
.
  • #1,290
  • Nov 19, 2008 2:53pm Nov 19, 2008 2:53pm
Quoting petersurrey
Very well put tlindle - it always staggers me how many wish to change a system which is obviously very profitable and simple - it requires nothing more than following a basic set of rules -that's it!
Be consistent Peter! The whole basis of this system is that you don't know which are going to be the big wins. The reason that it is profitable is that it catches all of the big wins - and the whipsaws in between. As soon as you go to TP's, you might as well bin the whole system and create a new one from fresh. You will, by definition, miss the big wins and this will become a losing system. We've got enough of them. IMHO.
You don't have to be right, just don't be too wrong
  • #1,291
  • Nov 19, 2008 3:00pm Nov 19, 2008 3:00pm
Quoting El Dee
Be consistent Peter! The whole basis of this system is that you don't know which are going to be the big wins. The reason that it is profitable is that it catches all of the big wins - and the whipsaws in between. As soon as you go to TP's, you might as well bin the whole system and create a new one from fresh. You will, by definition, miss the big wins and this will become a losing system. We've got enough of them. IMHO.
El Dee the first line of my last comment says I am not in favour of changing any of the trading rules which you appeared to have missed -with no mention of taking early TP. What I may be on favour of doing is quitting for the month when we are well ahead IRO of 800-1000 pips, as have done for the last two months. IF sterling thnks this may still detrimentally affect the overall annual performance I would obviously re-consider.
  • #1,292
  • Nov 19, 2008 3:23pm Nov 19, 2008 3:23pm
There's nothing wrong with stoping while you are ahead...i don't care what anyone says.
  • #1,293
  • Nov 19, 2008 4:55pm Nov 19, 2008 4:55pm
Quoting petersurrey
El Dee the first line of my last comment says I am not in favour of changing any of the trading rules which you appeared to have missed -with no mention of taking early TP. What I may be on favour of doing is quitting for the month when we are well ahead IRO of 800-1000 pips, as have done for the last two months. IF sterling thnks this may still detrimentally affect the overall annual performance I would obviously re-consider.
Quitting whilst ahead is changing the rules - you won't get ahead if you quit. What level of drawdown would you quit at? The level just before the big win? Don't want to argue but people without discipline want to change rules as soon as there is a drawdown - everyone's happy when it's going fine!
You don't have to be right, just don't be too wrong
  • #1,294
  • Edited 5:09pm Nov 19, 2008 5:04pm | Edited 5:09pm
Quoting earret
There's nothing wrong with stoping while you are ahead...i don't care what anyone says.
You're right Earret, and in other systems you can pull out of trades when you are ahead , in the knowledge that your system will allow you to re-enter when there is a better than average chance of winning (look at Phil Nell's system - he rarely lets a positive trade turn negative). The whole principle of this system is that you take every trade - suffer the losers in the knowledge that all of the backtesting shows you will come out on top; if you pull out early the odds are that in the long run you will lose.
If thorough backtesting proves otherwise, I will humbly eat my words
You don't have to be right, just don't be too wrong
  • #1,295
  • Nov 19, 2008 5:50pm Nov 19, 2008 5:50pm
Sorry to bang on about this guys, but let's do a bit of maths.
You start this system at the beginning of a month; by the middle of the month you've gained 800 pips - you're very happy and quit for the rest of the month.
The rally continues and the system goes on to net a further 800 pips by the end of the month - you're pissed because you've let it slip by.
Start of next month (why the start of the month? Why not the 3rd or 17th or 24th?) you re-start; by the middle of the month there is a 800 pip drawdown - you see all of your month 1 profit evaporate and jump out (because your system now lacks structure) and decide to start again the following month. System then goes on to make 800 pips and breaks even for the month.
Average for the two months - 800pips per month. Your profit - 0 pips

What I am saying is that backtesting has showed that this averages 600 or so pips per month over a 12 month period - that doesn't mean you will earn 600 pips every month! Some months will win big - others, like last month, not so big.
You don't have to be right, just don't be too wrong
  • #1,296
  • Nov 19, 2008 6:06pm Nov 19, 2008 6:06pm
Quoting JokeR
I agree, it is the "Big Wave" that makes this system profitable.But i still believe locking some profits before that wouldnt harm anybody.Maybe we should let the Third lot run until a opposite reversal signal occurs?? Opinions???
If you feel that a change needs to be made then backtest it and come with some evidence. Your thoughts are backed by nothing substancial right now. While I will admit they are a good thought for most systems, this on is different and in the long run TP's will hurt the years performance. Im not worried about one months or even 3 months, im worried about what happens over the course of the year. That being said if you show me and the room you have a better way of executing TP's or anything else I am all ears and will change no doubt. Look forward to hearing your ideas and the backtesting to show it.

-Sterling
Founder of Day Trading Forex Live
  • #1,297
  • Nov 19, 2008 6:08pm Nov 19, 2008 6:08pm
Quoting earret
There's nothing wrong with stoping while you are ahead...i don't care what anyone says.
Backtest that idea and you will see that you will lose money. Ive spent hours and hours looking for the best way possable to trade this system and this is what ive come up with. A hard TP WILL lose money. If you dont think so backtest it and that will prove the point. If however you find a TP that beats 500-600 pips a month I will gladly change.

-Sterling
Founder of Day Trading Forex Live
  • #1,298
  • Nov 19, 2008 7:08pm Nov 19, 2008 7:08pm
According to the rules, is this correct?
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  • #1,299
  • Nov 19, 2008 7:11pm Nov 19, 2008 7:11pm
No probs Howard,

For those who are interested in the 8 hour timeframe, we are currently Long from 1.5100. A Setup Bar for a potential Short has formed and our Sell Stop is 5 pips below this bar (arrowed) at 1.4943. Charts are Alpari (UK).
Attached Image
If there is ever any doubt then there is no doubt.
  • #1,300
  • Nov 19, 2008 8:34pm Nov 19, 2008 8:34pm
Hi Sterling and everyone,

I would like to ask a question regarding money management. Sterling mentioned that it is prudent to trade 1 standard lot for every $20,000 in one's account. Assuming that the risk for every trade per lot is about 150 pips averagely, risking $1500 out of $20,000 is 7.5%. Is it ok to do so since most books recommend that we should not risk more than 3% of our capital for every trade? Of course I understand that everyone's threshold for risk is different but I just to get your opinion on this.

Once again, many thanks.
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