Diversified Trend Trading Approach

That's great news B and well done. Events like that certainly sort out the chaff from the wheat. I hope things pan out well with your main broker. :-)

C

Weekly Outlook

But before we get started a lament for this trading week.




AUDJPY


AUDUSD


CADJPY


GBPUSD


ASX


DJI



....more to come.

C.

Weekly Outlook continued......


EURAUD


EURJPY


EURUSD


EURCAD


Nikkei


FTSE


......more to come.

C

Weekly Outlook continued......

USDCAD


USDCHF


USDJPY


AUDCAD


DAX


XAUUSD (Spot Gold)



......more to come

C.

Weekly Outlook continued......


USDSGD


NZDUSD


XAGUSD


NZDJPY


NZDCAD


GBPSGD



That's it for the week ahead. Best of luck all.

Let's grab the market by the horns.

C

As always, chapeau bas.

Thanks B :-)

Hello Copernicus

I am sure I missed somewhere to read your explanation about green dashed line. So what is that line and where you draw it?

Thank you

Hi mima

The green dashed line is a predictive entry line (effectively an alert) on the D1 timeframe which notifies me when price is closing in on the line to drill down to the H1 timeframe and look for an entry into a primary trend.

The brown dashed line is a predictive entry on the H1 timeframe which noties me when price approaches to go to the M30 timeframe and look for an entry for a Secondary trade.

I need to setup these lines well in advance (usually a weekend task) as I monitor a large portfolio and need these clear lines to visually notify me of impending action. Frequently I set pending orders on these lines if I know I won't be around at the screen to monitor them. I do however adjust these lines over the course of the week as additional price data gives clues to whether a trend is forming or not.

In determining their placement, this is a fairly difficult task to describe this in a single post and it is quite discretionary. Please have another read if you are interested from the beginning (not too long and well worth it) as their placement is fully described at multiple points throughout the narrative.

If you have any questions after a read then please let me know.

Regards

C

mima

I will give an example below of the steps taken to place a green predictive entry on D1. I hope this helps a bit in deciphering this all.

I will use NZDJPY as an example.

On the weekly chart we are in an uptrend defined by the SDC by extending the SDC from the low of A to the highest high of B. By doing this we can tell that the weekly chart is in an uptrend. This is useful in determining whether the D1 trend is part of the weekly trend or in countertrend against this timeframe. Also note the grey horizontal lines and the dashed lined. The lines represent support and resitance S/R on the M1 timeframe. The dashed grey lines are S/R on the weekly timeframe. I regularly update these lines as they help me with predictive placements.



Now go to D1 to determine the primary trend on the D1 timeframe as this is the timeframe we will be basing our trade decisions on. You will note further dotted grey lines on this timeframe which represent S/R on the D1 timeframe.

I redraw the SDC in the same manner on the D1 timeframe going from lowest low to highest high (or for a short high to low). In this case I extend the SDC from A1 to B1. These points are not always the same as A and B on the W1 timeframe so ensure you redraw the SDC on the lower timeframe to define the primary trend.

Once we have drawn the SDC we are now ready to determine our predictive entries associated with this primary trend. Line 1 is placed for a primary trend continuance and therefore needs to be placed above the highest high and clear of any lines of S/R. You want to give a bit of room to ensure you are clear of most of the fakeouts. These are the easiest and most straightforward to place as you are looking for blue sky above the trend or below the trend for a short.

Line 2 represents a primary trend reversal point. Given that if price remains within the SDC the primary trend is still intact, your placement of the reversal predictive entry must be outside the trend channel. This line continually moves as time ticks by but to see how I determine it refer to the last price bar and how I have dropped a plumb-bob (arrow) down to the SDC outer channel from the last bar. My predictive entry for a reversal needs to be below that outer channel to signify a reversal and also clear of S/R. Once again I give a bit of breathing room to ensure a breach of the primary trend channel has occurred. You can see that as further bars are created I need to continually adjust my predictive entry for a reversal.



There are lots more examples throughout the thread but I hope this helps a bit. Just remember that once the predictives have been set this does not necessarily mean that you will execute the trade on a touch of the predictive. When price approaches those lines you need to drill down on the H1 timeframe and ensure you redraw the SDC to mimick the D1 commencement and end point so you have more price bars to work with. You then need to determine whether a clear trend or reversal is in existence and price is entering new territory before you pull the trigger.

Determining whether the reversal is trending or not is the toughest part. I tend to find that trend continuances by their very nature are already trending so no problem usually with entry on these. It is the reversals you need to be careful of. You should closely look at the reversal in the M30 timeframe and determine whether an emerging trend exists or whether we are just entering a congestion period. If the latter, then do not press the trigger and wait till signs of a trend emerge before entering.

Given the description above, you might be able to see the rationale for how I set predictive green lines above and below periods of congestion on the D1 timeframe. Before I pull the trigger on these with a breakout, once again you need to closely examine whether the breakout is of a trending nature (prior to the predictive line) or whether it is simply a few large momentum bars. The latter I keep well away from as they tend to be fickle in nature and usually associated with announcements. I will wait till later to enter if these large momentum bars ultimately turn into a trend.

Regards

C

Where we are Heading with this Approach

For those of you who have been following this approach, you may be sensing where we are heading.

Currently using the EDTT approach we are now trading 2 timeframes. Namely the D1 timeframe and the H1 timeframe with our trade executions being undertaken on the H1 and M30 timeframes respectively.

The principle behind this approach is heading towards the following agenda.

 

1. The longer timeframe trades are capturing the longer term secular market trends and are more aligned to investment decisions as opposed to trading decisons. Position sizing on these longer term trends is lower, however we compensate this by trading with a higher risk % per trade of 0.5% which serves to increase the position size. The rationale for this higher risk % per trade is that by and large, a probability bias is more in your favour as trend moves are less random and have greater fundamental weighting. The trades taken towards the longer timeframe represent the portfolio growth aspects of this approach as opposed to the cashflow component of the approach;
2. The shorter timeframe trades represent the workhorse component of the approach whose intent is to generate cashflow from shorter term trading activities to assist in generating a more regular income stream for those seeking to trade this aproach for a living. The Pwin ratio is naturally lower on the shorter timeframe using this trend following approach but provided we can achieve positive expectancy, it means that we are not tempted to touch the longer timeframe trades and just let them do their thing. Obviously given the lower Pwin ratio, we are more prudent on these trades and therefore reduce the risk % per trade. While we reduce our risk exposure, given these shorter timeframe trades have a smaller R, we naturally benefit from increased position sizes so that when things are going in our favour, we can clean up in good trending months. This is compounded when our secondary trades serve to add to existing primary trend trades. If the lower timeframe trades are compromising the performance of the overall approach, then we will revise our technique on this timeframe. This does not necessarily mean we also need to alter the approach on the higher timeframe. Despite the portfolio approach we may find that over time we engage different techniques on different timeframes to rocket fuel the strategy and adjust to market conditions. My analysis going forward will closely be monitoring the approaches on different timeframes.

If you smell a bit of the Equity Millipede Strategy or DIBS Strategy in this approach, then you would be right. The longer timeframe trades are shooting for infinite yield but we are more aggressive in managing the trades to limit potential drawdowns by ensuring that the longer timeframe trend remains intact at all times.

Where do we go from here. Well I don't think it's necessary at the moment to increase the level of timeframes used, but in case you wish to travel this route and supercharge the strategy further, then the logical and conservative method to achieve this would be as follows:

1. Use MN timeframe with execution on W1 timframe using 1.0% risk per trade;
2. Use W1 timeframe with execution on D1 timeframe using 0.75% risk per trade;
3. Use D1 timeframe with execution on H1 timeframe using 0.5% risk per trade;
4. Use H1 timeframe with execution on M30 timeframe using 0.25% risk per trade.

Unless you are a scalper, I would leave it here as trading on lower timeframes may require an alternate approach to simply trend following.

I hope this all makes sense to you.

Regards

C

Just a heads up to those who may be monitoring this thread, I will be closing all positions in the portfolio prior to the ECB announcement tonight as this month so far has been quite favourable and I am not planning to compromise performance by leaving trades open during the Draghi Announcement.

It might slow things down a bit for the remaining days of the month but to be cautious, I will wait till the dust settles before I open the portfolio up for trading opportunities. I actually prefer this action to hedging open positions as you just never quite know what volatility to expect and even in hedged positions, it is not a guaranteed safety net particularly if your broker becomes a victim.

Despite losing the potential to participate in any immediate upside (if it goes your way), when you can exercise a degree of control such as the forewarnings regarding tonights announcement, it is best to be conservative. This is unlike those 'shock' announcements such as the CHF last week (which was a negative for me) and Japan's QE announcement last year (which was a positive icing on the cake). Not much you can do about them without a crystal ball, but tonight is different as we know Draghi is going to have to drop a bomb if he wants an effect that is contrary to what the market has not already factored in.

It might even be an initial spike followed by a sharp plummet following the analysts crunch and I hate those finger of death moves and their impact on the portfolio.

But if it plummets like a stone on the EUR pairs, I will have a cry and a bitch and say..."if only I had balls of steel then I would have cleaned up or something like that".........then you can all refer me to this post as a reminder of the sacrifices you have to make in the interests of sustainability if you plan to trade over the long term.

I plan to buy a bag of popcorn, lie back in the couch and watch the spectacle from safety for this one.

Regards

C

I'm out. It was like popping zits closing those accounts. The first time in 2 years that I have closed down the portfolio.

Some interesting results in the analysis as it is a rare opportunity to reflect current performance given all trades are now closed.

I feared December might be my first negative month in 2 years.....but I lied. My USDCAD trades came and saved the day.

January so far hasn't been wonderful but still nothing to sneeze at despite the USDCHF effect but hopefully I will be back in with some trades before January ends to lift the monthly average.

Stay safe everyone.

Now to order some popcorn and sit back and watch.


PS I am already feeling guilty and looking for something to do. With no trades to monitor, I feel like I am unemployed.

Outstanding work sir, hell of variety in your portfolio, interesting Nikkei was your best performer...
Have some popcorn from me

C

you can always spend a bit more time with the missus ........ Back to the Pinot

Thank you Mr C. *munches popcorn*

The approach tends to get the best performance from the indices as opposed to the currency pairs but only by a slim margin. The good thing is that there is little bias in the approach towards any particular instrument, so it seems fairly robust as an all-purpose tool.

Anyway, back to your charcuterie while chef prepares your favourite dessert !!! :-)

Christ the kids have grown and I can't find my wife......any ideas?

When are you back Pak (for I am a poet and didn't know it)? :-)

Wise Decision, good luck.

Thanks B

I am twiddling my thumbs looking for things to do. Do you have a porch I can sweep or something?

C

The Weeks Trading Recap

Well as it turns out the price moves associated with the Draghi announcement (which were smaller ripples than I anticipated) would have been favourable with my trend positions and could have added icing to the cake for the results in January.....however, given I had closed down the portfolio prior to the announcement to protect against possible adverse price moves, I could only watch and think of the would have beens or could have beens.

I re-entered soon after the event with positions in my portfolio as the opportunities presented themselves and have slowly built positions to a point where we may have some good trend continuances to see out the month.

Positions closed during the Week
The following trades were closed in accordance with standard rules of the aproach through a touch of the SDC prior to the decision to close down the portfolio prior to the announcement.

CADJPY (Secondary Trade) (R Multiple = 0.61)


USDJPY (Secondary Trade) (R Multiple = -0.22)


EURJPY (Secondary Trade) (R Multiple = 1.81)


EURCAD (Primary Trade) (R Multiple = -0.95). This trade hurt.


The trades below were open trades in the portfolio which were closed shortly before the announcement to lock in profits and avoid adverse price movements.

USDCAD (Primary Trade) (R Multiple = 4.41). *Sniffs*...farewell little fella. I'm gonna miss you.


GBPUSD (Primary Trade) (R Multiple = 1.31)



.....more to come in the next post.

C