My trendfollowing system - MA with price action

I will like to share my trendfollowing system here, the essence of which is to "cut your losses short and let your profits run".

This system may be similar to some others shared elsewhere or maybe on this forum. If that is the case, pardon me; I do not and have no wish to copy from anywhere else.

Anyway, I will post my system shortly, but before that I will share my trading journey..

ok...waiting

Good Luck and looking forward.

sorry tried to use my mobile to post but the alignment all went out


I started this journey of trading with the introduction of forex by my brother. He showed me the charts and told me how many pips the pair can move in a day, and how much money one can make from it. Out of interest, I read the books and traded on a demo. I was quite amazed when my first trade, based on candle pattern which I read in the Dummy guide for trading, I traded hit my take profit (TP).

Then later, I started to google for profitable forex trading systems and read up on all that I could get my hands on. I was so desperate to trade for a living and get out of my job, which I totally have no interest in. I didnt trade properly with a plan, but instead enter trades in a haphazard manner without a stop loss and with a large lot size. Luck was on my side and I doubled my demo account easily, like a pro. So I started a live account with $1200. I tried to trade properly using a system I found online, but not for long, because, it is basically not my system.

I subscribed to signals but over-leveraged and lost considerably within few days. I never learnt from my mistake but end up dabbing on forex. I started to trade without a stop loss later on because it feels good to keep taking small profits and letting my account grow. Was lucky as I traded in the correct direction. But later on, my direction is wrong and I had to give away all my profits. Later on, lost 2 more small accounts.

In 2010, I enrolled in the Adam Khoo academy FX course (in Singapore) when there was a promotion. It was advertised that Keong Hee turned a 10k account to 300k in a year? Hows that? Attended the course which much enthusiasm and interest. Signals were provided, wow. Using 7 indicators, and with at least 4 of the 7 moving in the same direction, and an arrow will show on the screen, telling you to either go long or short. Recommended R:R is 1:1. Traded a while based on it but with the signal showing long one moment, short another, especially in a whipsaw market and with a 1:1 R:R, will the system be profitable in the long run?

I had several account blow up along the way from 2010 to 2015. My most 'glamorous' time when was I seemed to earn 7,000SGD a month trading (while still holding a full time job in 2013), for a few months actually, but only to blow it up when the GBPJPY went up a few hundred pips in a few weeks. I was trading against the trend... Anyway, I must say the reason is I do not know how to trade, at least without a plan; when price went down, it looks cheap and I favor a buy; vice versa. Sometimes price moves up then down, down then up; I am totally confused and lost on whether I should buy or sell. I know some ppl use indicators to trade but to me, they are lagging and I totally dont believe in them. There are too many of such indicators, which to believe in anyway?

In 2014, while still pursuing my dream of being a full time trader (I still believe it is possible if others can do it, why cant I?), I chanced upon an advertisement to be a junior trader it turned up to be one which require me to pay for a course and if successful, I can get the course fee back. I actually didnt go find out much about the background of the company but I went ahead.

Did I make it? No. I passed the first round test of being positive for my demo account small % though. The second round of gaining 5% on a small live account did not happen. But I learnt a lot, getting to learn 1 on 1 from the trader himself through Skype (actually I wonder if its the guy himself or just one of his traders). I learnt how to trade systematically, on multiple timeframes, and how to enter only when the chart says so, buying the strongest vs the weakest, selling the weakest against the strongest all these, can easily be applied to any chart and any market, and these are what I eventually adopt for my trendfollowing system.However, I did not follow this method totally. I did try to backtest manually the system, but feel that some parts of the system does not suit my personality. The guy told me to take profit at the nearest support/resistance with a R:R of at least 1.5; but sometime you do see price move much more which is potential profit, gone. But I think the fundamental problem with myself then, is the fact that I am still doing things in a haphazard manner. I know I need to change myself in order to succeed in trading.

In March 2015, I told myself enough is enough; I need to start doing things correctly trade with a plan, with a stop loss. I reviewed, re-understood and re-thought what I had learnt and came up with a systematic trade plan, by just using the fundamentals principles of trendfollowing to make a system, the most important, of course is, to cut losses short and let profit run.

I made my system as systematic as possible, so that I can take my trades like a robot, so that I do not second-guess my trade. It was not all that easy still. When I am faced with multiple small losses, I still question myself and the system. However, I know that, when there are periods of losses, it is when I know that the next big wave of profit is going to come. But of course, I will not go change my trade size or double up because I am in a drawdown. Keeping to a consistent trade size/stop loss is the way to go. Nobody can predict the market.

I had extracted all these from what I had recently shared on my blog.. I think I will just put all.. so now I will share on what entails in creating a trading system..

I believe you all have heard of the saying that two people trading the same system will produce different results. Even a profitable system in the hands of an inept person can cause the account to blow.

What is essential of a system is that it must suit your style, your personality, your lifestyle and you must have belief in it. For people who just can’t stop staring at the computer screen when they have open trades; such people are more suited for short term trading (or not trading at all!). Some people may not have the time to keep looking at the screen and may hold a full time job, such people (like me) would need to trade longer term system or put limit orders to trade.
And belief is important. No trading system is 100% accurate. When you suffer some consecutive losses, you will start to doubt the system. If you do not have a deep understanding of the system you are trading (which could be invented by someone else), if you do not know the principles behind the system, you will just give up the system and hopped on to another. I have been there done that myself. So, find a system which you know thoroughly what the system can do, know what is the edge, ensure that you know what is the weaknesses, before putting your hard earned money into it.

And back-testing and forward-testing the system is essential too; this can help you understand how the system perform in the actual environment, the drawdown you are expecting, the win rate etc. For back-testing, you can either code a program if your system is 100% systematic. If not, you will have do it manually; it will be tedious, but nothing in trading is easy; it is all hard work! And how far back should you back test your system from, you may ask. I will say it depends on timeframe you are trading, if it is of a low timeframe, say 5 min trading – just the US session, you can look at just 2 weeks of data (suggest to take random data from different years), while if you are trading on daily timeframe, you should be looking at 5 years’ data. It also depends on whether your system is suited for just one market or multiple markets, if it is supposed to be profitable for multiple markets, you should back-test and forward-test for all of them. Anyway, the basis of this testing is to ensure that you have sufficient data and records to prove that your system is profitable and not one that works only for a specific time period, especially those that are curve fitted.

As such, personally I believe that a profitable system should be generic and suitable for all markets; I don’t believe and don’t like the idea of markets that work only for certain markets, because that mean that the underlying reason or factor (especially a fundamental one) for the system’s profitability may just change any moment and you see your system start to lose money.

For forward-testing, suggest to start with a small live account, such that you feel the pain and good feeling when you see losses and profits; this will allow you to understand your emotions and how you react under such situations, so that you are better prepared when you trade a bigger account. Remember, trading is all about knowing yourself. Through trading, you see yourself thoroughly – strengths and weaknesses. And if you think you know yourself well already, then it is good that you can create a system that allows you to make better use of your strengths and expose less of your weakness.

Up next, I will share on my own trading system

Your story about experiences is very similar to many traders. Mine is even worse, believe me. I also do have a good system, but very restricted times to trade, and then at times force trades that is not there. My plan is to trade full time soon, and will then share my method. It is also very easy. I am trying to build an indicator, and eventually an EA. I waiting for your next system explanation. Just do not give up.

As mentioned in my first post, a trendfollowing system should be kept as systematic and as simple and generic as possible. It should be applicable to any market, and not curve fitted to just a few. My basis is because we cannot predict the market, so how is it possible that you have a system that works for only a few market? It may be, if it is the underlying fundamentals which you are exploiting but you need to know (I dunno how) when the fundamental changed and tweak your system accordingly.

Defining the trend
The market can go up and down; when I first started trading, at one point of time, I really dunno if I should go long or short. It seemed like the market can go either way, or, not at all. Trading has many possibilities, two people can go long and short at the same price and both can earn money. You can go long at a price when it touches a support and next moment, when price hits resistance, you short. That seems so simple when things are going right, but what happened if things are going wrong?

To me, after so many years and learning and realizing, trading is all about probabilities. Thus, when I decided to go the trendfollowing way (and also after I took the course from the proprietary firm trainer), I understand that to keep things simple is to just define the trend and trade in its direction. And defining the trend can be as easy as using one moving average.

To me, moving average is just one way to define a trend. There is no correct way to what indicator one should do; you can use other indicators too, say RSI; as long as you define the value for uptrend and downtrend.

For moving average, whatever value you use to define uptrend and downtrend is insignificant; it is just a number. Some people use 20MA, some use 50MA, or 200MA and whether it is SMA or EMA is inconsequential to me, as long as you are consistent in what you use. Based on the formula to calculate MA, a bigger number just mean that the trend is more defined and will give a stronger trend. Anyway, so price if above, say 20MA, it is an uptrend, if below, it is downtrend.

The next question one may ask will be; by using one MA, wouldn’t it result in a lot of whipsaw? It will, when the price is near the MA. You may consider these whipsaws (which result in losses) as cost of doing business. It is inevitable as we can’t predict the market. I will further elaborate some other measures I take to reduce such whipsaws.

Timeframe
For trendfollowing, we look at multiple/all markets. If so, it is almost impossible to trade anything less than H4 timeframe, even for a full time trader, unless you use an automated system to trade. For me, I hold a full time job and o trade on H4 timeframe, for specific currency pairs for a week. It may seem contradictory to what I mentioned about trading all markets, but to me, I find it difficult to even spend 15 min of my working time at one go to look through specific markets for entries, so I modified my original system to look at just 2-4 pairs every 4 hours to look for entries. By the way, for trendfollowing and I think most other systems, trading at a higher timeframe is more stable. Don’t believe? Go compare a H4 vs a m5 chart and count the number of consecutive same color candle (up and down) which you can get. Anyway, so I focus on on H4 timeframe for entry. Do look for H4 and above for such trendfollowing systems.

Multiple timeframe trading
Just now I mentioned that I use 1 MA to define trend and I look for entry on H4. However, I do not use the MA on H4. Instead I apply it on higher timeframe – W1. Trading on H4 is just to look for better entries, else D1 is fine if you trade all markets. And to answer the previous concern of whipsaw, one way is to apply the MA on MN timeframe too. Price needs to be above MA for both MN and W1 to be considered an uptrend and vice versa. This will greatly increase the probability. If price is up in one timeframe and down in another, it is no trade; we ignore that pair/market and move to another.

Entry
I enter based on candlestick pattern. If it is a defined uptrend, I look for bullish pattern; as easy as just bullish engulfing, piercing line, three white soldiers as signals to enter. Same for downtrend. Do I enter every time I see such patterns? No. I use additional MAs and Ichimoku on higher timeframes as support and resistance as places to look at first, before using candlestick patterns to enter. Do not be afraid when you see a super strong bullish/bearish candle and think that price has moved so much, it is too late to enter. For trendfollowers, the more that price move, the better confirmation it is that we are correct.

Stop loss and position sizing
Once we have a trade on, we need to put our stop loss. For me, I use 2 x ATR (30) on H4 as the stop loss. I cannot emphasize more how important the stop loss is. We cannot predict the market and will not know how it move, thus protecting our losses is vey important. The probability of hit rate for trendfollowers is in the range of 30-40%. Though we are trading in the direction of the trend (which gives us the edge and skew the probability to our side), there will be definitely times where there are whipsaws and times where price revert to the mean. Stopping the drawdown is thus important; if not, it is better off you go for buy and hold.
For each trade, depending on the number of pairs which I am looking at for the week, I will ensure that the risk is not more than 2% of total equity in total. For example, for my H4 system, if I identify a 2 strong and 2 weak currencies (Total 4 pairs) I will risk 0.5% per currency pairs. For D1 system, depending on the number of potential markets for the week, I will adjust the trade size accordingly.

Adding on positions
“Cut your losses short” – the hit rate for trendfollowing system is not high, so get out when it hit your stop loss. But when you are right, it is time to “Let your profits run”. One way to do it is to adding to positions, which is what I do. I will add on positions when the subsequent candles show strong movement in my direction – that is, strongly bullish/bearish candles with full bodies and little wicks. Another point to add on is when you see a huge support/rejection, especially off the MAs mentioned above, which signify that retracement is complete.

As for the lot size for this added positon, I will make sure that the total risk remain at 2% as per the below. When adding on positions, I will see how much the previous lot has moved from the entry price. Say, if my stop loss of my entry positon is 60 pips, and price has moved 120 pips, this mean I can afford to add on one full position (but of cos, moving the stop loss of previous position(s) aka trailing the stops) while keeping the risk the same. If, on the other hand, the price moves only 30 pips, I can afford to add on only half the positon. Hope this is clear.

Taking profit
Strictly speaking, there is no TP point for trendfollowing. The way to exit the trade is either price hits the stop loss or hits the trailing stop. However, when you add on many positions, or when price moves in your direction rapidly, you may expect a retracement and could give back a huge percentage of your profits. This is not uncommon in trendfollowing. Do remember, we cannot predict the market, so we let price decide where we exit. However, having said that, there is one point where I may reduce my positions, that is when price hits 3 standard deviation (std dev) of Bollinger band on higher timeframes. 2 std dev of the band contains 95% of the prices while 3 std dev represent 99% of the prices. Thus when price touches the 3 std dev, a retracement is likely, and I will reduce my positions slightly, while letting the remaining run.

For upcoming week

look for longs in NZDCHF and AUDCHF

Trade entered on both pairs

Subscribed.
Please share indicator in your picture.
Thanks for your sharing.

please share your indi.

Hi guys, what is the trend indicator and how much do you use it? Trend trades or short term trades? Thanks in advance.

Hi Kholid,
as attached. I need to give credit to a member login name - Change - who helped to create GBoard. I had edited it for my use.

Trend is based on 20MA, Direction is based on the change over the week.

I use it to enter trade on H4, but I trade just specific pairs per week... alternate trading methods will be shared in the next post, using D1 on all potential markets.

You can apply it on lower timeframe definitely but the system should work better on higher timeframe. I do use it for shorter term trading but I think that is out of the scope of this thread.

How you can modify a trading strategy to suit your time

There are various ways to trade the trend-following strategies which I have. The basic principles for entries, exits etc will be the same regardless of the strategies which are mentioned below. However, depending on one’s schedule, you can modify the timeframe to trade this strategy.
The three methods are as follows:
1) trading H4 on specific currency pairs
2) trading D1 on all markets
3) trading D1, with zooming down to H4 for entry

Trading H4 on Specific Currency Pairs
This is the method I use extensively as I hold a full time job and do not have the time to look at the market when needed to. For this method, I will use it on forex markets, as this is the instrument which I started trading with. There is one addition reason why I had used it for forex markets; as I have a way to improve the probability of the trade.

Every weekend, I will use my indicator to scan through all the major forex pairs. I will look at the trends on the MN (monthly) timeframe and the strength of the currencies for the past week. I will then rank the currencies in terms of strength – for both MN and W1 timeframes. For MN, I will use 20MA to determine its trend, while for W1, I will based it on whether the currency strengthened or weakened against the other currencies.

After ranking the currencies, I will decide on the strongest currency/currencies (typically at most 2) and the weakest. For example, NZD is deemed to be the strongest amongst the lot, while CAD and CHF are the weaker ones. For the coming week, I will look to LONG both NZDCAD and NZDCHF, based on the entry methods I had mentioned in my previous post.

It should be evident why I had decided to do this ranking; is to increase the probability of trade, based on the assumption that the strong currency will continue to strengthen and vice versa. This method is unique to currency markets. Other markets where this could be applied would be those instruments that involve currencies. For example, Oanda provides gold charts in various currencies, XAUUSD, XAUJPY, XAUCAD etc. If you plan to go long on gold because it is strong, you will want to choose the weakest currency and long that pair (instead of longing gold vs the stronger currency).

Anyway, this method will require me to look at the chart every 4 hours. I will set a recurring alarm to notify me to look at the chart every 4 hours, 5 minutes before the new candle forms.

Trading D1 on All Markets
This method, in some way, require you to just look at the market once a day. However, for that 10 minutes or so before the daily candle form, you will need to quickly run through all the potential pairs and decide if you want to enter for the specific markets. Similar to the above, I would use 20MA to define the trend on both MN and W1. Potential pairs refers to those that shows the same trend on both timeframes.

For this strategy, you should ideally trade all markets as per what a trend-following strategy will do. All markets will refer to not just currency pairs (major and minor), but also commodities, precious metals, indices, bonds, basically everything. Typically in a week, you should expect at least 15 charts which you need to check once a day, and make the necessary calculations to position size and enter your trade when the new day comes. For me, I am unable to do so due to my work, but if you are a student or a retiree, this method allows you to trade just once a day and free your time for other more important things in life.

Trading D1, with Zooming Down to H4 for Entry
Thismethod will require the most amount of your time per day (looking at 2.5 hrs or so in a day) to trade, but I will say, will return the most profits and is, in my opinion, the most complete of my trend-following system. Basically it is the same as 2nd method, but it involves zooming down to lower timeframe to obtain a better entry.

If you have a bullish engulfing candle on the daily, why wait till the end of the day before you enter the trade? Look at the H4. I believe you would have notice many strong H4 bullish candles which you could give an entry point and let you get into the trade earlier and to use a smaller stop loss.

Anyway, every 4 hours, we will look through all the potential pairs on H4 timeframe, using the same basis for entry. If we enter a trade, we will not add on positions within the same day. We let the trade play out. We look to add on positions the next day (when new D1 trading candle form). As such, we will have lesser markets to look at along the day (as we entered into certain markets). If however, we get stopped out on H4, we can look for another entry. Exit is based on the same principle.

I hope you had understood the methods I shared above. Do not be too bothered on which broker you are using, because even though their H4 candles will appear slightly different, I am very certain a strong candle will show regardless how it is formed.

Happy trading!

Thank you my friend..

regards

thanks mr. Trendtradr83

USDJPY and NZDUSD still on the trend..

what's that interesting thing you use at the bottom of your MT4?

thanks for still following this thread.

I think the main thing is following the trend. You can improvise it to trade in other ways. Ya you can align all the timeframes as up or down (especially higher timeframes) and just trade in the direction. It will greatly improve the probability of trade.

Have an entry and exit strategy. Price itself is sufficient

Can i ask, why you choose this pairs? I see other signals/pairs from your indi, also ?

As I mentioned in previous post​, there are three potential ways to trade. Due to time constraints, i trade on H4 looking at specific pairs (method 1). I will see the strength of the different currencies on monthly and weekly and rank from accordingly (as what you saw on the indicator).

For last week, this is what i got:
Monthly (strongest to weakest)
JPY NZD AUD EUR CAD USD CHF GBP

Weekly
GBP NZD AUD CAD USD CHF EUR JPY

i derived that NZD and AUD is stronger vs CHF weaker.

But if you see further AUDNZD is a downtrend (monthly and weekly down) so NZD is a better choice.

and from what happened the past week, both AUD and NZD did not fare well. if you see the H4, you can ride it to the stop, but will suffer a loss when it retraces.