optiontimer

Set it so that you can remain cool when taking heat. If you can keep every trade to a 1% bet, no trade should matter much at all to you. -optiontimer

I do not know that the contract margin becoming a beak even point is mentioned in the thread. I know that Kroll advocated a max stop loss = to 45% of the contract margin, so maybe it is coming from Kroll. You are not, I suppose, trading to breakeven. This system, trading with the long term trend by entering positions on reactions against that trend should do far better than a 2:1 on many of the winning trades. I am not a backtester. I am not a proficient coder. But I have eyes to see, and I have twenty+ years of trading (not all profitable, mind you) to back me up when I say that you should see a number of 400-800 point wins on 100 point risks. Manage your risk with your stop loss, and then let the market take care of everything else. It will tell you when to get out. But, you must make sure it is the market you are listening to and not your nerves. And each trade stands alone. -optiontimer

Hi Peter, As far as the GBP.AUD, don't yuou feel that you should allow for the possibility that price will come back to retest the area of your entry? The problem with the GBP.USD result is that it will now reinforce in your mind that moving your stop quickly to break even is the right thing to do. If you are trading forex cash, then the number of pips in your stop loss should be irrelevant. You should be able to adjust the size of your position to fit your risk parameter. For example, if your max risk/trade is $200, then on that trade, your position size would be $10,000, but on another trade, where the risk is only 50 pips, then your position size would be $40,000. You must set your risk so that any one trade does not matter, and so that you can withstand a series of losses - ten, twelve, fourteen in a row, and still have sufficient margin available to stay in the game, both financially and mentally. If the risk is too great to take the trade, don't take the trade. Be faithful to your strategy, follow your system, and control your risk through proper money management, not through choking the life out of your system and strategy. By the way, how did you arrive at the 200 pip figure for the GBP.USD trade? I'm showing about a 100 pip risk, and even if you are using the .1ATR10 on both sides of the trade, it looks like 128 pips would have been a good estimayte of the risk, wouldn't it? -optiontimer

Well, they all claim to trade, right? And they all imply they do it well. It doesn't cost anything to make a claim. -optiontimer

Patience. No signals for anything until EOD - lots of hours to go before a decision can or should be made. Go play some golf - Or get back to work! -optiontimer

Still getting up to speed, but I should be able to get a chart posted in the morning, and we'll see then what we have. -optiontimer

Yes, indeed, it is very nice to see the thread working very well for a number of traders. I had hoped to help at least one individual in particular, but I felt that others could benefit from this as well. I thank you, SIUYA, for your contributions as well - you have done an excellent job of translating your experience for us in a way that helps further the project without unduly complicating it. Thank You, optiontimer

Awesome, Peter! I know from my PM box that you are not alone in experiencing the control and ease and calm that having a trading plan gives to one. I only wish more of those who have PM'd me their stories would share them here in the thread and not just with me, as I think others may be inspired by these stories. Let's not forget - this project is only a few short weeks old, and it seems to promise that it may make a real positive difference in the trading lives of at least a few. How does that 200+ pip profit compare to what you had been accustomed to prior to using this approach? Your plan looks like a sound one. I have three comments: First, I am very pleased to see that you decided on your own to use a different indicator from that suggested by me. I certainly do not want to lock anyone into using a this or that indicator. As I have tried to emphasize - any indicator will do so long as its parameters are set to help us stick to our core strategy: We want to trade with the major trend, and against the minor trend. An 8 WIlliams %R should work nicely for you if you use it consistently. Second, by "4 to 1 ratio," do you mean a reward 4 times your initial risk? Third, I will withhold this comment for now. I hope that you continue to update us on your new plan and your implementation of it. If so, then my third comment may prove relevant, and I will share it with you. It may not prove relevant at all, in which case I would prefer to keep my mouth shut and let you do your thing. Thank you for the update, and please keep participating with us! -optiontimer

First I want to thank Ingot for putting himself "in the line of fire" by showing us his trade with his analysis. Each of us will no doubt enjoy successes and failures, and at times we will do everything correctly, and at others we will make inevitable mistakes - embrace it all, because for good or for ill, you're still alive! I also want to thank Avarice, youri, and russellhq for the helpful and civil manner in which they responded to Ingot's posts, and Ingot for the gracious manner in which he received their constructive criticism - all of which is a rarity in the trading forum world of the world "wild" web. Regarding the rational for requiring price, if not to break, at least lightly to "tickle" the 21/65 zone: It is good to keep this as mechanical as possible, but without allowing system dogma to cause us to throw common sense out the window. For example, suppose the EURUSD resumes its uptrend and breaks out above its May 1.4940 high. Then, after rallying a few cents above that level, price pulls back to with a fraction of a percent of that former high, perhaps even printing a 1.4940 pullback low. Let us further suppose that the stochRSI was oversold and pinned to "0", and that the 21 ema was at 1.3975 the day the EUR.USD retests "resistance now support." Now the EUR.USD rallies off that test of support, turning the stochRSI up, but with coming no closer than 25 pips of the 21/65 zone. Well, to me, common sense would say that that is an actionable buy signal. In other words, we want, in most cases, to abide strictly and mechanically to our system, but retaining enough discretion to act upon objective and empirical facts the importance of which supercedes whatever the calculation of a moving average is on a particular day, such as price testing a clear and unambiguous support or resistance level. Let us not forego a good opportunity for the sake of 3 pips. Now, with respect to Ingot's EUR.AUD trade, I would have liked to have seen price rally higher, toward the 1.3175 level, prior to taking a short position. Incidentallyu, the 21 EMA happened to be at 1.3271. Again, very often these ema's will catch up to significant S/R levels about the time price is reacting against the major trend to test those levels. Also, as the GBP has been relatively weaker against the AUD, and as the GBP.AUD did fulfill all requirements of the system, I would have been inclined to take the GBP.AUD short, and left the EUR.AUD alone. Part of managing risk is going to be managing correlation risk. If three base currencies line up short against the same underlying, then do not feel you need to be short all three. It might be better either to short the weakest base, or to take a small, 1/3 position in each, and if the trend does kick in, keep and add to the most profitable and close the two least profitable. Finally, a reminder always to focus primarily on the strategy: We are looking to position ourselves with the major trend and against the minor trend. Don't allow your focus on the system and its indicators to become so myopic that you lose sight of the strategy. As Kroll said repeatedly, having a good system is not enough - you must also have a sound strategy. -optiontimer

We are trading with the major trend and against the minor trend. Price must have retraced the major trend back to a point between the EMA's or slightly above, for a short (or slightly below, for a long). The reason for this is I want only to take signals where price has tested prior support as resistance (in the case of a downtrend) or prior resistance as support (in the case of an uptrend). My assumption is that if price retraces back to those two EMA's or slightly beyond the 65 ema, it will almost certainly have reached some S/R level. We do not want to take a signal simply because an oscillator bwecome overbought/oversold. We want it to be overbought at resistance or over sold at support. Note: I do not consider the ema's themselves to be support/resistance. I am assuming that actual s/r levels will be found within or just beyond these two ema's. This criterion has nothing to do with which day, etc. and so on. It is likely that at least a poertion of the signal day's price action will fall within the range of these two ema's however, it is not necessary that it does, so long as price did retrace back into that range, at least partially, at some point during the technical reaction against the major trend. Does that help? -optiontimer

The day that closes with either the 7stochRSI or the 8stochastic turning down is the signal day. The next day will see us open a position if price on that day makes a lower low than the low of the signal day. For example, yesterday, 7/18/2011, the price action and close of the GBP.AUD caused that to be the signal day. Today, price made a lower low than yesterday, so a short entry was made. It looks like the 8stoch made yesterday the signal day, while the 7stochRSI makes today the signal day. That will happen from time to time. So, going forward: A short signal day occurs when the 7stochRSI or 8stochastic tunrs down from overbought. A short entry occurs if price makes a lower low than the signal day. 7stochRSI is overbought at 100 (must close with a 100 print). 8 stochastic is overbought when +80, or if a +80 signal had been given, follwoed by a higher price high, but a sub 80 stochastic reading (commonly reffered to as "divergence"). Reverse instructions for longs. -optiontimer

I was referring specificaly to adding additional indicators to the current set in order to further filter whether a set up is valid or not. Certainly a stock trader would want to be predominantly long during bull markets and predominantly short in bear markets. That is not the same as adding an extra moving average or oscilator to the chart of IBM to decide whether or not to take a particular trade. -optiontimer

Well, I would say you are not doing anything wrong at all. I just this evening received my new computer and I have begun the slow process of re-creating my price history database, charts, templates, etc. and so on. I have found that the set up I posted last night on the eur.usd is not showing on my CSIData charts, and what I had thought was a valid set up on the 6E was due to missing data causing an error in the calculation of the stochRSI on my old computer as it lay dying. Unfortunately, interactivebrokers does not make the stochRSI one of their avalable studies. I was therefore left with hastily downloading OANDA's MT4. I cannot explain why OANDA's data yields the set up while it is not a signal elsewhere. It could have to do with weekend data and the manner in which OANDA collates it. It diesn't really matter. I am back with my CSIData, and I will be using that and only that going forward, save for when it moght be useful to post a chart from Interactivebrokers. As the EUR.USD trade was not a valid signal, the trade was an error. I did the only thing you should ever do if you find you have intitiated a position by mistake - double down and hope for the best! Actually, no, that is not what I did - I closed the position for a loss of $77.80 - whether it moves in an otherwise favorable direction or not, it does not matter. A trade entered in error, whatever the source of that error, must be cut short unless the trade, originally in error, has been subsequently signalled by your system. Today issued no such signal. Therefore, the right thing to do, having discovered the error, was to exit the trade at market. I am not yet set up to take screen captures of my charts, but a cursory flip through a few charts has the GBP.AUD issuing a sell signal using both the stochRSI and the stochastic. If anyone out ther is able to help, I'd appreciate a few examples of this chart using either/or/both of our oscillators to see if we are all coming up relatively close on being able to see the same thing at the same time. Thank You, optiontimer

The 6E, EUR.USD futures, also issued a sell signal. However, as with all of the recent signals our system has issued, the required risk was too large for a small 25K account. The stop on this trade is nearly 200 pips from the entry, and thus, trading just one 6E contract, the risk would be nearly 10% of the account's equity. I may find myself in a 10% drawdown yet, but let's not all but guarantee it by risking it on one trade! I did not want to pass up another trade, however. So I decided to take advantage of Interactivebrokers forex products, and, traded a 20K lot size. This will be a $400 +/- risk depending upon slippage and so forth. I'd prefer a 2% tisk to a 10% risk any day of the year. The entry, again, with commission and slippage, yields an average price of 1.40894. The stop loss is currently 1.4283, risking 193.6 pips plus commission and slippage on the exit, should it come to that. This trade is worth about $2/tick, either way. I will continue to monitor the futures markets as well, and when a situation presents itself with suitable risk, then I will take that trade. For now, to assure some activity without assuming unnecessarily high risk, I will broaden our portfolio of tradables to include a basket of cash foriegn exchange pairs and cross rates. I will have more detail to provide as this week progresses. Have a great week, and good trading to all, -optiontimer

I am again unable to access my CSIData charts due to technical issues with my trading desktop. Here is a chart of the EUR.USD using MT4 through OANDA, using our two EMA's as well as the stochRSI generously provided for MT4 by our very own Ingot - Thank you, Ingot. As you can see, the EUR.USD has presented a short signal based upon our system - the 21 EMA is below the 65 EMA, and the stochRSI has turned down from 100 on a closing basis with the 20110715 close. Using OANDA's chart, but Interactivebrokers prices, I entered a sell stop to open a 20K short position on stop 1.4091. The order was filled at a price of 1.40906, and taking into account the commission charged, my average price is 1.40894 I will have more to say about this trade in a few moments, but I will conclude this post here. -optiontimer

We all have a natural defensiveness at times to certain subjects in trading forums. In this case, I don't think SIUYA was in any way meaning to bring up the debate over price action vs lagging indicators. In fact, my post came far closer to that than his, and I certainly did not intend to open that can of worms. I do think that what SIUYA was bringing up is a very important issue, the awareness of which might help you, me, or anyone of us following along here to keep on the right track when the all too human temptation to tweak and "make better" rises within our hearts. SIUYA was pointing to the fact (and if you doubt it a fact, just start browsing through random threads here at traderslaboratory) that often times, traders, new and old, tend to seek to find an indicator or set of indicators that will allow them mechanically to implement a particular strategy. No problem with that, as that is precisely what we did here. However, at some point, this quest can mutate, in the trader's mind, into the search for a set of indicators that will allow the implementation of the strategy without fail, i.e. eliminate losing trades and never missing a winning trade - hence SIUYA's reference to "the Holy Grail." This quest for the Holy Grail is often sent into hyperdrive because we all now have computers and charting packages that give us access, literally, to hundreds of indicators that can be joined together into, literally, an infinite number of combinations. You know how this rolls: "I am using the slope of the 50 SMA to confirm the trend, but I am filtering the MA slope with Ehlers MESA cycle to confirm that there is indeed a trend, and even then I will only act on that trend when the ADX rise to greater than 50, and my entry will then be when the 9 RSI pulls back to less than 50, without violating the parabolic SAR, and I will further filter the RSI by switching to a Renko chart to see ..." This is what SIUYA means when he says that our access to computers is more harmful than helpful. The quest goes from a simple "I want to identify when the market is in a major up or down trend, and then identify as entry points pullbacks against that major trend" to "I want to identify only those pullbacks in a confirmed trend filtered seven ways to Sunday, and I want to trade only those pullbacks that are guaranteed to result in the continuation of my hyper-confirmed trend and therefore avoid any and all trading losses whatsoever." We do need to steel ourselves against the desire to seek the unattainable Holy Grail by seeking to pile indicator upon indicator, "filter" upon "filter". Remember this post from a mere five pages into this very new project: You see that the temptation to seek the Holy Grail is strong, indeed. I do not mean to pick on rebyte2 at all. I too had succumbed time and again to this same desire when I was struggling to learn to trade. And I am sure there are at least a few others "out there," silently following along here, who have already tried to apply additional "filters" to this system. Access to the many thousands of "filters," i.e. indicators, makes it an easy temptation to which one may succumb. If I were following along here in hopes of learning a thing or two about trading, I'd be keeping a notebook devoted to this thread, its system, and my trades, paper and real money, associated with it. And I'd print and post SIUYA's comments into that notebook, as a reminder that we already have all we need to be successful here. We need merely to work on ourselves, not our choice of indicators. Call me old fashioned, but I still print out the daily chart and weekly continuation chart of any market I am preparing to trade (and in spite of carrying a $600 smart phone, I still use a Daytimer appointment book to write in pencil my schedule of appointments). So, as for me, I know that this strategy can be traded using nothing more than a paper chart and a pencil. But I also know it can be traded using a computer and a couple of indicators selected not because they promise to prevent losses, but because they make our strategy clear and unambiguous to us - Trade with the major trend and against the minor trend, and accept the fact that while we cannot avoid losses, we can, through position sizing and a stop loss, avoid the big wipe out. We want to be able to withstand fourteen or fifteen losing trades in a row, and still have sufficient capital, and hopefully sufficient will, to stay in the game and win our losses back and return to profit. Thank you, optiontimer

I have received a couple of panicked communications about the stochastic/stochRSI. Do not get hung up on which indicator to use. The indicators are really of little importance. They are little more than "training wheels." I purposely put the indicator choice out to poll because I want to show how unimportant their selection was. I wanted to use common, readily available, free in the public domain indicators, because there is no need to buy some "special" indicator from someone. There is no "better mousetrap" out there, no matter what the many pitchmen and shills try to make us believe. We are learning to trade a strategy, and the indicators merely are helping us to train ourselves to see how to deploy that strategy on the price field. That strategy is that of Stanley Kroll: We want to trade in the direction of the major trend and against the minor trend. Here are two views of the same chart of the last intermediate bull swing in the EURUSD basis cash - the bottom view should be familiar to us by now - it shows the EURUSD with the 21 EMA, the 65 EMA, and the 7stochRSI. I have circled those signals, one short in red, the others long in blue, which would have been indicated by the systme as I have outlined it here. On the top chart, I have shed the indicators we are using, and drew some simple S/R lines. Study this picture - it tells the future. The indicators are not important. You only think I am teaching to read indicators. I am not - if you are following along, you are learning to read price action, whether you like it or not. You may find that you never feel comfortable trading this system without the indicators, and that is fine. But you must come to accept that it is the strategy that is important here. The indicators are simply giving us a mechanical and visual means of keeping on target, i.e. sticking to the strategy. So relax, take a deep breath, settle into your favorite easy chair and just enjoy the strategy. You will find it a pleasant one no matter which indicator(s) you choose, or even if you choose to use none at all. Thank You, optiontimer

A prescient post if ever there was one.

Here are two charts, each with the original stochRSI and the newly added stochastic. I have placed circles upon those areas where a signal would have resulted and likely have been filled. The first chart is of the September 2011 Australian Dollar futures contract. This market is uptrending based upon out EMA criteria, but price action has proven to be far from uptrending. The trend has been largely sideways, with a bias to the down side as lower lows & lower highs have been the pattern since the April highs. This is a difficult market to time long entries with reasonable stops, as after each entry, the market has managed to work itself lower. This situation will have to be addressed. We would not want to make nine consecutive losing trades in one market. With proper position sizing, we could survive it, but it would no doubt take quite a psychological toll: The second chart is of the Swiss Franc futures. This market is also in an uptrend based upon our EMA criteria, and it has been a very easy market to trade using our system, no matter whether you choose to trade the stochRSI or the stochastic system. What is important to note here is that both of these indicators will more or less yield similar results over time based purely on technical signals. As with anything, you must be consistent. Do not use one to confirm the other. Do not use one this week and another next week. If you have already been gaining a degree of experience, comfort, and expertise with the stochRSI, do not suddenly switch tot he stochastics. Here is a zoomed-in view of recent price action on the USDCAD cash market. You can see how very similar these two indicators will behave. -optiontimer

I have two points to address quickly: 1) I am still awaiting the arrival of my new computer, so my ability to update the charts is still extremely truncated. I have been able to restore a minimal functionality on my charting computer. It has been quite laborious, and as a result, I will focus primarily on metals and money charts until my new computer is built and delivered. If some other market develops price action of immediate interest, and I notice it, I will do my best to cover it here. But again, until I am fully functional, I will mostly limit chart reviews to the metals and foreign exchange markets, both futures and cash. 2) With respect to the stochasticRSI, and the difficulties some have expressed in locating a usable script for their own particular charting software, I have elected to continue with that indicator. However, for those with no access to the stochRSI, I have decided also to follow this system using an 8 period stochastic. (See the above posted Gold chart). You should set the %k to 8, and the set the smoothing functions to 1 (8%K, 1, 1). I will cover this decision more in a subsequent post, with charts. That post will occur later today or tomorrow, as it too an interminably long time just to get my computer to function enough to grab some relevant screen captures. Thank You, optiontimer

Gold of course did triger an active long position, but risk parameters prevented me from taking this trade. However, we can certainly follow its progress on paper. Here is the current chart: The area outlined in red is the first long entry signal posted to this thread, which ended in a loss of aprox. $12-$18 depending upon your entry criteria. The area outlined in blue is the result of the ren-entry long signal quoted above, and it is currently sitting on an open profit of approx. $70 +/- $3, again depending upon your entry criteria. -optiontimer

Hi Peter, Would you be able to update us on the status of your re-entry GBPCHF short? Thank You, optiontimer

Those are awesome results, Ingot! Now, can you do it with real money? That too is awesome - and it is exactly what I was hoping to help others accomplish with this thread. I am very happy for you, and I hope there are others out there who are coming around to this perspective also. Kroll had put this strategy out in the public domain many many years ago. It worked then, it works now, and it will work many many years in the future. The markets, for all the talk of high frequency trading, market profile, buzzword, buzzword, buzzword, have not changed in how they behave on a day to day basis. The only real variable in whether or not this system works for any particular trader is the ability of that particular individual to exercise the discipline and patience required to apply this system and abide by it consistently. -optiontimer

I would agree with this - the more conservative entry I suggested should have a better winning percentage. However, the initial stop loss required will often be significantly greater than that required by your entry mechanism. Your entries have thus far had a very impressive average max adverse excursion form entry. My entries will be prone to taking a bit more heat than you have had to withstand so far. -optiontimer

Are you using a charting software that require you do input trading session open & close? If so, try to find a broker with charts where this work is already done for you. For CSIdata, I use the floor & electronic combined, but I almost always trade the electronic contract only unless there is more liquidity in the pit (a rarity these days). I usually look at my charts in the evening after 7PM NYC time. For what its worth, I really doubt that a slightly different close time will effect the system much if at all. When in doubt, use 5PM-5PM NYC for foreign exchange cash markets and use globex open/close for all others. -optiontimer