The 10XROI System - A High "R" Factor Approach

Daily chart, the two grey lines are open and close of the first candle. Second candle is the momentum candle, and 3rd candle is the pull-back.

reason why I say this is because when price hits a key level we will always worry that it will reverse, but that's just the inherent risk of trading. To overcome this we just need to respect the market - anything can happen at anytime. Over a longer period, with journalling, we may be able to cut down on losers by closing some trades if they meet certain criteria that we have determined to be significant and applicable over large sample size.

For a start, should just stick to basics. This is a reminder to self because today I closed my E/U and USD/CHF trades because they were hitting push pull levels and looked like they were gonna reverse, and look what's happened now lol!... It was part of my plan to do so, but I guess I haven't really backtested enough to justify including this in the plan. Much better to just stick to the basics.

Hey just thought I would share my outlook on the 8 pairs that I am following.

Colour code:
Turquoise - 4H S/R, trendlines
Purple - Daily S/R, trendlines
Green - Weekly S/R, trendlines
Brown - Monthly S/R, trendlines
Grey - Push-pull levels, zones of interest.

Arrows represent my bias if price were to reach that level, around that time. If push-pull set-up appears, then I will take the trade and stick to it until it reaches either TP or SL. Bias may change depending on what the market does.

These are all daily charts.

General rule of thumb:

Stick to taking trades dictated by the daily chart trend as long as there is enough SPACE (approx. 2.5x 60day ADR) till the next level of weekly push-pull zone (the further price has travelled away from the level, the more significant it is) OR monthly S/R.

Trend trades can include:

1. Bounces off weekly, daily trendline.
2. Breakout and retest of off weekly/daily horizontal S/R levels.
3. Breakout of wedges, consolidation zones, bull/bear flags, pennants etc. etc. all your classical TA patterns.
4. Momentum trades that are straddling the 3MA and above 10MA.

We ignore counter-trend push-pull formations that do not coincide with key monthly levels or untested/fresh weekly push-pull zones UNLESS

Price moved in a parabolic fashion and reversed sharply off a level with a pinbar or engulfing bar.
Double top/bottom, with certain strict criteria to be met.
Alternatively, if daily trend line breaks, we will look for retest of trendline/ consolidation before taking trades with the new trend.

GBP/USD:
This pair seems to be breaking down. Will be trying to short it on a retrace, or consider a long on a push-pull set up when it reaches 1.611.

EUR/USD:
This pair is testing a monthly trendline. A reaction here could send it back up 200 pips to test the 1.36 region so a 10xroitrade might be present if you can control SL to 20 pip. At 1.36 region I would be looking for shorts as it is clearly a significant level and it coincides with both the downtrendline and midpoint of the large bearish candle. Also it is within a push-pull region. Lower at 1.32 will be a good place to get long.


USD/CHF:
This pair has been straddling the monthly downtrend line for ages. It seems to be breaking out now after a failed double top. It is coming into some weekly resistance so a pull back to the push-pull level will enable us to get long.


USD/JPY:
It's a mess, but I would be interested in shorts if it gets to the down-trendline, also a push pull region and previous consolidation zone. If it continues breaking down then the up trend lines are of interest. Will update this as it develops.


USD/CAD:
Strong parabolic up-move. Would be looking for shorts at this push-pull region to target 1.09, where longs become favourable.


GBP/AUD:
It's in a mess but aggressive short entry here is possible on retraces back to push-pull region as illustrated by the trade I took yesterday. Further down I am looking at the up-trendlines to see what sort of reactions might be generated.


AUD/USD:
This one seems to have broke out of its accelerated downtrend and is now consolidating. The downtrend line coincides with some historical push-pull levels. I would only look for sell trades 210+ pip north from here near its down-trend line. If price were to break through it, then long trades can be sought after on push-pull formations.


NZD/USD:
Looks like the weekly lower bound broke. Will be looking for a short trade on a pullback. Longs from the upterndline at 0.796 are good too.


One thing to keep in mind when looking at these is that our mental model of the market tends to be flawed. Specifically, the market actually moves a lot slower than we think it will. For example, a monthly level or trendline like that on the EUR/USD is likely is create some reaction/consolidation/stalling that last for weeks or even months. It's extremely unlikely that price will just pass through it and not look back. Similarly on the USD/JPY, the monthly support it's testing now, may look like it is breaking, but it could just be a facade. The more likely scenario is that price will consolidation around these highs for a couple more weeks/months.

This is why it is very hard to time a long-term trade, and that is what throws many traders off.

Thanks for that shellsnail, Im going to take some time and study your charts.

Hey you're welcome.

Just remember that when it comes to these trades, bias + push-pull level are all you need. So long as you are right 1 out of 10 times you will make a small profit - so money management and sticking to the plan are very important here. (1% risk)

Thanks again for your insights

Here's a cleaner chart for the EUR/USD.

The playing field is set for the next couple of weeks.



These are not PREDICTIONS. These are biases at the various zones. So in order for there to be a trade, you still need to see a push-pull formation at those levels (the exception being 1.36 zone, because there'a already a push-pull level on the left that's still untested and recent + we are in a downtrend and it coincides with the DTL). But these levels are good because there are enough space for TP to be at least 200 pips.

The 1.32 region is of particular interest because it coincides with a potential monthly trendline (untested, only 2 touches so far), AND it is a fresh push-pull level on the weekly charts.



The last time price hit a fresh push pull level on the weekly chart back in Mar 2013,


From my back-testing, it seems that many daily trends reverse only when hitting a fresh weekly push-pull level.

Modified 10xROIsystem

A working definition for push-pull level,

A bullish push-pull formation:

Two candles, second one closing green & high of second candle exceeds high of first candle. Preferably second candle is large in size but not a strict requirement.

A bearish push-pull formation:

Two candles, second one closing red & low of second candle exceeds the low of first candle. Preferably second candle is large in size but not a strict requirement (context matters more)

Examples:
1a
1b

2a
2b

3a
3b

At this point I will clarify that the way I interpret it is not exactly the same as what it was originally intended to be, but this is based on my own testing and it simplifies things A LOT (to me the accuracy is not sacrificed, if anything there are probably more winning trades if you can find entry method to control SL to small size), so make sure you test it sufficiently before adopting the method.

Entering trades:

Instead of using the 1H charts, I prefer to set alerts of the push-pull levels according to how I defined them, and go to the 15 minute charts when price enters these zones. Of course it depends on your availability.

Once that happens, I am looking for candle formations to enter, and only from frankfurt open till london close (7AM - 5pm GMT). Once again this is just what I prefer/ am using, and DO NOT adopt it without doing your own testing.

I basically take the 60 day Average daily range of the pair, divide it by four, and use that as the SL. TP will be 10x that. So for EUR/USD my SL is always 20 pips, and TP 200 pip. I enter using market orders or LIMIT orders once the 15minute candle formation is complete. The SL must be AT LEAST above/below the extreme point, so if the candle closes too low/high I will use a limit order and wait for a retrace. Basically I am saying that these candle formations must be strong enough to create a reversal.

From my experience trading the shorter time frames, strong reversal patterns on 15 minute charts include OBVIOUS pinbars, engulfing bars, evening stars and morning stars (with 1st candle having a long wick, 2nd candle inside bar and 3rd candle being engulfing and large in size). Another one is TRIPLE TOP + candle formation, marginally below/above the recent HIGH/LOW.

If I get stopped out, I do allow for reentries if another pattern forms, as long as price is still within the zone, or marginally beyond it. (reason being the risk reward is too good to pass up on potential trades)

Do test it if you are interested but that's how I got all the entries for the trades I posted.

Here's an example. Recent GBP/USD
Daily chart:

15 min chart:
First attempt is a LOSS.

Second attempt:


Still in the trade.

Over time, I may develop methods to exit the losing trades early, for example I notice that price tends to consolidate above a half number or whole number zone if it wants to break down, and below it if its wants to break up. Just one observation that could perhaps cut some losers, BUT still need to test. For now it is best to keep it simple. The RR allows for many losing trades and still be profitable.

In the event that you are in a trade, and just before price takes off, it stops you out (happens during news releases), you can still use the 1H chart to look for an entry BUT this is up to your rules.

If you miss an entry, don't worry, price often retraces back to the entry to form a triple or double bottom/top so just be patient and set a limit order and WAIT; that said, MANY of the best trades, price just marginally touches the OPEN of the first push-pull candle and takes off from there, so make SURE you have those alerts set.

Finally, if the 1st candle has a VERY large body, as a general rule of thumb, only take the patterns touching either the open/close OR around the 50% retracement of the candle.

I think it's important to find what works for you. If this works for you, great, if not I would stick to the original system/method.

Backtesting Results from 01 Jan 2013 to 20 Dec 2013 EUR/USD

As this was a visual backtest, with discretionary elements (basically I analysed the weekly, monthly and daily charts and found my bias using historical data and then started looking for trades according to how I will interpret the market movements), there may be some human error, so don't take the results too seriously.

There were a total of 25 trades, 11 Longs and 14 Shorts.

The average duration of a winning trade is 4.1 days.
The average duration of a losing trade is < 1 day: the implication is that once a trade survives for more than 2 days it is LIKELY to be a winner.

The entry types are quite evenly split between Morning/evening stars, pinbar, engulfing. There were a few triple tops.

There were 14 winners and 11 losers in total. February was the best month with 2 winners and no losses. There were no trades in April.

Initially the SL used was 23 pips, TP 230 pips because the 60 day ADR shrank as the year proceeded, until now it is 20:200.

Most winners had negligible drawdown.

Assuming 1% risk per trade, here are the returns.

Jan: 18%
Feb: 21%
Mar: 10%
Apr: 0%
May: 8.9%
June: 10%
July: 8.9%
Aug: 5.6%
Sept: 10%
Oct: 17.4%
Nov: 10%
Dec: 10%

Total return for 2013: 338%
Largest peak to trough drawdown: 4%
Largest drawdown from initial balance: 2%
Longest winning streak: 5
Longest losing streak: 4

The winners and losers tend to come in streaks, so it might make a lot of sense to risk more (i.e. take 50% of previous trade winnings to put on the next trade) when you make a winning trade and cut down when you make a losing trade. Using this money management method, the total returns increase to 90,800% and peak-to-trough drawdown increases to 17%, while largest drawdown from initial balance remains at 2%.

Most of the trades are taken either between 8-9:30AM or after 12pm, clustering around 3pm.

Let's say we make some mistakes and I suppose we could cut the returns in half and double the drawdown. So a reasonable expectation will be 150% return, 10% drawdown.

An interesting observation about this system is that, once you make a winning trade, the market usually enters a phase of consolidation or reversal and then spits out the next push-pull entry. So in some sense, it comes one after another. As long as you get the first one right, it will be like a river flowing. I think the reason for that is the market has a certain flow to it and once you tap into the flow it will usually last for a few trades before breaking/changing. Oh, and one trade each pair at a time.

But one thing is for sure, if you trade this way, you wouldn't lose your shirt even if you keep getting it wrong. It just takes one LUCKY break to make back the money from losing 10 trades. Your analysis is likely to get better over time too and your profitability will increase BUT sticking to the MM is the first step. If you want to trade more pairs then you might want to consider cutting the risk back from 1% to maybe 0.5% per trade. For example, with 8 pairs, you can get a 32% drawdown if you are unlucky.

Like what Mark Douglas said, profitability is not primarily a function of market analysis, but rather how you manage your money once you have a simple edge. In this case the edges we have are:

1) Context clues/filter based on Daily, weekly, monthly chart.
2) Push-pull candle formation.
3) 15min candlestick patterns + formation as entry edges OR if you use the original method it'll be 1H trendline breaks/S-R levels.

Even if you suck at no. 1, 2 and 3 should provide enough edge for you to get at least around 20% winning trades, which with 1:10 RR and proper MM will make you very profitable.

Isn.t it 129% not 388%

I multiplied all the %s together and I get 3.38. It's not added; you are always risking 1% of your current account balance per trade. But these are just visual backtesting figures - I would take them with a pinch of salt. As long as the system is not blowing up it seems fine to trade lol.

The whole point of the backtesting was to build my belief in the system while being perfectly honest with myself about what I see, what does it mean and what do I do - you should do it too to build your own belief.

Ok thanks for that, but I don't understand why you multiplied instead of added?

Because it's math.

Let's say you start with 1000.

After Jan, you have 1180.

Risking 1% per trade, you will risk 11.8. The first winner nets you 118. Now your account is at 1298, you will risk 12.98 per trade. The next winner brings your balance to 1427.80, which is the same if you take

1180 * 1.1 * 1.1 = 1427.80.

Since multiplication is commutative (i.e. 1.1*1.1*1.1*0.99*0.99*0.99 = 0.99*1.1*0.99*1.1*0.99*1.1), the sequence of trades and winners/losers does not matter.

Ok thanks you have cleared that up!

Possibilities.

AU

EU

GU

UJ

GBP/USD tp hit.



Currently looking for potential long entry on USD/CAD.



GU chart Reset:

USDJPY

Stopped out.

If I didn't close my EU trade prematurely, it would have hit TP today.

AUD/CAD

Catch-up entry.

Daily:
15min:

My data on USD/CAD is a little corrupted, but there's a reentry 15 min entry now.