Great 5M pullback system

Hello, fellow traders!

I've started my journey as a forex trader on this great and wonderful website about a year ago. I've learned a lot both about trading and psychology from some of the greatest threads here on FF. And now I want to introduce the system I'm currently utilizing myself.

I'm not gonna talk here much and write a big introduction. I'll just state the reasons I decided to start this thread and the goals I would like it to achieve.

1. I want this system to grow and develop with the help of others as I believe it to be very effective.
2. I believe this system will give a good start for those who are new to forex because of its simplicity.
3. I want people to come here and share their vision of the market with others; I believe that this kind of collaboration will help everybody master their trading skills faster. Lets grow together!

The system itself will be explained in the next post. I will provide all the info regarding the entry rules along with the templates and indicators I use there.

The system is all about pullback trading. I find these types of trades to be very profitable, less risky and easier to understand than trend-reversal trades.

I use this system with two pairs GU and EU, and I want to assure you this is more than enough. Otherwise it gets hard when you try to watch more than two pairs. I even find it difficult to watch 2 pairs, because sometimes it leads to missing entries on one of them.

Just remember this; if you master the system you should get no less than 300-400 pips a week from these pairs, guaranteed.

When to trade:

I trade this system during active market hours. I advice to look for entries starting 5 GMT and until 8 GMT (this is when Tokyo session end overlaps with Frankfurt and London openings). And also starting 11 GMT until 15 GMT. (This is after Middle East is done trading, London and Frankfurt are back from their lunch and NY traders kick in later on)

System description:

Basically, all you need for a pullback trading is an established trend. It’s up to you what indicator and TF you will use to find a trend – the greatest thing about forex is that everything works here until you strictly follow the rules. So you just have to pick what suits you the most.

I use 5M TF and a longer term MACD (38, 120, 20) for identifying the trend. (Got it from the great scalping strategy described here: http://www.forexfactory.com/showthread.php?t=90639 )

MACD >0 – trend is up
MACD <0 – trend is down

I also have 50 and 200 EMA on my charts. They act as dynamic S/R lvls and also help me to determine the trend by looking at their positioning in the relation to each other.
The rules are following:

50 EMA > 200EMA – trend is up
50 EMA < 200 EMA – trend is down

It is good to look at the slope of these averages as well. Its better when both of the averages are sloping in one direction and not going sideways (consolidation).

Pullbacks: I use stochastic (14, 3, 3) for identifying pullbacks.
I consider a pullback to be valid if stoch dips below/goes above the 50 lvl.

I also have 15M stoch on my 5M chart which sometimes helps me to filter out fake pullbacks. I want 5M and 15M stochs to align in one direction when I’m entering the trade.


Entry rules: Now these are somewhat subjective, but basically I would advice to do the following. (Described for longs, do opposite for shorts)

Entry:

MACD (38, 120, 20) > 0
50 EMA > 200 EMA and both sloping up
Stoch (14, 3, 3) makes a pullback and goes below 50.

Enter when 5M bar is above 50 EMA and stoch is breaking the 50 lvl upwards. It is important for stoch to build up upwards momentum that is why we want it to be above 50 lvl when we enter the trade.

Stop Loss:

Place SL below the swing low or @ 20-30 pips from your entry point. It shouldn’t be more then that.

Targets:

Well, this is the trickiest part. Here are the few possibilities to consider.

1. Exit at the predetermined amount of pips.
2. Exit at the standard fib extension measured from the pullback.
3. Exit when Stoch (14, 3, 3) goes below overbought lvl of 76.4
4. Exit at the nearest S/R lvl.

Exits are currently the biggest pain in the neck for me, because I never know for sure when to get out. So quite often I end up getting 30 pips where I could’ve gotten 100 or even more. I’m hoping this thread through collaboration of traders will come up with some strict exit rules which will help everyone maximize their profits.


Below are pictures with examples of today’s possibilities.

I took a GU trade and sadly missed the EU. Got out using fib extension on GU @ 44 pips. Entered using market order.

Here are the indicators and a current template I'm using. Hope it helps! The only two non-standard indis are KG S/R lvls a (dotted lines on the chart which help me to identify important swing high/lows) and MTF stochastic indicator which allows having 15M stoch on 5M chart.

I would like this thread to have as much pictures as possibles, because I believe a picture is worth a thousand words. Basically I advise to utilize an idea of "No picture - no talk!" which I got from one of the greatest threads here on FF: the Sonic R thread

http://www.forexfactory.com/showthread.php?t=114792

This thread is a must-study! Its all about price action and swing trading. No indicators needed! Go check it out and study it thoroughly.

what about :
putting a trendline on stochastics (lows for upmove, highs for downmove) ...on your both charts it s showing exit at max... this is just an afterwards suggestion...
i dont know though if it will work live...

mistersimple, could you plz describe in more detail what you're reffering to. I've heard somewhere about the technique but i don't know how to make use of it.

Hey, Snusnu

Glad to see your thread as I am also using an EMA pullback as my main system but on H4 & occasionally on M15.

It is always better to create your own system I believe, from the psychological point of view, it is easier to believe in your own system.

I am interested to know why you choose the M5 TF.
Personally even M15 was starting to burn me out.

PS: Looking at the chart, the 50 EMA is a long way to pullback is it not?





Wishing you many good trades.

Thanks for sharing your system!

For how long you are using your system and what is the win loss ratio?

What is avg number of trades per day or per week?

Hi there, Rastaman! Thx for your kind words.

I use 5M TF because it gives 2-4 entries every day (on 2 pairs), so it keeps me busy and suits my style of trading the best, unlike with Sonic R where i had too wait for good set-ups sometimes for a few days in a row.

50 EMA is for deep pullbacks, you're correct. I'm experimenting with faster EMAs as well. Might add that to the system. You could try 15 EMA or 20 EMA for strong trends. But still, even with 50 EMA you get 1-2 entries per pair a day.

Regards,
snu

Hi, kijkij!

you're welcome!

The system is relatively new, I've been using it for a month with some great results!

On avg you should probably get 2-4 trades a day on both pairs.

So far I had 14 trades this week, 3 of them were negative 1 closed @ BE. I mised quite a few good ones as well (for example GU yesterday during NY session).

I don't believe in system's Win/Loss ratio. I think it depends more on a trader himself. Given same entry point different people can have completely different results on the same trade.

Regards,
snu

Snusnu


Good job.

the James 16 group use 10, 25, 150 & 365 EMA close.

This is what I am using and it works pretty well as a pullback system, especially if we have confluence of fibos and EMAs, PPZ etc. They take the pullback off of the 150 & 365 also in the other direction if price breaks down on a long trade.

They also use a 6 and 150 EMA pullback system.

I don't like the traditional EMA crossover entry but the pullback works.


I took over 300 pips on one trade of EU early this month with these EMAs.


The EU trade pic is sonicr but, I actually took it on the EMA system.

Dear Snu,

Thank you very much for share this system . This is very nice.

Best Regards.
Bülent.

Nice trade you have there Rastaman!

Here is another quick tip for those who want to become even more effective with the system.

Use fib tool along with the stoch pullbacks for identifying good retracements.
Pay attention to 38,2 and 61,8 lvls. They give you the best entries (using limit orders) with tightest stops. I'll provide some examples next week, hopefully.

I'm In.

Wanted to enter using limit order @ 1.3255 but didn't get filled. In @ 1.3235. SL is 1.3260. Target is 1.3100 (4H chart analisys) but might get out earlier. Lets see what will market do

Regards,
Snu

Closed half @ +20 and another half @ BE. MACD is still < 0, so still oking for shorts.

Not trying to tell you your own system just want to ask,
have you checked using the macd slope and signal
line instead of just above/below 0?

Using the slope is more direct to the immediate trend, ie
if above 0 but below the signal line or below 0 and below
the signal line, then short, if below 0 and above the
signal line or above 0 and above the signal line, then long.

Have you checked the same "signals" against this criteria
instead of just above/below 0?

Brian

Hi, Brian!

Yes, I've done that. And I noticed that MACD cross with its signal line works almost just like standard 12 26 9 MACD zero line cross (you can check it out yourself). I'm not using that since current 5M trend is not what interests me. For me its more important to observe that I play with the Higher TF trend represented by the 38 120 20 MACD.

Regards,
snu.

Absolutely, its your system, just for me, trying to play the
strongest 15m trend with the macd settings.

Ok look forward to seeing more from you..

Brian

EU short once again. Up 45 right now. I guess its time to move stop to BE.

Regards,
snu.

Decided not to wait for a target and closed @ +50.

Total 70 pips from EU for today.
Didn't play GU as its Bank Holiday.

Cheers and see you tomorrow!