The Really Really Boring Forex System

I have a feeling that a lot of people will understand the sentiment behind the "system" I am about to explain. I have been trading forex (at the time of writing) for about a year and a half and in that time I have tried everything (and I mean everything) to try and make a consistent profit. I have tried trading 1 min charts, 5 min charts, 15 min charts and I know for a FACT that trading 15 min charts using pivot points on GBP/USD IS a profitable method BUT to make money CONSISTENTLY you need to have iron discipline which I unfortunately do not have.

I have traded longer term charts, analising the daily and weekly charts for a while, using support and resistance, following the trend but still I am not much better than break even and mostly because of a lack of discipline.

I have read (it feels like) every book available about how to trade and still I have not consistenly made a profit.

Finally I feel I have stumbled upon (thought up for myself at least) something which uses logic and probability to give me a system that works for me.

I have to stress the above bit very strongly. It works for ME.

On this first post I would like to publicly thank a few members of this great forum... James16 (hero), Clockwork71 (hero), Jacko (hero), Strat and a few others.

The above people have helped me see my way to MY method for trading forex. I don't follow everything they suggest or do but that's the great thing about trading, it's not about the market it's about the person pushing the mouse buttons.

What I hope to achieve by starting this thread is to create a haven for the rest of us, those lost and depressed souls who have been struggling to make money from trading for a while and no matter how hard they try just can't muster the fortitude and discipline required to make that consistent profit. I don't expect you to follow this system to the letter, you may have your own ideas and twists on it and that is the whole point. A system is only as good as the person who follows it and if I can give some people some quality ideas and help some newer traders to use James16/Clockwork/Jacko's ideas and put it together into something that works for YOU then I will have "given back" that certain something that I have "taken" from this forum.

I will set out the basic ideas below but it is up to you to make your own version of this method that YOU are comfortable using. There are many ways to make a profit from the forex markets and I believe I have found the one for me that I will be following for the near (and probably far) future.

I wish you the best of luck with your forex future (hoping mainly that you have one!) and I hope that some of the people that read this will find a home here where we can discuss the finer points of my initial idea.

Hi
I am pretty much sailing in the same boat as you are with the only difference that I have been around for a year or so...

I stop thinking about forex for 10-15 days but then again my inner self says that I can do it...but so far no luck.

Will be definitely looking to your posts here..

Looking forward to your posts!
My guess, it's about better money management. Strategies must be similar to James16. Lets see.

Ok, the main premise of my idea is that interest rates are the biggest driver of currency trends. At the moment it is no surprise that any pair featuring AUD or NZD are in an up (or down depending on the pair) trend. At the time of writing the interest rate in Australia is 3.5, in New Zealand 2.5 and in the rest of the major pair world 1% or lower.

Why is this so important? Well, think about it for a while... If you were to just buy and hold aud/usd and never closed your position you would collect the swap every night on your position. This doesn't amount to much, you need to have a huge positon to earn a decent living from the swap, but guess what, the banks do have a huge position on these pairs in order to collect that swap, it's free money!

You can count on the fact that a large enough interest rate differential will push the respective pairs in the direction you want due to the buying/selling pressure from the big players.

The first step of this system is to determine the major interest rate levels that exist at the current time of trading. At the moment it's any pair featuring aud or nzd.

The second step is to identify the major support and resistance levels on the weekly chart in line with Clockwork71's silent service method. (pull a weekly chart out to it's furthest extent and draw lines at round numbers that have acted as significant s+r in the past, no matter how far back).

The third step is to plot the following indicators onto the daily chart...

3 sma typical (pivot point)
13 sma close
30 sma close
50 sma close
100 sma close

Onto the weekly chart (to differentiate between the two is easy on metatrader, I'm not sure why anyone would use anything but?) plot only the 13 and 30 sma's.

Also draw a trendline on the weekly chart and refine it on the daily chart to make sure it follows the lows/highs of the trend.

Once you have this in place it will be easy to see the trend and to buy or sell on dips/rises in accordance with the trend.

Monitor the daily chart (at or near the close) and wait for the price to test the weekly trendline/30 sma/horizontal s+r. When this happens and a valid candlestick reversal pattern occurs (you can learn about this all over forex factory and the web so I won't repeat it here) then enter your trade in the direction of the main trend.

Here is where this method differs from traditional swing trading. Instead of taking profit just before an anticipated retrace this system relies on the fact that interest rates will continue to drive the currency you are trading in your direction. Typically I use a stop loss of 1000 pips (read it and weap day traders!).

The idea is to trade on only 1 pair at a time. Use a very small % of your bank to ensure that a 1000 pip stop loss won't dent your account too much (losses will still occur but I recommend Jacko's anti hedge strategy to recoup your losses and get you into a trade in the right direction with the trend).

When you have a profitable trade locked in (move the stop loss up/down trailing the 13 sma on the weekly chart by 100 pips below) then you can either add on to the trade you have or open positions on the crosses of your pair.

Close your positions when the price closes below the trendline/13 sma. These both act reasonably well to define the trend.

As you will be starting to guess some of these positions will be open for months at a time and you will be collecting the swap every night. Not only will this be a profitable method of trading (even with the odd tweak) but it will be really, really boring (hence the name) as you will only have to monitor your trades on a weekly chart.

The only thing you need consider is if/when the interest rate differentials change or when to add on to your position.

Profitable and boring, oh well, you can't have it all.

I think I have covered everything here that I need to cover and yet I feel that I have left so much out. Please take the time to read through this a couple of times and give me your feedback/ideas.

For interest, the positions I have open at the moment are eurnzd (over 200 pips up), nzdusd (over 150 pips up), audchf (over 100 pips up), euraud (33 pips up) and nzdjpy (12 pips up). I won't be closing these positions until the price drops (and closes) below the weekly 13 sma so we will wait and see where we get to...

Well welcome to the brotherhood of losers! Don't despair, you CAN do it but maybe you need to use a different approach? Read my second post and we could be on the same wavelength completely.

Money management is so important. This isn't get rich quick.

Oh so similar to James16 but starting out with a slightly different strategy in terms of following the interest rate diffs.

Looking forward to your input to the thread.

I have to declare something from the start... I trade a VERY small account.

I currently have less than £1000 in my account.

That point shouldn't matter. If I increase my account by 10% a month for the next 60 months (5 years) compounding will make me richer.

I learnt a long time ago that testing or starting out with forex systems is a waste of time on demo. Without the feeling that you are risking real money you will not get the same experience as trading a live account but that doesn't mean to say that you have to risk your entire balance on every one trade.

I have made money already using this system and I have a very deep confidence that finally I am on the right track with MY method for trading forex. My account size is neither here nor there, what is important is your % return at the end of each month/year.

I hope this doesn't put anyone off from reading my posts. I have wisdom in abundance and all gleaned from the great traders that post on this site already. I have learnt to put it all together to benefit me and I feel I have something to offer newer traders. If you feel you are above this then I beckon you to seek elsewhere for your enlightenment. Anyone left is very welcome to ask me anything they need to know about trading, the chances are I will know the answer.

Good luck to everyone whichever path you choose.

A note about why this system is different from just daily/weekly chart trading...

I used Clockwork71's Silent Service Method for a long time and had some reasonable results. Despite that I still managed to break even. I think the difference between this method and the SS method is that there is a very good fundamental reason why the pairs you are trading are going in your direction.

How many times have you observed a very clear and obvious candlestick reversal pattern only for your stop loss to be hit after an agonising few days of watching your drawdown go up and up?

The one thing you will definitely experience with this system is drawdown BUT you are trading not only with the trend but with a very clear and obvious trend with a very good fundamental reason behind it and this is what I feel makes the difference.

Combine this with the fact that you are trading one pair at a time until that is profitable before you add on/trade the crosses and I think we are on a winner.

My current positions...

I closed a couple. I want to wait for the right moment to buy/sell before I get involved again.

This will definitely be profitable, just takes patience... averaging 10% a month is fine with me no matter what I have to do...

By the way... for money management I recommend using 0.01 (1 micro lot) per 1000 £/$/whatever in your account. That way you have lots of room for error.

So, how to analyze interest rates? Me too like to hold positions for months. But could never hold myself more than 2 to 3 days. May be interest rates can help me.

Eduardo,

Here's your stated first step :

"The first step of this system is to determine the major interest rate levels that exist at the current time of trading"

How do we go about getting the correct info on rates? Is it simple as google it or is there a site that publishes this info.

Thanks,

HJJ

The lord and Hjjohn...

Google "world interest rates"...

There is site that will tell you the interest rates in each country and the next rate announcement.

Trust me though, you want to be buying Aud or Nzd...

A few observations about your system that you might care to consider...

First off, which rates are you looking at? There are overnight rates, one-week, one-month...all the way up to 30yr rates, corporate bond rates (based on maturity & quality), and then (probably most importantly) there are the rates your broker will actually pay you to lend/borrow the currency of your choice. Which ones are you basing your trading signals off of?

Secondly - have you investigated how good the correlation is between interest rates & currency prices? Take for example the GBP vs. the JPY (or really anything versus the JPY). The yen hasn't had rates above 1% on short-term instruments in years, so is there never a reason to go long yen?

Thirdly, many times interest rates are a function of relative rates of inflation and countries with high rates of inflation see their currencies depreciate (killing the perceived interest rate benefit).

As a generalization, I'd say carry trading works well in times of economic expansion & easy credit and goes horribly wrong when that expansion comes to an end (or is threatened to come to an end). GBPJPY was trading near 250ish when the credit crunch hit and fell all the way to the 130s. Similar story with EUR/JPY and any of the other carry trades that were big in 2005-2007....Brazil had extremely high interest rates in the late 90s but devalued their currency by a ton to stave off economic collapse. So just a word of warning on this that not all carry trades have a happy ending.

And one last thing - Not to be a naysayer or killjoy here, but don't you think 10%/month is a tad unrealistic...you do realize that's 313%/year, right? The best hedge funds in the world are lucky to make 50% in a year, so expecting to make that in 4months seems questionable, but if you can get 10%/mo and start with $1,000 you'll have $1,000,000 by month 73... Just a little over 6yrs. That's a pretty good system i'd say...

All points from your post taken and appreciated.

The rate I am using is the Bank Interest Rate as declared by each bank on a monthly basis and can be found on the following site...

http://www.fxstreet.com/fundamental/...t-rates-table/

These interest rates are a good driver of currency prices because of the swap collected every night. Who wouldn't be buying them? Also I wouldn't be involved in Gbp or Jpy at the moment as the differential between the two currencies rates are too small.

I am aware that when these things go wrong they go wrong. The Reserve Bank of Aus has already announced that they are expecting the Aud to move higher and have no plans at the present to devalue it as exports are not being affected as much as one might expect.

The point with the system is to buy into a trend with a reall good fundamental reason behind that trend and then to just hold onto the trade, collect the swap and lock in profits by moving the stop loss up.

Once you have some profit locked in you can either add on to the trade you have or you can open trades on other Aud/Nzd crosses. When the situation changes and the rate differentials change then the trend will change but until then I'll be following these long trends and locking in my profit.

10% a month isn't unachievable in my view, it depends on the strength of the trend. Bear in mind many of these trades will be open longer than a month anyway so to calculate your return may be a little tricky anyway.

Thanks for your thought provoking comments, I hope I have addressed the points you raised sufficiently? It seems to me to be a logical system to follow and noone else is obliged to follow it but I'll post my results here and everyone will see how good or bad it is then.

So as mentioned above I have 4 trades open at the moment and I will wait for those to get into significant profit before I open anymore trades.

I have attached some charts for you to see the weekly chart setup.

I will post more when something happens (could be a while )

http://www.stgeorge.com.au/corporate...ar-outlook.asp

An interesting report worth reading.

A very good perception on the market! It would be great if you can explain your posted chart in depth. I want your thought process while going for a sell. I mean how did you relate interest rates with the chart.

Are interest rates still driving forex?

When you hold a trade for days or weeks, do you calculate how many pips you made per day? Most traders forget to do that. Does your rate per day beat scalping?

The interest rate is less of a buy or sell signal as much as an ongoing state. We know that interest rates, amongst other things, do push currencies in one direction or the other due to the large orders buying or selling it to collect the swap.

To clarify, once you have ascertained the interest rate differences between two countries you have your direction. So, at the moment Aud interest rates are at 3.5 and the euro interest rates are at 1. All other major currencies are less than this so buying Aud against all of these other currencies will collect you interest every night.

Once you have determined that you want to be buying Aud for the interest it is also fairly safe to assume that the currency will move in an upwards direction due to continued buying pushing it higher. All you have to do then is to buy on a dip.

A return to the 13sma on the weekly chart or a touch of the weekly trendline will tell you when to watch the pair you are interested in trading. I recommend watching the daily chart for a reversal pattern and then enter the trade. All you have to do then is to monitor it on the weekly chart and move your stop loss up.

Start by trading one or two pairs only until you have locked in a good profit and then either buy/sell more of that pair or buy/sell one of the crosses of that pair.

I hope this helps?