SAR Method on 4hr Charts

Hey guys,

You may or may not have seen me post something like this previously. This is a new and hopefully improved version of anything you may have seen before. Check out the video for a much clearer understanding of the method. Video can be viewed at Best to watch it in HD.

Basically it is a breakout type system that does not use any technical indicators at all. Just price and a few horizontal lines on the chart. I was part of a trading team that use to trade this on three pairs only, and these were on 1hr charts, where we had a weekly profit target and then call it quits. It was successful but physically draining due to the requirement to check the charts at the top of each hour. Then there were some other issues with the team, so we called it quits.

I did demo this on multiple pairs on the 4hrs charts some time back and had some hugely successful months followed by some very flat months. I had modified the rules somewhat and was being pretty aggressive with reducing the risk as soon as possible, which led to a lot more trades than were necessary. But I could see potential with it.

I decided to revisit the idea and just go back to the original rules, with a few other tweaks. I've got a pretty good framework on where to start but I am hoping for some feedback on how to really improve on it. I did discuss a couple of ideas on the video, where I talked about closing out half the position at +200 pips and then moving the 2nd half to no worse than break even. If the SAR was on the wrong side of the entry, then I would use a hard stop, but keep the SAR in place for a new reversal trade anyway. It would be preferred if the SAR was on the good side of the entry point, so it would be trading as normal. Another thing I was considering, is the possibility of looking at a larger position size for entry after a losing trade. Not martingale and it would just be limited to either one or two trades only. Something along the lines of once the previous loss was recovered, close out half to cover that and let the remaining half continue on as usual. Something I would have to play around with.

Also not sure if there is a chance of turning it into an EA, or at least a semi auto EA. I have spoke to my Programmer in the past about it and she was pretty confident she could come up with something. It can get a little confusing setting the orders manually and you have to double check everything, and ensure you cancel old orders etc. Keep in mind that you will only be modifying orders when your SAR is moved, as all the other times you are just moving yellow lines around the chart.

Looking forward to other traders thoughts on this one, whether good or bad.

One thing I did forget to mention, is with regards to the placement of the SAR level. I would normally give it a few pips breathing space, and on the 4hr charts normally set them from 10-15 pips above/below the high/low, depending on the spread of the pair I am trading. Nothing worse than getting reversed right on the previous high/low only to see it immediately reverse against you. It does happen, hence why some traders like double tops/bottoms so much. Also if there is an opportunity to move a SAR level, but it is only a few extra pips, I tend to just leave the SAR where it is. A few pips on the 4hr charts isn't going to make too much difference. Cheers.

Thanks for sharing. I'll take a closer look at it.

Thanks for sharing this interesting method.
I understand from the video that when the price escapes the 4 lines againsts the trade, it triggers the trailing of the stop when it enters back inbetween the 4 lines. But you don't cover the case where the price breaks outside the 4 lines but never re-enters. How do you handle this case? I think you don't let the trade reverse to the original, untrailed SL. From the explanations that's exactly what an AE would do since it's not told to do otherwise.

dear friend, why ask, you know the answer

i've asked your question thousands of times, now i know you know he/she knows that we all know. just that we don't like to believe that SL is the only way.

Nice method based on pure price action. Can you make a video of how you trade when it is consolidating ? That would be useful to everyone

Venkatesh

Thanks to you that have made comments about the method, and also thanks to the 180+ that have watched the video already. As you can tell by the video, I'm not a professional marketer or speaker. Just keep things pretty basic, even with all the ums and ahs...

In answer to your question PipMeUp, technically I would suffer a loss if the SAR level was on the wrong side of the entry level. If price never re-enters the four yellow lines on a pullback, then I am either going to suffer a loss with a reversal or a profit with a reversal. That's just the way it is. Hence my suggestion of closing out half when a certain target is hit (around +200) and then placing a hard stop at break even on the remaining half. I could then still continue to move the lines as per the rules and hopefully the opportunity would present itself where the SAR would then move to the profitable side of the entry level. If it didn't and I was stopped out at break even, then there would be no trade in place until the SAR is again activated in the reverse direction.

There will be losers with this method, especially in a sideways market, especially if you have a sequence of higher highs and lower lows, and this is what I want to try and minimize. Also this is trading on the 4hr chart, so your losses can be quiet large, therefore money management is a key issue here. I have traded this method in the past on the 4hr charts over multiple pairs and a couple of months there it racked up about 2,500 pips each month. This was very aggressive though with slightly different rules and a lot more trades, including losers. Then followed two more months of break even results. Seemed like a lot of work at the time for very little in return.

And Venkatesh I'll try and knock up another video with a heap of sideways action just to give you an idea of how it performs. Hopefully this will be up within 24hrs. Cheers.

I've just made a video of a sideways market over about a 5 week period on the GBP/AUD 4hr chart. I didn't put much thought into this as I just eyeballed the chart for what I thought looked like a crappy period. As it turned out, it wasn't actually that bad considering the ranges. I will try and put in more of an effort for a further video where I will deliberately look for an exceptionally ugly sequence of trades.

You can view the 2nd video here. Best to watch in HD.

Something else I would like to add. For those of you that enjoy smaller timeframe trading or actually enjoy being at your computer for hours on end trading, then this method can work well on the 15 min timeframe. Our team use to trade it quite successfully on the GBP/USD 15 min charts and would just concentrate on the London and part of the US session. I wasn't really into it, but from what I can remember they had very specific profit targets in mind for the session and then call it quits for the day. Just had to be news aware. I've probably given you more than enough info here to set up your own charts and do a bit of back/forward testing. Cheers. Jim

Jim.. excellent videos, its kinda DEJAVU - but I think you had displayed these videos sometime back too... a few months back actually"? Cuz I vividly remember watching the first one.. and even demoing it. Great way to manage a trade

max pain, you are correct. I went back through my videos and found the videos you are referring to. Here's one from Aug 2009 which pretty much shows the exact same system however I was a little more aggressive with my moving of the SAR line as I was aiming to reduce risk as soon as possible. Thanks for the reminder as it helps having more videos explain the method.

Check it out at

Here is another chart showing an actual trade I took and the entry, SAR and profit target.

Hello. If you read Expectancy Management I explain, with schemas and equations, why this is not a good idea at all for a system to take partial profit. Especially for systems with a big R:R like trend followers.

Below is an example of such a short trade that would have reverted to the initial SL --completely cherry picked --. Its lowest low was at ~450 pips from the entry (blue line).

If you close half at 200 pips and trail the SL to 0, you get 100 pips net. I think it's not really acceptable to let a 200 pip trade rewind to the zero line or to get only 100 out of 450. On the other hand we shall let some room for the price to move. We need a trade-off.

In the picture below (G/U H4) I attached an EMA of the highs and the same EMA of the lows. Here it is EMA 60. There is no need to optimize the period. The distance between the two lines makes a quite good estimator of the volatility. It is smoother than the ATR. One can see the volatility as the amplitude of some market "noise". If the price moves away a larger distance it is statistically valid to assume that the move is real because it went further than its confidence interval. I propose you to trail the SL this distance away from the 4th line in addition to your SAR rule. The white line reports the distance. In this particular case the trade would have closed for 250 pips. It won't always be better, especially when the price spikes a lot before closing inside the yellow lines. But I think it's good in the long term.

Another idea is to use a higher TF, like daily, and use the two previous bars highest/lowest as long as it is outside the yellow lines area. This way we more or less trail from S/R to S/R. That's the grey line in the picture, 285 pips from the entry. I don't know which is better. Perhaps they may be combined.

PipMeUp,

Thanks for the screenshot and suggestion. Below is a video showing what I believe to be the trades leading up to your chart screenshot. I did explain in the video how different brokers may use slightly different price feeds which can affect the high/low of a candle, so it is possible two different traders may have quiet different entry points at times. Doesn't happen that often but it does happen.

I must admit I did have to read your post a couple of times to fully understand it. What you say does make sense. In the past I have looked at different ways of trailling the stop using other types of indicators or methods. It tended to get a little frustrating at times as you would either give way too many pips back after being in big profit or you took too few pips before a big run. As you say, sometimes it is hard to find the trade off. I also didn't want to be cluttering my charts up with indicators as I enjoy the clean look of them at the moment. When I was testing it just taking the +200 on the full position, that seemed to work well, and was probably the most consistent way of doing it, however when that big +1000 pip run appeared and I missed out on it, I wasn't happy. Also trading different pairs, an across the board profit target of +200 probably doesn't make good sense either. There would have to be some thought put into that. At the end of the day, it may just come down to discretionary trading on where I place the stop or SAR, but stay tight with the entries based on the rules. But you have got me thinking, I may just add a 240 LMA on the 4hr chart and also have a look a the Daily chart with a couple of favourite indicators. Plenty of choices here. Thanks again for the input. Cheers. Jim

And here is the video...

Thanks for your videos. Has given me a lot of clarity. I will be testing it out on demo.

Venkatesh

Hi Buff,

Thanks for showing us your system.
I am interested to try out on 15 minutes time frame as you mentioned in your previous post.
But I am not sure what is the trigger for your first buy or first sell.
Do you just open a trade randomly after London open?

Thanks.

Thanks for the comments guys.

bny,
With regards to finding an entry on the 15 min timeframe, normally you would just go back to the last decent trend prior to that open and work your way through the trading sequence until you get to the first order in your trading time, and then take it from there. I will do up a video in the next day or so to show you. It won't be today though as it is the wife's birthday. Cheers. Jim.

Hello Buff and other posters ....

The basic idea is intriguing. Buff, in your first video you describe how your idea entered a sell trade and then reversed and reversed again soon after. It occurs to me that the pullback that triggered that reversal ( according to your plan ) was really a pullback to a recently breached SR level. Can this fact be built into you levels somehow to identify the last breached levels and thereby "hold" the trade for further profit? The pic attached shows what I mean.

Ok cool.
Thanks a lot.

fairwind,
You make a good point with regards to SR levels. Probably means more lines on the chart which may confuse things a little. Nothing stopping the individual watching these levels. You can either make the system as discretionary or mechanical as you like. I have a tendency to take some profit of the table when it presents itself and I also like to move my SAR asap, either to greatly reduce risk or remove it completely. I also have no problems taking a small loss straight after a big win. Losers are a part of the trading game that can't be avoided. You don't necessarily have to have more profitable trades than losing trades, just more pips at the end of the day (or month). Having said that though, some traders are uncomfortable with big stops and some are uncomfortable with a string of losses, even though a big winner may just be around the corner. Up to the individual to trade how they feel comfortable so you can sleep at night and not be too stressed about it all. Thanks for the tip fairwind, as it is something I will look at in the future. Cheers. Jim

Since you are working on the 4h chart do you view and update the lines on the charts every 4 hours even if it is odd hours ?

Venkatesh

rvenky,

This is a good question. If I can, I tend to check the charts every 4 hours, when the new candle opens. This is not really necessary though. For example I was away from my charts for 12hrs and I am currently trading this on demo on 4x pairs. I didn't really have to do anything, even with 2x open trades. I just tidied up the charts when I got back to them by adjusting the lines and any SAR levels.

When you think about it, if you had a current trade in place, this open trade would have a SAR order already set. This SAR involves both a stop for your current open trade and then an order to open a new trade in the opposite direction. If this was filled, you just want to be able to check the charts so you could set a new SAR for this new trade. It is highly unlikely that there would be such a sudden reversal before you could place this new SAR. This is fine on the 4hr charts, but on smaller timeframes, you may have to pay closer attention. Even on the 4hr charts, I would be inclined to check them around major news releases like non farm payrolls, especially if you were close to a SAR level with a current open trade.

You will get a feel for it, and more than often it is fine just to check your charts every 8 hours or so. Hope that helps you out. Cheers. Jim.