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simplest strategy for GBP/ JPY

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  • #1
  • First Post: Mar 26, 2007 8:54am Mar 26, 2007 8:54am
i wa just developping and testing a new strategy for the GBP/JPY pair. it is very simple but it requires patience and good money managment.
it has an average of 1000 PIP per month or a 33% return on investment per month.

on a 1 hour chart of GBP/JPY add a 12SMA and a 32 SMA high / 32 SMA low / 32 SMA close.

buy w lot when the 12 SMA crosses ezch of the 32SMA. close and reverse when the 12 SMA crosses back downward. you'll have a total of 3 lots opened all the time.

based on back testing and maximum drawdown calculations, i recommend that you buy 3 lots for each 3000$ in your account. use micro lots if your account is smaller that 3000$

PS: the close and reverse is great since it costs no spread

i'll soon post the testing results of the system.
  • #2
  • Mar 26, 2007 9:49am Mar 26, 2007 9:49am
I am also going to try it out, looks good looking back manually. I like the scaling in and out part.
  • #3
  • Mar 26, 2007 9:56am Mar 26, 2007 9:56am
wat you mean by that ? when i close and open new trade in opposite direction, there is no spread on mt4 ?

Quoting nicolas_nrjk
PS: the close and reverse is great since it costs no spread
  • #4
  • Mar 26, 2007 9:59am Mar 26, 2007 9:59am
What's the stop loss for this method.
  • #5
  • Mar 26, 2007 10:06am Mar 26, 2007 10:06am
this looks really neat - especially the scaling

should be possible for EA to back test/ run it

would only get into trouble in whipsaw, so might need watching if market is very quiet (not likely with this pair in recent months!)
  • #6
  • Mar 26, 2007 10:22am Mar 26, 2007 10:22am
There isn't really a close and reverse on MT4, although you could probably write a script that would do it.

Essentially what he's saying is true...but there IS a spread being built in...don't be misled by that. Just because you reverse, that doesn't mean you avoid the spread, you're just closing a position and opening a position in the opposite direction at the same price.

For example:

you buy at 2.3000/2.3008 which means you buy at 2.3008. Then you close (sell) the position at 2.3100/2.3108 which means you sell at 2.3100...simultaneously, you open a short position at the same bid/ask which means you short at 2.3100 also. so as you can see, you're STILL paying the spread since your new short position is 8 pips in the red when you start.

I do have a question, though...

When you say buy 3 lots, I can only assume you mean buy 3 mini lots, right?? At $3000, 3 standard lots would pretty much cost you $3000 at 200:1 leverage.

Quoting peterdxb
wat you mean by that ? when i close and open new trade in opposite direction, there is no spread on mt4 ?
  • #7
  • Mar 26, 2007 10:28am Mar 26, 2007 10:28am
picture will help a lot here


Quoting nicolas_nrjk
i wa just developping and testing a new strategy for the GBP/JPY pair. it is very simple but it requires patience and good money managment.
it has an average of 1000 PIP per month or a 33% return on investment per month.

on a 1 hour chart of GBP/JPY add a 12SMA and a 32 SMA high / 32 SMA low / 32 SMA close.

buy w lot when the 12 SMA crosses ezch of the 32SMA. close and reverse when the 12 SMA crosses back downward. you'll have a total of 3 lots opened all the time.

based on back testing and maximum drawdown calculations, i recommend that you buy 3 lots for each 3000$ in your account. use micro lots if your account is smaller that 3000$

PS: the close and reverse is great since it costs no spread

i'll soon post the testing results of the system.
"Analysis Is Hard But Trade Is Easy"
  • #8
  • Mar 26, 2007 10:29am Mar 26, 2007 10:29am
Quoting Se[V]eN
picture will help a lot here
+1 .. agree...
  • #9
  • Mar 26, 2007 10:31am Mar 26, 2007 10:31am
Another question...

I'm assuming during the start of an uptrend, the 12MA will go through the low, close and then high sequentially and vice versa for the start of a downtrend.

So the question is, if you start with 3-short positions and the trend starts to go long and the 12MA crosses above the 32-low MA that you would close one of the shorts and buy 1 lot (thus you would have 2 shorts and 1 long), however, if the price immediately reverses and the 12MA crosses back down that you would then close the buy you just made and open the short in the other direction. Right?

Quoting nicolas_nrjk
i wa just developping and testing a new strategy for the GBP/JPY pair. it is very simple but it requires patience and good money managment.
it has an average of 1000 PIP per month or a 33% return on investment per month.

on a 1 hour chart of GBP/JPY add a 12SMA and a 32 SMA high / 32 SMA low / 32 SMA close.

buy w lot when the 12 SMA crosses ezch of the 32SMA. close and reverse when the 12 SMA crosses back downward. you'll have a total of 3 lots opened all the time.

based on back testing and maximum drawdown calculations, i recommend that you buy 3 lots for each 3000$ in your account. use micro lots if your account is smaller that 3000$

PS: the close and reverse is great since it costs no spread

i'll soon post the testing results of the system.
  • #10
  • Mar 26, 2007 10:43am Mar 26, 2007 10:43am
There are a million and one ma cross over systems-u can pick any 2 ma's and in a trending market-they will work. Back testing is useless here, because the ma's won't cross until the candle closes...by that time price can be far away and u have to be able to sit with a potential big draw down...if u really want to try backtesting it-trade from the close of the candle after the cross occurs-and these cross-over systems are useless for telling you when to close or get back in...
  • #11
  • Mar 26, 2007 10:47am Mar 26, 2007 10:47am
News,

I agree, MA systems tend to not work so well over all...which is why I intend to see if I can't provide my own results. With that said, you touched on a point regarding MAs as well, that they work well in trending markets. Hopefully, we'll be able to determine how often we trend in the GBP/JPY. Who's to say this system won't work? We might as well expend a little bit of effort proving that it doesn't work.

I do intend to trade from the close of the candle. I would think that we'd create way too many whipsaws we didn't trade at the close...think how often a price could be to the pip of the cross and go up and down...that whipsaw motion could happen dozens of times in an hour effectively killing the system in just paying the spread alone. You almost have to pick a price...in this case, the close would suit just fine.

Quoting NewstraderFX
There are a million and one ma cross over systems-u can pick any 2 ma's and in a trending market-they will work. Back testing is useless here, because the ma's won't cross until the candle closes...by that time price can be far away and u have to be able to sit with a potential big draw down...if u really want to try backtesting it-trade from the close of the candle after the cross occurs-and these cross-over systems are useless for telling you when to close or get back in...
  • #12
  • Mar 26, 2007 11:32am Mar 26, 2007 11:32am
I just didn't want anyone to think ma cross overs were anything new-and as far as backtesting goes it omits one, essential fundamental, the most important one IMO-emotion! How far are u gonna let your position draw down before getting nervous...

There's a lot more to it then just cross-overs...u need to apply fundamentals and they're not always clear (like now).

You also have to realize that GBP/JPY is a pair that follows money flows more then interest rates. In an enviorment where risk is accepted, the Yen is used to fund all types of investments, so it's borrowed and then exchanged, driving the price down as it's sold. The reverse is also true-if you look at what happened when markets crashed on Feb 27, you'll see it.

Since this is the time of year when Japanese exporters need to re-patriate Yen for their books-at some point you're gonna see the GBP/JPY go down as they start buying it back, but it's more likely then not to bounce around, i.e. not trend. I wouldn't trade it before the the beginning of April myself...
  • #13
  • Mar 26, 2007 12:15pm Mar 26, 2007 12:15pm
IF you were to actually be trading on emotion, sure that's a problem. I'm not sure I want to watch the 1-hour charts. If the system works with the close parameters and has a decent return, then more than likely, I'd write an EA or trading-bot to do this...wouldn't you think?

Fundamentals probably do have an effect, but wouldn't you also think that fundamentals help move trends? in which case cross-over systems would probably be fine.

Besides, the key here is to determine if the risk is mitigated by scaling in...and not completely whipped. Technically, you're not fully vested in a trend until all 3 crossovers occur. So there may be some inherent money management built in.

I'm not saying the system will work, but it's worth looking into to at least prove that it doesn't.

Quoting NewstraderFX
I just didn't want anyone to think ma cross overs were anything new-and as far as backtesting goes it omits one, essential fundamental, the most important one IMO-emotion! How far are u gonna let your position draw down before getting nervous...

There's a lot more to it then just cross-overs...u need to apply fundamentals and they're not always clear (like now).

You also have to realize that GBP/JPY is a pair that follows money flows more then interest rates. In an enviorment where risk is accepted, the Yen is used to fund all types of investments, so it's borrowed and then exchanged, driving the price down as it's sold. The reverse is also true-if you look at what happened when markets crashed on Feb 27, you'll see it.

Since this is the time of year when Japanese exporters need to re-patriate Yen for their books-at some point you're gonna see the GBP/JPY go down as they start buying it back, but it's more likely then not to bounce around, i.e. not trend. I wouldn't trade it before the the beginning of April myself...
  • #14
  • Mar 26, 2007 12:20pm Mar 26, 2007 12:20pm
Quoting NewstraderFX
I just didn't want anyone to think ma cross overs were anything new-and as far as backtesting goes it omits one, essential fundamental, the most important one IMO-emotion! How far are u gonna let your position draw down before getting nervous...

There's a lot more to it then just cross-overs...u need to apply fundamentals and they're not always clear (like now).
I on't think anyone would mistake MA cross-overs as new, unless they just started learning about trading today, and I didn't read the original post as anything but somebody kindly sharing something they noticed.

I disagree about also needing to apply fundamentals . . . technical analysis and/or your trading rules should handle that. You can make money trading by getting in on a coin-toss (heads I buy, tails I sell) but only if you have good money management skills in place.

I do agree that "always-in-the-market" systems can have some very uncomfortable draw-down periods that make them unattractive (for me at least).
  • #15
  • Mar 26, 2007 12:30pm Mar 26, 2007 12:30pm
250 pips a week on GBP/JPY is plausible, I think the daily ATR was a little over 300 for a while there. I don't think you'll be able to pull in 250 a week going forward as daily volatility returns to normal levels, especially with a MA system. At any rate, how would your settings (12/32 ema) be much different than standard MACD? Having said that, I do think the system will be profitable going forward, but not at a rate of 250 pips a week.
  • #16
  • Mar 26, 2007 12:32pm Mar 26, 2007 12:32pm
Quoting nicolas_nrjk
on a 1 hour chart of GBP/JPY add a 12SMA and a 32 SMA high / 32 SMA low / 32 SMA close.

buy w lot when the 12 SMA crosses ezch of the 32SMA. close and reverse when the 12 SMA crosses back downward. you'll have a total of 3 lots opened all the time.
There's the formula - it takes about 30 seconds to lay it out on a chart. Then you've got your own picture.

And let me guess - the next thing somebody will ask for is results from backtesting!
  • #17
  • Mar 26, 2007 9:16pm Mar 26, 2007 9:16pm
[quote=nicolas_nrjk;254073]you'll have a total of 3 lots opened all the time.quote]

Nicolas -

It looks like a little discretion might be advisable for handling the crossovers.

If I'm seeing things correctly, it appears that you may be able to save more than a hundred pips from time to time by not riding out each move to the bitter end. Then just re-enter where you naturally should. Just a thought...

Of course, that's all very clear in hindsight!

Hopefully GBP/JPY will take a tumble pretty soon and we can test this out.

But I'll give you five-stars for an interesting technique.
  • #18
  • Mar 27, 2007 4:36am Mar 27, 2007 4:36am
Quoting peterdxb
wat you mean by that ? when i close and open new trade in opposite direction, there is no spread on mt4 ?
i use fxsolutions as a broker and they don't take spreads for "close and reverse operations
  • #19
  • Mar 27, 2007 4:41am Mar 27, 2007 4:41am
Quoting Maxsmart
What's the stop loss for this method.
unfortunatly like most of the trend strategies there is no stop loss there is only areverse signals (one of the trades had a 120 PIPs drawdown)

that's why i say that money management is very important.
  • #20
  • Mar 27, 2007 4:45am Mar 27, 2007 4:45am
Quoting NKE
would only get into trouble in whipsaw, so might need watching if market is very quiet (not likely with this pair in recent months!)
well the 3 lots system makes the whipsaw easier to survive.
check in october. it wasn't a very good month for this strategy and if you will trade 1 of the 3 moving average you would have been painfully whipsawed

but with the 3 lots trick you would have 2 lots long and one short and the effect of the whipsaw would be easier to survive.
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