Hello all,
Here's my first post. Been reading through many threads on strategy including manual systems, manual mechanical systems, EAs, etc. and would like to discuss my take on trading according to all that I've read so far.
I love the idea of forex, been learning MT4, etc. so far but haven't traded live yet. I'd like to get my feet wet by developing a largely mechanical manual system to trade H1, H4, or D1 charts with a good trend following method.
Why these TFs? Because I don't want to spend hours a day at the computer, and I'm sure many of you don't want to either. So for those of you who are interested in glancing at positions a couple times a day rather than scalping, my hope is that we'll all find this helpful.
Why not after an EA already? Yes EAs are interesting and the idea is wonderful but I notice many people are very frustrated with them, and many EAs need to be managed about as much as you'd manage D1 positions to stay profitable anyway. Samurai's directional use of Firebird is intriguing, but if I can't follow a D1 trend first on my own, then dramatically increasing my R/R by using Firebird or whatever smaller TF system you want will just make it all worse in the beginning.
So, no insult to anyone's complex systems on here, many very impressive, but via Ockham's razor, the simpler I can get my system the better. What do you all think of something like the following...I'm keenly interested in comments on why you think this would FAIL.
Take a simple candle chart and put a 20EMA and a 50EMA on it. This strategy is my own rip-off of a strategy I read somewhere about using 3 EMAs, but I just replace the third, fast EMA with price itself in this method because I (perhaps naively) believe this can actually reduce whipsaw exposure.
Here's the method.
As soon as price crosses above (below) the 50EMA you go long (short). Let it ride until we close position precisely when price crosses back above the 50EMA or the 20EMA. If it crosses back above (below) the 50EMA, we flip our position from long to short or short to long. If it crosses back above (below) the 20EMA, we exit the position and wait for the trend to continue, reentering when price crosses back above (below) the 20EMA. So you're not in the market when price is between the 50EMA and the 20EMA in a countertrend movement.
Fine, that looks super in a trending market but what about the whipsaws? My theory here is that if your TF is long enough, price will usually approach the 50EMA with some sort of momentum and cross it for a number of pips. Which means that if you enter long, for example when price crosses above the 50EMA on D1 timeframe, you'll put in some sort of stop you figure out but price may very well continue. Which means that if it falls back after it advances 100 pips over the 50EMA, throughout much of a whipsaw period, you're actually not losing much because you enter long at 50EMA (which is pretty flat) and then exit when it hits almost the exact same level, except for when price trends off, which you'll be happy about because you'll be long/short in that direction.
The MM is something I need to study and figure out, but I'd like to get initial reactions to this. I want something that uses trend info like the MAs, but is also close enough to price itself not to get beat up to kingdom come in a whipsaw period as so many of these systems do. In order to achieve this, more time is needed when price is near MAs, especially the 50EMA as you might be entering/exiting daily here but during a trend may not touch position for weeks.
Note that this system won't work well on price series that gap like stocks or commodities. Also won't work well on short TFs because when price hovers around the 50EMA and you're entering/exiting long/short a lot, you'd get butchered on spread sometimes I presume.
The system is based on the assumption that eventually price will diverge from 50EMA (and indeed it's frequently far from 50EMA) and the 20EMA will help you keep profits during dangerous countertrend reversals.
Entry optimization by looking at different TFs D1, H4 and H1 and even further down may help as many systems use methods like this to time entry when primarily using longer TFs. Also dropping down to a lower TF like from D1 to H1 while D1 price hovers around 50EMA may help with managing the whipsaw period.
Of course this idea is nothing new, but I haven't seen it talked about in this particular way.
I've attached a screenshot so people can get an idea of what I'm talking about. Don't pay attention to the blue arrows next to the notes, the red lines are where I'm talking about.
Looking forward to any reactions from experienced traders who might be able to tell me why this is a BAD idea.
Regards,
20
Here's my first post. Been reading through many threads on strategy including manual systems, manual mechanical systems, EAs, etc. and would like to discuss my take on trading according to all that I've read so far.
I love the idea of forex, been learning MT4, etc. so far but haven't traded live yet. I'd like to get my feet wet by developing a largely mechanical manual system to trade H1, H4, or D1 charts with a good trend following method.
Why these TFs? Because I don't want to spend hours a day at the computer, and I'm sure many of you don't want to either. So for those of you who are interested in glancing at positions a couple times a day rather than scalping, my hope is that we'll all find this helpful.
Why not after an EA already? Yes EAs are interesting and the idea is wonderful but I notice many people are very frustrated with them, and many EAs need to be managed about as much as you'd manage D1 positions to stay profitable anyway. Samurai's directional use of Firebird is intriguing, but if I can't follow a D1 trend first on my own, then dramatically increasing my R/R by using Firebird or whatever smaller TF system you want will just make it all worse in the beginning.
So, no insult to anyone's complex systems on here, many very impressive, but via Ockham's razor, the simpler I can get my system the better. What do you all think of something like the following...I'm keenly interested in comments on why you think this would FAIL.
Take a simple candle chart and put a 20EMA and a 50EMA on it. This strategy is my own rip-off of a strategy I read somewhere about using 3 EMAs, but I just replace the third, fast EMA with price itself in this method because I (perhaps naively) believe this can actually reduce whipsaw exposure.
Here's the method.
As soon as price crosses above (below) the 50EMA you go long (short). Let it ride until we close position precisely when price crosses back above the 50EMA or the 20EMA. If it crosses back above (below) the 50EMA, we flip our position from long to short or short to long. If it crosses back above (below) the 20EMA, we exit the position and wait for the trend to continue, reentering when price crosses back above (below) the 20EMA. So you're not in the market when price is between the 50EMA and the 20EMA in a countertrend movement.
Fine, that looks super in a trending market but what about the whipsaws? My theory here is that if your TF is long enough, price will usually approach the 50EMA with some sort of momentum and cross it for a number of pips. Which means that if you enter long, for example when price crosses above the 50EMA on D1 timeframe, you'll put in some sort of stop you figure out but price may very well continue. Which means that if it falls back after it advances 100 pips over the 50EMA, throughout much of a whipsaw period, you're actually not losing much because you enter long at 50EMA (which is pretty flat) and then exit when it hits almost the exact same level, except for when price trends off, which you'll be happy about because you'll be long/short in that direction.
The MM is something I need to study and figure out, but I'd like to get initial reactions to this. I want something that uses trend info like the MAs, but is also close enough to price itself not to get beat up to kingdom come in a whipsaw period as so many of these systems do. In order to achieve this, more time is needed when price is near MAs, especially the 50EMA as you might be entering/exiting daily here but during a trend may not touch position for weeks.
Note that this system won't work well on price series that gap like stocks or commodities. Also won't work well on short TFs because when price hovers around the 50EMA and you're entering/exiting long/short a lot, you'd get butchered on spread sometimes I presume.
The system is based on the assumption that eventually price will diverge from 50EMA (and indeed it's frequently far from 50EMA) and the 20EMA will help you keep profits during dangerous countertrend reversals.
Entry optimization by looking at different TFs D1, H4 and H1 and even further down may help as many systems use methods like this to time entry when primarily using longer TFs. Also dropping down to a lower TF like from D1 to H1 while D1 price hovers around 50EMA may help with managing the whipsaw period.
Of course this idea is nothing new, but I haven't seen it talked about in this particular way.
I've attached a screenshot so people can get an idea of what I'm talking about. Don't pay attention to the blue arrows next to the notes, the red lines are where I'm talking about.
Looking forward to any reactions from experienced traders who might be able to tell me why this is a BAD idea.
Regards,
20
Attached Image (click to enlarge)
