Trading "The Constrictor"

hey guys,

In response to some pms and e-mails I thought I would start a journal here at FF to let you guys know how I am progressing in the development of my trading system - "The Constrictor" which I have been busy working with since the last 3 - 4 months now. (back testing and forward testing) I also have a journal running at the J16 private forum where I did much of the initial experimenting and testing.


What I use for this trading system is a 21 EMA and a 50 EMA applied to the close. The region in between the 2 EMAs is what I refer to as the "constriction zone (CZ)".

I have developed 5 different entry methods 3 of which are trend following methods and the other 2 are the more aggressive counter trend methods.

Before we proceed, I'd like to mention that this system is basically just an extension or a branch of the James16 methods and some knowledge of how we trade at the J16 thread would come in handy, though of course I'll be explaining my entries in detail whenever I can keeping in mind the raw newbies around.

A very special thanks to my dear friend Mike w for all his efforts and ideas to get me going, and the myriad number of folks at the j16 thread that were right beside me all this time.

Pairs: Most of the common pairs - no exotics - nothing choppy. (Also some int. stocks weekly TFs)

Time Frames: 4H and above

Trigger bars: Outside bars (BUOBs & BEOBs), Inside bars, Pin bars, IPBs, Bullish/Bearish bars (long body, authoritative close)

(If there is anyone out there that needs an explanation on what these trigger bars are exactly, let me know and I'll take it up - like I said some basic knowledge about J16 methods will make this entire thing go down very quick)

Right I guess I've covered pretty much all the "first things" I needed to.

Posts coming up with the real matter.

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{EDIT}: I have also done a few introductory videos explaining the constrictor system. here they are

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ENTRY TYPE 1: (Initial breakout from the CZ)

This is the first of the 2 aggressive entry methods.

Requirements:

1) price bounces off an important location.

2) It enters the CZ and spends some time in it.

3) A nice looking trigger bar that is the first bar which closes above or below the CZ as the case maybe.

By important location I mean there should be significant evidence that if you're looking to catch a reversal it's off an area that has a potential to reverse price. (A big Round number, all time swing low/high etc)

The idea behind not taking a trade that just stops, and rises like a rocket or drops like a stone blowing through the CZ and closing beyond it with authority without spending some time in the CZ is that often when price steams in from that far away it is due for a pull back and I never like to be in a trade that instead of breaking hard just hangs around between my entry point and my SL. When price has consolidated in the CZ for a while there is a good chance it will ride a breakout nicely.

These entries are rare obviously because price doesn't change trends everyday (on 4H and above) unless it's a choppy pair which then won't get any attention from me and also because you don't get a perfect ET1 trade setup every time price reverses.

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ENTRY TYPE 2: (breakout + pull back to the CZ)

This is the second of the 2 aggressive counter trend entry methods.

requirements:

1) Price bounces off an important location

2) It enters into the CZ

3) Price initially breaks out of the CZ

4) Price pulls back to the CZ

5) Finally gives off a nice trigger bar

There is no requirement of price to consolidate in the CZ because it is less of an aggressive entry than ET1 anyways. There are 2 reasons for this. the pull back to the CZ allows for that little breathing that price needs before it shoots off. Secondly we are not getting in on the first bus (ET1 - more aggressive) we are waiting to see if price can hold at the CZ which is a good indication that the recent bounce has "legs".

By initial break I am always referring to a close beyond the CZ. Hence our trigger bar won't be the first bar that closes beyond the CZ. (If it is, then it really is an ET1 bar and all of ET1 entry reqs will have to be met)

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ENTRY TYPE 3: (Pull back to the 21 EMA)

First of the trend following entries.

requirements:

1) Price has to be in a nice trend.

2) The CZ is wide. (indication of a strong trend)

3) Price pulls back to the 21 EMA and gives off a trigger bar.


Pretty simple and straight forward I guess.

You can be a little lenient on factors like "space" (bar highs/lows coming in the way of the trade) when you are trading with the trend depending on how strong the trend is and how good the trigger bar looks, but a lot of importance still has to be given to big round numbers no matter what.

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ENTRY TYPE 4: (Pull back to the 50 EMA and beyond with the CZ tightened up)

requirements:

1) Price has to be in a nice trend.

2) Price pulls back allowing the 21 EMA to come close to the 50 EMA

3) Price indicates trend resumption via a trigger bar which closes below the 21 EMA.


The coming together of the 2 EMAs is an amazing phenomena. Set the constrictor template and scroll back to see how the the CZ acts like a "spring" to a trend, it constricts as price pulls back and then when price looks to resume the trend it does so pretty hard credit to the constriction (how I look at it)

Also note in some cases the 3rd requirement can be relaxed a bit say for example in case of a great looking pin bar (long nose and brilliantly located) that does close in the CZ instead of the 21 EMA - the trade may still be taken upon the discretion and judgment of the trader.

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ENTRY TYPE 5: (Prolonged pull back beyond the 50 EMA with EMA positions reversed)

requirements:

1) Price has to be in a nice trend

2) Price pulls back beyond the 50 EMA causing the 21 EMA to actually cross the 50 EMA

3) Price immediately looks to resume the trend by virtue of a trigger bar.


When price prolongs the pull back to a trend the 21 EMA often crosses the 50 EMA, which sort of reverses the positions of the 2 MAs for a tiny while. Care has to be taken however. We do not want the prolonged pull back to look more like a mini trend with the 21 EMA continuously hovering at it it's new position. It should cross the 50 EMA again in quick time to recover the original trend and it's original position (below the 50 EMA for a down trend, above the 50 EMA for an up trend)

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Trade Management:

1) SL is always - and I mean always is initially located at the opposite end of the bar + some pips.

2) It get's moved down as price makes new highs (down trend) and new lows (up trend)

3) A manual exit is possible if things unfold differently than anticipated.


There is a big trade off between limiting your risk and profiting. I tend to let my trades breathe and you won't find me moving my stop to BE at the first possible instant. Like I said I won't let a trade take me out for -1R when it's gone 2R in the green just because price hasn't given me a new high/low to move my stop, but then under normal circumstances I will just let the markets do their thing.

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Only recently wanted to shade the CZ and Oromek was kind enough to code it for me.

here it is if someone needs it.

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Talking about stocks...

Look at Coca Cola go!! (weekly FXpro)

ET4 BUB (bullish bar)

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I am short Gu 4H off a wonderful looking inside bar.

Most of my the biggest runners I've had with this system were Inside bar trades...and it's obvious to see why - no other trigger bar beats the huge R:R potential.

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Usd/Cad 4H ET2 trade missed.

Still I want to share why this was clearly a solid setup.

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Eur/Gbp 4H.

Bearish bar as per entry type 4.

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Ghous,

Thank you for sharing, something new to back test.

You are inspirational, we started around the same time, and your trading knowledge just exploded. Lots of hard work, and it is evident.

Thank you!

T.J.

stopped out for BE.

Price pulled back after going 3R in my direction - no way was I going to take a loss on this one.

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Thanks a lot T.J for the encouraging words - still a long way to go

Stop reduced to a half bar one.

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Saw this on Ej, but was an easy pass for me.

I was looking for a stronger close at or beyond the ascending trend line.

It's working out pretty well but I am determined to be picky with my trades, given the fact that we get ample setups every month across the pairs I trade.



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Eu.

Have no idea how I missed this.

I have got to organize my time more efficiently.

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Remember this from yesterday?

One PPZ to the next is how we roll folks!

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