Today's Signals 10/6/14

Current Positions:
Buy EUR/AUD 1.4400 or lower

Closed Positions:
Buy USD/CAD 1.1107 +131
Short AUD/USD .8772 +78
Buy EUR/AUD 1.4418 stopped breakeven
Short EUR/USD +111
Short XAU/USD 1215.08 +218

*Stops are based on the previous swing high or low prior to the signal and require an hourly close above or below this swing high or low; they are not based on a strict price.

Today's Signals 10/3/14

Current Signals:

Buy USD/CAD 1.1107 +105 stop to breakeven
Short XAU/USD 1215.08 +155 stop to breakeven
Short AUD/USD .8772 +75 stop to breakeven
Buy EUR/AUD 1.4418 +8
Short EUR/USD 1.2642 +84 stop to breakeven

Closed Trades:

Short EUR/USD 1.2629 -45

*Stops are based on the previous swing high or low prior to the signal and require an hourly close above or below this swing high or low; they are not based on a strict price.

Today's Signals 10/2/14

New Positions:

Short EUR/USD 1.2629 or higher
Buy USD/CAD 1.1107 or lower
Short XAU/USD 1215.08 or higher
Short AUD/USD .8772 or higher
Buy EUR/AUD 1.4418 or lower

*Stops are based on the previous swing high or low prior to the signal and require an hourly close above or below this swing high or low; they are not based on a strict price.

New Signals 9/29/14

New Positions:

Buy GBP/USD 1.6247 or lower
Short EUR/JPY 138.82 or higher

Closed Positions:

Buy GBP/JPY 177.79 stopped breakeven
Buy EUR/JPY 138.94 stopped breakeven
Short XAU/USD 1221.67 +28

Trade Signals 9/26/14

New Positions:
Buy GBP/JPY 177.79 or lower
Buy EUR/JPY 138.94 or lower
Short XAU/USD 1221.67 or higher

Closed Positions:
Buy EUR/AUD 1.4418 +94
Buy GBP/USD 1.6327 -31



*Stops are based on the previous swing high or low prior to the signal and require an hourly close above or below this swing high or low; they are not based on a strict price.

New Signals 9/25/14

Current Positions:
Buy GBP/USD 1.6327 +12
Buy EUR/AUD 1.4418 +28

Closed Positions:

Short EUR/USD 1.2856 +129
Short XAU/USD 1227.72 +110
Long EUR/JPY 139.39 -70

*Stops are based on the previous swing high or low prior to the signal and require an hourly close above or below this swing high or low; they are not based on a strict price.

Today's Signals 9/23/14

Current Positions:

Short Eur/USD 1.2856 or higher
Short AUD/CAD .9797 or higher
Short XAU/USD 1227.72 or higher

Exited the following trades in the past 24 hours:

Long USD/CAD 1.0967 +56
Long EUR/AUD 1.4363+89
Long GBP/USD 1.6331 +27
Long EUR/JPY 140.08 -40






*Stops are always based on the previous swing high or low prior to the signal and require an hourly close above or below this swing high or low; they are not based on a strict price.

Today's Signals 9/22/14

Nice morning action as the loss from Friday has been over taken with a really nice pop in EUR/AUD

Exit USD/CHF .9350 +35
Long USD/CAD 1.0967 +30, stop to break even
Long EUR/AUD 1.4363+113 stop to break even

New positions
Long GBP/USD 1.6331 or lower
Long EUR/JPY 140.08 or lower

*Stops are always based on the previous swing high or low prior to the signal.

Forex System Development Consulting

I now offer consulting for those who are finally at the systems development phase of their trading journey. Most are looking for a good system which is just the entry phase of becoming a trader.

The next phase requires that you adapt what you have learned until that point into a personalized version of how you see the markets trading.

It took me a good 5 years into my trading development before I began to realize this massive difference.

All the great books on trading will tell you the same thing. One of the Market Wizards is famous for saying that he could give his exact profitable system to 10 people and some of them would still lose money.

With this in mind, I offer my 12 plus years experience in Forex and Futures trading to those who are ready to  take the next step.

If your system is viable, I can even code it for you in EA format.

I will watch you trade and give important technical and psychological feedback every step of the way. I enjoy the path which trading allows one to discover about themselves and I would like very much to help you as well.

You can always contact me on skype at mezameo for more details.

Happy trading

Keeping the switch on

Looking back at the previous post so many months ago I am pleasantly surprised at how much my attitude towards automation has changed. Since the end of June I have been on an automated version of my system and the results have been nothing if not impressive. Some takeaways over the past few months in my transition from mechanical manual trading to automation include:

• Accepting drawdowns with a more passive attitude. The roll-out of the EA conincided with a technically poor Forex market. There was no volatility or serious volume coming into the market this summer--which is to be expected with many large traders off for the summer months. However I kept the controls on and sat passively while the system took it's lumps. It was perhaps the first time ever in my trading career where I allowed my account equity to drop without any attempt at hedging or removing stops. Ironically I feel I have grown as a trader by becoming less involved in my actual trades.

• Having a healthy expectancy. By knowing how meantrades has performed in the past, keeping the switch on during drawdowns enables me to avoid missing the huge upswings in account equity. At the moment my expectancy is only around 1.3 for every dollar risked. Most long term systems tend to float around 1.5 to 2 for really huge returns. There are a few considerations on the lower expectancy such as trailing supertrend exits too closely during flattening volatility in the Asian session. Widening the supertrend stop as well as taking Friday afternoons off are two of the ideas I am toying with currently. Generally speaking though, 1.3 is enough for things to get very interesting in the long term. Currently meantrades is running at about 60% accuracy on the 3 markets I am trading everyday (those are EUR/USD, GBP/USD and the cfd for oil). I am thinking like a trend trader on this matter and would probably like to tighten the stops more, reduce the drawdown and get larger returns less frequently. All in due course. For now it's about keeping the switch on and maintaining a healthy expectancy.

Weekly Meantrades

The past few weeks have been nothing short of frustrating. Automation with constant range bars on Metatrader 4 seems futile. With a single disconnect from the brokers server, the constant range bars are immediately scrambled and thus any reversal patterns are suspect. Somehow this had me thinking about how I can get this very decent system called meantrades running without a hitch. I came up with a version which uses 240 minute and 60 minute bars.

The only major difference (there is one minor variation however) between this system and the constant range bars version is that it is restricted to only 1 profitable trade a week. "Profitable trade" as in it will enter up to 2 unprofitable trades in the same direction per week. This is similar to the intraday meantrades which only takes two consecutive unprofitable intra-day trades in the same direction.

The results thus far are quite respectable. Considering the time invested versus return on capital, the weekly version of meantrades is a better deal for smoothing out the all important equity curve.

I realize these numbers probably seem absurdly high and I am just as skeptical as anyone else would be. But it's been backtested for several years and all trades are based on a closed bar basis so it is pretty hard to fudge the results.

Currently the XAU/USD weekly version of meantrades is running at 75% for the year with a total of 698 pips employing a trailing stop. With a fixed 100 pip target it's coming in at 871 pips. Let's say we are in June already, since we cannot take another trade until next week, that is a very tough return to beat of 145 pips per month trading no more than 1 winning trade per week.

The results for the EUR/USD market are also quite respectable. Coming in at 69% for the year trading only once a week the supertrend exit works out to 963 pips thus far while a fixed exit of 63 pips has yielded a return of 335 pips. Winning percentage is based on a total of 26 trades so far this year.

I initially set out on this discovery using the AUD/USD. My thinking was that somehow if I ever got around to getting meantrades automated I should probably try it out first on some less volatile pairs. I have never traded AUD/USD seriously as it seems rather dull market. In fact it's almost as profitable as any other market I looked at. The results came in as follows: 70% winners out of 27 trades taken. Most impressive are the drawdowns to achieve profitability. The market just seems to trend better than others when applying the lens of meantrades. Average losing trade was 67 pips while the average winning trade was 55 pips. This is the only serious issue for me trading less frequently. The average winner is normally larger than the average loser in a robust system. However when you are applying a trailing stop methodology for exits, the out sized returns of just a handful (or even a single yearly trade) can outpace the averages quite easily. As the Black Swan movement has attested to, the market does not reward those who seek the average return on equity as a benchmark, it obliterates them every few years with massive crashes and bubbles. I'm not a fund manager and I'm not seeking an average return so I will keep doing what I'm doing until something comes along which makes more sense.

For now, meantrades with trailing stops seems like the best way for me to trade these volatile and incredibly profitable markets for the foreseeable future.

Some of the inner workings for setting up the weekly meantrades method:

• The ratio levels need to be set off of the first 4 hour bar of the week or the second bar. This is slightly subjective in that I prefer to use the smaller of these two bars, unless it is just too small a range. In that case I will use the first 4 hour bar regardless of how large it is.

• Stops are usually an hourly close beyond the swing high of the trade entry. However in some cases this bar closes inside the Keltner bands (even though it is outside the highest high or lowest low for the trade setup). It is best not to take the loss until price has also violated the Keltner bands. There have been many cases where price makes a minor new high or low inside the Keltner bands only to reverse immediately. 

Here is the only trade currently open with Weekly meantrades. An EUR/USD short currently sitting at +110pips. Stops are already at break even since price has already touched the opposite Keltner band from where the trade originated (as per the original rules of meantrades).

OHLC is just a line in the sand for Support and Resistance

In spite of my interest in OHLC, there are plenty of other ways to create very clear and potent daily levels of support and resistance within the meantrades method.

Let's compare several of them and see the results from last week.

Using 10 pip CRB's we can track the progress of each method of Support and Resistance. It's starting to become fairly obvious that no matter how to create your "line in the sand" on your chart, every day the results will vary. Thus, for posterity's sake, let's compare the results. Keep in mind when we look at historical trades, we are very mechanical in our entry, although in real-time you can be less so, taking into account the velocity of the markets (the rate of bar change) to help you decide if one of the primary rules of meantrade could be overlooked for the sake of a great risk to reward setup. For example, perhaps price has already violated the keltner midpoint and you still want to take the reversal from the S/R level. There are so many good trades which don't set up perfectly. This requires a traders vision and resourcefulness and is the reason most great mechanical systems cannot be hardcoded into a black box to ride off into the sunset and make us all millionaires in a month.

Traditional Pivot points (using the daily close at 5pm as the starting point for daily calculation):

11/14-11/19, Keltner touch exit: +30
11/14-11/19, Supertrend exit (note: when using the supertrend exit, we move stops to break even once we touch the opposite keltner band from entry, it creates a high percentage of break even stop outs, but allows for a few really big wins throughout the trading week): +31

Fibonacci Levels based on the first High Low close of the day:
(One of the true benefits of this method of creating intra-day S/R is that it does not have levels after the market breaks out, in a sense, it only looks for reversals within the expected daily range)
11/14-11/19, keltner touch exit: -28
11/14-11/19, supertrend exit: +102

With this method we also have the option of trading with the trend only after price has broken the last fib extension level. As you can see in the screenshot above, this creates some very high probability setups.



ORB Fib levels based on Asian session range:
11/14-11/19, keltner touch exit: +87
11/14-11/19, supertrend exit: +114


Finally, OHLC levels:

11/14-11/19, keltner touch exit: +51
11/14-11/19, supertrend exit: +114

Quite interesting that the OHLC S/R levels performed exactly the same as the ORB Fib levels. Fine with me, it proves Meantrades was ok the way it is originally. I like having that validation. Most people in back-testing circles refer to that mental condition as positive expectancy. With positive expectancy we can take every signal without trepidation.

One more method for creating S/R levels I learned from a guy on elite trader a long time ago who claimed, with about 5 years of trading futures under his belt by this time, that if you adjusted your fib ratios to 3.77, 5.12 and 7.80 instead of the standard, 1.618, 2.618 and 4.236, you would have more accurate targets for the daily range. I tested it a while back and it was true...sometimes!

If we take the opening range and use these ratios, as well as high low and 50% of the ORB and then applied these ratios for last weeks trading this is what happens:

11/14-11/19, keltner touch exit: +113
11/14-11/19, supertrend exit: +206

Looks like a winner.

Keep in mind that this is based on a single brokers data. Your results will certainly vary. In fact, I invite anyone to get in touch with me on yahoo at "mezarashii" and I would be happy to teach you how to set up your charts to get you going on meantrades..., well, I'm not sure what we should call the last method of creating S/R levels. I'm open for suggestions.

So what did I discover here in the end. Almost certainly pivots are a waste of time when trading horizontal support and resistance levels. But then, this I knew for years. I'm not sure why it does not work in forex but I'm assuming it has a lot to do from what time you plot them and the end of trading for one market is not the end for another. Perhaps re-plotting based on the opening price of each market would yield more active S/R lines but at this point I will leave that discovery to someone else. I prefer ratios and you can see why with the results from last week. Imagine getting a yield like that week in and week out. Most of these winning trades came on 2 or 3 days only. The beginning of the week was a real dud and sitting on a negative balance was quite challenging. But with positive expectancy, you can continue to pull the trigger with total confidence. That is what I took from this weekend analysis.

Daily Charts "Triple Threat"

Been reading a lot of Trend Following ideas from people like Michael Covel. He talks a lot about following the trend on Daily charts and longer. I decided to find a way to trade the daily charts which suited my temperament but also managed the volatility without giving up too much in terms of profit.

First I went through all the turtle style systems and decided that although they have extremely large winners once every few cycles, on a yearly basis they don't perform very well. The Alpha as they say is almost nonexistent. Enter a small adjustment. Instead of tracking Moving averages of price, try tracking the crossover of momentum with the RSI and CCI. I used a 10 period SMA and the results are mighty satisfying.

One way I found which manages to get better exits than using hard stops is to wait for the daily close outside of the swing high or low to exit with a loss. I have seen that almost half of the trades which ended in loss later turned into winners if this one simple rule was followed. Just on Gold alone the market has done this a handful of times. It changes the outcome of the system results from break even to extremely profitable.

Here are a few results from this year so far:

Gold:  +1500 pips
SP 500: +7150 pips
EURUSD:  +1123
USDCHF: +1328

If market closes outside of the swing high and positions are reversed the returns are doubled! (perhaps this is the main finding of this entire study which I did not even consider until I posted this blog entry) This is probably the most robust daily trade system I have ever data mined. I will definitely be forward testing this and probably making an EA out of it.

REcalculating by stop and reverse the pip totals are just sickening...

Gold: +1475 (loss of 25 pips; but this takes into account those several 180 pip price swings in the past month so definitely a fat tail to consider)
SP500: +8187
EURUSD: +1060 (loss of 63 pips but well worth the extra risk considering the huge bump in other mkts)
USDCHF: +2079

Even when the stop and reverse decreses the pip total if we look back on multiyear data it will be obvious how this can lead to greater gains. Based on my years of price observation, swing high reversals are very high imbalance points in price. What this means is that price either reverses or it doesn't. Price does not just hang around these points and consequently the intial trade will work out or it will reverse against the original signal and run like hell. The way I see it, taking on more trades in this method is actually a reduction of risk.