Fresh or First Crossover Strategies

[Eric Johnson 10]

Hi, This is a thread to share about the idea of "fresh, or first touch". Here are the basics. The first strategy is shown with the red triangles on the "10 pip 50 ma" chart. I use a 50 ema (magenta line) crossover. If a trend has been in progress and price has been separated from the 50ema for "a while", when price finally does cross the 50 ema by 10 to 12pips (EUR/USD); then I fade back to the 50ema. I want the touch and cross to be the first touch of the 50ema and a fresh one. I use an 18 pip stop or less. The stop is rarely hit, I avoid market openings. The trade does not come around too often (5 min bars), but it is a very sure trade. The yellow envelopes are 15 and 30 pips from the 50 ema (on VT trader). Dark blue is 250 ema.

Another is similar strategy is shown on the other 5 minute chart by the white triangle. This is using the outer 50ema, 30 pip yellow bands envelope. After a long trend, wait for the price to finally first touch the 30 pip outer band opposite the trend direction. Then fade in the direction of the trend to the 14 ema (light blue line), or for a few contracts you can hold a runner to the 50 ema. The yellow block on the first chart shows another example of a near envelope touch that could have been taken. I use a 18 pip stop for this one also, but it is a high probability trade also.

Of course if you want to tighten up your stops, you can wait for compound confirmations, like trend lines and so on.

The idea of the thread is to invite others to add ideas that they are using on any kind of index, stock, or futures. Also since these are reversal strategies, note the conditions you avoid, like bb squeeze breakouts, triangle squeezes, market openings, etc. The idea is to have a few extra strategies that are high probability to be watching for, to trade more often. I will soon post a download with some coded alerts that I programmed for VT Trader, so you do not have to watch the chart for hours. It will be on the coding forum. I already have a paint bar alerts system I posted for Quotetracker.

Then I would like to expand to useful observations. Something like, in a strong trend generally the price will bounce off the 14 ema 2-3 times before it retraces to the 50 ema. Or maybe after a squeeze breakout, at the first touch of the 50ema enter trade to continue with the trend, stop 15 pips. Another is to just use the 15 or 30 pip bands as a reversal guide in a sideways market, reversing to the 50ema.

So I hope this is of interest to others, these observations can have been so useful in predicting profitable strategies.

Edited January 1, 2010 by Eric Johnson

[Eric Johnson 10]

Since it is the long new years weekend I thought to introduce something I just discovered and I found very useful. It is from the forex forum, but the indicator was so useful that it was converted to many platforms including Trade station. This means that it can be converted to trade about anything. It is from Walters post, "Walter`s Forex "Trend Trades". It is a long post, with lots of teamwork and useful ideas.

His basic idea is using a modified indicator to ride trends. For what I discovered, all the lines are not necessary, just the two outer ones. On my chart these are the magenta and white. I am watching their expansion and first touch of BOTH the outer indicator lines, touching (or exceeding) the blue dotted 50 ema 15 pip envelopes. When this happens very consistently the trend has weakened and is preparing for a pullback or reversal.

These are specially modified lines from what I can tell. I just display the 2 outer lines, and I now have a very nice tool. So if the idea interests you check out the thread in the forex forum.

Edited January 2, 2010 by Eric Johnson

[Eric Johnson 10]

Hi, at the risk of posting somebody else's fine work I have attached the PDF's done by GJM describing the system by Walter in PDF form. This consolidates the posts and enlarges the charts.

The first reason is to cultivate ideas for those that may not normally visit the Forex forum. Secondly Walter's Icon presentation, I found in reading today, goes along with my first touch ideas . Thirdly if not already done so, make these ideas applicable to a variety of markets.

I know Walter runs multiple threads, so if there is one that is already handling this crossover maybe somebody could post it.

Trend trading-part1.pdf

Trend trading-part2.pdf

[Eric Johnson 10]

Here is the concept I will share today. It is on the EUR/USD, but the concept applies to any chart. The question addressed is when can I consider a trend weakened to the point of reversal, major pullback, or sideways channel trading. The key being what is the next market condition to come? Especially when is it safe to consider using reversal or channel trades?

This is the simple observation that I have made for the Euro. Chart =Blue band is 15 pips, green 30 pips, and white line =50ema. After a strong up trend, a pullback to the 21 pip level (or lower) below the 50 ema shows me that the trend has weakened. I then expect topping, reversal or sideways trading. It is inverse for a down trend.

The chart is from Thursdays EUR/USD trading. There are probably better examples out there, but this is real world trading. The red lines attempt to show the general area where the price got into the 21 pip zone and the strength of the prevailing trend was weakened.

 

It does look like Walter is sharing related concepts about the fantail/rainbow/WVMA on his "Futures scalps" thread on this forum. I am trying to build a few simple related strategies relating to his, and sharing many of my own.

 

I did an example of a stock envelope set up. I like envelopes because when I am developing strategies, unlike a bollanger band, I have a set amount back to the base ema (50). I did the demo on Quote Tracker because it has free daily backfill of MSFT for many years, and has the VWMA available to try. I am not sure that these are exactly configured like the VT fantail modified model. Also for free daily backfills use the backfill connection Yahoo, or Tradingroom Australia historical.

The idea of the envelopes is to find a range that price reverses on many times. I used an inner (blue) and outer (green) band. The values are %width 10 and % width 20. This translates to around $2.50 inner band offset, and $5.00 outer. The 50 EMA is white. I also set up a simple program to alert me when price crosses one of the bands. It looks like this and can be modified.

if ABS(bar close-ema(50))>2.5 set color to Yellow and stop

This lets me know when the price exceeds (or closes) above or below the blue band at the $2.50 level. It is code pasted into the complex expression paintbar editor.

Anyhow the point is to slowly share some systems I have developed, and see if anyone has similar insights to add.

I just coded a VT trader alert system to be able to hide the fantail lines and/or the envelope lines. Instead I can just get alerts when there is a fantail expansion, (or a price crosses an envelope), and be ready for a pullback. I will post it on the coding forum.

Edited January 3, 2010 by Eric Johnson

[DugDug 10]

Something similar to look at is the Guppy Multiple moving average.

 

I don't look at it - or any other indicators really. But would like to add to something you mentioned earlier.

I think there is a lot of value in applying a filter to take the second or third signal in something, and not just as a binary indicator to be taken every time it triggers. The nature of the markets is that trends take time to develop and to reverse. (even short term ones)

 

However I also think that other filters are worth using in determining which systems to use dependant on the market context.... eg; a bull market pullback rally is different to a bearmarket rally, and hence maybe the first signal should be taken.

 

(Sorry I dont really do too many indicators, but do apply these heuristic rules of thumb while trading, and while they sometimes mean you miss trades, they also mean you have less false breaks.....so its a comment more as food for thought.)

[Eric Johnson 10]

Yes I agree on the usefulness of timing the major trend entry points. Some of these high percent, (small pip scalps) auto entry plays are conditional on such things as avoiding market openings, squeeze breakouts, and announcements. They have been very nice on the 5 minute forex pairs the last few days. I would post charts, but I want to focus on the 60 minute today and keep these posts relatively simple.

I will pass along my 60 minute bars perspective to relate to the good suggestion about market conditions. The higher time frame allows for perspective regarding the boundaries and strength of longer trends.

First the basics of the attached chart colors. The pink solid line is the 50 ema. First dotted pink envelope nearest it, is the 60 pip envelope. Outer pink dotted envelope is a 90 pip. The dark green line is 600 ema, dark blue 250,, light blue 14. Black dotted (A) is a 150 pip envelope from the 250ema.

This chart is used with the 5 minute entry points (and the colors set up to your preference). My first use of the 60 minute is to look for major MA convergences, after they have been separated for awhile (first touch). I show one of these with the light green elipse. Most importantly is the 250 and 50 cross. This usually follows through with a strong move following. In this example the market shows (with the red box) a channel forms and breaks out up.

This perspective is useful for the tendency of the breakout to be in the direction of price action relative to the ema's. The box is mostly formed above the 250, 50 and 600 ema's and generally breaks up. This is true in a freshly formed trend. Also the breakout often occurs around forex or US stock market openings.

Next is the general boundaries of extended trends. Above the "A" area is oscillating market conditions. They usually stay in the 60 to 90 pip ranges. You can see how the black dotted envelope catches the range of the extended trend runs.

Also I overlay the weekly pivot points over this chart, and the daily over the 5 minute to assist with stops and confirmation. I generally use the 5 minute for precise timing, but when the trend is strong, I need the 60 minute to see where it may weaken.

So in review this system is useful for estimating trend boundaries, channel breakout direction, perspective on market condition(oscillating or trending), and looking for convergence breakout strength.

[enochbenjamin 10]

Have you ever tried a 21 SMA or EMA. Note location of the pivot point. If price is above the pivot wait for a retrace to the 21 MA and buy. If price is below the pivot wait for a pop up to the 21 MA and sell.

 

This is how I used to trade treasuries when the market got away from me.

[Eric Johnson 10]

Hi, I like that idea. It reminds me of using the 21 ema as a trend direction indicator. I suppose that would be for a trending market. I find the USD/JPY does this nicely.

 

Here is a basic trade that I like to use when the markets go into sideways trading, usually a day after strong trending. The attachment is the recent 5 minute Euro. Sorry I am using different colors at times. It is because the fantail crowd is uses specific colors, and I didn't want to confuse them at the time. The chart pink line is the 50ema, yellow bands are the 15 and 30 pip envelope. The light blue is the 14 ema, and the dotted blue is the 17 pip envelope.

 

There is a few ways to use the indicators. My favorite is to use the 30 pip dotted yellow bands as a reversal point to the 14 ema (light blue). This is shown by the red triangles. The set up is only valid when price is actually oscillating across the 50 ema. I avoid market openings, strong trends, and squeeze break outs. I like an 18 pip stop, but this can be reduced with confirming lines like trendlines or pivots.

 

The next way I like is to use the inner yellow dotted 15 pip envelope, when the market is gently oscillating. I trade back to the 50 ema. It is amazing how many times this trade works if you give an 18 pip stop. Especially if you delay the entry as long as possible past the 15 pip envelope. It is one of those factors where especially the Euro oscillates about 6 times more than it breaks out.

 

Finally (optionally) I like to use the 14 ema, 17 pip envelope (light blue) for confirmation. I only prefer reversal trades outside the 15 pip yellow bands. I check to see that the price has been seperated from the 17 pip envelope. The white arrows show this trade. If price starts riding the 14 ema band, it means to be cautious for any reversal trade. This can be seen in the red thin arrow area. If you follow the entries on the envelope cross, the place where price gets to the 14 ema is usually very little loss, even if you do have a draw down. I also use the 17 pip (14 ema) envelope as a counter strong trend first touch reversal.

 

These trades can be quite effective if you properly check for the mentioned market conditions. Look for a time after a long strong trend, real oscillation across the 50 ema, and be aware that the later in the oscillation pattern, the more likely the break out. If you have runners you can hold for longer runs in the oscillation. As you can see most all of these trades went well past the 50 ema for average of 25 pip runs.

 

I have posted some alerts on the coding forum. These strategies are pretty simple to monitor if you just set the alerts and wait. I watch 4 pairs to have enough opportunities to pick the nicest conditions. I actually have a very advanced alert system if anybody is interested in it for VT trader. It includes many settings for 2 envelopes, and the fantail expansion setting. It takes much to explain setting it up. The basic versions are already available though on the coding forum.

Edited January 13, 2010 by Eric Johnson

[india quant 10]

@ john

can u share the easy language?

anyway really impressive

thanks.

[Eric Johnson 10]

Hi, glad you find it interesting.

I do not have trade station, and I think this is the Easy Language base. I will do my best to point you or a volunteer coder in the right direction. Walter's and Bemac's code for the modified fan tail was I think coded for Easy Language, and other platforms on the forex thread "Walters Forex trend Trades". You may be able to search word the thread.

 

I have enclosed the install (as trading system) for VT Trader. You will need to refer to the notes I posted on the coding forum about the fantail alerts for more details to install. I think Quotetracker is the easiest to set up alerts via paintbar, but the custom indicator may be the problem.

 

Below I posted the basic code for VT and expanded the notes a bit inside {}, this does not include the input or output variable settings, they are in the attachment though. The point of attaching the code is to give an idea of how it is constructed. Basically get the code for the fantail, the ema and envelopes, set up the variables for alerts, and choose the fantail lines you want. I excluded some of the lines in the fan, for space. So hope this helps.

 

What the code does is to give two different ema envelopes. The fantail expansion and the 50 ema envelope price cross alerts are on one setting, that includes an alert shutoff margin. Then there is separate settings for the second 14 ema 17 pip envelope alert, and a margin shut off. I will be glad to answer questions, but there are simpler versions posted. Basically once you get this set up you can just sit back and wait for audio alerts that are set to your own specs.

 

{set up for EMA and first envelope}

DataBars:= Ref(Pr,-HShift);

tmpMV:= Mov(DataBars,tPr,mt);

MA:= tmpMV+((tmpMV*VShift)/100);

{Upper and lower channel of envelope}

UC:= MA + (Pips*SymbolPoint());

LC:= MA - (Pips*SymbolPoint());

{margin shut off of EMA 1}

UCC:= MA + (Pipscont*SymbolPoint());

LCC:= MA - (Pipscont*SymbolPoint());

{fan exceed variables}

LCF:= MA - (Pipsfan*SymbolPoint());

UCF:= MA + (Pipsfan*SymbolPoint());

 

{ second MA for 17 pip 14 ema setup variables}

DataBars:= Ref(Pr,-HShift);

tmpMV:= Mov(DataBars,tPrt,mt);

MAT:= tmpMV+((tmpMV*VShift)/100);

UCT:= MAT + (Pipst*SymbolPoint());

LCT:= MAT - (Pipst*SymbolPoint());

UCCT:= MAT + (Pipscontt*SymbolPoint());

LCCT:= MAT - (Pipscontt*SymbolPoint());

 

{second MA margin alert}

second_MA_UPPER:= Pr>UCT And Pr<UCCT;

second_MA_LOWER:= Pr<LCT AND Pr>LCCT;

 

{fantail above and below the envelopes}

outside_alert:=MA1>UC AND MA49<LC AND MA1<UCF AND MA49>LCF;

outside_alert_two:=MA1<LC AND MA49>UC AND MA1>LCF AND MA49<UCF;

 

{price above or below the first envelope}

UpTrend:= Pr>UC And Pr<UCC;

DownTrend:= Pr<LC AND Pr>LCC;

 

{Long/Short Entry/Exit Display Signals auto trade extra}

 

Buy_Signal:= Cross(MA,UC);

Sell_Signal:= Cross(LC,MA); {/// Bemac June 2006 \\\\

/ Fantail@ Variable MA's \}

 

 

{Calculate fantail modifiaction Wilders Average Directional Index [ADX] }

TH:= IF(Ref(Close,-1) > High,Ref(Close,-1), High);

TL:= IF(Ref(Close,-1) < Low ,Ref(Close,-1), Low );

 

TR:= TH-TL;

{--------------}

 

PlusDM := IF(High > Ref(High,-1) AND Low >= Ref(Low,-1)

, High-Ref(High,-1)

, If(High > Ref(High,-1) AND Low < Ref(Low,-1) AND High - Ref(High,-1) > Ref(Low,-1) - Low

, High - Ref(High,-1)

,0));

 

PlusDI := 100 * Wilders(PlusDM,ADXPr) / Wilders(Tr,ADXPr);

 

MinusDM:= IF(Low < Ref(Low,-1) AND High <= Ref(High,-1)

, Ref(Low,-1) - Low

, If(High > Ref(High,-1) AND Low < Ref(Low,-1) AND High - Ref(High,-1) < Ref(Low,-1) - Low

, Ref(Low,-1) - Low

,0));

{--------------}

 

MinusDI := 100 * Wilders(MinusDM,ADXPr) / Wilders(Tr,ADXPr);

 

DIDif := Abs(PlusDI - MinusDI);

 

DISum := PlusDI + MinusDI;

 

ADXFinal := 100 * Wilders(DIDif/DISum,ADXPr);

 

ADXRCustom:= (ADXFinal + Ref(ADXFinal,1-ADXPr)) / 2;

 

_ADX := IF( ADXtype = 0

,ADXFinal

,ADXRCustom);

 

{Calculate a Variable Moving Average using method devised by Tushar Chande}

Barnum := BarCount();

EmaIndex:= IF(VarMAPr > 0 ,(2 / (1+VarMAPr)) ,0.20);

Diff := HHV(_ADX, ADXPr) - LLV(_ADX, ADXPr);

MyConst := IF(Diff > 0

,(_ADX - LLV(_ADX,ADXPr)) / Diff

,EmaIndex);

MyConst := IF(MyConst > EmaIndex

,EmaIndex

,MyConst);

VarMA := IF(Barnum < ADXPr + (ADXPr * 1.5)

, Close

,MOV((((1 - MyConst) * Ref(VarMA,-1)) + (MyConst * Close)), 2, s));

 

 

{Calculte & Plot Multiple MA's of the Variable Moving Average fill in the blanks }

MA1 :=Mov(VarMA, 2,Initial_MA_Type);

 

MA2 :=Mov(VarMA, 4,Initial_MA_Type);

 

MA3 :=Mov(VarMA, 6,Initial_MA_Type);

 

MA48:=Mov(VarMA,98,Initial_MA_Type);

 

MA49:=Mov(VarMA,100,Initial_MA_Type);

Envelope_cross___fantail__alert_zone_four.zip

Edited January 13, 2010 by Eric Johnson

[Eric Johnson 10]

Today I would like to share an interesting observation and tool that I like. There is a general concept in the markets that if you have a extended width price channel, that the directional breakout will have a proportional height. It is something like the height will be at least half the width, up to the width and height being equal. That is not really the focus of the post though.

 

In the chart attached I want to demonstrate the optical illusion caused by adjusting the scaling of the chart. On most platforms you can scale manually on the X and Y axis. This causes distortions, making it hard to judge the angle of a trend, and width and height. These can be very disorienting as the market changes and the chart rescales. Most grid overlays are not calibrated to offset this effect either.

 

VT Trader has a nice tool that helps me measure. To use it, I have to activate the crosshair, and click and drag a line where I want to measure. Make sure you click in a blank space. A yellow box appears giving me real coordinates. The first unit number is the horizontal measurement, second number is vertical, third is the price level.

 

So to the chart, the "A" black thick line is actually longer in units than the "B" pink line (A=319 units, B=253 units). "C" is just the quick way to measure the X, Y coordinates. The distortion is due to scaling. I could re-adjust the scaling to make it look more natural if I wanted to.

 

This is a way to quantify your scaling and avoid mistakes like, "this trend has gone on way too far". Or looking at a trend and thinking it is a very steep breakout, but you are just vertical scaled to make it look that way. Fortunately scaling is not a problem for vertical only comparisons like a fibonbacci retracement. If you have a trained eye you can see that in the uptrend breakout (light blue arrow), it retraced near the 50% level, allowing for many traders to double this height to estimate the top.

[friarwilliam 10]

Hi, This is a thread to share about the idea of "fresh, or first touch". Here are the basics. The first strategy is shown with the red triangles on the "10 pip 50 ma" chart.

 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

[Eric Johnson 10]

Hello, I have decided to post a plug and play install pack for VT trader. Due to the extensive set up of the many system components, I offer the simpler install pack as a way to evaluate and develop quicker. The reason I switched to forex is because the Euro trades so consistently. Anyone interested can watch the success of the system without the major set up. It can be adopted to other stocks or futures. They can also use the full fantail indicator to see Walter's system. The attachment pack has all the chart envelopes set up, 4 currency pairs, alerts, and you can put on the daily pivots if you want. This is much more complete than the alert previously posted.

 

VT Trader is free with quotes and backfill with a CMS demo account and download. If you are already using VT, back up your environment, as this can over write it. Once you are logged in to the platform, use the import environment option to activate the attachment that you unzipped(not RAR opened). Always say OK to the alert account questions pop up. Then you should be up and running. if you have the cross hairs activated, you can double click on each line to see what it is, delete the indicator, or modify.

 

The alert arrows are a "trading system", accessable by right clicking on a chart gives menu. Params , properties, and edit (outputs) are the ways to customize the alerts. You can hide the arrows, show the fantail 2 lines, and customize the sounds etc. The blue arrows are the price exceeds the 50 ema 15 (14) pip envelope, pink arrows are fantail expansion of both lines, and the white arrow is the 14 ema 17 pip envelope price cross(EUR/USD only). Pull the white horizontal line to the bottom of each chart. The fantail expansion and price exceed operate off of a single pip setting. The margin setting turns off the alert at a farther out pip level. Keep this in mind if you customize. And that the arrows will appear on contraction also.

VT just released an update version, it can be a bit buggy if you change the templates or time frames many times on a single chart. I have delayed releasing this attachment, because it is a fairly complex system. If all goes right, the idea is that you just wait for the occasional alert, make the high probability trade, and it makes things simple. Well hope it is helpful for some. I can answer questions, I have found the system very effective.

VT enviro 2 give.zip

Edited January 23, 2010 by Eric Johnson

[Eric Johnson 10]

It is a bit tricky posting, here is a almost the same install pack, it has the complete many lined fantail that Walter uses. It is in the indicators as "Fantail Var MA's (1)", I wanted it posted on the last thread.

VT enviro with full fantail.zip

[Eric Johnson 10]

Hello, I was looking over the major indices to see how my old system did for predicting the recent pullback in the S&P. I had built a mega oscillator system on Quotetracker before I switched to trading forex. It can be simple, as it is based on paint bars, and it can be very complex, as it has so many built in systems. It has the TTM squeeze system, and short and long term indicators. Anyhow it is free, and you can pick and delete what you choose. It has many templates, paintbar library, and is set up for day bars, or minute scalping.

It was viewed by almost 2,000 people, but is buried deep in the coding forum so I posted a link to the thread.

 

http://www.traderslaboratory.com/forums/f46/technical-indicator-tools-5174.html

[Eric Johnson 10]

I keep Quote tracker on my computer to check the indices with the system I described above. I was just looking over the free backfill for MSFT and saw an example of what this system does so well. I took many of the indicator lines off and just left paintbars. The red line up shows where long term and short term indicators are showing the following. It is time for the market to lose momentum. This can either be a reversal coming, or 50% of a longer trend. In this case, near the white vertical line, it was an early warning that a 50% level had been reached. Notice how early it came in and how the market reacted, by doubling the level before making a major pullback.

 

The green paintbar line up to the left shows a bottom nicely. The other red line up is not counted, because it was caused by a price gap. For advanced observation, the green lineup of July 08 is at the 50% level of the down trend that lasted for that year.