I started a thread a good while ago regarding a similar method of trading to this but the core system has evolved slightly as these things tend to and so I have decided to create a new home for people following this method.
The basic method is deceptively simple but profitable. It uses very few indicators and is trend following in nature. I like to use 4 hour charts but other people are using other timeframes successfully. Also there is a healthy debate about the most profitable stop loss and target combination which will be forward tested live in the thread.
I have been posting trades a few hours before the 4 hour candle close that triggers them and I will continue to do so if possible. Being a trend trading method there can be periods when no trades present themselves but it is usual to see 5 or more trades per week. In back and forward testing this has proven to be profitable but a lot depends on your stop and target so I won't give exact strike rate figures here as I want to thoroughly test all the options first and then I will update this first post with the stats.
The Indicators
Heiken Ashi candles
100 sma close
Stochs 8,3,3, low/high
Heiken Ashi candles are "average price" candles. They are calculated using a moving average and change colour according to that average. The open, high, low and close of these candles represent slightly different things to normal candles and the best way to get a feel for them is to put them on your chart and see how they look. If you have metatrader you can go to a line chart and then set line chart to "none" in the chart properties and that gets rid of the line leaving you a nice blank screen to put your HA candles on. Notice how the candles can sometimes stay one colour for a long period of time, hundreds of pips on a 4 hour chart. Catching and holding on to these long trends can be very profitable but of course it is not always as easy as all that!
The 100 sma is there to help visualise the trend. As a basic rule of thumb if the price is above the ma the trend is up and we only want to buy and below is down and we only want to sell.
The stochastics give us information about the strength of the pullback in the trend. I find stochastics to be the best momentum based oscillator to help visualise turns in the trend and they work very well with HA candles.
The Basic Method
I will be posting lots and lots of charts but as a general outline you want to see the moving average moving smoothly in one direction for a period of time with the price making the classic zig zag movement up or down the page. In an uptrend you want to see a move up followed by a smooth decline in prices signified by green HA candles followed by red. When the HA candle turns back to green and the stochastics make a nice smooth cross towards the bottom of the stochs window then wait for the 4 hour candle to close and open your long trade. In a downtrend you want to see the opposite. Like I say, lots of charts to follow.
Money Management, stops and targets
As mentioned above there is some debate over the best stop loss and target combination to use to capture the most profit from these signals.
There are 3 basic methods that I believe are worth testing.
1) Enter the trade with a 50 pip stop loss. Hold the trade open until the HA candles turn back against the trend moving the stop loss behind the trade as it moves.
2) Enter the trade with a 50 pip stop loss and a 50 pip take profit moving the stop loss to +1 pip after +25 pips is reached.
3) Enter the trade with a 50 pip stop loss and take half profit at +25 pips moving the remainder to break even at that point and trailing the stop loss as the trade progresses.
I'm sure there are other combinations that we can try and I will update this first post as we go along.
Charts to follow. Any questions please feel free to ask.
My favourite trading/financial books that I recommend...
The Richest man in Babylon - Author unknown
The Zurich Axioms - Max Gunther
Reminiscences of a stock operator - Edwin Lefevre
Forex Patterns and Probabilities - Ed Ponsi
Adventures of a currency trader - Rob Booker
Candlestick and pivot point trading triggers - John L Person
There are more that I can't remember right now but all of the above helped me in one way or another so I recommend reading them.
The basic method is deceptively simple but profitable. It uses very few indicators and is trend following in nature. I like to use 4 hour charts but other people are using other timeframes successfully. Also there is a healthy debate about the most profitable stop loss and target combination which will be forward tested live in the thread.
I have been posting trades a few hours before the 4 hour candle close that triggers them and I will continue to do so if possible. Being a trend trading method there can be periods when no trades present themselves but it is usual to see 5 or more trades per week. In back and forward testing this has proven to be profitable but a lot depends on your stop and target so I won't give exact strike rate figures here as I want to thoroughly test all the options first and then I will update this first post with the stats.
The Indicators
Heiken Ashi candles
100 sma close
Stochs 8,3,3, low/high
Heiken Ashi candles are "average price" candles. They are calculated using a moving average and change colour according to that average. The open, high, low and close of these candles represent slightly different things to normal candles and the best way to get a feel for them is to put them on your chart and see how they look. If you have metatrader you can go to a line chart and then set line chart to "none" in the chart properties and that gets rid of the line leaving you a nice blank screen to put your HA candles on. Notice how the candles can sometimes stay one colour for a long period of time, hundreds of pips on a 4 hour chart. Catching and holding on to these long trends can be very profitable but of course it is not always as easy as all that!
The 100 sma is there to help visualise the trend. As a basic rule of thumb if the price is above the ma the trend is up and we only want to buy and below is down and we only want to sell.
The stochastics give us information about the strength of the pullback in the trend. I find stochastics to be the best momentum based oscillator to help visualise turns in the trend and they work very well with HA candles.
The Basic Method
I will be posting lots and lots of charts but as a general outline you want to see the moving average moving smoothly in one direction for a period of time with the price making the classic zig zag movement up or down the page. In an uptrend you want to see a move up followed by a smooth decline in prices signified by green HA candles followed by red. When the HA candle turns back to green and the stochastics make a nice smooth cross towards the bottom of the stochs window then wait for the 4 hour candle to close and open your long trade. In a downtrend you want to see the opposite. Like I say, lots of charts to follow.
Money Management, stops and targets
As mentioned above there is some debate over the best stop loss and target combination to use to capture the most profit from these signals.
There are 3 basic methods that I believe are worth testing.
1) Enter the trade with a 50 pip stop loss. Hold the trade open until the HA candles turn back against the trend moving the stop loss behind the trade as it moves.
2) Enter the trade with a 50 pip stop loss and a 50 pip take profit moving the stop loss to +1 pip after +25 pips is reached.
3) Enter the trade with a 50 pip stop loss and take half profit at +25 pips moving the remainder to break even at that point and trailing the stop loss as the trade progresses.
I'm sure there are other combinations that we can try and I will update this first post as we go along.
Charts to follow. Any questions please feel free to ask.
My favourite trading/financial books that I recommend...
The Richest man in Babylon - Author unknown
The Zurich Axioms - Max Gunther
Reminiscences of a stock operator - Edwin Lefevre
Forex Patterns and Probabilities - Ed Ponsi
Adventures of a currency trader - Rob Booker
Candlestick and pivot point trading triggers - John L Person
There are more that I can't remember right now but all of the above helped me in one way or another so I recommend reading them.
