The Bounce Back Slave (Strategy/EA)

1. introduction
2. the psychology
3. the MM
4. the system
5. the goal


1) INTRODUCTION
Hi guys. Here I have a strategy that has great potential and that has done well for me on both demo and live accounts. From what I've searched there isn't anything that simple and that effective on forex factory. However it isn't simple at all to explain how it works. You may have the greatest system in the world but you may still lose. This is why I give you a chart for encouragement and what follows is a complete guide on how to get to the point where I am at the moment.



2) THE PSYCHOLOGY
If you were looking for a holy grail I have found it and there it is: self-discipline. It is the key. You can't achieve any level of consistency no matter what if you lack self-discipline.

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Self-discipline: the ability to do what has to be done, at the moment it has to be done without any hesitation under all circumestances.

You can repeat in your head hundreds of times a day that you actually are self-disciplined (and attempt sort of affirmation) but you are not. You can pretend that you do what has to be done at any point in your trading and day-to-day life and have the illusion of self-discipline, but you are not disciplined at all. What it takes is more than you can imagine.

There are psychological factors that you never considered. Some call them fear, some call them doubt, and others call them beliefs. In order to achieve self-discipline there has to be no doubt in yourself. There has to be absolutely no hesitation in everything you do. Therefore what you need is something well known as: self-confidence.

Right. Typical B.S. found anywhere you look. Somehow I know that what you read will never look to you the same way it looks to me. It takes work and years of practice on your personality. Days weeks and months spent on analysing what you think and why you think that way. Understanding your thinking methodology, your beliefs, habits, emotions and thoughts. Then moving with it to a daily routine. And than trading as seriously as you can. If (or "when" for persistent people) you will get it than you will at least have a chance with the markets. Otherwise you are all better of doing your best on a 9-5, 40hrs workweeks.

You can try lying to yourself about who you are and what weaknesses you have. It doesn't matter how good you are at it. The market will prove you wrong and it's only a matter of time. You can't lie to yourself. No illusions. If starting to analyse what's there between your ears is the first step, getting rid of all the illusions is the second. Manage your expectations and your beliefs. Control your mood and your emotions. Be completely honest with yourself.
Most of you are here to find the holy grail and find the get-rich-quick scheme. Trading is hard work. Well it's not at the end of the process, but to get there, to get to the point when you are consistent, I assure you, you will have to do some unthinkable things... If you are serious about being a trader than be prepared for hard work. "Well trading is all about clicking at the right moment isn't it". If you thought about it right now go and learn how to fry me some french fries at MacDonald's. Here we all are lured by money potential and lack of sweat on our hands in a meanwhile. That is what brings us here in most of the scenarios. By saying "hard work" I relate to the hardest type of work possible - mental work. The trading environment is so much different from our social lives you will have to basically brainwash yourself.

"He must be kidding..." No, I'm dead serious. Think about it now: you don't know it yet, but you are about to take, let say, 100 losses in a row. Tell me at what point you will start to doubt and at what point you will lose your confidence? You were born into the world where all you gotta do is try harder to get what you want. Surprise! It doesn't work this way in the markets. You have no control over the markets and neither markets have control over you. Basically the only thing you can control is yourself. Don't blame the markets for what it took away from you, don't try any revenge. It's like trying to get back on the sea because your ship sunk. Blame yourself and your inability to do what has to be done at the right moment.

And now... Let's make a deal. Give me $5. Good, I have $5! Now I'll give you $2 in return. Deal's closed.

"What the heck! It's no fair"- You'd probably say. True. But this is it for most of the people on earth. You go to work Monday to Friday and you get two days free in return. Isn't fair is it? Your time is your greatest asset. Think about it for a moment.

Now when you realize it's all about making a good deal, we can talk. First of all you don't have to be right every time. You have to release yourself from the idea that you gotta be omnipotent. Be honest with yourself: can you place a trade and have this mental peace that you don't give a slightest F what will happen next? That you truly, I mean truly have no emotional connection with the result of that decision? Can you close a trade with a loss and have no hard feelings about it? As long as you are focused on money and not on your performance you will never have this level of confidence.

There is so much more I could tell you about all the psycho-mechanics of trading and I hope I will as long as we will gather some constructive discussion around. This System can be traded manually and can bring you great profits. But it won't if you are not in a sync with the markets. Mark Douglas once pointed out that
If you got to this point, let's talk about some Money Management.

3) MONEY MANAGEMENT
Your pursuit for high accuracy system is like following a path to a South Pole while your goal is somewhere around Greenland. Apart from the psychology, what it takes to be a profitable trader is ratios. Risk:Reward ratios to be specific. Lose as little as possible and make as much as you can when the opportunity finally arrives, and meanwhile have the balls to remain calm and indifferent to whatever happens. Most of the traders who make 40% a year (considered top traders in the World) make one or two trades a year that result in their amazing performance. - I think It was Van K. Tharp who said that.

Let me tell you about "small capital" fallacy. No it doesn't take millions for starters to become a profitable trader. With a right broker you can start with as little as 100 or even 50 dollars. Trade micro lots and you will be fine. The compound interest will do it's magic. If you can turn 100 dollars into 200 you will do the same with 100k as long as your technique and mental attitude don't change. People saying "oh I didn't have enough capital to win" are losers who try to blame something else than themselves for their failure.

You don't have to be right. You just have to be patient. Disciplined and patient.

4) THE SYSTEM
Now if you are a rookie you will probably say it's all BS. That's it's a bad system and it won't work. Believe me it's not. And it's not a rocket science either. There are people who have probably came up with it already. What I will show you is what you should have been looking for from the beginning.

1. High R:R ratio

Thanks to this you don't have to be right all the time. You can release yourself from stress and the environment challenging your self-esteem on every single occasion you click on bid or offer.

2. Low risk-high reward entries

Proper R:R is not enough. You gotta have at least some clue where there is opportunity, because not every moment and every point on the chart is worth trading.

3. Opportunity factor

Wouldn't it be great to make a single transaction with over 50% profit? Of course it would! But it makes tremendous difference whether you take it once a year or once a week. Hence I am not a big fan of long term trading. And although I don't disapprove for example James16's thread I don't think it gives anyone an edge. Having a strategy that produces one or two signals a month is not good enough if you wanna think of your trading seriously and this is why:
- if your strategy doesn't work, it will take years before you find out
- you have low opportunity factor
- missed signals, good signals but poor entries, wrong timing... these happen all the time. With a long term strategy you have to wait weeks and months for another signal.

Now the system itself: The BounceBack Slave

- EURUSD
- M5
- SL: 5-10pips
- TP: 25-50-100-100+

Entry

1. Identify a trend. Look at tops and bottoms and how they are arranged. Look at the Moving average to guide you if you are confused.
2. Wait for the break. For instance during an uptrend wait for a low to form below the preceding low. That's the first signal of the trend changing, but don't trade it yet.
3. Wait for at least one full engulfing bar to close without its shadows touching the break level.
4. Now you have trade options:

a) place a pending sell order with 5-10 pips of SL and 25-50-100 pips of take profit

b) wait for the market to test the level again and place a trade manually when the price gets there

c) wait for a return bar formation, i.e. the low of the previous candle broken by the current one.

Exit

The break level usually gets tested a few times. But there seem to be nothing wrong with taking 20 points profit and moving SL to BE as soon as possible.
In theory it's all about letting it float. Setting TP at 100 or 200 pips away is quite reasonable because with this entry and this little risk moves like that can be easily caught (with patience of course).

The market has evolved recently. Large moves don't occur that often on EURUSD anymore but it may not be a permanent situation. However taking 50pips profit (with Risk:Reward 1:10) 3 to 6 times a week doesn't look like a bad idea either.

Further more I thought about closing half of the order any time price floats 25 pips away, moving SL to BE and letting the rest of the order float as much as it can.

Some charts to give you an example:








I hope I will be dealing with intelligent people and that's why I won't have to show you every possible formation. Just keep in mind those rules and go scroll your charts and you will find everything you need. Can you see how it works?

Performance

I've been trading this system demo for 2 months and live for the past 4 months up until now. I had weeks with over 120% return. I have also had some losing days counting nearly 20% draw down. But I do trade aggressive. With my current leverage I lose around 4-5% on a losing trade, but I make 50%+ anytime I win. So far my statement shows 48% of profitable trades, however you'd have to exclude some BE trades. Nevertheless it is profitable despite some consolidation days where you get signals that contradict each other or simply momentum isn't high enough. I also pay attention to data announcements. I don't try to figure it out but it gives me a clue about timing as to when something may happen. I have this comfort of running my own business therefore I can look at the charts nearly anytime I want and I know it's not the case for most of you. Thus one of the things you may find annoying is missing entries which result in large moves while you keep hitting SL on other trades. Some signals occur when I sleep, some when I'm busy serving a client and can't look at the chart at the moment. And this brings us to the goal.

5) THE GOAL
Let's code it! I am not the greatest programmer in the world, I admit that. But I can solve problems. I believe this system can be coded (and therefore as they say 80% of the trading - the psychological side - can be delegated to a machine). What I need is to make this system/strategy entirely objective. Give ten traders a chart and tell them to draw a trend line, and you will get ten different results - that's what I'm trying to avoid. The system has to be as simple as possible relying on three things: R:R, Opportunity Factor, and Low risk high reward entries.

Here I am to share my ideas with you, and to work together to build one hell of a program.

I am not the most intelligent creature on the planet and there is plenty of things I can learn. I'm just a random guy who went through a lot to realize what it takes in order to make money on a regular basis in the markets. I am very open-minded so I am ready to listen to your ideas.

If you are interested in working together let me know and we will dwell on some of the issues concerned with improving and coding this strategy.

It seems you are discussing in your own way a pretty standard 1 2 3 reversal pattern with entry at break of 2 point. Admittedly a 1 2 3 reversal might not necessarily have your condition "For instance during an uptrend wait for a low to form below the preceding low". Have you put on something like the 123patternsV6 http://www.forexfactory.com/showthread.php?t=326305 indi onto your charts?

Wishing you all the best with your thread.

Casper, what moving average setting are you using?

The idea came from 123 pattern but it isn't the same thing. The main difference lies in a way you look at the formation which gives you more objective approach and thus gives the possibility to code it. Never the less I will take some time to go through the 123patternsV6 thread. Thanks Vantage

@ mary4x: SMA15. I thought about using it as a trend identification in the EA instead of an array of tops and bottoms. It's not a strict rule as to what settings of the MA you use. It's just a guide whereas you yourself have to identify whether there is a trend or not based on analyzing consecutive tops/bottoms.