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Max's Simple Ride the Wave System

  • #1
  • First Post: Edited Dec 12, 2012 5:41pm Sep 15, 2012 11:07pm | Edited Dec 12, 2012 5:41pm
EDIT 13 Dec 2012
Anyone beginning this thread from today should read original rules below and go to post #186
http://www.forexfactory.com/showthre...20#post6288320
where I have updated the current rules.

Please also note that this system is running in my demo account and you should also test this thoroughly before committing real $$ to it.



Welcome to my thread where I present a system I have been testing for the past month. This is a very simple daily system I have been working with to catch minor and major trending moves or waves in price action. Over the past 12 months I have been reading every forex trading book I can get my hands on and testing all sorts of ideas, both back testing and forward testing, along with money management and psychology. I feel this little system really captures the most fundamental aspects of the movement of price action in forex – the investment of the market and the probability of what will happen next. With a couple of rules I get myself into a place where the probability weighs in my favour. And really I feel that is what it’s all about. Price can only really go in 1 of 2 directions. So you really have 50% chance of getting it right. So then it’s all about finding an extra few % and how you limit those that go against you and exploit those that you win.


During my time of study I have found that the market is not so trending as it once was. There appear to be more toing and froing and so this system is designed to find a change in trend early and get in and out in time for to make a profit before it turns again.


About pips. Pips mean nothing to me. I do not go for 20 pips a day or 100 pips per week or whatever. If I did then some trades where I need stop of 150pips or such will scare me. Instead I always set a risk limit per trade. I use 2% of my bank. So I take 2% of my account and divide into the size of my stop to find the position size. So the most I can lose if things go bad is 2%. I do this on any system and any trade so it doesn’t matter if the stop is 23 pips or 223 pips.


The intent is to have something mechanical that takes a lot of the analysis and decision making out of entering and exiting trades.

I focus on the main pairs such as GBPUSD, GBPAUD, EURUSD, EURAUD, AUDUSD but any pair could be used.

My aim in sharing this is not only to share something I think can work for other people but to also discuss and find methods for avoiding bad signals and riding out good ones.
Winners add to winning trades!
  • #2
  • Sep 15, 2012 11:32pm Sep 15, 2012 11:32pm
hi mate

as a total newbee, I will very much like to follow your new thread

thanks for sharing
  • #3
  • Sep 16, 2012 12:35am Sep 16, 2012 12:35am
So, this system is simple:

1. Open a Daily chart – this is simply an attempt to create something that only requires a few minutes a day to review and action.

2. Place 20 EMA – some sort of line in the sand. 20 days represents to me around a month of prior movement and therefore time for a change to occur. Short term trends changing regularly. It also means that on a longer term trend we may be able to make pips off a correction or retrace before again making pips off the continuation.

3. LONG SIGNAL occurs when a complete candle CLOSES above the 20EMA (i.e. no part of the candle touches the 20EMA). This tells us there is investment from the market to move price up. We do not know whether or not this could be a long term thing or a simple spike. Now you are looking for short candles (close is lower than open) in order to identify possible confirmation.

https://lh4.googleusercontent.com/-z...00/simple1.jpg

4. ENTRY. 2 Options here.

1st option is to place a BUY ORDER either half way up the short candle from the close to the high, or at the high of that candle. The reason we do this is to avoid any bad reversals or longer term corrections. If price continues short, we can cancel the entry order and do the same once the next candle completes (as long as it is not a new SIGNAL SHORT). If it moves in our direction, we give up a few pips to ensure we are with the market. Don’t worry. If we are with the market, they will drive us where we want to be. The more aggressive entry to immediately after that candle closes.

https://lh3.googleusercontent.com/-4...40/simple3.jpg

2nd option is to wait for another short candle and use that for the entry in the same way. This 2nd correction is more confirmation but often these short term trends we want to spot are so violent, there is no 2nd short candle as you can see from the examples.

Another more aggressive entry is to enter on the high of the signal candle BEFORE the reversal candle whether or not the signal candle is long or short, place and entry order for the following day at the high of that signal candle.

https://lh6.googleusercontent.com/-F...40/simple9.jpg

5. MANAGE THE TRADE. If you have a set target then leave the position as we will either be right or wrong and you should trust yourself and the system to reveal that for you. This position is to get a quick win within a few days and locks in pips. You can adjust the stop as discussed below daily if you wish but leave the target as is. If you have no target then manage it daily by adjusting the stop and letting it run for as long as it can. This is to ensure we ride any longer term trends for maximum pips, locking in profit on a regular basis and exiting when things go flat or turn.
Winners add to winning trades!
  • #4
  • Sep 16, 2012 12:46am Sep 16, 2012 12:46am
IMPORTANT NOTES:

STOPS. A couple of ideas with the stops is to set it at 100pips or the last swing low or use a 2 candle low explained. I tend to use the 2 candle low or 100pips, whichever is smaller. Now you know the stop, you can set your position size.


https://lh3.googleusercontent.com/-D...40/simple4.jpg


TARGETS. Again there are a couple of options here. Either uses the same value as the stop or leave it open and review the trade daily as explained.
TRAILING STOPS. Do not adjust the stop until the trade is at break even or in profit. I lean towards a stop based on 1.5 to 2 or even 3 previous candles called a Count Back Line. So for a LONG position the stop is at the bottom of the previous 2 candles where the #2 candle must be lower than the #1 previous. This may be 3 or 4 or even 5 candles further back. Draw a horizontal line at the low of the previous candle and look back and see if further back another candle is lower, then use that 2nd low as your stop. As the low of any new candle moves higher, this stop is moved up. This allows any sideways movement or small retrace to be tolerated before any continuation of trend returns. Another idea is to always sit 50 or 75 or 100 pips behind. So if the close of today is at +125 you place your stop at +75 or +50 or +25 and do that daily. You may have some of your own ideas on stops here so try them out.

https://lh5.googleusercontent.com/-8...40/simple5.jpg

https://lh3.googleusercontent.com/-w...40/simple6.jpg

EXITS. Always let the trade exit when it wants to either using your set target or by hitting the original or trailing stop. No decision necessary.

Always stay out of the market when price touches penetrates the 20EMA. This is too ranging and means the market does not really know what it wants to do other than sit back and see what everyone else wants to do. We do the same.

RENTRY. Further trades can be taken in the same direction at close of any red candles as explained above – HOWEVER I have noticed that if the correcting short candle EXCEEDS the length of the previous candle such as above, it is a sign the market may be rethinking its progress and may be looking to consolidate at that price or reverse. Keep an eye on the candles. They will most likely move to and fro from long to short to long to short like above and then either continue trend or not. Look for 2 or 3 consecutive candles to show things may not be so clear to trade in. EXPECIALLY if price moves back to touch the 20EMA. The rule I follow is to re-enter on close of any other short candles as long as they are not longer than it’s previous long candle or touching the 20EMA.

Consecutive short candles means multiple positions entered but I cap it at 3 max per pair.
Winners add to winning trades!
  • #5
  • Sep 16, 2012 12:47am Sep 16, 2012 12:47am
An extreme example using GBPUSD since 15 Aug 2012:

https://lh6.googleusercontent.com/-l...40/simple7.jpg

19/8 a nice reversal candle smaller than the one previous marks a setup for entry. An BUY entry order is placed half way from the candles close to the high. The stop is at the low of 18/8 candle (lowest of 2 previous lower lows) of -65 pips.
20/8 the standing BUY order activates and the following 2 days result in a large movement.
21/8 results in a higher low so its low is counted as 1 and then next lower low is 20/8 so that becomes the new stop of -35 pips.
22/8 again results in a higher low so the stop moves up again to -28 pips.
23/8 results in a reversal candle but not just any reversal candle. A hammer is long known to signify a reversal of movement when it shows at the top of a push. I take this as the time to exit. I can always add another entry order as I normally do half way up that candle tomorrow, which is exactly what do. POSITION CLOSED +150 pips.
24/8 sees a BUY order placed above the close of yesterday which does not activate. Lucky! Price continued down and would have stopped me out on the 28/8 so a disastrous trade was avoided.
27/8 results in another BUY order placed which also does not activate.
28/8 follows a reversal candle so once again a new BUY order is placed half way from the closing candles close to it’s high. This triggers and activates with a stop in place not at yesterdays low but at the previous lower low (remember to count 2 lower lows backwards) at the low of 21/8 for -104 pips.
29/8 this open positions moves a little up immediately but only a short while before dropping again.
30/8 the open position has its stop moved up to the low of 28/8 at -55 pips. Today’s candle was also a reversal candle that was bigger than it’s predecessor thereby signalled an immediate exit. Remember we can always enter again off this candle tomorrow. POSITION CLOSED -30 pips.
31/8 we see a standing BUY triggered with it’s stop at the low of 28/8 for -70 pips. This position blasts through and upwards. At the close of this candle the stop is moved to the low of 30/8 for -61 pips.
3/9 candle slows but still increases enabling a higher low so the trailing stop moves to the low of 31/8 for -50 pips.
4/9 is a new reverse candle but not too big so another entry tomorrow may be achieved. The low of this candle is higher again so the stop of the open positions moves again. This time to the low of 3/9 but because that is so close to the 4/9 I choose to leave it at 31/8 or -50 pips.
5/9 drops a little but then increases for the day triggering our 2nd position.
Both positions now increase steadily taking their respective stops with them and locking in guaranteed profit after a few days.
10/9 is a short candle and allows for a possible entry tomorrow. It does not short enough to take our 2 stops out which are now aligned at the same point – the low of 7/9 for +95 and +38 respectively. And the candle does not signal a stalling trend so we are happy.
11/9 a 3rd position is activated with a stop at the low of 7/9 for -80 pips.
14/9 end of the day shows all 3 trades still in with all 3 trades using the same low of 13/9 as their trailing stop, locking in a guaranteed +240, +180 and +85 pips in the bank.

Now remember all trades are a maximum risk of 2% of the bank:
20/8 trade with a stop of -65 pips (2%) returned +150 pips or +7.40%
28/8 trade with a stop of -104 pips (2%) returned -30 pips or -0.56%
31/8 trade with a stop of -70 pips (2%) still open with a guaranteed +240 pips or +6.84%
5/9 trade with a stop of -104 pips (2%) still open with a guaranteed +180 pips or +3.46%
11/9 trade with a stop of -70 pips (2%) still open with a guaranteed +85 pips or +2.42%

So in the past 1 month on 1 pair I have risked 10% of my account on 5 trades returning an increase in my account of 19.56% so far.
Winners add to winning trades!
  • #6
  • Sep 16, 2012 12:49am Sep 16, 2012 12:49am
Another example from 15 Aug 2012 with EURGBP:

https://lh4.googleusercontent.com/-V...40/simple8.jpg

16/8 candle signals market moving short. Look for long candles to enter short positions.
17/8 Short entry order fails to activate but the candle is another long candle so tomorrow has an entry order placed instead.
20/8 triggers entry order from 17/8 and I am now short with a stop of -55p (2%)
21/8 price moves against me and stops out losing me 2% of my account.
22/8 results in a full candle above the 20EMA signalling market wanting to go long. Look for short candles to use for entry. Today’s candle is short so entry order for LONG placed for tomorrow half way between the close of the signal candle and the high of the signal candle.
23/8 my long entry order is actioned and I am in the trade with a stop of 43p or 2%. OPTION: I could round this up to a nice -50p stop if I wish but I would have to reduce the size of the position so I am still risking 2%.
24/8 price moves against me but not enough to stop me out. These 2 short candles give me another 2 entry opportunities.
27/8 a 2nd position is triggered for entry with a stop of -43p or 2%
28/8 a 3rd position is triggered for entry with a stop of -39 or 2%. Maximum 3 trades or 6% at risk is enough for me on this pair.
29/8 is a bad short candle suggesting this trend is no good but stops are not activated so I leave it to work itself out.
7/9 we finally get movement in the market and luckily it’s in my direction allowing me to begin moving my stop and therefore reducing my risk or locking in profit.
14/9 all 3 trades are still open with a total of +300p at my stop and therefore being guaranteed for a guaranteed increase in my account of +12.35% over the past 4 weeks, including the loss on 20/8.
Winners add to winning trades!
  • #7
  • Sep 16, 2012 12:50am Sep 16, 2012 12:50am
So now it's over to you. I will post signals and entries I take when I can but if you want to give this a go, post your ideas and charts in here to help everyone.
Winners add to winning trades!
  • #8
  • Sep 16, 2012 2:45am Sep 16, 2012 2:45am
The only trade I have open currently is GBPUSD from 11/9

https://lh5.googleusercontent.com/-K...0/current1.jpg

Currently it sits at +85 at the 2 candle stop. The original stop for this trade was at -80 (2%) so I have already locked in just over 2% profit.

Lets see what is does when trading opens tomorrow.
Winners add to winning trades!
  • #9
  • Sep 16, 2012 6:07pm Sep 16, 2012 6:07pm
Trade possibilities for today Monday 17 Sept

GBPAUD is in long trend but has recently slowed enough for the 20EMA to catch it but last week bounced off it. We have a short candle in a long trend so we are placing an entry order to go long. Usually this would be placed half way between the candle close and the candle high but because this candle penetrated the 20EMA I taking extra caution and placing the order 3/4 instead of 1/2 way. In reality this order should have been put in place friday last week but I was away from the desk.
https://lh5.googleusercontent.com/-_...20120917GA.jpg

USDJPY is short with a signal candle going long. This one also penetrated the 20EMA so I placed the SELL order entry 3/4 down the bar instead of 1/2 way down.
https://lh3.googleusercontent.com/-2...20120917UJ.jpg

USDCAD concerns me as it has been in a short trend for a while and so we may have missed the boat. We have a good signal here but because the signal bar looks to me like a pin bar, I took extra caution and placed the SELL order 3/4 way down the bar.
https://lh3.googleusercontent.com/-I...20120917UC.jpg

AUDJPY revealled a new long trend possibly developing (ie whole candle above the 20EMA). I figured I would go aggressive in this one and not wait for a short candle to enter off. Instead I am placing my order at the high of the signal candle. And with such a large candle, I placed the stop at the low of that same candle.
https://lh5.googleusercontent.com/-L...20120917AJ.jpg

AUDNZD is a nice established down trend that may still be in it's early days. We have a long candle signalling time to ride the wave. I place my order 1/2 way between the close and the low of that signal candle. Standard entry rules. Stop is placed using the 2 count back line (2 x previous higher highs).
https://lh4.googleusercontent.com/-X...20120917AN.jpg

1 thing I would like to start exploring is how far our moves can go in relation to historical support and resistance.
Winners add to winning trades!
  • #10
  • Sep 16, 2012 7:59pm Sep 16, 2012 7:59pm
Following along, thanks marshalmax
  • #11
  • Sep 17, 2012 3:58am Sep 17, 2012 3:58am
Thanks for the comments so far. 12 hrs since I posted orders for today and 2 have triggered and are both around break even. We'll see what happens when US market opens.
Winners add to winning trades!
  • #12
  • Sep 17, 2012 4:38am Sep 17, 2012 4:38am
thanks for your system, it is interesting

i'm trying to follow you, but i'm a little confused with the signal candle...

and.. your images are too small, i cannot read them
  • #13
  • Sep 17, 2012 4:42am Sep 17, 2012 4:42am
Quoting dnabrasil
i'm a little confused with the signal candle...
What do you need to know? What is not making sense?

Quoting dnabrasil
your images are too small, i cannot read them
You should be able to click on the image and it opens in a new window in full size. I save them at 640 x 480 pixels.
Winners add to winning trades!
  • #14
  • Sep 17, 2012 7:49am Sep 17, 2012 7:49am
Been trade using daily too..almost the same with your method but i enter market at first candle that goin' back to trend after a pullback ( as long as it still close above EMA 20)..Nice thread
  • #15
  • Sep 17, 2012 9:12am Sep 17, 2012 9:12am
Interesting and system you have here. I have never done daily trrades yet although I have thought about them but lacked a simple system to use. will keep following you and learning.

One question though, do you set your trades and let them run the whole before deciding to whether to exit or not?
  • #16
  • Sep 17, 2012 4:55pm Sep 17, 2012 4:55pm
Quoting andri66
Been trade using daily too..almost the same with your method but i enter market at first candle that goin' back to trend after a pullback ( as long as it still close above EMA 20)..Nice thread
Thanks man. Like I said above. We really have 50% chance of making the right direction so anything that can get us a little more % and good money management should be a win.
Winners add to winning trades!
  • #17
  • Sep 17, 2012 4:58pm Sep 17, 2012 4:58pm
Quoting johNal
Interesting and system you have here. I have never done daily trrades yet although I have thought about them but lacked a simple system to use. will keep following you and learning.

One question though, do you set your trades and let them run the whole before deciding to whether to exit or not?
I prefer daily so I can spend 30 mins a day checking for new trades and adjusting stops on existing trades and then leave it
I do set the trades and leave them till the next day. If things still look good then I move any orders based on the new candle. If I am the trades then I move my stops. If trade is against me I let it go. I made the decision at the time of the order with what I felt was enough stop to work so let that gap do its thing. Chances are it may get close but then move in your direction. And yes occassionally you may get stopped out. But take the good with the bad and move on.
Winners add to winning trades!
  • #18
  • Sep 17, 2012 5:14pm Sep 17, 2012 5:14pm
TUESDAY 18 SEPTEMBER 2012

REVIEW OF YESTERDAYS DATA:

Quote
GBPAUD is in long trend but has recently slowed enough for the 20EMA to catch it but last week bounced off it. We have a short candle in a long trend so we are placing an entry order to go long. Usually this would be placed half way between the candle close and the candle high but because this candle penetrated the 20EMA I taking extra caution and placing the order 3/4 instead of 1/2 way. In reality this order should have been put in place friday last week but I was away from the desk.
Yesterday I set the BUY order 3/4 up the candle instead of the usual 1/2 way up because of it penetrating the 20EMA. A friend of mine pointed out that it did not close below that line. This is good because during the day it triggered my order and we are currently sitting at +85 on that order. I could move the stop up so it's 1.5 candles behind but because it's part of a swing low, I decided to leave it for another day.
https://lh5.googleusercontent.com/-X...20120918GA.jpg

Quote
USDJPY is short with a signal candle going long. This one also penetrated the 20EMA so I placed the SELL order entry 3/4 down the bar instead of 1/2 way down.
Placing an Entry order instead of a Market order is one of the best things about this system. You only enter the market is what you predicted to happen begins to happen. This meant the UJ order did not trigger. Price kept moving up past 20EMA preparing for a long signal. SAFE!
https://lh6.googleusercontent.com/-x...20120918UJ.jpg

Quote
USDCAD concerns me as it has been in a short trend for a while and so we may have missed the boat. We have a good signal here but because the signal bar looks to me like a pin bar, I took extra caution and placed the SELL order 3/4 way down the bar.
Again thank God for the Entry Order. My SELL order did not trigger but then again there was also no huge move back to 20EMA so today I decided to move my order to the new candle. Again I took it safe and used the low of that candle instead of 1/2 way.
https://lh3.googleusercontent.com/-i...20120918UC.jpg

Quote
AUDJPY revealled a new long trend possibly developing (ie whole candle above the 20EMA). I figured I would go aggressive in this one and not wait for a short candle to enter off. Instead I am placing my order at the high of the signal candle. And with such a large candle, I placed the stop at the low of that same candle.
This did not trigger and I have decided for this phase of testing to ignore all JPY pairs. Entry Order was not triggered yesterday and today was deleted.

Quote
AUDNZD is a nice established down trend that may still be in it's early days. We have a long candle signalling time to ride the wave. I place my order 1/2 way between the close and the low of that signal candle. Standard entry rules. Stop is placed using the 2 count back line (2 x previous higher highs).
Perfect trade using this system. Entry was at half way between the close and the low of the entry candle and triggered nicely during the day. Today it sits at +23 and I move the stop down using the 2 count back line as discussed.
https://lh5.googleusercontent.com/-V...20120918AN.jpg
Winners add to winning trades!
  • #19
  • Sep 17, 2012 5:24pm Sep 17, 2012 5:24pm
TUESDAY 18 SEPTEMBER 2012

TRADE OPPORTUNITIES TODAY:

AUDNZD: A few days ago we had a trend signal candle being fully completed above the 20EMA. We look for the short candle to go long. Before that happens we get a really strong pin bar. Then the short candle yesterday. Too risky due to the pin bar. Stay out.
https://lh4.googleusercontent.com/-i...20120918AU.jpg

EURAUD: Nice uptrend. The 1st major short candle was larger than it's previous candle signifying too much pressure to stop the trend. Sure enough that is exactly what happened but not enough to reverse the trend. We could have placed an order on 1/2 way of any of those 3 short candles. Our stop would have been so that we stayed in the trade as it sorted which way to go, which we see now is in our direction. Oh well. You snooze, you lose!
https://lh6.googleusercontent.com/-4...20120918EA.jpg

EURGBP: I like this uptrend. We had a nice short candle to enter off yesterday but anyone who knows anything about MAs knows they are often self fullfilling and act at a magnet, sometimes drawing the market back to the line. Because of this I feel this short candle is so far away from the 20EMA it may actually be the beginning of 2, 3, 4, or 5 short candles. I could place my order at the high but I decided to let it run and see tomorrow.
https://lh6.googleusercontent.com/-M...20120918EG.jpg

EURUSD: same as above. Entry candle is far away from 20EMA. Let it reverse a little and then take the risk.
https://lh5.googleusercontent.com/-V...20120918EU.jpg

GBPUSD: trade still progressing. Not much movement yesterday but still a little in my direction. Currently it's up +250 with my stop moved to 2 count back line now locking in +160 profit.
https://lh4.googleusercontent.com/-v...20120918GU.jpg
Winners add to winning trades!
  • #20
  • Sep 17, 2012 11:44pm Sep 17, 2012 11:44pm
Hi Max,

Excellent and simple thread I am attaching the chart of nzdusd, yesterday was the 3rd short candle in the uptrend, should we place the trade on half of the close to low or at the top of the previous candle or would be wait a bit because the current candle is a bit away from the 20ema?

Looking forward to your reply.

take care

Regards

Raza
Attached Image (click to enlarge)
Click to Enlarge Name: nzdusd1.gif Size: 24 KB
Raza
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