FX93’S MULTI-TIMELINE SWING TRADING SYSTEM BASED UPON DIVERGENCE
When one timeframe is OB/OS, we look for divergence on the lower timeframes as our entry point. Thus essentially we are only trading divergences. This system is similar to many in its priority is buying the trend on pullbacks, but we may optionally take countertrend trades if there is divergence between well defined highs or lows on the main timeframe, as these have the most hidden momentum to break through to a new trend.
This system has been revolutionized by the MACD divergence signal line indicator coded by Tony Lipton listed below. The best trades occur when there is divergence present between two peaks/troughs, and there is a signal line still signaling. I usually just trade these signals, if they happen to concur with a pullback in the trend all the better. I scale in at 1/5 a normal position to prevent large drawdown in case the move against me is large and use a 200 pip stop just in case I get disconnected, the plan being to never suffer a loss due to averaging in. I average in about every 10 pips or based on the stochastics.
I am still working out the best averaging in method, sometimes I use 1/10th a normal position. My normal position size is determined by a 4% risk each trade to my account sum. For instance, it is a .15 lot to a $415 account, so 1/5th of this is a .03 lot. It really depends on how good you think the entry is. If you think you have hit the divergent peak then you can go 1/2 in or all in. I never go all in personally on one trade, the divergences are usually not developed enough for me to be that certain. Also, there may be several levels of divergence before price pops in one's desired direction.
The rules for entering with this method have become clear to me, please see post #57-61.
Money Management
Please download the forex equity model spreadsheet given below to determine the lot size one should trade based upon current capital, one’s average stop loss, and a 2% to 5% risk per trade. If one is averaging in, break this size by 5 or how many averages you think is good.
The second attached Excel file will calculate one's forecasted account growth via compound interest. I aim for 5% per week.
Indicators
MACD Divergence Signal Lines: Available for thinkorswim here: http://www.thinkscripter.com/forum/v...php?f=3&t=1590 . From my visual tests, I am plotting it twice and using the settings 24, 52 (twice normal) and 50, 200. Please see post #19 for more on it. This indicator has made me easily profitable, and I usually just trade by it. As I said above, the best opportunities is when divergence occurs between two peaks/troughs while there is a signal line stil signaling. One will really just have to study the charts to see how this indicator behaves.
Bollinger Band Fibonacci Levels: This is my trend indicator. When price is above the midline the trend is up. When the price is below the midline the trend is down.
Countertrend trades are best when there is divergence present on the main timeframe.
The exception to the midline defining the trend is when price begins making higher highs and higher lows in a downtrend. This indicates the trend may have changed from down to up. Likewise, when price begins making lower highs and lower lows in an uptrend it indicates the trend may have changed from up to down. This study is available for thinkorswim here: http://www.thinkscripter.com/indicat...bonacci-lines/
50&200 EMA: I was using these to define the trend, but still like them as s/r levels. Also, when price is in the space between the two it is advised caution on trades be taken, as this is by definition price’s median range. When overbought/oversold indicator levels occur in this space, one will be trying to trade the mean outward. This is most safely and commonly done with the trend when one is established.
Keltner Channels (displace 0, factor 1.25, length 8, price close): This serves as both a filter and an optional target price, and even as a buy/sell signal. To go short on the %d 80 line cross, price must have touched or crossed through the top of the keltner channel within a few bars back. To go long on the %d 20 line cross, price must have touched or crossed through the bottom of the keltner channel within a few bars back. This further avoids low range whipsaws, and is similar to the stochastics rule in effect.
One may set one’s target price to the opposite end of the keltner channel.
Finally, in a ranging market one can even be aggressive and buy/sell as soon as one sees price touch or penetrate the keltner channel, as long as the stochastics are OB/OS as well. Buy when it hits the bottom line and sell when it hits the top line.
Daily and Weekly Pivots: I find these to be crucial in determining where price is most likely to rise or fall to. They thus serve as a filter to where best to buy and sell at.
Full Stochastic (8, 3, 3): This is an additional buy/sell indicator of the strategy. The safest trigger signal is when the %K line crosses ideally the 10 or 90 level and then comes back to cross the 20 and 80 line. The other trigger signal is when the %K line crosses the %D line when OB/OS. The best trades will have a steep arc on them, which equates to a decisive reversal in price action.
It also may be used as a natural TP when price reaches the other end of the stochastic and begins to come back down from being OB/OS.
RSI (9): This indicator is used for measuring divergences as well.
When one timeframe is OB/OS, we look for divergence on the lower timeframes as our entry point. Thus essentially we are only trading divergences. This system is similar to many in its priority is buying the trend on pullbacks, but we may optionally take countertrend trades if there is divergence between well defined highs or lows on the main timeframe, as these have the most hidden momentum to break through to a new trend.
This system has been revolutionized by the MACD divergence signal line indicator coded by Tony Lipton listed below. The best trades occur when there is divergence present between two peaks/troughs, and there is a signal line still signaling. I usually just trade these signals, if they happen to concur with a pullback in the trend all the better. I scale in at 1/5 a normal position to prevent large drawdown in case the move against me is large and use a 200 pip stop just in case I get disconnected, the plan being to never suffer a loss due to averaging in. I average in about every 10 pips or based on the stochastics.
I am still working out the best averaging in method, sometimes I use 1/10th a normal position. My normal position size is determined by a 4% risk each trade to my account sum. For instance, it is a .15 lot to a $415 account, so 1/5th of this is a .03 lot. It really depends on how good you think the entry is. If you think you have hit the divergent peak then you can go 1/2 in or all in. I never go all in personally on one trade, the divergences are usually not developed enough for me to be that certain. Also, there may be several levels of divergence before price pops in one's desired direction.
The rules for entering with this method have become clear to me, please see post #57-61.
Money Management
Please download the forex equity model spreadsheet given below to determine the lot size one should trade based upon current capital, one’s average stop loss, and a 2% to 5% risk per trade. If one is averaging in, break this size by 5 or how many averages you think is good.
The second attached Excel file will calculate one's forecasted account growth via compound interest. I aim for 5% per week.
Indicators
MACD Divergence Signal Lines: Available for thinkorswim here: http://www.thinkscripter.com/forum/v...php?f=3&t=1590 . From my visual tests, I am plotting it twice and using the settings 24, 52 (twice normal) and 50, 200. Please see post #19 for more on it. This indicator has made me easily profitable, and I usually just trade by it. As I said above, the best opportunities is when divergence occurs between two peaks/troughs while there is a signal line stil signaling. One will really just have to study the charts to see how this indicator behaves.
Bollinger Band Fibonacci Levels: This is my trend indicator. When price is above the midline the trend is up. When the price is below the midline the trend is down.
Countertrend trades are best when there is divergence present on the main timeframe.
The exception to the midline defining the trend is when price begins making higher highs and higher lows in a downtrend. This indicates the trend may have changed from down to up. Likewise, when price begins making lower highs and lower lows in an uptrend it indicates the trend may have changed from up to down. This study is available for thinkorswim here: http://www.thinkscripter.com/indicat...bonacci-lines/
50&200 EMA: I was using these to define the trend, but still like them as s/r levels. Also, when price is in the space between the two it is advised caution on trades be taken, as this is by definition price’s median range. When overbought/oversold indicator levels occur in this space, one will be trying to trade the mean outward. This is most safely and commonly done with the trend when one is established.
Keltner Channels (displace 0, factor 1.25, length 8, price close): This serves as both a filter and an optional target price, and even as a buy/sell signal. To go short on the %d 80 line cross, price must have touched or crossed through the top of the keltner channel within a few bars back. To go long on the %d 20 line cross, price must have touched or crossed through the bottom of the keltner channel within a few bars back. This further avoids low range whipsaws, and is similar to the stochastics rule in effect.
One may set one’s target price to the opposite end of the keltner channel.
Finally, in a ranging market one can even be aggressive and buy/sell as soon as one sees price touch or penetrate the keltner channel, as long as the stochastics are OB/OS as well. Buy when it hits the bottom line and sell when it hits the top line.
Daily and Weekly Pivots: I find these to be crucial in determining where price is most likely to rise or fall to. They thus serve as a filter to where best to buy and sell at.
Full Stochastic (8, 3, 3): This is an additional buy/sell indicator of the strategy. The safest trigger signal is when the %K line crosses ideally the 10 or 90 level and then comes back to cross the 20 and 80 line. The other trigger signal is when the %K line crosses the %D line when OB/OS. The best trades will have a steep arc on them, which equates to a decisive reversal in price action.
It also may be used as a natural TP when price reaches the other end of the stochastic and begins to come back down from being OB/OS.
RSI (9): This indicator is used for measuring divergences as well.
Attached File(s)
