GBP/JPY "tunnel" and MM system

Hi. Im new to this thread and a newbie to the forex market. I first found out about forex about one year and a half ago. During this time, I would say I spent maybe 4 months where I had nothing to do with Forex, just occasionaly reading news on some of the pairs. Now I'm really interested and trying to find as much information as possible about this market.

I've about technical analysis, fundamental analysis, how one is better than the other and a bunch of other stuff; reading about systems based on a bunch of technical indicators and trading in 5M charts.

The truth is, Im kind of confused and dont know what to think anymore. At first I decided I was going to focus on the EUR/USD, but now I've been lured to the GBP/JPY pair due to it's volatility. Now, I know trading this pair is RISKY, but I believe that with a GOOD system, you can trade this pair and hopefully end up with higher gains than losses.

In my opinion, what makes a good trader is not how much profit he/she makes in a given time; but how long he/she is able to maintain himself/herself in this market without blowing up. This is why I wont trade this pair unless I have a good system.

The argument of trading with the trend seems totally valid to me, but this system may go against it. So I submit this system to find out your opinions about it and hear some suggestions on how to make it better or if it totally sucks and I should stay away from it..... So here it goes. It is based on a strategy I read (the chart setup), which was free. I cant recall the author's name, but I want to make it clear the the original chart setup isn't mine so I dont get accused of plagiarism or something like that. I have modified the setup however. The Money Management part, establishment of the limit is mine.

I use a 1 hr candle bar chart. Basically you set up your chart like this:

Weighted Moving Average: period of 50 sessions using the HIGH price.
Weighted Moving Average: period of 50 sessions using the LOW price.

Buy signal:

Price crosses the HIGH moving average and I use price action analysis to decide wether to buy or not. The instant it crosses the Moving Average I buy when I decide to go long. (I dont wait for the candle to close)

Sell Signal:

Price crosses the LOW moving average from above, and I use price action analysis to decide wether to sell or not.. The instant the price crosses the Moving Average I sell when I decide to go short. (I dont wait for the candle to close)

Money Management

Every time I open a trade, I set a Limit at 50 PIPS and a Stop Loss at the opposite Moving Average (If going long, the SL would be the LOW WMA and if going short, the SL would be the HIGH WMA) or 100 pips, whichever is larger.

I've only initially strated to try it on my demo account, I had a succesfull 50 pip trade on friday, but I've been studying past price movements and I will try to post my findings later.

So that´s it. Any comments and suggestions are welcome.

After studying the price movement from the beginning of the month until now I found this results if the strategy would have been applied:

Check the attached file.

I did not explain an optional aspect of my strategy. When you open a position you can open 2 lots and place the stop loss the same for both of them and place the 50 pips limit on one of them. When the limit is reached, one lot will close; and for the other lot you move the Stop Loss to breakeven and set a trailing stop loss of 50 pips. That way, if the movement continues, your open position will close with the trailing stop once the movement is over and you can win some extre pips. That is what the TSL column represents. The amount of pips won using a trailing stop in that manner.

So in the 25 days I studied, the strategy would have earned 1500 pips from the limit alone and 4450 additional pips using the trailing stop. These results seem pretty good.

What I'm not sure about is the part where before you open a position, the previous bar had to have opened and closed above/below the WMA. Maybe it should be only open, I dont know.

Suggestions anyone?

Hi Tataocb,

Thanks for sharing this system.

You wrote the stop loss should be at the opposite MA, but in your sheet I see 50 pip stops. The distance of the 2 WMA-s are usually much more than 50, it is around 150.

I see only 3 stop losses in your sheet, but I found more on the chart, but I cannot figure out the difference, because I am probably in a different timezone. Would you please tell your time zone?

I also wonder how could you determine the TSL values? Did you go down to lower timeframes to check it? Or how did you know where your trailing stop would have been hit in the 1H candle?

Hi Arilou,

Thanks for replying. You're right, the total loss from the stop losses should be around 400 pips instead of 150. When I made that chart I was considering a 50 pip stop loss. To calculate the TSL I just took the farthest the trend went before a 50 pip retracement in the one hour chart. I know that is probably not the best way to determine that. I would need to go to a 15 or 10 minute chart to figure that out more precisely. Maybe tommorrow I can check that out. But still, I consider the 1200 pips a nice gain in 24 days.

Today I missed the breakout at around 141.93, that would have gotten me the 50 pips plus a couple more up until the next bar where it probably would have closed the TSL position.

Like I said, this is a starting point to see if I can develop a more complete strategy. So any suggestions on determining entry points or anything else is welcome.

I live in Central America, we dont make any time adjustments here. But right now we are one hour earlier than EST. The times indicated on the table should be EST.

I used the strategy today. When I woke up, the price had gone below the LOW WMA without reaching the 50 pip limit and retraced back to the HIGH WMA, so had I been awake, I would have lost almost 100 pips today.

After that, I waited for the price to come down again and opened a short position when it crossed de LWMA(Low weighted moving average) and in 2 minutes, it reached the 50 pip limit. I attached a picture of the closed positions as proof.

The next bar went back up, but i didnt open a long position when it crossed the HWMA. Had I done so, I would have gotten another 50 pips, and right now it's still moving up. I guess I need to be more confident in the strategy and that will only come as time progresses and I continue to stick to it.

I guess the strategy isn't perfect, since i would have incurred in a 100 pip loss, had I entered the earlier trade. I feel like I still need to define a more precise way of determining an entry point. One of my concerns is if this strategy works only due to the "randomness" of the market and obviously the volatility of this pair. Like I said before, I will probably find that out as time passes and I see the results I get from employing the strategy.

Yesterday there were 3 opportunities to enter trades when the price crossed the HWMA. All o them would have been profitable. However I did not trade them because I wasn't sure where the price was going. I've been reading some sites about reading candlestick patterns which will probably help me determine better when to enter and when not to enter a trade.

This morning the price seemed to be moving down pretty strongly so I opened a short position. I know this goes against the Bullish short term trend being experienced since November 20th. That is what kind of distrubs me the most, trading against the trend. Although when I see the bigger picture, there is a longer term downward trend, so I guess I'm not trading against the longer term trend. In my opinion, this pair is so volatile that you can trade in both directions during a any trend. This is not the case with the EUR/USD which I was trading before, where trading against the trend is more dangerous.

So anyway, I opened a short position and I stepped away from the computer and about 25 minutes later that I came to check on it I found that in the same candle, the price went down and had been only 0.005 away from reaching my limit. That's not even 1 pip, it's half a pip! The price then retraced to the LWMA and I was tempted to close the position with about a 2 or 3 pip profit. But I decided I was just being emotional and stepped away again and 10 minutes later the price had reached my limit order and closed out the position with a 50 pip profit.

So I concluded that whenever I open a trade in the future, I'm going to step away from the computer and not check it until maybe an hour or 2 have gone by, to eliminate the emotional stress and possible harm this may cause to my trading. Maybe that will help me prepare to when I decide to go LIVE.

On another note, had I used the TSL strategy, I would have gained an aditional 75 pips. Right now I'm only trying the "basic" strategy and once I feel confident enough, I will start to use the TSL strategy.

Here is a pic of what the chart looked like when the TSL strategy would have closed out. Ignore the Fibonacci, I´m just trying to see find out how it works and if it really works. It doesn´t play an active role in my strategy.

I missed the entry on Sunday evening, which would have gotten me my 50 pips. The price went DOWN after that and is currently in a retracement. Right now I'm waiting for the retracement to end or to continue, I don't know. Price is inside the tunnel.

I set a long entry order at 140.94 with a limit at 141.44 and a stop at 139.94. Price went up to 140.91 and the retraced and went back down to 139.83. So had the order been executed, I would have lost 100 pips.

I still have to fight the newbie urge to "force" a trade. A good trader is patient and waits for for proper trades. "Forcing" a trade, I believe most of the time, will lead to a loss. I still have to fight that urge. It's better to have the account balance not moving, than to have it reduced.

Thank you!

Right now I'm using a demo account to try out this method. So far I have +150 pips. I'm going to try to use this method to get at least 100 pips a week.

What I mean by at least is that 100 pips a week will be my objective. If I reach that amount, then I can stop trading for the week; or open a position if I am pretty confident the price will move my way. I if don't reach that amount, then no problem, I'll try not to force any trades.

It seems very simple. The good thing is you are being disciplined. If all traders were honest I bet more than 90% of them went through the impatient phase of "forcing" trades. Good thing is with G/J it gives so much movement that even if you don't trade for 2 weeks you can still make up the 400 pips monthly quota in the later half of the month.

Yeah, I believe the discipline part is very important. One has to understand that the market can't be controlled, you just have to be patient until the market gives you an opportunity to trade.

I got another 50 pips overnight. Before I went to sleep, I noticed the bears were winning the battle against the bulls (if you've been to the forex4noobs website you'll understand why I say it like that). So I created an entry order to sell GBP at 138.806 which is where the Low WMA was at that time along with its TP at 138.306 and its SL at 139.806, which was just a tad above the high WMA. The price at that time was around 138.87 and like I said, the bears were looking strong. Then I turned off my laptop and went to sleep....7 and a half hours later I turned it back on and noticed the TP had been reached almost 4 hours after the entry order was executed.

It's probably good I wasn't checking on it because there was a retracement back to 139.38 which would have gotten me nervous and might have led me to close out the position right there with a 59-pip loss. Once again, I believe it's better for me to stay away from the market for a while once I open a position so my emotions don't trick me into closing out a position too early.

Got another 50 pips this afternoon, went short at 136.38, price retraced to 136.87 and 1 hour 44 minutes after I opened the position it hit the TP at 135.88. I've reached my weekly goal, but I'll still keep an eye on the market.

Great job

I went short today at 137.13 and 20 minutes later my TP was reached at 136.63 for 50 pips.

I tried the other part of the strategy, and went short at 137.00 (at almost the same time I opened the first position) and set a trailing stop loss of 50 pips, the price went down to 136.50 and then back up and got stopped at 137.00. So I neither lost nor gained any pips. This part of the strategy is to try to "ride" the movement if it moves more than the 50 pips. This time it didn't work. I'll try it again on my next trade.

I had my first loss two days ago. I went short at 136.60 and price retraced and the SL was triggered at 136.70, and since I was trying out the other part of the strategy I had 2 micro lots (I'm using a micro demo account, since that is where I am going to start trading live), so I loss a total of 200 pips.

Fortunately, yesterday I was able to regain 100 pips and now I have to regain another 100 and 50 more to reach my weekly objective. Im not sure if I'll be able to make it this week. I dont want to force trades and end up osing more.

Last Friday I got another 50 pips; and this morning I went long using two lots and my TP was 25 pips, so right now I have covered my loss and have to get 150 pips to get up to date this week. I'll let you know if I get there or not.

Right now I'm using 2 lots with a TP of 25 pips rather than the 50 pips I mentioned previously because I find it easier to get 25 rather than 50 although I know the potential loss doubles as compared to before and am relying heavily on price action to determine when to enter a trade.

It may seem as if I changed my system too early (right after my first loss); but who knows, only time will tell.

Using the 2 lots and a 25 pip TP I had 2 successful trades yesterday which covers last week's objective and now I'm at +50 for this week, so I'm possibly one trade away from reaching this week's objective.

I got another 25 pips with 2 lots, so I reached my objective. Maybe I'll change my system to a 25 pip TP with 2 lots for good.

What kind of SL are you using ? Are you still trading G/J with your system ?

I'm still trading the G/J pair. My stops are set either at 100 pips or the opposite WMA (whichever is higher). However, lately the distance between both of the WMAs has been less than 100 pips, so I just use 100 pips. So that would put my Reward:Risk ratio at 1:2, when usually people recommend the other way around, but it has worked for me up til now. Although lately, I've been using 2 micro lots with a 25 pip TP and 100 pip SL which puts the ratio at 1:4 per lot or 1:8 total. That seems kind of risky, so I'm not 100% sure of making the change to my strategy.

Also, in order to avoid closing a trade prematurely due to emotions, I set the TP and SL along with the entry order, since I usually use entry orders and then try to stay away from the trading platform for a while.

I've had a bad start this week. Yesterday I opened a short position at the cross of the Low WMA at 133.24 after watching the price hit the line and bounce back down 4 times at least 50 pips. So right after I open my trade the price went up, I set my stop loss at 100 pips. The trade was open for 16 hours before price hit my stop loss at 134.24, went up to 134.31 and then went back down and reached where my TP had been placed. Just before going to bed last night, I thought about moving my stop loss 30 pips because I thought the price might hit it before retracing, but decided not to do so. So I had a loss.

Then, this morning, I opened a long position at 133.87 with a TP of 25 pips. Price went up 24 pips before retracing down to 132.88, one pip away from my stop loss. Then it was ranging from between -30 to -60 pips. I decided to close the trade with a 25 pip loss. And now, price has gone up way past where my TP was.

That's Forex for ya. I should have stuck to my strategy and earned my 25 pips, but I let emotions get the best of me. Trading in the Forex market is not a "WOULD'A, COULD'A, SHOULD'A" ordeal.