Mechanical Trading - Is it possible?

Decided to start another trading journal to look at a mechanical trader method i have been looking at.

It's in no way all my own work I have gleaned a lot of information from this thread http://www.forexfactory.com/showthread.php?t=252157 started by Paulus I was looking for a trend following technique that would work mechanically and thanks to Paulus for all his hard work.

Paulus was using this method on short time frames (TFs) I'm using it on 4h charts and so far so good.

Why do I want something that will work mechanically? well that's easy, I was getting very frustrated trading price action on lower TFs. mostly 15m, and getting it wrong more times than not.

This, for me, takes away the stress of trading lower TFs and makes trading fun.

Once I see a set up I enter with 0.4 lots and an initial SL of 50 pips, once I get to 50 pips profit I exit 25% of my position and move my SL to BE +1, at 100 pips I exit another 25%, at 150 pips I exit another 25% I then tighten my SL and allow the remaining 25% to run.

Once I'm in a trade I use this Stealth TradeManager EA for MT4 http://www.forexfactory.com/showthread.php?t=371147 for trade management. If you want to know how to set this EA up it's much easier to follow the instructions provided here. Thanks to Fxtr51 for all his programming skills.

I use the BB MACD and SuperTrend+MA indicators

And no the indicators don't repaint, they only change whilst the candle you are watching forms so only look to enter a trade once the candle is complete.

I use the same settings for the BB MACD indicator as Paulus 133 244 2.1 the SuperTrend indicator I use MAPeriod 50, MA Method 1, MA Price 0 and don't forget to set ShowMA to TRUE.

I've attached a GBP/USD 4h chart to so show what I'm looking for.

I'm tracking 10 pairs EUR/USD, AUD/USD,GBP/USD,EUR/GBP,USD/CHF,USD/CAD,NZD/USD,AUD/JPY/EUR/JPY,USD/JPY if your interested try some back testing over the weekend you might be pleasantly surprised at the results.

The beauty of this is it's simplicity so don't try to fix what isn't broke until you have given it a try.


On the 26th Feb 13 i added the AllAverages v2.1 indicator with Inputs set to (TimeFrame 0) (Price 0) (MA Period 50) (MA Shift 0) (MA Method 2)
Change the SuprerTrend indicator in the Inputs set the (ShowMA false)

From the 11th Mar 2013 I'm only watching EUR/USD GBP/USD USD/CHF USD/CAD USD/JPY EUR/JPY

On the 15th March 13 I added the scmtf cci indicator see page 5 post 63

hHi steve, u do good , i ll follow all ur post here. keep up the good work. Many thanks for ur study.

Hi there,
will follow with great interest....will try to make some back tests over the weekend...

Currently I'm in four open positions on a DEMO account.

I will record results by pips won and the R factor they represent for anyone unfamiliar with R values R is equal to the amount of risk involved in taking a trade pips don't really mean anything it's what they represent in terms of Return to Risk that count.

11/02/13 Entered GBP/USD SELL Trade, I posted yesterday, is still running I have TP at 50 (0.25R),100 (0.5R) and 150 (0.75R) pips and am up over 200 pips on the remaining 25% of this trade.


13/02/13 Entered NZD/USD BUY Trade is still running I've TP at 50 (0.25R) and 100 (0.5R) pips and currently up about 70 pips.


15/02/13 AUD/USD BUY Trade is down about (30) pips at the moment.


15/02/13 USD/CAD BUY Trade is up about 2 pips at the moment

Closed Trades this week are

11/02/13 USD/JPY BUY TP 50 (,25R),100,(0.5R) BE+1 Total Return for this trade 0.75R

12/02/13 EUR/JPY BUY STOPPED OUT for (50) (1R)

Up Date Close of Markets on Friday 15th Feb

GBP/USD Trade 1.5R Return with 25% still running and currently 186 pips up 0.9R

NZD/USD Trade 0.75R Return with 50% still running and currently 35.8 pips up 0.35R

AUD/USD Trade (1R) Return SL hit (50) pips

USD/CAD Trade 0.25R Return with 75% still running and currently 37.2 pips up 0.55R

USD/JPY Trade 0.75R Return

EUR/JPY Trade (1R) Return SL hit (50) pips

By only closing 25% of my position at each TP level and allowing the last open position to run for as much as the market will give me I will hopefully in the fullness of time catch a big wave. I hope you can see the benefits of taking partial profits and moving the SL to BE after the first TP level is hit this way we have 25% of our risk in the bank and have a "free" trade for the remaining 75%.

Why do we need "mechanical" trading?

There are a lot of traders, out there, who have learnt the art of discipline and they follow the rules of there system to the letter and never deviate from it's path because they know by sticking to their systems rules in the long term they have an edge. If this describes you, you are very lucky because you will never need a mechanical system to trade.

On the other hand there are traders out there who know their trading method has a long term edge but they lack the discipline to stick to it when things don't quite work as planned on a trade or series of trades. The red mist descends and they go looking for a quick fix to get themselves back on track and end up taking trades outside their method and end the day with a large draw down. In the next few days their system is back on track and making profit again if only I had stuck to my trading plan I'd be back in profit. If this describes you, and I know I've been there more than once, especially if your trading the shorter TFs where it's so easy to try to force a trade then mechanical trading might just have something to offer.

When your looking for A B C to happen before entering a trade nothing is discretionary it is automatic if the trade doesn't work out just wait for A B C to happen again. Good traders know it's not how you get into a trade that matters it's what you do once your in that makes all the difference.

I'm not going to be around to trade next week.

Hi StevePAtt,
Just like to be sure concerning entry rules,
As I see on the charts, for long entry you need to have MACD indi changed from, in your case, red to gold, then supertrend indi turned to gold and closed candel has to be closed over 50EMA, is it not necesary to brake Super Trend lne by candel?
Made some test last weeknd, looks promissing...

Hi Jackub,

Sorry for the late reply, I have been away for a few days and not been checking in on the forum.

I'm not always looking for a break of the SuperTrend when I enter a trade as long as it's colour corresponds with the direction I'm trading in. I'll be looking for more set ups now that I'm back so you can have a good idea for what I look for.

Up Date Close of Markets on Friday 22nd Feb


At the end of last week I was in three open positions

(GBP/USD Trade 1.5R Return with 25% still running and currently 186 pips up 0.9R)

(NZD/USD Trade 0.75R Return with 50% still running and currently 35.8 pips up 0.35R)

(USD/CAD Trade 0.25R Return with 75% still running and currently 37.2 pips up 0.55R)

The remaining 50% on the NZD/USD trade got taken out for BE +1 pip for an overall return of 0.75R.

The remaining 25% on the GBP/USD trade got taken out for 276 pips for an overall return of 2.97R.

The USD/CAD trade has know hit it's 50 100 and 150 pip targets and still has 25% still running and if I exited as it stands I would make 2.44R

I entered a new trade on 22nd Feb AUD/USD which currently stands at (-14.9) pips (-0.30R)

So I go into next week with two trades intact (USD/CAD and AUD/USD) we'll see what the new week brings.

Update.

AUD/USD has hit it's first TP level of 50 pips and I have taken 25% TP at this level which gives me 0.25R return SL moved to BE +1 pip so I am know in a "free trade".

USD/CAD trade is still running and currently stands at +221 pips.

I haven't taken any new trades yet, this week.

Foe anyone interested I have added the AllAverages v2.1 indicator with "MA Period" set to 50 and "MA Method" set to 2 and the colours set to match my candle colour. I have not altered the SuperTrend indicator but have changed the "ShowMa" from "false" to "true'.

My reasoning for doing this is the BB MACD indicator's settings are very smooth so I have changed the 50ma from an EMA to a SMA that's Smoothed MA and added the colours for continuity.

This is a work in progress so is open to some minor tweaking.

Just entered a new trade on EUR/GBP, it's a late entry but PA is looking promising.

Hi Steve,

Nice thread! I'm using the same strategy as you. However I do look at higher time frames before I enter. But I guess why my entries cannot be called as "mechanical" I look for a trend on 4H TF and do my entries at 15M.

Regards

Hello stevepatt,
I thought I understood your entry criteria to require the supertrend line to be red for a short. But I notice on your AUDUSD trade the marked bar at 22 Feb 12:00, the supertrend is yellow. Could you clarify that for me please?


thanks,

Hi Raspie,

That's always a good way to trade, catch the BIG 4h trend and fine tune entry on the 15m.

Hi Yabab,

Your right it is Gold and not Red the reason I took this trade was the setup candle rejected the 50 SmoothMA and we are in a good down trend at the moment.

Update.

AUD/USD Has hit 50 and 100 pip targets.

I don't know what happened but a TP was also triggered for 61.9 pips; I think what, possibly, triggered the close was me shutting my platform down and then opening it again. I must remember not to close my trading platform if I have an EA running.

So at the moment this trades stands at 1.07R and still has 25% running.

USD/CAD Still has 25% running and stands at 259.6 pips.

EUR/GBP Still has 100% running and stands at (-22.8) pips.

hi stevepatt

can i ask where is you stop on the USD/CAD trade you said you tighten the last 25% and can the EA be use on a live AC

regsrds deo

Hi Deotoknow,

My SL is at 1.01550 which has locked in 130 pips for the remaining 25% that is running on this trade.

Yes the EA can be used on a live account I'm testing on the demo account to make sure it runs ok. I enter all my trades manually and only use the EA to manage the trades once I'm in.

hi Stevepatt

many thanks looking back last week there where a good few setup EUE/USD USH/CHF EUR/JPY AUD/JPY AUD/USD NUZ/USD i will give it a go next week
regards deo