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HYBRID: trading system within a trading system

  • #1
  • First Post: Edited Dec 4, 2011 6:21pm Jul 4, 2011 4:02pm | Edited Dec 4, 2011 6:21pm
No man can capture all the fluctuations.....Jesse Livermore.....

FRACTALS/HYBRID:trading system within a trading system

Generally, high win rate(high win:loss) tends to come with lower risk/reward; or vice versa: the higher the risk/reward the lower the win rate.

A trading system that combine win/loss of roughly 60% along with a regular 8R to 20R(r:r of 1:8 or 1:20) are very rare, if they even exist at all. That is my little observation about trading.

AXIOM: Any system with a high R/R ratio must use a higher time frame for setups and lower time frames for entry. The greater the differential, the better.

Now, how does one take care of the poor win:loss ratio that plagues such a system.

There are other solutions, of course. But the one that has worked for me is to combine/hybridized a scalping system on a lower time with a trend trading system of higher time frame. That is, enter at the entry point of the scalp(1mins to 15mins), but use the PT of the trending trading system(H4 to weekly). If the scalping system has a respectable win/loss of say, 60% and above; and the trend trading system has a respectable win/loss of say 60% and above. We are in business. Of course, there is going to be a sizable dose of breakevens, this is the nature of the beast. It is essentially a trading system within a trading system. A hybrid. This is optimal for high risk/reward, of say, 8R or 20R with a win rate of 60%. It is risking around 4pips to 15 pips to make 100pips to 243 pips or higher.

Trend trading breakouts for my higher time frame strategy has this structure.

http://www.forex-mail.com/images/trend1.png

The higher time frame methodologies are: swinging/wave movements and polygonal breakouts on the daily frame using lower 1/8th or 1/4th b-p-c.(BREAKOUT - PULLBACK - CONTINUATION). I am sure there are others, but these are the ones that i personally know to result in 60% win rate or higher.

For the scalping method: One trading method that i found to have at least 60% success rate at 1min to 15mins time frame are ascending or descending triangle breakout, that ran, pullback, and then continue in the direction of the breakout. With entrance at the reversal candle at the bottom of the pullback.
From my own personal study, i notice this method works in all time frames. Lets called this by acronym: TBPC

http://fx-arabia.com/vb/uploaded/964_11284889713.png

As such, the combination of the two:using the higher time frame trend trading to set the PT and the lower time frame TBPC to set the entry yields a high win:loss with a 10 to 20 r:r.

This is the framework. There is nothing groundbreaking here. It is simply a combination of two elegantly simple techniques. I will start posting live setups

IN A NUTSHELL:

All these systems are simply little variations of the same thing.

(1)find a robust, simple system on a higher time frame with a good win/loss of 60% or higher; with a 1:1 to 1:3 r/r

(2) find a simple, robust system on a LOWER TIME FRAME with a good win/loss and a decent r/r of say 1:1 to 1:3.

(3) merge the two together. Use as your entry the lower time frame methodology, while using the TP of the higher time frame for exit. Sometimes, it is the same system from a 4hr or daily time frame that is now replicated on a 5mins or 1mins time frame, inside itself. This is how i know to get a decent win/loss ratio with a respectable R/R of say, 1: 8 to 1:20(especially, if the setup is weekly or monthly, and the entry is 1 or 5mins.). Of course, breakevens increases. and win/loss drops due to the noise of 1mins...that is why i look far away from red-labeled news.

(4)Use purely price action. Trade with the trend. Avoid red-labeled news.


_______________________________________________________________________
_______________________________________________________________________


ADDENDUM: useful threads that i adapted from:
Building an equity millipede
Trend Trading All Pairs
Central Banks & Big Players
Trading with Deadly Accuracy
DanUK's Advanced Trend Trading Strategy
My way of trading by Using trend line , BL line & febo level
  • #2
  • Edited Jul 5, 2011 7:10am Jul 4, 2011 4:22pm | Edited Jul 5, 2011 7:10am
If anybody has a system or a good idea for a system that robustly captures high R:R with high WIN:LOSS, feel free to post it. (but be forewarned, it will be rigorously examined). Because high r/r and high win/loss are very, very rare.

Obviously, i dont use indicators. Others do, and perhaps, it works for them. It is not my style. I use pure price action and readings of fundamentals.

p.s. I ALSO USE FUNDAMENTALS IN DETERMINING TREND DIRECTION.

JUST ADDED: I almost forgot. The reversal candle formation i look for on the 5mins is the inverted hammer/hammer.

http://www.onlinetradingconcepts.com...dHammerPic.gif

http://www.onlinetradingconcepts.com.../HammerPic.gif
  • #3
  • Jul 4, 2011 4:23pm Jul 4, 2011 4:23pm
Quoting FX_Neil
Sounds interesting, what pairs are you trading and do you have any charts with setups?
Thanks,
Neil
I will start posting actual setups starting from tomorrow.
  • #4
  • Aug 1, 2011 12:05pm Aug 1, 2011 12:05pm
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  • #5
  • Aug 1, 2011 12:14pm Aug 1, 2011 12:14pm
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  • #6
  • Edited 1:20pm Aug 1, 2011 12:28pm | Edited 1:20pm
-- 3 to 5 days trend in one direction

-- followed by consolidation(30mins to 4hr. preferably a 4hr consolidation)

-- breakout in the direction of the trend. look for BPC on 1min time frame. use as SL = 10 pips + spread. TP = 90% of average daily range.

This is a combination of hectors LOB(THE VIDEOS below) + tony 112. Hector's LOB uses 15mins bpc. WHILE TONY USES seconds. I OPT for 1min. Hectors time frame is 3am to 4am us EST time. that is my time frame too.
UPSIDES:this gives a r/r of 1:5 to 1:9; Downside? lots of breakevens. I B/E the trade at 1:1.


Inserted Video


MORE ON hector's LOB:
Inserted Video


Inserted Video
  • #7
  • Aug 1, 2011 1:24pm Aug 1, 2011 1:24pm
Quoting dddd
attachments.
cad/chf r/r 1:8. no multiple entries.
cad/jpy r/r 1:12.7. no multiple entries either.

the method is also a modified hector trades. waiting for a bpc on the internal trendline after a 1,2,3 formation.

during the formation of the bpc, go to 1min time frame, and find yet again find a 1,2,3 formation on the 1min. draw another internal trendline and look for a bpc off that 1min internal trendline. then enter at the completion of that bpc. using the peak of the "2"+ spread (from the 1,2,3 of 1min) as SL.

This gives the big r/r while exploiting the high win ratio of hector's trend trading 3sma.
  • #8
  • Edited 5:28pm Aug 1, 2011 2:29pm | Edited 5:28pm
POLYGONAL BREAKOUTS.

when there is a h1 or h4 bpc from daily or weekly octogonal trendlines. with the breakout being only 2 candles before a pullback, and the continuation candles not more 3 candles. I found that the price target of measured move projection of the BPC tends to be reached. The win/ratio is very high:75%. The downside? Unfortunately, the r/r is only 1:1. The occurrence of these breakouts only happens roughly twice a week.
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  • #9
  • Edited 5:28pm Aug 1, 2011 2:36pm | Edited 5:28pm
Quoting dddd
POLYGONAL BREAKOUTS.

when there is a h1 or h4 bpc from daily or weekly octogonal trendlines. with the breakout being only 2 candles before a pullback, and the continuation candles not more 3 candles. I found that the price target of measured move projection of the BPC tends to be reached. The win/ratio is very high:75%. The downside? Unfortunately, the r/r is only 1:1. The occurrence of these breakouts only happens roughly twice a week.
POLYGONAL BREAKOUTS part 2


The challenge is, how can i possible exploit this high win ratio with a good r/r? That is why i decided to delve into the BPC itself --that is, using a 1min time frame inside the pullback, enter after a 1,2,3 completion followed by a bpc.

the breakdown:

--LOOK for POLYgonal breakouts on the daily or weekly. (with at least two points touching the trendline). On rare occasions use h4(with three points touching the trendlines.

-- look for bpc on h4 or h1.

--Go to 5mins time frame within the bpc has it is touching the trendline where the breakout happens. Look for 1,2,3 formation.

--draw internal trendline on the 1,2,3 formation.

--wait for a bpc of the internal trendline on the 1min. enter at completion of bpc.

--Use the peak of the "2" + spread on the 1,2,3 as SL.

--B/E the trade when price goes back to the starting point of the internal trendline.

-TP #1 . exit at measured move projection of the h1 or h4 bpc.

--TP # 2. If trend-friendly, move SL to the mouth of the H1 OR H4 bpc, and ride the trend.

--the Breakout candles cannot be more than two candles.


ADDENDUM: GENERALLy, the r/r between the entry at 1min and the mouth of the 1hr or 4hr bpc can be between 1:3 to 1:5. then added the projection of 1hr or 4hr bpc...that makes it a total of 1:6 to 1:10. which from my experience has 75% chance of hitting that forward projected bpc.

UPSIDE: PT target has a 75% chance of hitting; r/r between 1:6 and 1:10.

downside: pattern seems to occur only TWICE a week, with failures at least twice a month. since using 1mins...breakeven has increased. entry losses has increased...1min entry win/rate as dropped below 75%.(because sometimes, there is a bp....and no "c"....i give up on c if it dips below 61% FIB(with 50% at the breakout trendline)
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  • #10
  • Aug 1, 2011 2:55pm Aug 1, 2011 2:55pm
in a nutshell; all these systems are simply little variations of the same thing.

(1)find a robust, simple system on a higher time frame with a good win/loss of 60% or higher; with a 1:1 to 1:3 r/r

(2) find a simple, robust system on a LOWER TIME FRAME with a good win/loss and a decend r/r of say 1:1 to 1:3.

(3) merge the two together. Use the TP of the higher time frame for exit while entering on lower time frame. Sometimes, it is the same system from a 4hr or daily time frame that is now replicated on a 5mins or 1mins time frame, inside itself. This is how i know to get a decent win/loss ratio with a respectable R/R of say, 1: 8 to 1:20(especially, if the setup is weekly or monthly, and the entry is 1 or 5mins.). Of course, breakevens increases. and win/loss drops due to the noise of 1mins...that is why i look far away from red-labeled news.

(4)Use purely price action. Trade with the trend. Avoid red-labeled news.
  • #11
  • Aug 1, 2011 3:38pm Aug 1, 2011 3:38pm
Quoting dddd
cad/chf r/r 1:8. no multiple entries.
cad/jpy r/r 1:12.7. no multiple entries either.

the method is also a modified hector trades. waiting for a bpc on the internal trendline after a 1,2,3 formation.

during the formation of the bpc, go to 1min time frame, and find yet again find a 1,2,3 formation on the 1min. draw another internal trendline and look for a bpc off that 1min internal trendline. then enter at the completion of that bpc. using the peak of the "2"+ spread (from the 1,2,3 of 1min) as SL.

This gives the big r/r while exploiting...
Really great thread -- I love methods with high R:R and know how rare they are. Is this the main method you trade everyday (modified Hector) because you seem to have detailed performance info on it? Do you get setups each day? What is a bpc?

Thanks for the great examples, hope you keep posting them.
  • #12
  • Aug 1, 2011 5:35pm Aug 1, 2011 5:35pm
Quoting aw714
Really great thread -- I love methods with high R:R and know how rare they are. Is this the main method you trade everyday (modified Hector) because you seem to have detailed performance info on it? Do you get setups each day? What is a bpc?

Thanks for the great examples, hope you keep posting them.
bpc= breakout, pullback, continuation.

ON FREQUENCY:

the modified hector 3sma i get about 1 to 4 per week. it varies a lot.

the modified hector lob +tony112 i get about 1 to 2 per week. I DONT recall ever having more than 2.

the modified polygonal breakouts i get 2 per week. I never once had anything more than that.

the swings trade that i talked about here.... i get about 1 per 2days. sometimes 1 per day. Maybe i should create a thread for each method. Not to confuse things.
  • #13
  • Aug 1, 2011 6:48pm Aug 1, 2011 6:48pm
Quoting dddd
bpc= breakout, pullback, continuation.

ON FREQUENCY:

the modified hector 3sma i get about 1 to 4 per week. it varies a lot.

the modified hector lob +tony112 i get about 1 to 2 per week. I DONT recall ever having more than 2.

the modified polygonal breakouts i get 2 per week. I never once had anything more than that.

the swings trade that i talked about here.... i get about 1 per 2days. sometimes 1 per day. Maybe i should create a thread for each method. Not...
Thanks for answering my question. I also see you've divided up the different methods into separate threads. Are these the methods you mainly use to trade -- because the RR is great, but it seems like you don't get mainly trades from these signals?
  • #14
  • Aug 1, 2011 8:54pm Aug 1, 2011 8:54pm
Quoting aw714
Thanks for answering my question. I also see you've divided up the different methods into separate threads. Are these the methods you mainly use to trade -- because the RR is great, but it seems like you don't get mainly trades from these signals?

i decided to use different threads.....thinking it might make things less confusing.

yes. these are my methods.

i dont get many trades per method. aggregrate trade from all methods tend to net me around 4 positive trades per week. There are trading setups that i cant take because of news....e.g.i cant take a current eur/aud trade because of serious, red AUD news(there was just one right now in EUR/AUD for this method.
there are others that results in a loss--nothing is 100%. there are others that are breakevens.....at the end of the week i tend to have 4 positive trades per week.
  • #15
  • Aug 2, 2011 1:54am Aug 2, 2011 1:54am
Thanks for sharing. It has often come to my mind, why not merge 2 methods ( 1 on higher TF, one on lower TF ) in order to realize a better R:R.

So I would suggest to leave it as is, since the genuine idea is the flexible approach you are sharing. Just my 2 cents.

Once again thank you.



___________
michael
Be like water.
  • #16
  • Aug 2, 2011 2:00am Aug 2, 2011 2:00am
Quoting msmarple
Thanks for sharing. It has often come to my mind, why not merge 2 methods ( 1 on higher TF, one on lower TF ) in order to realize a better R:R.

So I would suggest to leave it as is, since the genuine idea is the flexible approach you are sharing. Just my 2 cents.

Once again thank you.



___________
michael

I appreciate it. It makes sense to me too. there was a trading setup in eur/jpy that i took but wasnt able to post live....i will try to do as many live setup that i can. it is the modified hector 3sma setup....i took the trade using my mobile app......when i got home...i annotated the chart and post it. here:

I am quickly looking around for the LOB +TONY112 TRADES now...SINCE it is 3am EST TIME
  • #17
  • Aug 2, 2011 2:37am Aug 2, 2011 2:37am
Quoting dddd
-- 3 to 5 days trend in one direction

-- followed by consolidation(30mins to 4hr. preferably a 4hr consolidation)

-- breakout in the direction of the trend. look for BPC on 1min time frame. use as SL = 10 pips + spread. TP = 90% of average daily range.

This is a combination of hectors LOB(THE VIDEOS below) + tony 112. Hector's LOB uses 15mins bpc. WHILE TONY USES seconds. I OPT for 1min. Hectors time frame is 3am to 4am us EST time. that is my time frame too.
UPSIDES:this...
A CAD/JPY TRADE HAS BEEN TRIGGERED. FOR THE hector LOB + TONY112...with entry on the 1min...r/r 1:6.6. B/E AT 1:1
  • #18
  • Aug 7, 2011 1:09am Aug 7, 2011 1:09am
Quoting dddd
-- 3 to 5 days trend in one direction

-- followed by consolidation(30mins to 4hr. preferably a 4hr consolidation)

-- breakout in the direction of the trend. look for BPC on 1min time frame. use as SL = 10 pips + spread. TP = 90% of average daily range.

This is a combination of hectors LOB(THE VIDEOS below) + tony 112. Hector's LOB uses 15mins bpc. WHILE TONY USES seconds. I OPT for 1min. Hectors time frame is 3am to 4am us EST time. that is my time frame too.
UPSIDES:this...
i meant to say 3am to 5am.
  • #19
  • Edited 1:15pm Aug 11, 2011 1:00pm | Edited 1:15pm
without bpc. but with a strong candle breakout on 1min.

I never took these trades, but i just took a quick review of some of the trades i didnt take because there was lack of BPC...(this action was prompted by a private conservation about how to improve my method. thanks)

EUR/CHF, CAD/CHF, GBP/CAD...of course, these are LOB type trades between 3am and 5am EST.

i have highlighted the strong candle breakouts in rectangle.

P.S i will look for others like this to see what is up.....potential candle candidates: marubozu; one-sided, short wick marubozu; strong-looking engulfing bar. candle size? dont know yet.
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  • #20
  • Edited 4:34pm Aug 12, 2011 3:53pm | Edited 4:34pm
Quoting dddd
the same principle here: for these trades(eur/gpb and gbp/jpy)that i passed up.

eur/gpb breakout may not exactly fit the bill. its candle is too small. but GBP/JPY almost DOES. chart attached below.

the 1st GBP/JPY possible entry will probably result in a loss.

the 2nd gpb/jpy possible entry is more like it, but not quite. even though it would have resulted in a gain

[observation: the 1st G/J looks more like a hammer. in fact, it is a hammer. the wick...
more examples: aud/cad, chf/jpy, eur/chf. ALL FROM FRIDAY lob setups. (THere were setups in usd/chf, gbp/chf, but didnt meet the parameters of one bar breakout modifications without bpc). the only one i actually trade was the chf/jpy, because it was the only one with BPC(to a tune of 8.5R)....the rest didnt display BPC just a one bar breakout and runaways. i thank mr. C for the modification suggestions.
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