First trading system

[havaiana]

Hi

I've only been studying forex for 2 weeks now. I've got alot of info from this forum and thought i would make my first post. i started paper trading with a few printouts of systems this week and a screen full of indicators. Below is the first draft of my first trading plan with the indicators and techniques i have found most useful so far:

15 Minute Chart System

Indicators

5 EMA
10 EMA
Stochastics 10, 3, 3

Techniques

Trend:
do not trade against the simple trend, check 4h and 1h chart to get general trend
Stochastics:
Do not buy sell when overbought >80 or oversold < 20
When overbought/sold and starts to hook around reversal, look for IB’s to support
Inside bars (IB‘s):
when bar fits inside the one to the left of it and the next bar supports it
EMA:
when 5 crosses 10 may indicate a new trend
Stop loss:
most recent swing or equal with take profit
Take profit:
equal with stop loss or manually keep moving up stop loss bar within 10pips of price
Entry/Exit Price:
try to exit at 50 or 00 prices, try to enter at non 50 00 prices?
Candle pattern:
use long wicked candle patterns at top or bottom of trend, especially if colour change
Breakouts:
look for breakouts of support and resistance lines
Shoulder: shoulder patterns etc for general trends

Other notes to self

Maybe trying to trade on reversals too much, trade with general trend more, against it less
Need to create spreadsheet to track
Work out money management system
Look into which pairs suit my time frame
Investigate losses and try to find if there was a mistake
Try also with 5m chart, always start with 15m
If any techniques disagree don’t trade, need 3+ techniques to agree to trade


It still very rough and obviously needs alot of work, you can only learn so much in 2 weeks! I plan on simplifing this plan a bit and put in some more solid rules after next week when i get a better idea of which of the techniques are working for me and which aren't. Comments/suggestions will appreciated...

 

[beamstas]

Have you done any backtesting at all?
Brad

 

[havaiana]

Have you done any backtesting at all?
Brad

No, looking into that right now actually because i can't paper trade on the weekend, any programs you can recommend?

 

[beamstas]

No, looking into that right now actually because i can't paper trade on the weekend, any programs you can recommend?

Amibroker
Metastock

 

[Trembling Hand]

Maybe trying to trade on reversals too much, trade with general trend more, against it less...

Then your signals are already in conflict with your thinking. All of these techniques are top/bottom picking techniques, though poor ones.

Before you start designing a system you need to first discover how the market you have chosen moves. Then find a way to exploit what you find. Picking trading "wisdom's" (MA crosses ) out of the blue and throwing them at a market is a classic F up most starters waste time on.

And most stay with their time wasting approach. Do yourself a favour and learn anatomy 101 before you move onto surgery techniques.

 

[beamstas]

Havaiana, Have a read of what Howard Has to say re: MA Crosses
https://www.aussiestockforums.com/forums/showthread.php?t=15817

Specifically

The conclusion I draw is that the traditional thoughts on using moving average crossovers as filters for trading systems have it backwards.

Cheers
Brad

 

[havaiana]

thanks for responses guys

looks like i need to make this my next step "Look into which pairs suit my time frame" before i do anything else. I work fulltime so will mostly be trading between 8pm -12am (Melbourne), any suggestions on which pairs i should look at for these times?

re: MA crosses, the system i played with used MA crosses when RSI > 50 (long trades) and stochastics were increasing but not in overbought territory. The system seemed to predict trends pretty well (in my small sample using it). The reason i stopped using it was because i found the trend had usually already well and truly changed by the time these 3 were in agreement and it wasn't allowing me to enter early enough

 

[beamstas]

Try not to use many indicators

Use as much price & volume as you want.

1 indicator (moving average, stochastic, rsi, whatever) will be o.k for designing a system

2 you are getting too many

3+ and you are either curve fitting or being way too slow.

More indicators doesn't equal more "pure" entries not subject to noise. Less is better.

 

[Mr J]

All of these techniques are top/bottom picking techniques, though poor ones.

Not necessarily. If he's trading with the trend, they will show the swing highs and lows. The main problem is that these are lagging indicators, and that they will often have him entering on noise.

when 5 crosses 10 may indicate a new trend

The 5 and 10 will cross a lot, and are very fast. It will produce a lot of noise, leading to getting stopped out a lot. I think it will also cause you to close good trades far too early.

equal with stop loss or manually keep moving up stop loss bar within 10pips of price

If you're trading trends, the stop should be just beyond the last swing point.

The system seemed to predict trends pretty well (in my small sample using it). The reason i stopped using it was because i found the trend had usually already well and truly changed by the time these 3 were in agreement and it wasn't allowing me to enter early enough

Lagging indicators always predict trends well - in hindsight. It's why most people should probably just dump them altogether. They're a distraction, and removing them allows the trader to focus on price action.

More indicators doesn't equal more "pure" entries not subject to noise. Less is better.

Agree with this.

I've added a paint bar recently, but only see I can see at half a glance how any particular market is moving. It just makes the chart cleaner, rather than serving any trading purpose.

 

[tech/a]

Then your signals are already in conflict with your thinking. All of these techniques are top/bottom picking techniques, though poor ones.

Before you start designing a system you need to first discover how the market you have chosen moves. Then find a way to exploit what you find. Picking trading "wisdom's" (MA crosses ) out of the blue and throwing them at a market is a classic F up most starters waste time on.

And most stay with their time wasting approach. Do yourself a favour and learn anatomy 101 before you move onto surgery techniques.

Well there you go.
The only piece of real practical advice passes like an un wanted birthday present---still wrapped---note even looked at.

looks like i need to make this my next step "Look into which pairs suit my time frame" before i do anything else. I work fulltime so will mostly be trading between 8pm -12am (Melbourne), any suggestions on which pairs i should look at for these times?

re: MA crosses, the system i played with used MA crosses when RSI > 50 (long trades) and stochastics were increasing but not in overbought territory. The system seemed to predict trends pretty well (in my small sample using it). The reason i stopped using it was because i found the trend had usually already well and truly changed by the time these 3 were in agreement and it wasn't allowing me to enter early enough

 

[tech/a]

looks like I need to make this my next step

Try stepping a long way sideways.

http://www.moneyshow.com/video/video.asp?wid=4044&t=3&scode=014803

 

[It's Snake Pliskin]

Not necessarily. If he's trading with the trend, they will show the swing highs and lows. The main problem is that these are lagging indicators, and that they will often have him entering on noise.

Lagging indicators always predict trends well - in hindsight. It's why most people should probably just dump them altogether. They're a distraction, and removing them allows the trader to focus on price action.

The great supposition of the amateur is to quickly discard a lagging indicator even with or without all of the information.

JUmping from the school of oscillating indicators to "only price action" mantra seems to be a trend.

So it could be said entering into a trade based solely on an oscillating indicator may find noise.

It could also be said entering a trade based solely on price action may find you being sucked into a false move.

The true expert will not discard anything because they will know why. TH's post is a good one. Yes Tech I saw it but you beat me.

 

[havaiana]

Well there you go.
The only piece of real practical advice passes like an un wanted birthday present---still wrapped---note even looked at.

i did look at it, i looked back at alot of TH's previous posts after his response, he elaborates a little bit more here...

Quote:
Originally Posted by roland
quite a dumbo response for a valid question, thanks - I used to respect your posts

Come on just playing didn't mean to offend :. But its the basis of what I think makes the diff.

You have to practise, practise and then practise some more. Its all about screen time, years off it.

I will run over how I go about this eventually but it will be of no use to just know what I do. You still have to do the time. I see this time and time again. People "learn" a TA method and are using it 2 weeks after discovery. To me thats all wrong.

I'm not looking at a one size fits all system to trade with, but figured testing a couple of systems was a way to jump straight in and get some hours in without trading blindly. I've read up about all the basics, but from my experience i learn alot better from jumping in and doing things. I think generally it's better to spend 4 hours watching and trading the market than reading about it.

I'm going to trash my original plan now and take a different approach. I'm going to pick one currency pair and trade for the week without any indicators just the candle bar chart. after a week of that i will work out my trouble points and experiment with a couple of indicators to see if they can help.

 

[havaiana]

Also just to clarify, i'm not completely disregarding the study aspect, i'm reading Steve Nison's candlestick material to help me with this aspect specifically. Anyone read any of his work, is he a good place to start for candlestick patterns?

 

[Trembling Hand]

havaiana you actually haven't got what I'm saying at all.

In your chosen instrument whats the average 15 min range? Daily range? Weekly range? Whats the probability of hitting RI/S1, R2/S2 etc? Whats are the volatile times? Does you chosen instrument have correlations, inverse correlations to other markets? Are there patterns around 50% levels? When does the volume come into your market? When and why does it leave? whats the chance of having an up day after 3 down days?

And just LOFinL at your candle stick book. That is EXACTLY what I am talking about in my first post that you have ar$e about, infact JUST ABOUT EVERYONE, does. taking some "gurus" word out of a book and applying to some random market in a diff time frame, in a diff time, blah blah blah, Shame you didn't get this far,

Looking for traditional TA patterns in your instrument is completely the wrong way to go IMO. Whoever said they even occur often enough in your instrument and on your time frame?

Of course you use Support/Resistance/Higher Highs/Lower Lows and all the basics but I reckon you are better off just looking at your market and finding "its" patterns. .

Thats what always gets me about TA. People use patterns that they don't even know their probabilities in the market they apply them to.

 

[Mr J]

The great supposition of the amateur is to quickly discard a lagging indicator even with or without all of the information.

JUmping from the school of oscillating indicators to "only price action" mantra seems to be a trend.

So it could be said entering into a trade based solely on an oscillating indicator may find noise.

It could also be said entering a trade based solely on price action may find you being sucked into a false move.

The true expert will not discard anything because they will know why. TH's post is a good one. Yes Tech I saw it but you beat me.

Looks like you forgot that indicators are based off of price action :. The true expect will only use what he needs and no more. If the indicators are based on price action and one can read price action well, then there's no need for indicators.

I'm going to pick one currency pair and trade for the week without any indicators just the candle bar chart

You might want to just watch it. Perhaps take note of what situations interest you and see how they develop.

 

[It's Snake Pliskin]

Looks like you forgot that indicators are based off of price action :. The true expect will only use what he needs and no more. If the indicators are based on price action and one can read price action well, then there's no need for indicators.

A somewhat smaller supposition that I know nothing of price action. And yes all derivations of price computated constitute the basis of an oscilating indicator.

A true expert will know why. The various tools will be used when and where required. Watching bar by bar only, has its limitations.

Your final sentence highlights the ignorance of and disregard to various strategies and tactics that price action (bar by bar watching) alone will not assist you with at times.

 

[Cartman]

I'm going to trash my original plan now and take a different approach.

actually i wouldnt do that Hav, ----

u came up with a blue print --- if its not quite right, how do u know till u trade it (demo trade it please !! )

TH's comments are well meant and he is trying to save u some time and grief ---- he is right and should be listened to, but considering u r 2 weeks into your "study", i think u r way ahead of most starting punters ----- so well done for that !

fwiw --- if u r gona trade forex ----- have a look at the weekly/daily highs and lows (and closes!!) to get the general trend/feel of the market --------- then look at the major pivot points to see who is winning the "war" at those levels etc etc ---- then see if your trading blueprint "works" at those points -- if not, adjust your plan from there

once u get a feel for "your" market u will see the importance of position sizing and MM for longevity---- good luck with it.

 

[Trembling Hand]

right on cue dr brett has an article for ya,

http://traderfeed.blogspot.com/2009/06/gaining-feel-for-markets-by-immersion.html

 

[Cartman]

right on cue dr brett has an article for ya,

http://traderfeed.blogspot.com/2009/06/gaining-feel-for-markets-by-immersion.html

no fool that Brett !! ----- important price levels culminated with potential past market patterns --------- does the small punter have anything better to base a trading plan on ?? ---- luck perhaps !!

Frank D is on to this in a mechanical way (and i suspect Frank uses quite a bit of discretion at times ) -----------

a discretional attack may be more profitable in the short term, but 99.5% of punters dont have the discipline to implement that for any length of time ----

discipline !!!! ----- my nemesis !!!! lol ----