Weekly Average System

This journal is to test my Weekly Average System.

The system is based on the Weekly timeframe and matches currencies average strength against each other over a number of weeks. When a currency has exhausted its strength, I match it against a currency that has exhausted its weakness.

I make only one trade per week- (and I don't make a trade every week, only when currencies are exhausted according to my system)

I set the trade when market opens and leave it for the week.

Take profit is based on price reaching 70% of the weekly ATR (this may change depending on trading results). There is no Stop Loss at this point (this also may change depending on trading results). If price doesn't reach my TP I will close the trade at the end of the trading week with either a profit or loss.

The beauty of this system (if it works!!) is that it only takes about 20 minutes in the weekend when trading is closed, and a minute or so when market opens to place the trade. It is also a 100% mechanical system with no analysis or human input needed.

Demo Trade Explorer will be attached.


First trade is BUY GBPNZD (trade will be entered near market opening)

TP 2.00189 (if open price at market open gaps up or down, TP will be slightly altered)

Weekly Chart

Trade #2 BUY USDCAD (trade will be entered near market opening)

TP 1.24091 (if open price at market open gaps up or down, or if weekly ATR changes TP will be slightly altered)

Weekly Chart

My first two trades ended in profit but only after a rather large drawdown. So I have been trying to come up with a improved strategy that has less drawdown.

I have developed a simple indicator that displays an average of the past few weeks price action and displays each currency in order of strength. It updates at the close of each trading week.

I monitor USD, EUR, GBP, JPY, CAD, AUD, NZD. The indicator ranks them from 1 to 7 according to their average strength.

As you can see from below, last week ending 23rd May, the indicator ranked the seven currencies in this order.

1.GBP 2.AUD 3.EUR 4.CAD 5.USD 6.JPY 7.NZD

I have been experimenting with the best way to use this indicator.

The indicator gives me a snapshot of the past few weeks of currency averages and their relative strength to one another. I have noticed that currencies move in cycles. A currency may slowly move into the number 1 spot, stay there for a while, then move its way down to a lower rank.

Over the past few weeks, if you had been buying GBP against NZD you would have made many pips.

For the past two weeks GBP and NZD have been at an extreme- ranked 1 and 7. Because currencies work in cycles, this will not last forever and this gives me an opportunity to look for a reversal.

I have also noted that more often than not a 4th ranked currency will beat a 6th and 7th ranked currency the following week. Also a 1st ranked currency will more often than not beat a 6th and 7th ranked currency the following week.

So for example, this current week I placed a buy GBPNZD trade (rank 1 vs 7) and a buy CADJPY trade (rank 4 vs 6). I think I may have closed them a little early, but both trades have made pretty good profit this week with not too much drawdown.

So from now on, I will test this indicator by placing 2 trades at the beginning of every week.

I will buy rank 1 verses rank 7, and buy rank 4 verses rank 6.

I will place a Take Profit using the weekly ATR (14) of that currency pair.

I won't place a stop loss, but will let the market do what ever it wants to do over the week. If TP is not hit, I will close the trade in either profit or loss, taking whatever pips the market gives me just before the market closes for the week.

The only alternative to placing these trades would be if a currency ranked 1 and 7 in the previous week moved to rank 2 and 6 in the current week. This means that a reversal may happen. In this case I would not take the 4 verses 6 trade, but would instead buy rank 6 verses rank 2, and probably hold that trade for a couple of weeks or more.

I will update the indicator and post each week along with my trades on the trade explorer. I am not expecting to win every trade, but will hopefully be in profit most weeks.

GBP and NZD has held both top and bottom ranking this week. Also CAD and JPY have held 4th and 6th ranking.

We have a lot of event risk on the calendar next week affecting AUD, NZD, EUR, GBP, CAD and USD, so could see some pretty big volatility.

GBP and NZD are probably due for a reversal soon, but for the purpose of testing my system I will again buy GBPNZD.


So trades for next week
Buy Rank 1 vs Rank 7 GBPNZD
Buy Rank 4 vs Rank 6 CADJPY

I will hold trades until the end of the week, or until TP has been hit.

Hi Zondervan,

Very interesting, subscribed.

While I understand that you take 1 vs 7 I understand a bit less the 4 vs 6. Why don't you take the 2 vs 6 ?

Thanks,
Bt

Hi broketrader, thanks for your interest.

Re 4 vs 6 as opposed to 2 vs 6. Statistically when 4 vs 6 loses, it seems to lose quite bad and it tends to win less than 4 vs 6. In fact my system says to buy 6 vs 2 if the currencies in the previous week were 7 and 1 as this shows a strong reversal. So according to statistics the best winners are 4 to beat 6, 4 to beat 7, 1 to beat 6 and 1 to beat 7.

I guess this makes sense. Probably the safest trade is trading the strongest vs the weakest. However you are always prone to reversals. Rank 4 is more speculative as it has a chance to go higher therefore can yield greater returns.

Unfortunately I don't have enough weeks to back test this system very far, so I am having to forward test it. So who knows I might be onto something, or perhaps I've just been lucky back testing this over the last few weeks/months.

I have just closed both GBPNZD and CADJPY trades for the week. Both were successful.

I am going to download a few years of data to back test this system properly over the weekend. I want to check how this system performs over the past few years rather than just the past few weeks/months.

Ok after testing this system over historic data- it did extremely well through 2015, but quite poorly through 2014 and 2013. So unfortunately it is not worth continuing. I'm not one to give up easily, so I am going to work on some new ideas over the next few weeks. If I get some success I will start a new thread and forward test with a new trade explorer.

makes sense to me,subscribed ,thanks for sharing it