Let’s build a plan from scratch

Okay maybe this is a dumb idea, maybe not. Maybe its been attempted before, and maybe it hasn’t.


Have a read of this 1st post in full
OPTION A if it does not connect with you, then leave. No need to tell us so, just hit the back button and move on.
OPTION B If it does then you are welcome to join us in this quest

Here goes.

The purpose of this thread is to be the solution to those on the edge of giving up on forex. What I mean is this can be the solution to those new to forex and struggling to find their way, or their plan, or it may the solution to those that have been through all the educating they can find, all the backtesting and forward testing they care to spend their time and money on and still have an idea that forex can work for them.
The purpose of this thread is to facilitate discussion to finding a simple trading plan that most traders can follow. A holy grail? No such thing? I believe holy grails are found and used every day. Thing about it. It’s like your favourite shirt. Will it work for everyone? No. Does it work for you? Bloody oath it does.

I know successful traders. I have met them and I continue to meet with them. Some of them are friends of mine. Do you know what 1 thing they all have in common? NONE OF THEM SPEND ANY TIME ON TRADING FORUMS! Think about that. If you put together a good trading plan that was working wonders for you, would YOU spend time on these forums? If you would that is great but I suggest not many would, and certainly not in any capacity to teach and lift up others to success as well.

I do not have all the answers. I am not a successful trader. I am not to push my friends into “teaching” me their plan. I am above that. What I am here for is to guide a discussion and outpouring and testing of ideas as a group (much stronger than a bunch of individuals) in order to find a plan that most of us can follow and indeed others that come along can take on board.

I would rather see 1000 people making $10,000 a month than 100 people making $100,000 a month.


To be a part of this move, there are a couple of conditions:

1. Constructive not destructive. ALL ideas are welcome but not all ideas are EQUAL. What I mean is that if you get on and bad mouth or cry foul on someone elses idea without any suggested alternative, then your post will be reported and deleted. This is to be a constructive discussion. IF you disagree with something, fine, say you disagree, explain why in a courteous manner, and then post a suggested alternative.

2. Contribute at least 10% of your profits using this plan or anything derived from it towards local charity in your area. With so much money moving around the world these days for projects way over the horizon, I think a lot of communities have forgotten what is right outside their door. My personal goal is to get to 50% profit to charity and would love to be able to pay a families rent for 6 months after their house burns down, or buy that kidney machine for the local hospital, or purchase 1000kg of rice for the local soup kitchen. Whatever it is, help others. Obviously there is no police here to check on this one so honour bound we all are.


So I guess I will start.

I have been trading demo for 14 months every spare minute of every spare day including weekends when the markets are closed. Sometimes I am trading, sometimes backtesting on charts and spreadsheets, sometime forward testing, sometime hidden in one of many books or ebooks I have purchased. And sometimes meeting and sharing a drink with successful trader friends I know. I have no other plan. I am at the top of what I do professionally and while that makes a good income, it is not enough to be self sufficient. I will always be working for the man. Forex is the only thing I can see that I can leverage to go to the next level income and lifestyle wise.

And I am not one to keep things close to my chest.


What have I learned along the way?

1. price action is really the best indication of the market
A lot of indicators show what already happened and rarely can tell you what will happen next. Some may be read to show an idea of what MAY HAPPEN but in reality the market will go where the market will go. Over my time I have seen many a support and resistance line ignored, many a round number line ignored, many a Fibonacci level ignored, many a MACD signal ignored and many a Stochastic turn ignored.

2. you need to accept losses as a step to the wins
No system wins 100% of the time so if you can get more wins or greater wins than losses, then you are winning overall and you can follow that system to retirement. If you take a six sided die and when you roll a 6 you get $1000 but if you roll anything else, you lose $100, why would you not play that till your end of days?

3. keep your losers to a minimum (use good stops) and ride your winners (add positions, use trailing stops, whatever)
Always use Stops and calculate them according to your plan and keep them in place unless your plan calls for the stops to move up as your trade moves in your favour. Always take the opportunity to lock in profits with a stop. Always look to ride your trade until a serious exit signal occurs or your target is reached. Trust the rules of your system you follow not how you FEEL about the profit or loss.

4. those who fail teach
Okay this may not be 100% correct for ALL forex teachers out there but I was told a few times that if a system or plan is so good that it can be sold for $100s or $1000s then why are they not simple using it themselves? There are some genuine teachers out there that are teaching what they use successfully as well but I am yet to find or hear of any. So beware!


So what have I been testing?

Over time I have tested all sorts of ideas and indicators and systems and “holy grails” from forums and friends and books and ebooks. I have not found anything to work for me but I have found small things here and there that are true.

Currently I am testing these 2 ideas:

1. the 6/10MA price action cross
Here I have a daily chart and a 6MA. When a full candle (ie one that does not touch or touches only 5% of its size) CLOSES above or below the 6MA, I take that as a signal the MARKET is wanting to a change in direction. Will this occur? I don’t know. So I need some confirmation. If the price crossed above the MA then I am looking for LONG answers and if price crossed below, I am looking for SHORT confirmations. What is the angle of the MA on the previous 3 candles? In others words, look at the angle of the signal candle and the 2 previous to that candle. If the MA line moved in the same direction as the price cross award +1 point, if it moved against, award -1 point. Sometimes you need to see the actual value of that MA to see if it went up or down. There is no flat. The same value is a +1. If I get 2 or 3 points then I enter the trade immediately.

There are a lot of variations I can add to this idea. A more cautious entry of waiting for a retrace candle and then entering. Maybe looking for confirmation in the close of signal candle being above close of previous 1 or 2 candles? Maybe looking at a MACD or Stochastic or trend strength indicator. I have tried lots of different ideas and nothing seems to get this signal more than 57% accurate on GBPUSD for the past 2 years. I fact a lot of the times it seems more accurate to go AGAINST some of these signals. Believed me I almost took that as my plan!

2. Inside candle close
With this idea I have adopted a popular belief that an inside candle (ie a candle fully formed and closed within the size of the previous candle) can be like a spring coiling and waiting to explode. But in which direction? I added a 21EMA and if the pattern formed above the EMA I expect it to explode LONG and if formed below then explode SHORT.

I have tried entry orders at the top and bottom of both ends of the candle. I have tried looking at MACD and/or Stochastic for indication of which way it may explode. I have even tried hedging ideas of adding 2 positions in opposite directions with targets exceeding stops so a move either way will end in profit overall. Again nothing seems to get me more than 50% accurate or profitable.

So we really need to start from scratch. What do we need in this plan?

1. We need to define a SETUP. That is something that occurs to tell us to take notice and look for confirmations and entry points.
2. Then we need CONFIRMATION. We need something to confirm a direction for us?
3. And we need ENTRIES. We need to identify when and where to enter into our trade?
4. Then we need a STOP and a STOP PLAN. Where do we place the stop and how do we manage it after the trade has opened?
5. And possibly a TARGET and TARGET PLAN. What is our target and is that managed as the trade progresses?

that's a good idea theoretically, but majority here are losers so the result will not be good.

and before you start talking about inventing a system of trading you need to know, what is the win-expectation, what is the risk, what is the account starting value...

do you intend to have a system low risk with big account to start....and you will be happy with 3-5 % a month, you might come up with something.

do you intend to put 1000 dollars in an account and try to double that in a month or two.... so you can withdraw money from it.... you will go bust..
that's just some examples...

Valid points. I am hoping the discussion will lead to ideas on what sort of capital to begin with and what risk to take.

Its getting a little ahead but I personally only use 2% of my account per trade.

Hi marshalmax,

Nice idea and thread to bring all the wannabees together and form a allegiance to overthrow the evil forex empire. LOL

Problem with Forex is too many variables to trading. What time frame, what time of day, which indis to use, and then you are banking on follow through from other traders. You are also battling your own emotions with each and every trade and its outcome.

Patience is another key, belief and selflessness also play a major part.
As we all know majority lose, it has to be this way or no market would exist.

Anyway to win is to do the things the others wont. This is key and also very hard. "Go where the angels fear to tread".
Most like to play safe and wait for confirmation from a candle.

You know that in a real good move about to begin that entry candle is explosive and sometimes to big for most people's RR's to get involved after that. I think that is why the move continues. When too many catch that nice potential explosive move it usually comes back the other way and dumps as many as possible before resuming whether by hitting their stop or printing one or more scary candles with wicks suggesting their decision was wrong.

A real good strategy to work on is buying up double bottoms or selling double tops, any time frame. The wider the better. Look at a naked chart and look left. When price is near or equal to a previous top or bottom candle body( not the wick ). Have a pending order and buy or sell it, don't wait for confirmation. The more deadly knife falling a thousand pips to a bottom formed 2 year ago or 6 months, 2 days whatever according to the time frame you used the better the outcome will be.

ATR can be a good initial stop in case you were wrong.

This is the only method I know that works well with big profits however the problem is since these opportunities are not around too often the mind begins to look for not so good examples.

So a good set of conditions defining a opportunity are essential. Otherwise you will overtrade or conjure up images that may look good at face value but not look good when you zoom in and see where price is really going.

Structure targets are the best like previous resistance or support.
Oh the one thing that kills this kind of trading is a trending market so you need well defined range markets to operate in.

Anyway these are my thoughts on how to go about something from scratch, I don't think anything with moving averages works consistently on its own I've played with many going long or short only on a small TF in the direction of a higher TF waiting for everything to line up and those opportunities are even rarer again.

You see if you think about it Psychologically we all pretty much see the same thing on the charts so we need to do things different to normal for success but that doesn't mean being reckless either. Strict money management rules must always be adhered to and selection criteria is imperative to not have too many trade selections at any one time.

Thanks for your input Oz. I like the ideas you mentioned. Looking for double tops and double bottoms.

I guess while I hope we can get a good group of traders to come up with a good trading plan, I know a lot will change it and I also know a lot will use it differently with regards to stops and targets and risk etc. So while I am aware a good portion of traders need to lose and it has to be that way, I am also confident the number of traders actually winning on this thread will never dent the overall market. It's just too big a market. It's not like sharing a horse racing system where 1000 people get on the same horse and the odds drop dramatically.

My point is that those who are winning on forex are not here. So we need to find something together that works that we can then use or base our own further investigation on. Get some runs on the board for some people.

You don't build a plan. You get experience and everything else falls into place on its own.

I appreciate your input but for most this statement does not mean a thing. How long is a piece of string? When do you know you have enough experience? What if it doesn't fall into place on it's own? What exactly is it that falls into place on it's own?

Care you be more helpful?

You will know when. No one tells you when. Just like anything challenging, you have to keep trying until you figure it. Anyone who drives a car with manual transmission the first several times is going to stall over and over. You keep trying and one day you just don't stall any more. Even then you might stall once in while, but not as frequently. You don't build a plan on how to drive. You just have to do it. And like that you learn.

If that would be true....

there is only one way of driving a car...... and also almost all people who start driving, they eventually succeed, but in forex is opposite
there are many ways/strategies to trade forex, but almost all of them are wrong

check trades here on forex factory. I am amazed how many people with 3 years or more experience have blown accountsor 3 or more vouches are also losers...

I meant in general (in regards to experience), not literally. Obviously trading has some differences. In trading you don't always have to start in 1st gear. Let me just ask this... do you think it's by coincidence that most traders with 25+ years of experience are better than those with 10 years experience? And do you also think it is by coincidence that most traders with 10 years experience are better than those with 1 year experience?

Don't let myself (or anyone else) dissuade you from doing what you are doing. Part of the learning and getting experience thing is doing what you are doing now. Starting threads (or posting in threads). Asking questions. Even debating others. Just try to be respectful and listen to what they have to say although you may eventually realize they were full of garbage. What I'm trying to say is this is all part of learning and getting experience so don't stop.

Here is an example of a live current trade i took on a micro just for show and tell. 1st tgt would be your initial risk which would be hit about now at 7 pips and roll the stop to break even.
This is a 5 min but you can apply to any TF.

Nice one... Like the double top/bottom idea..

@Iulli: I agree, we need to aim at a 2-5% over a month, not more

GREAT THREAD

Sorry 4 my english

One of the most difficult things I find to trading is actually being there at the right time, watching the right pair form a setup.
I usually float around the house and with a family running around it makes things awfully hard in terms of concentration, thinking, finding serenity and dedicating a block of time to consistently devote to trading the one style.

I don't know how you others approach this, maybe trade a higher time frame but then the patience wears thin when price is consolidating and the trading risk in pips increases.

Some ideas i'm thinking of within the double top, bottom scheme are:

A chunk of time must be allotted, (X) amount of hours per trading session:

M5 TF for plentiful setups any time of day.

Watch 4 pairs: ideally majors: GU EU EJ AU.

Pair should not be trending: So on the screen you watch in M5 price should be in a range. Not diagonally sloping at 45 degrees making HH's or LL's.

IF it is sloping or trending then the 1st top or bottom should show a climax bar indicating a potential end of trend and the retracement to follow should defeat the low/high of the climax bar and the trade would be entered on a retest.

I like to see quick rejection of the 1st top or bottom to make it a good one.

Also volatility should be low:

So ideally we like to see a contracting price environment, range bound across the screen.

A 6( ATR ) value of 3 or less is usually a good time, once ATR creeps up above 5 on a 5min chart it usually shows price trending. Not good for this strategy.

These are some of my observations over time. Author please chime in if you would like to pursue a plan around this style of trading.

I think it sounds great but to tell you the truth I have not had much experience identifying patterns as they emerge. I tend to see possible patterns everywhere with rarely any of them forming correctly and definately not any of them worth trade off. I can plenty of perfect patterns after the fact though!

So if this is something you want to put forward then I suggest you get a nice clear set of rules that can act as a checklist, post it up and lets get some readers testing.

I am building a system exactly like yours and i do find that if you use a bigger timeframe like 9 ema cross 20 ema, its less choppy and better. I however trade breakouts after the crossover.

send me a email @ junkone1 AT gmail.com and we can share notes.

Hey marshalmax,

OK well I thought the purpose of the thread was too build a plan from scratch ?

Here I'm presenting an idea to build a plan around.

It is different to the norm and so if you look at a chart you will see double tops and bottoms every where. These are points where buyers, sellers and market makers have no clear direction so they are just turning things back the other way around probably trapping all trend followers in the process.

They would also look like small consolidation areas on the larger time frames.
I don't have all the answers and I don't have the physical time to back test as such and present a full case study.

But hey just look at a chart and it happens a lot in the correct environment, I'm suggesting things I see but to build it into an objective winning strategy requires a lot of work and input from a group of people who like the idea.

IF I had a clear set of rules why would I be here in a build from scratch thread ?

Identifying patterns is a skill that comes with much observation, it is probably the corner stone of success. It is what defines the great traders. I consider myself a good analyst but good trader no for emotional and behavioral reasons its a struggle.

Reasoning and committing to your own plan is bloody hard on your own.
You become your own best and worst adviser.

In a group sense with lots of support I think we can collectively achieve success but don't think it will come from price cutting over a moving average with macd and blah blah confirming because it won't.

Anyway peoples its up to you guys whether or not you want to commit to a project with this strategy being the core component or not.

Attached is a chart with some possible trades highlighted from Today's Asian session. Volatility was low, action was very much range bound and predictable.
There was 1 loss , if you took the last trade.
My theory has always been if you get a win you bank it and call it a day and as usual the early bird catches the worm. If you got in on the last setup by then the pattern was predictable and the market killed it off as it does when too many know about it.

I guess if you analyse the last opportunity that failed you can see that price made a new low that was confirmed by RSI so that suggests lower prices coming or an alert also to not take the trade.

At the current moment the ATR value is very low and very low volatility. I did however enter @ 20 ema and made a 5 pip gain.

http://i45.tinypic.com/28h1lr5.png

The first rule of trading that i follow is that I am responsible for my gains or losses. I follow my 20/9 ema system and there are some wins and some losses but i net profit at end of the trading day.
Second rule is : There is no one trading against me. there are just some people who might have a better edge and its very visible on the chart. Just that i did not pick it up.

That's great Junkone keep up the good work