profitable Zigzag

Hi

While working away trying to make trend trading mechanical I kept coming back to ZZ indicator..

One thing you must be aware of and the terms 'eggs and sucking' spring to mind here but dont forget on the current wave the zz can change but the past zz waves are locked in place and its these we use.

I have looked at it on my fav time frames the 5min..not too slow that you get bored and not to fast that you get manic

This type of system may of been posted here before but I couldnt find any thing under a search.

Im rushing out in 10mins but wanted to put some thing down on paper just to lock it here and remind me to post a few things about it.

Its selective last week on eurusd 5min only 7 signals

+1+30+44-14+4+40+71

initialy

Put a ZZ on your 5min chart set to 13-5-5 we use this for entry
Trend magic - we use this for our sliding stop
A vertical line at 8am uk time and another at 8pm uk time ...we dont trade the Asian session.

use this link to look at the forex opening times..just put in your location and click go..the chart above will then update with the correct times

http://www.forexmarkethours.com/


Will be back in 3 hours to show entry stops etc

Again please dont see this as faultless but see it as one to stick into the armourey

personaly I love it

Paulus

Ok this is not ground breaking stuff or some thing I have invented...I just think we have to be aware of it.

A common way to trade is long on the break of a swing high short on the break of a swing low.

ZZ helps us with this if you look at the chart below you will see

A this is fixed
B this is fixed
C this is fixed

The vertical red line is just 8am uk time..At 8.05 we mark 2 horizontal lines at the last 2 Fixed ZZ points in this case B and C which I have marked with 2 blue horizontal lines

We enter short at E with the inital stop at the last high given us by ZZ in this case D .

We follow down the horizontal lines on trend magic always 1 behind the current one...we move down a horizontal stop level each time trend magic moves down

so with price at 1 are stop is at 2 withprice at 3 our stop is at 4 etc etc.

In this case with our stop at 5 we were taken out giving us around 70 pips.

2nd signal on 2nd chart

Entry at A stop at the ZZ swing low point in this case the lower blue line then follow up as TM moves up to be taken out at B for around 40pips

its mechanical easy to follow..

have a play

paulus

Do you use something to filter out false breakouts? We can even see some on your charts. Should there be a minimum distance between two lines?

Hi,

Why didn't you go long on the first upward move (D)? Eeven though that proved out to be wrong. What sort of breakout are you looking for?

Regards

Archie

Archie

The highs at B and D were different 1.36258 at B as opposed to 1.36258 at D

With 5 digit brokers you want to go to nearest higest full pip so if the high at B was 1.36258 you want to go long at 1.3626

And any break out is taken after 8am UK time

investalot can you show me the break outs aprt from the 2 examples please,dont forget any breakout up or down before 8am is ignored

Paulus

I have shown 2 days of last week above ..here is the monday

as you can see

My vertical line drawn at 8am uk time
My high and low of last fixed ZZ marked with horizontal blue line

1st sig

Entry on 1st signal was at the yellow box
trade was taken out by trend magic at Out 1
+3 pips

2nd sig

I then wait for another fixed ZZ to go in.. and I have marked it with a green horizontal line entry at the yellow box again

Trade was taken out by trend magic at Out 2
+28 pips

This is very similar to other breakout systems using GBPUSD.

Taking the highest-high and the lowest-low between midnight and the London open to create a breakout box.

There are inevitable false breakouts but these can be minimised by using a 5 EMA as the trigger rather than the price.
Place the trade on the next bar-close after the 5 EMA breaks-out.

Good luck with your thread.

Hi Geoff

I use a London break out and a US break out system... this trades all day and gives more chances

Its also along the same lines as the Darvas Box ..ie creating a box with a high and low and moving up or down with each box



cheers

paulus

Using 5 EMA to reduce false break-out!

yes slightly diff approach but well, worth looking at

here is an example of a typical signal on close of Friday

Last hi and lo of fixed ZZ has been marked

with a signal to go short at the yellow box

Again the good thing here is that you can put in a lmt buy at the top green line and lmt sell at the bottom green line

HI Paulus

I liked it very Innovative Idea

How about these breakouts?

Hi

Investalot

My ideal window is 8am uk time up to 8pm UK time...

Reasons...

8am to 8pm covers the UK and US market trading hours..I think I stated 8am in the 1st post but didn't post the 8pm shut off

I just dont think you get the volatility with the Sydney and Tokyo exchanges and all systems need volume and volatility without it the best of system die

so I wouldn't of traded them but I want to look at them



yes they are signals and like all system you get good and bad ..with money management and a stop loss in place we can absorb the losers.

1st signal

Long at 1.3771 SL last swing low 1.3715 = 56 pips

Account £2000
Risk 5% of current bank per signal - £100

EURUSD

1 pip on full contract = £6.60
56 pip SL x £6.60 = £396.60 too much as it exceeeds our 5%

Mini contract

1pip = £0.66p
56 pips SL x £0.66p = £36.96 well below our 5% value of £100
We trade 2 mini contracts 2 x £36.96 = £73.92

Result

Taken out at 1.3754 a loss of 17 pips
1 pip = £0.66p
17 pips x 0.66p = £11.12

1/10th of our £100 5% value.

We had a losing trade but our bank was protected.

2nd signal

had approx the same stop value with the same calculations as above but the loss was only 5 pips or £3.30 ..way way below our 5% £100 value

If you want a walk through on this trade I will do so if requested

3rd signal

I wouldnt of taken this as trend magic was Blue which indicates a long bias..we need red TM
Im glad you asked this question as I can now update the 1st post with my day end time and the roll of trend magic

Paulus

By the length and configuration of the candles on the stop-outs in post 13, it would be a good guess that the time was around a news event.

I went back and looked and, sure enough, it was at the time of FOMC.

We wouldn't be in there trading this at that time but on the sidelines....

Also, if you do this or any trade on a 5 minute chart, the trade off is the noise inherent in the time frame. So you factor that in as a bigger probability than if you were on a 30-60 minute chart.

But my other question, Paulus, is why you wouldn't use TM as your stop from the very beginning of the trade since you use it eventually. The ZZ stops are often too big....

Thanks

Good point..should always consider news events.. thanks


the reason I do not use TM initially is that I want a hard good supporting stop as my initial placement and thats normaly the last swing lo or hi.

With this system there is often a pull back after entry to place on TM would get you taken out to quickly

Ive shown the moves on an ABC etc principle

On the lower chart for the more conservative is a method of entry with the stochastic..

Using the same signal we get our trigger at A
We wait for a pull back to enter and use the stochastic to do this when it goes down past 50 and ticks up we enter

draw back - we may miss some signals but draw down is less initial risk less which means more contracts traded on MM calculations


Paulus

Please change ZZ to 13

This seems to fit in best with the 6 swaps m looking at..

20 sets the bounds too large on some swaps

I have updated the 1st post to say 13 and cut of at 8pm uk time

P

Hi Paulus,

I've been watching the system, and I have some questions.

1) Do you only use the first bottom and top for the breakout for the day, or do you move the lines according to new ZZ points?

2) How many trades do you take per day? E.g. when the first buy hits its SL, and the sell goes off, is that's it for the day? A good example was Friday.

3) I wonder about some sort of buffer. Often the price touch the last high/low, but then retraces. What about a buffer of 5 pips?

Thanks in advance!

Archie

Hi Archie

1) Do you only use the first bottom and top for the breakout for the day, or do you move the lines according to new ZZ points?

set the 1st 2 if available just after 8am..they need to be 'locked' so they wont move ..if the next zz is lower than the previous high and locks then move the horizontal line down same for lows see the example below

2) How many trades do you take per day? E.g. when the first buy hits its SL, and the sell goes off, is that's it for the day? A good example was Friday.

Taking 70 pips on the Fridays trade you'd have to be a hard man to carry on most people would bank the pips and close down..but this is a personal thing stop or go on..I tend to go on for my session ie 8pm close down

If your money management model has you taking 20 pips a day then closing down then so be it...others trade on to destruction... its down to the individual


3) I wonder about some sort of buffer. Often the price touch the last high/low, but then retraces. What about a buffer of 5 pips?

No i wont go this way I have tried this type of thing on the Asian and london break systems..from 5 to 10 ..10 to 15 its not for me.If you want a buffer try the 5ema as suggested earlier in the thread that will work

cheers for now

Paul

This is the one hour time frame nothing changed regrading the ZZ setting

this week 3 signals

yellow box marks entry

1st was a no go as TM was blue on the break down..but it would of made around 65 pips
2nd made 70pips
3rd still in I have marked where the stop would be now with around 160 pips locked in

Hi again,

What about if price already has passed either of the ZigZag points, before 8 am? Do you wait for the next low/high then, or do you take the trade either way? An example is 10th March.

Also, which TF have you had most success with, in terms of avoiding false BO and profitability? I watched the 15M and it seems that it has less false breakouts.

Archie