The inspiration for this system came from the "Trading system using relative strength" thread by ES Trader and I'd like to thank him for his hard work in developing his ideas there.
As I read through that thread it seemed to me that some people were getting phenomenal results and yet others were hitting huge drawdowns before these trades came good, if they ever did!
I started thinking about the process involved in building those massive 2000 pip baskets and it struck me that maybe relative strength wasn't the way to go. I don't want to disrespect the original thread or system in any way because I believe it has merit but to my mind relative strength over the last few 4 hour candles tells you just that, the relative strength over the last few 4 hour candles. It doesn't tell you a damn thing about what will happen next. I understand the theory that if x currency has been weakening against all other currencies then you want to short it and if y currency has been strengthening against all other currencies then you want to be long but this doesn't take into account support and resistance, the overall trend or anything else.
So, I set to work with a small test account of 30 GBP using a micro account and 2 weeks later I have 250 GBP. That does sound like an incredible % gain but don't forget on the first few trades I was massively overexposed as a % of account. What I think I have proven , to myself at least, is that it IS possible to just open a bunch of trades with the trend and have them all go your way netting you some nice big gains.
With a bit of trial and error I have established a few preliminary rules that I believe are worth following until I or anyone else can come up with something better.
First of all I want to clarify exactly what I do. Basically I am going through each pair in turn at certain times of the day and deciding whether I think the pair will go up or down. If I can't take a decision on the information available to me I don't take a trade. If I think it will go up I buy it, if I think it will go down I sell it. Up until today I have been using a 200 pip trailling stop loss. I then let the trades develop over the next few hours and the trades that lose money or break even I close and the trades that go into profit I trail the stop loss manually behind support and resistance.
The certain times of day tend to be around the 4 hour candle closes although I am actually using daily charts. I like to take trades first thing in the (UK) morning so I have the overnight movement to use for direction and the upcoming day to provide some movement. I also like to take trades in the evening and let them develop overnight.
For direction I am using support and resistance drawn on weekly charts zoomed out to find the most important round numbers (credit to a commercial member for that technique) and a 100sma, a 50 sma and a 3 sma of the typical price. The last is something from a book I read once called the pivot point ma and I find I quite like it for this method. Basically I take trades with the IMMEDIATE trend which means the direction the daily chart is moving over the last few days rather than over a longer term but I do prefer to take trades in the direction of the overall trend. Sometimes pairs just aren't trending overall but still offer opportunities.
The way this works is that generally you will experience some drawdown as the spreads are cleared and trades settle down. I am yet to see a basket of trades go down by more than 30 GBP against me and when the trades come good the basket can go substantially into profit, biggest one yet just over 100 GBP.
In folklore the seventh wave is always the biggest. It has been scientifically proven that when two different wave formations move in the same direction at the same time then you will experience a bigger wave which can often catch people unawares and frequently washes people and cars, etc from harbour walls and jetties. This is very much how your equity moves when you are exposed to a large basket of trades. As the trends assert themselves you will get an ebb and flow of equity, some up, some down. If you watch your equity move you will notice it push up with the ebb and back with the flow. When all of the trends on all of your pairs move back in the direction of the trend then you will see what I mean about the seventh wave and your equity will increase dramatically, sometimes in just a few minutes.
Enough of the poetic stuff. Like I said, I have increased a small test account from 30 to 250 GBP in 2 weeks just opening baskets of trades with the trend so I think this style of trading must have some merit and is worth discussing further. A nice long weekend ahead so let's discuss it. I welcome questions and comments.
Some further clarification comes to mind. As from today I am reducing the trailing stop to 100 pips because although I have been using daily charts I am not really trading the daily moves, I am looking for quick moves in my direction to capture good profit from a number of smaller trades. I am using an EA called equity guard to control the risk, the trailing stop is just to provide extra security in case the equity EA doesn't work for any reason. From today I have decided to use 10% of my account on each basket and use 1 micro lot for each 30 GBP in that 10% so with my 250 GBP account I shouldn't be trading at all but I know to risk 1 micro lot. If the account was 600 GBP then I would risk 60 GBP and so therefore use 2 micro lots. As mentioned before I am yet to have a basket lose more than 30 GBP in equity swings and my upside has been nice BUT I believe it would be better to use the equity guard EA to close all open trades should your basket lose you 30 GBP (any other currencies and you'll have to work out suitable levels for yourself) and take profit on all trades should you reach a gain of 50 GBP on open trades equity. This is because although you may have a basket with the potential to go a long way I have seen nice big profits eroded by holding them open too long. Better to take a healthy profit when it presents itself and start again than to let it go and regret it.
Another thing to mention is that you can tweak your basket if it's not working out. I wouldn't do this too often but maybe once every 4 hours see how the trades are going and lose the bad ones and maybe open some more that look better. Remember that you are taking loss and profit based on your overall equity so ditching a losing trade will only affect your balance and not your equity.
I'm all typed out for now but if I think of anything else I will post it. For a grounding in the original system I recommend you read the trading with relative strength thread. That will give you an idea of what I am doing and why it's just I'm using the trend rather than recent strength/weakness.
I wil post the ea's and also some useful indicators I have developed with the aid of a a few people I will mention at the time.
I am looking for some good ideas for how to improve this idea, just because I've made a bucket of money over the last couple of weeks doesn't mean it can't be improved
. I'll post a chart or two soon as well to show the type of entry I am taking and when I open my next basket I'll try and post it here.
After reading through I should mention that I do not take into account what I am trading in terms of same currencies or limit the amount of trades I take. If all of the aud pairs are saying buy I buy them all and if all the eur pairs are sells I sell them all. I am yet to reconcile myself to the idea of buying some eur pairs because they are going up and selling other eur pairs because they are going down. This is something that needs to be ironed out and rules developed, maybe it is better to only trade one currency in one direction at a time?
Anyway, enough already, looking forward to working with anyone who is interested to see what we can put together.
Update as of 23rd December 2011 here http://www.forexfactory.com/showthre...66#post5244766
As I read through that thread it seemed to me that some people were getting phenomenal results and yet others were hitting huge drawdowns before these trades came good, if they ever did!
I started thinking about the process involved in building those massive 2000 pip baskets and it struck me that maybe relative strength wasn't the way to go. I don't want to disrespect the original thread or system in any way because I believe it has merit but to my mind relative strength over the last few 4 hour candles tells you just that, the relative strength over the last few 4 hour candles. It doesn't tell you a damn thing about what will happen next. I understand the theory that if x currency has been weakening against all other currencies then you want to short it and if y currency has been strengthening against all other currencies then you want to be long but this doesn't take into account support and resistance, the overall trend or anything else.
So, I set to work with a small test account of 30 GBP using a micro account and 2 weeks later I have 250 GBP. That does sound like an incredible % gain but don't forget on the first few trades I was massively overexposed as a % of account. What I think I have proven , to myself at least, is that it IS possible to just open a bunch of trades with the trend and have them all go your way netting you some nice big gains.
With a bit of trial and error I have established a few preliminary rules that I believe are worth following until I or anyone else can come up with something better.
First of all I want to clarify exactly what I do. Basically I am going through each pair in turn at certain times of the day and deciding whether I think the pair will go up or down. If I can't take a decision on the information available to me I don't take a trade. If I think it will go up I buy it, if I think it will go down I sell it. Up until today I have been using a 200 pip trailling stop loss. I then let the trades develop over the next few hours and the trades that lose money or break even I close and the trades that go into profit I trail the stop loss manually behind support and resistance.
The certain times of day tend to be around the 4 hour candle closes although I am actually using daily charts. I like to take trades first thing in the (UK) morning so I have the overnight movement to use for direction and the upcoming day to provide some movement. I also like to take trades in the evening and let them develop overnight.
For direction I am using support and resistance drawn on weekly charts zoomed out to find the most important round numbers (credit to a commercial member for that technique) and a 100sma, a 50 sma and a 3 sma of the typical price. The last is something from a book I read once called the pivot point ma and I find I quite like it for this method. Basically I take trades with the IMMEDIATE trend which means the direction the daily chart is moving over the last few days rather than over a longer term but I do prefer to take trades in the direction of the overall trend. Sometimes pairs just aren't trending overall but still offer opportunities.
The way this works is that generally you will experience some drawdown as the spreads are cleared and trades settle down. I am yet to see a basket of trades go down by more than 30 GBP against me and when the trades come good the basket can go substantially into profit, biggest one yet just over 100 GBP.
In folklore the seventh wave is always the biggest. It has been scientifically proven that when two different wave formations move in the same direction at the same time then you will experience a bigger wave which can often catch people unawares and frequently washes people and cars, etc from harbour walls and jetties. This is very much how your equity moves when you are exposed to a large basket of trades. As the trends assert themselves you will get an ebb and flow of equity, some up, some down. If you watch your equity move you will notice it push up with the ebb and back with the flow. When all of the trends on all of your pairs move back in the direction of the trend then you will see what I mean about the seventh wave and your equity will increase dramatically, sometimes in just a few minutes.
Enough of the poetic stuff. Like I said, I have increased a small test account from 30 to 250 GBP in 2 weeks just opening baskets of trades with the trend so I think this style of trading must have some merit and is worth discussing further. A nice long weekend ahead so let's discuss it. I welcome questions and comments.
Some further clarification comes to mind. As from today I am reducing the trailing stop to 100 pips because although I have been using daily charts I am not really trading the daily moves, I am looking for quick moves in my direction to capture good profit from a number of smaller trades. I am using an EA called equity guard to control the risk, the trailing stop is just to provide extra security in case the equity EA doesn't work for any reason. From today I have decided to use 10% of my account on each basket and use 1 micro lot for each 30 GBP in that 10% so with my 250 GBP account I shouldn't be trading at all but I know to risk 1 micro lot. If the account was 600 GBP then I would risk 60 GBP and so therefore use 2 micro lots. As mentioned before I am yet to have a basket lose more than 30 GBP in equity swings and my upside has been nice BUT I believe it would be better to use the equity guard EA to close all open trades should your basket lose you 30 GBP (any other currencies and you'll have to work out suitable levels for yourself) and take profit on all trades should you reach a gain of 50 GBP on open trades equity. This is because although you may have a basket with the potential to go a long way I have seen nice big profits eroded by holding them open too long. Better to take a healthy profit when it presents itself and start again than to let it go and regret it.
Another thing to mention is that you can tweak your basket if it's not working out. I wouldn't do this too often but maybe once every 4 hours see how the trades are going and lose the bad ones and maybe open some more that look better. Remember that you are taking loss and profit based on your overall equity so ditching a losing trade will only affect your balance and not your equity.
I'm all typed out for now but if I think of anything else I will post it. For a grounding in the original system I recommend you read the trading with relative strength thread. That will give you an idea of what I am doing and why it's just I'm using the trend rather than recent strength/weakness.
I wil post the ea's and also some useful indicators I have developed with the aid of a a few people I will mention at the time.
I am looking for some good ideas for how to improve this idea, just because I've made a bucket of money over the last couple of weeks doesn't mean it can't be improved
. I'll post a chart or two soon as well to show the type of entry I am taking and when I open my next basket I'll try and post it here.After reading through I should mention that I do not take into account what I am trading in terms of same currencies or limit the amount of trades I take. If all of the aud pairs are saying buy I buy them all and if all the eur pairs are sells I sell them all. I am yet to reconcile myself to the idea of buying some eur pairs because they are going up and selling other eur pairs because they are going down. This is something that needs to be ironed out and rules developed, maybe it is better to only trade one currency in one direction at a time?
Anyway, enough already, looking forward to working with anyone who is interested to see what we can put together.
Update as of 23rd December 2011 here http://www.forexfactory.com/showthre...66#post5244766
