Developing a systematic approach to trading

After days and days of backtesting, I think I have found a simple system that works for me.  I backtested it over the last 5-6 months on the EUR/USD 60-minute charts.  Of course I understand that there are no guarantees that this system will work well in the future too.  But it does feel really good to have designed a system that I can use going forward.  My goal over the next month or so is to trade religiously using this system and being the gambler I am do so using my live trading account.  It actually feels really great to have a system that is going to generate long, short, cover, and sell signals right on my charts.  Here are my backtested results:

 

 

 

 

 

Popularity: 3%

A Rob Booker Exclusive Treat

EUR/USD     March 10, 2006

Here is a great Head and Shoulders pattern.  They are super reliable, and fairly easy to trade.  Here is the chart.  We want to sell below the neckline, and go long above the trendline connecting the head to the right shoulder.

 

 

 

Popularity: 2%

What Markets Am I Going to Trade?

This is a continuation of my trading plan.  I have added a link to the left main menu called My Trading Plan.  You can view the latest trading plan at any time by clicking this link or going to http://www.forexproject.com/trading_plan/ 

The second question I will ask myself is "What Markets Am I Going to Trade?"

I will be trading the Foreign Exchange market only.  Specifically I will be looking to trade the EUR/USD currency pair only until I can develop a consistent trading strategy.  Once I become more comfortable trading the EUR/USD, I will slowly integrate more currency pairs into the mix.  I will allocate 100% of my fund to trading forex.

This year, I want to look further at trading the following:

·         Mini-sized Dow (YM)
·         E-mini S&P (ES)
·         E-mini Nasdaq (NQ)
·         E-mini Russell (ER)
·         Soybeans (S)
·         Mini-sized gold (YG)
·         Corn (C)
·         Wheat (W)
·         Crude Oil (CL)
·         Mini Crude Oil (QM)

Popularity: 1%

Week 14 Performance

As I mentioned a couple of days ago, this week was especially hard on me.  I lost $3000 to drop my 14 week earnings to +2500.  There are a couple of major adjustments I’m going to make going into week 15.

1.    Finish a preliminary test plan that at least details 1 trade setup

2.    Stop trading multiple currency pairs.  I’ve been trading and trying to study about 8 different currency pairs.  I feel like this is definately too much for me to handle and most would not recommend a beginner to do this.  I will try to study and trade the EUR/USD ONLY since it is considered to have the most volume.  I will slowly try to incorporate some more of the major pairs into my trading plan as I get more comfortable with the EUR/USD.

3.    Back test, back test, back test.  A couple of months ago I was really interested in back testing trading strategies but lost interest after several attempts proved to be very unprofitable.  I have since started using Metastock with esignal to backtest moving averages.  Metastock has an optimizer function that will go through all combinations of moving averages and return the most profitable combinations.  My goal will be to first to find the most profitable moving averages for the EUR/USD.  I will try to correlate the moving average pairs to produce the most profitable 3 moving averages. 

I’ve already started performing #3 and I currently have Metastock performing backtesting on over a years worth of 1 hour interval data.  It’s very CPU intensive and will take about 4 hours.  It’s currently half way done and so far the best EMA pair is the 7/75.  The 7/75 EMA’s actually have some impressive results over the last year on the 1 hour EUR/USD chart. 

Here is an exact description of the backtest:

Buys/sells when a moving average of 7 periods goes above/below a moving average of  75 periods. 

I also have it factoring in the broker fee and have set the results to buy/sell 1 lot.

Here are the results:

70 profitable trades with average profit of $355.86 per trade.
Highest profit was $1020 and the most consecutive profitable trades was 12 

15 unprofitable trades with average loss of $972.67 per trade.
Highest loss was $2180 and the most consecutive losing trades was only 2 

Over 1 year, if you followed this trading plan by buying or selling 1 lot each trade, you would have profited $10320.00. 

Popularity: 3%

CFTC report for February 28th Released

As always, the "Forex Volume" reports can be viewed at http://www.forexproject.com/Forex_Volume/

Summary:

1.  CAD increase of 8,221 long positions (Sentiment:  Very Bullish)
2.  CHF increase of 23,807 short positions (Sentiment: Extremely Bearish)
3.  GBP decrease of 11,359 short positions (Sentiment: Bearish)
4.  JPY decrease of 33,735 short positions, increase of 14,628 long (Sentiment: Bearish)
5.  USD Index had no major changes (Sentiment: Extremely Bullish)
6.  EUR increase of 8,785 long positions (Sentiment: Bullish)
7.  NZD had no major changes (Sentiment: Bullish)
8.  AUD decrease of 3,474 long positions (Sentiment: Neutral)

Popularity: 3%

Dollar Strength and EUR/USD Channel

I’ve been trading the EUR/USD since yesterday evening and caught the breakdown below 1.1855.  The USD has not been able to push below 1.1827 though and until then the price may remain in a 60 pip channel.  

 

 

 

 

 

 

 

I’m up a little more than $400 to start the week in realized gains but as of now am only in a short EUR/USD position that I entered on a pullback last night.   There haven’t been any major developments since the Asian trading session set most currency pairs in motion except for the USD/CAD which has broken down nearly 75 pips from yesterday evening.  I was actually long on a USD/CAD position yesterday and decided to get out after hearing that some favorable economic reports were expected from Canada this morning.  This demonstrates some good behavior on my part with an exit of the position with a $100 loss.  I didn’t see the pair doing what I would have expected from my technical analysis and wasn’t aware of the economic reports coming out of Canada when I entered the position.  What good would it have been to stay in the position?

Popularity: 3%

Candlestick Studies for Next Week

I’m attaching a graphic of 8 currency pairs and their corresponding weekly candlestick patterns provided by Metastock software.  Going into next week, we see:

EUR/USD: Engulfing Bear
AUD/USD: Doji Star
EUR/JPY:  Engulfing Bear

 

 

 

 

Popularity: 4%

Playing the Odds with a Bearish Engulfing

The graphic below is the weekly EUR/USD chart with corresponding candlestick patterns.  As you can see, going into next weeks trading, we are following an engulfing bear.  Care to play the odds that this week will see more bearish action? Since 1999, here are the pip profit/loss if going short for the week following an engulfing bear:

 +51, +266, +21, +124, -58, +132, +38, +8, +11, +46, -10, +136

Out of 12 weeks, only 2 of the weeks were losing and they were small losses of 58 pips and 10 pips.  The average profit was 83.3 pips over the other 10 weeks. 

 

 

 

 

 

 

 

 

 

We could very well see another bearish week if we played the odds.  I know I will be.

Popularity: 4%

My performance per Currency Pair

I decided to take a look at all of my trades since day one and find out which currency pair has been most profitable for me.  The results were interesting:

USD/JPY: +3720
EUR/JPY: +2400
GBP/JPY: +1370
USD/CAD: +890
NZD/USD: +470
USD/CHF: +420
EUR/GBP: -70
AUD/USD: -130
GBP/USD: -$410
CHF/JPY: -650
EUR/USD: -$1430

History says to stay away from the EUR/USD pair.  I had a feeling that the USD/JPY was my best friend.

Popularity: 3%

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