The Daily Stop System

UPDATE: Fixed the mix-up with the numbers, they are correct now.

Hi Fellow Traders,

Here is a simple system I'm testing right now that shows, I believe, some serious potential.

But first a little about me:
I've been in the forex market since 2007, where I was first introduced to its magic, as well as its dark magic...
I've devised some complex systems, tested them in demo for 3 months, and then blew off my live account in two weeks.
I took some time off, and then tried again, this time with binary options. Had some modest success, and then the broker changed its prices and I had to stop.
This led me back to the spot market, where I continued my search for a consistently profitable, realistic, and simple to use system.

In general, I prefer not to use indicators. I believe they cloud our view of the market, and don't really help predicting future movements.

So, here is the system's rules:
Currency: EURUSD
TF: Daily
1. When a new day begins, create a buy stop order 99 pips from current spot, and sell stop order 99 pips from current spot. For example, if the day begins at 1.2317, create a buy stop order at 1.2416, and a sell stop order at 1.2218. Both of those orders should take profit at 200 pips, and have no stop loss.
(I guess some of you would like to stop reading right now, because of the "no stop loss" part. Please bear with me...)
2. At the end of the day, close the orders that have not been closed yet and cancel orders that have not been trigerred, and start over from step 1.

The logic behind this system is quite simple:
After certain pips movement, we can assume a trend has been formed, and we would like to ride on it till the end of the day.
Those numbers (stop order at 99, TP at 200) were conceived after some rigorous testing, and found to be the most profitable.

Backtest results:
- Tested from 1.6.2009 - 27.4.2012 ( I picked June 1 as my starting date because the financial crisis was behind us at this date)
- Executed orders: 408
- Buy orders result: 80 pips
- Sell orders result: 2393 pips
- Total: 2473 pips

As you can see, there is a huge difference between the BUY orders and the SELL orders. I can't quite explain this difference, because there isn't a clear downward trend in this period.

I'll be glad to hear you thoughts and opinion for this system.

GOOD LUCK!!!

i gaved u 5 star

much easyer to trade on the daily chart.

This is my first comment in this great forum and I would like to comment on this great thread since I am interested in digital strategies,could I ask some questions to Fxjuice?

(1) How many opportunities per month?
(2) How much pips can one obtain per month?
(3) The daily range of EURUSD does not mostly exceed 200 pips/day,so what is the value of setting TP to 200 pips over 99 pips movement if we would close the deal at the end of the day?

note: I think calculations of your example are wrong (1.2317+99=1.2416 this is the point of buy stop,and 1.2317-99=1.2218 this is the point of sell stop)

Perhaps I'm misunderstanding you, but if you start at 1.2317, adding 99 pips would be 1.2416, not 1.3316 (that would be 999 pips) and subtracting 99 pips would 1.2218 instead of 1.1318 (again, 999 pips.) So do you mean 99 or 999?

polymorphfx -
You're absolutely right, I had the numbers mixed up. It's fixed now.

Thanks!

Thanks for sharing the system, the assumption does make sense. Most importantly, I like the simplicity.

I'm very interested in your method. Sorry if I sound so dumb, should I set "pending order" first, before I click "buy or stop order" ?


:nerd:

Thanks

This is an ORB (opening range breakout) system, as popularized in an extremely well-regarded book written by Toby Crabel in 1990 called "Day Trading With Short Term Price Patterns and Opening Range Breakout." Crabel proved that there is an edge to an ORB over a series of many trades. It was purported that Crabel refused to allow the book to be reprinted after it sold out because he thought the information to be so valuable that he sought to limit the number of copies in the hands of traders. As a result, hard copies of the book are priced at $250 to $1k+ depending on condition.

The disadvantages of ORBs are sizable drawdowns and modest win rates (though many successful systems have modest win rates).

The advantages of ORBs are high potential reward and high level of robustness.

For traders who can tolerate the drawdown with this type of system, the rewards can potentially be great.

(ORBs are a type of volatility breakout system (VBS). Another type of VBS was popularized by Richard Dennis' Turtles experiment. It calls for entry upon the breakout of a period high or low, such as a 20-day high or low.)

Suggestion: You might wish to backtest this to get a feel for potential drawdown, consecutive losing trades, etc. prior to spending precious months of your time trading it in real-time (either live or demo).

There is no doubt that ORBs work. It is a matter of having supreme confidence that the edge is there, which a trader will need to have in order to sustain himself/herself during the inevitable drawdowns and losing streaks.

Best trading to all.

With no stop loss, how do you determine position size?

Based on ATR, I guess.

Why not just put a stop loss at the other entry price? That day will come when both entries are hit for your 200 pip locked in loss.

What was the max drawdown during the backtest, in percent?

@Trumpcard - indeed, as carbwb6 said, the position size is based on the ATR.

@california - The max drawdown was 275 pips. I'm not sure what you mean by "in percent" - in percent of what? Currently I'm just testing the pips, I don't have a live account for this...

The maximum peak-to-trough percent decline in the balance of your trading account, whether your account is denominated in dollars, pounds, euros, etc. As you may know, maximum drawdown is perhaps the best measure of the risk that is needed to produce a strategy's return.

2009 and 2010 were xlnt years for ORB systems, generally, and probably above what one can expect over a longer period of time.

I personally like this type of system as a means of diversification from the other strategies I trade. The potential returns can be major. But to reap those big gains, it does take a rare breed of trader who can stomach the drawdowns. The whole key is in believing that the edge is a solid, robust one that has stood the test of time. Because during those drawdowns, unwavering confidence is of the utmost importance.

Want to learn more about this type of system? FF member TheRealThing, a former pit trader in the Chicago currency futures pits, and the creator of DIBS system, has some valuable insights on what it takes to trade the VBS game. In fact his 32 posts are some of the most valuable to appear in this great forum, in my opinion.

http://www.forexfactory.com/showthre...799#post205799

He eventually takes a $500 account and challenges himself to grow it to $150k in ten years, using two weekly VBS.

2 questions:
at what time is your daily rollover?
after NY close, midnight GMT or your broker's midnight?

The ADR of eurusd has come down significantly. We are currently in the 120 pips area for the ten day average. I think there are more days closing below/above the high/low of the day than those closing at the extreme. If your trigger is 99 pips and you always close at day's end, where is the room for profit because reaching the TP should be rare without letting the position run?

Is The Real Thing and Peter Crowns the same person?

@iwjw: ORBs, and VBS generally, are very robust. According to TheRealThing, one can vary the inputs for a system like this quite a bit and still retain an edge which will prove profitable in the long run. Using a specific threshold such as 99p because it proved the best entry trigger during the test period does smack of curve-fitting. However, given that VBS are so robust, the 99p would be expected to be profitable in the future. Even so, it is logical to think that using a dynamic trigger would be an improvement due to the significant changes in volatility that occur over time. For example, using X percent of five-day ADR for the entry trigger this week, and then recalibrating for next week.

@billbss: I don't know the answer. The writing styles and mindsets of the two appear different. I did receive holiday greeting cards from both last year.

I've played around with this kind of strategy a few months back, so I already had an EA for this to get an overview
Yes, it's profitable in the longer term (BT is 2008 until current) but you can also see that for the last 100 trades or so you got nowhere
BT is w/o mmngt 0.1 lots fixed, 99pips,200TP
The period where we got below initial balance is mostly 4th quarter 2008 where there was a massive cluster where both orders got triggered

Sorry for the late response, I do have a day job, too...

@california - Thanks for your valuable input! I wasn't familiar with the DIBS system, and I'll definitely give it a shot.

@lord68 - This system will average ~10 orders a month. The average pips per month is, mathematically, ~73, but as you should know, it doesn't mean much. What's more important is, as california mentioned, what's the max predicted drawdown. Once you know that (and for this system it was, in the last 3 years, 275 pips) you can size your order accordingly. And about the TP - basically you're right, and in most cases your TP won't be hit. However, in my tests I found out that not setting TP at all could lead sometimes, rarely, to a loss after a strong reversal. This TP is for those cases.

@eastwest - Yes, you're right. You should select first Pending Order (assuming you're using MT4), and then Buy Stop & Sell Stop.

@iwjw - This is an interesting observation. I might tweak the system to take into account the last 10 days ADR, and see what happens.

Hello there, Peter Crowns refers to The Real Thing in its thread, see the link below:

http://www.forexfactory.com/showthre...t=56907&page=7