Optiontimer's Project

[optiontimer 10]

Optiontimer’s Project: Using Trend, Momentum, & Timing with Strategy, Patience, & Discipline to Trade Well

 

What prompted me to start this project was a series of private messages sent to me by another traderslaboratory forum member. Here, in part, is what he said to me:

 

"Optiontimer,

 

I am not a good trader. I have good setups, and can make money for awhile, but I don't handle all conditions too well…I have many times thought of getting out of trading altogether, because it was not supposed to be like this. I was supposed to learn how to trade…I have been doing this for 7 years now. It is not coming together…Is there anything I can do to improve the way I am trading? I am unsure if it is strategy or choice of market, or the execution of my trades that is the problem. I have tried to trade using Price Action alone, and I have tried to trade using other people's systems. I have also used indicators like MACD, Stochastic, Ehlers Fisher Transform and Inverse Fisher Transform - all designed to get the turning point of trends earlier…Where should I be looking and researching? What are you doing that is different from myself? How am I defeating myself? I know I can do this - else I would have ditched the whole scene after a couple of years. But something is still eluding me, and I don't want to die without finding out what it is." - Traderslaboratory forum member, and in my opinion, a good guy

 

Do you recognize in his words your own experience, either past or present? I do. And having gone through it yourself, could you ignore such an honest plea for help? I couldn’t.

 

And a quick glance at some of the recent threads here at traderslaboratory and elsewhere, show that he and you and I are not alone in these feelings and experiences. In fact, during the course of the above exchange, I had noticed an uptick in threads whose theme is essentially, “What am I doing wrong? How can I have spent this much time, effort, money, sweat, and tears, my whole soul, in fact, on learning to trade, and still I fail, falling far short of my goals?”

 

I remember very well having felt this same way for a long period of my life. Even today, after years of generally successful trading, I still manage, to my ongoing chagrin, to defeat myself on occasion. But in spite of these brief defeats, I think I can nonetheless be of some help to this fellow traderslaboratory member in need, and perhaps a few others also.

 

This project will be my attempt to answer the important questions posed by our fellow struggling forum member: “Where should I be looking and researching? What are you doing that is different from myself? How am I defeating myself?”

 

Toward that end, I am going to construct and trade a trading system that I will use to trade futures. The system is meant to address what I believe to be the key mechanical issue of trading – that of Timing, and it will do so by defining both the long-term Trend and identifying the potential end of short term reactions against that Trend using waning adverse Momentum in order to Time entries and exits.

 

I will start with a limited but reasonable equity of approximately $25,000. As the importance of capital cannot be stressed enough, I will treat this account as though I am a new trader just starting out and wishing to grow his capital. Therefore, in addition to what I hope to be the accrual of trading profits, I will also, from time to time, add small amounts as savings from current income in order to help grow this seed money. In other words, I will manage this account as I would suggest that you manage your own trading account if you are starting fresh with a limited capital.

 

I will trade this account according to what I hope proves to be a well-defined, easily understood, repeatable strategy, and my hope is that neither my discipline nor my patience fail me during the course of this project.

 

This project will be informed and inspired by the teachings of futures trader Stanley Kroll. In his book, Futures Trading Strategy, Kroll wrote that

 

[t]raders who stress accuracy of trade timing, both entry and exit, can start with as little as $15,000 or $20,000. This modest opening equity leaves very little room for error. Nevertheless, the market has always functioned as the great equalizer of wealth, rewarding the patient, disciplined, and able players while punishing the careless and inept ones, regardless of their starting capital. It is possible to rack up a consistent and impressive score from modest starting capital, to which I can attest from personal experience. The annals of finance are replete with true to life stories of powerful and wealthy accumulations that began from small but talented operations in the futures markets (Kroll, Stanley, Futures Trading Strategy, p. 19).

 

So it is with “very little room for error” that I will attempt “to rack up a consistent” score from my “modest starting capital.” At the very least, I hope not to go to ruin.

 

How shall I avoid ruin? Well, there is no way really to ruin-proof your trading other than to stop trading. But I do wish to minimize this risk. As Kroll teaches, “[a] technical approach to commodity investment, coupled with sound money management and a focus on trend following … are really the best ways to operate” (Futures Trading Strategy, p. 21, emphasis in the original).

 

Money management will be addressed shortly. For now, I want to focus on the topic of Timing. My trading breakthrough (perhaps one of several breakthroughs) came when I realized that the key to my being able not to defeat myself laid in my ability to time my trades so as to avoid taking too much initial heat on my winning positions while allowing me a reasonably close, technically correct stopping point for cutting my losing positions.

 

Kroll, in responding to the question, “Why do so many traders lose?” answered that it “is primarily a consequence of inept tactics and timing, rather than a plot by “them” to get you (and me) out of the market with big losses (Kroll, Futures Trading Strategy, p. 22). That is, it is our poor timing, and it is our poor tactics that result in our trading losses. It is not that there is some other trader, a black knight in terrible armor, waiting to strike our equity from our accounts, plundering our meager capital. If you wish not to lose, first take responsibility for your losses.

 

Kroll notes the oft-repeated trader’s lament that “I watch while the market moves in the direction of my analysis … [but] when I take the position, prices abruptly reverse and careen in the opposite direction” (ibid).

 

I am sure I am not the only one here who has taken a position at one time or another only to watch the market turn tail on me. “Look at what they are doing to me!” “They,” indeed!

 

“In fact,” Kroll goes on, “the accumulation of ineptly timed buy or sell orders by under margined speculators … are what makes tops and bottoms … The result of such careless and poorly timed trading is predictable – big losses and small profits, with an overall tendency to red ink” (Kroll, Futures Trading Strategy, p. 23).

 

I will cover the exact timing mechanism I will use in the next section. While I will be using this system to trade futures, I welcome participation by any members of traderslaboratory who wish to trade their own chosen instruments using this system as well to post trades, charts, questions, and comments. Your trades can be real money or paper. I only ask, that for the purpose of this project, you only post charts and trades that you believe you are taking in accordance with the system as I lay it out.

 

This is not because I believe that my way is the best way or the only way - far from it! I ask that we limit this discussion to trade and market analysis in accordance with the system I will be using here because, as Kroll also points out, a good technical system is just half of what we need. The other half is the Discipline to follow that system and the Patience to stick with it and out to stick with our winning positions. I want this project to be comprehensive in its scope – and this requires consistency and clarity throughout.

 

This discipline and patience is a requirement regardless of the system you trade. As Kroll teaches us,

 

You [must] stick to your objective analysis and market projection based on whichever method or technique has proven itself viable to you, and you revise that strategy only on the basis of pragmatic and objective technical evidence. Such evidence could be a signal from your charts, from your computer system, or from your friend the margin clerk, who reminds you that you your position has moved adversely and your account has become under margined (Kroll, Futures Trading Strategy, p. 23 – emphasis added by optiontimer).

 

So we will stick to the system that I will be laying out shortly. That system is composed of indicators that were selected by public polls here at traderslaboratory.com. The long term trend of any market will be determined by the relation of the 21 EMA to the 65 EMA. Our short term timing mechanism with be the RSI, or rather, the stochasticRSI, which is simply an application of the stochastic formula to RSI measurements. I will be using the 7 period stochasticRSI. Once our timing mechanism has identified a potential opportunity, price action will either pull us into a position or not. The full details, as well as a discussion of money management, will follow.

 

For now, I wish to leave this project’s beginnings with the following thought. Douglas A. MacIntyre, former publisher of Financial World Magazine, wrote of Stanley Kroll that

 

when you meet Stanley Kroll, you are immediately impressed by how little this expert on commodities claims to know. This is one of the greatest strengths of most real experts. They do not get overly confident and pretend omniscience. Better constantly to assume that you don’t know enough and investigate your assumptions and numbers (from McIntyre’s forward to Futures Trading Strategy, p. viii).

 

I hope that I never come across as an over-confident, omniscient know-it-all. If I have any pride in myself at all, it is that I tend toward humility – which, as a trader, is good, as the market is a great humiliator! I welcome participation here in this project. In fact, I hardly think this project will go very far or for very long without active participation by forum members other than myself. But let us all participate in the spirit of Kroll, and assume we do not know all, and that we may learn something new and valuable, even from the newest and least successful trader among us.

 

Thank You,

 

Optiontimer

 

PS Once I get all the initial ruminations and details posted in this thread, I will edit and compile them in a single pdf file. I will then ask the moderator to insert that file to this initial post so that anyone who wishes to have a “carry along” hard copy to mark up, question, and take notes on can do so. In the meanwhile, I will use this larger font for any "project foundation" type of material, to make it easier to find and identify, while I will of course use normal traderslaboratory font for the more typical, day to day type of posts.

 

UPDATE:

 

Link: Kroll On Futures Trading Strategy Book

 

Bonus: other goodies from the Reading Charts thread (after window opens search for ".pdf")

[Ingot54 13]

For now, I wish to leave this project’s beginnings with the following thought. Douglas A. MacIntyre, former publisher of Financial World Magazine, wrote of Stanley Kroll that when you meet Stanley Kroll, you are immediately impressed by how little this expert on commodities claims to know. This is one of the greatest strengths of most real experts. They do not get overly confident and pretend omniscience. Better constantly to assume that you don’t know enough and investigate your assumptions and numbers (from McIntyre’s forward to Futures Trading Strategy, p. viii).

 

I hope that I never come across as an over-confident, omniscient know-it-all. If I have any pride in myself at all, it is that I tend toward humility – which, as a trader, is good, as the market is a great humiliator! I welcome participation here in this project. In fact, I hardly think this project will go very far or for very long without active participation by forum members other than myself. But let us all participate in the spirit of Kroll, and assume we do not know all, and that we may learn something new and valuable, even from the newest and least successful trader among us.

 

Thank You,

 

Optiontimer

Thank you OT.

 

Still reading the Kroll .pdf and appreciate the quality of that document.

I hope to participate in this thread.

 

Cheers and thanks again

 

Ingot

[optiontimer 10]

Here is the list of futures that I will be trading as this project progresses. As starting capital is modest, and with little room for error, it will not be possible to take every signal in every commodity/future.

 

Money management and risk assessment will play a large role in determining which trades to take and which to pass. I will have more to say on money management as it relates to this project in an upcoming post.

 

Here is the list:

 

 

Some of these symbols may not be familiar to all, so I will translate, in order of appearance:

 

Australian Dollar

Bean Oil

British Pound

Corn

Cocoa

Canadian Dollar

Crude Oil

Cotton

EuroFX

Dollar Index

ES e-mini

Feeder Cattle

Gold

Copper

Heating Oil

Japanese Yen

Coffee

Live Cattle

Lean Hogs

NQ e-mini

Oats

Orange Juice

Soybeans

Sugar

Swiss Franc

Silver

Soybean Meal

Ten Year Note

30 Year Bond

Wheat

YM e-mini

 

Given the small size of the account, it is safe to say that three to four contracts total would be the limit of the current equity. These three to four may be one contract each of three or four markets, or three or four contracts in the same market. While exchange and brokers minimum margins are a guide, given current volatility, I think that $6000-$8000 dollars or the exchange minimum margin, whichever is higher ought to underlie any futures contract.

 

Some of these markets, e.g. silver, cocoa, will be watched, but unless and until equity reaches $50,000, these markets will likely not be traded with this account.

 

I think the selected list should have something for everyone as it includes at least one future from the main groups - Forex, Interest Rates, Energy, Metals, and Stock Index futures, as well as some standard old-time commodity futures from the meats, grains, and softs. If there is any futures market that I have not listed here that someone would like to have me follow (I'll make no commitment to trade it, however), please send me a PM with your request, and I'll let you know if I will include it or not.

 

Thank You,

 

-optiontimer

 

 

Edited June 29, 2011 by optiontimer
typographical error

[traveller 10]

Here is the list of futures that I will be trading as this project progresses. As starting capital is modest, and with little room for error, it will not be possible to take every signal in every commodity/future.

 

 

 

Im new here and fairly new to Forex/Futures and have to say its great to catch the start of someones new project and not have to scroll through a fair chunk of replies to find the pertainent initial posts. So good on you. I watch with great interest and hope fully a few contributions.

 

regards

Traveller

[optiontimer 10]

Here is a daily perpetual contract chart of Cotton with the indicators that we selected for our trading system.

 

The Red moving average is the 21 EMA

 

The Black moving average is the 65 EMA

 

The oscillator in the subpane is the 7 period stochasticRSI

 

Here is our system. I would think it should need very little tweaking. I have tried to make it easy and clear to follow. Please, if you have questions, and if anything seems unclear to you, let me know here. As I said in the previous poll threads, I have two goals with this project - 1) Not to lose too much, and 2) to keep it simple, very, very simple.

 

When the 21 EMA is above the 65 EMA, we do not want to be short, and we may be looking for a long entry signal. Only oversold readings of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly below. A long entry is signaled when stochRSI has turned up on a closing basis, and entry is made the next day if price makes a higher high than the prior day.

 

When the 21 EMA is below the 65 EMA, we do not want to be long, and we may be looking for a short entry. Only overbought readings of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly above. A short entry is signaled when stochRSI has turned down on a closing basis, and entry is made the next day if price makes a lower low than the prior day.

 

Here is the same chart, and I have boxed the relevant areas.

 

 

It may be a good idea for you following along to study this chart and also to apply these indicators to your own chart of a market that you trade or in which you are interested in trading and see if you can identify the signals as they occur on your own. Anyone is welcome to post charts and trades to this thread so long as they are using this system for the purpose of those posts.

 

I will post some more charts myself in the coming hours and days.

 

I am open to comments & questions at anytime.

 

Thank You,

 

-optiontimer

Edited June 29, 2011 by optiontimer
typographical error

[reset.no.regret 10]

looking forward to this thread! :thumbs up:

[optiontimer 10]

Some Charts, with More to Follow

 

Following this system, crude has been short since 6/13/2011. It is now overbought again, so a possible new short entry signal may be forthcoming. With crude's large daily ranges, it is unlikely that such a signal wold be accompanied by an acceptable risk.

 

 

Gold would be a new long today, though the stop would have required a $1900 risk, which is higher than the $961 that I am thinking would be appropriate for this account and this system. There will be more on money management soon.

 

 

The Dow would have gotten us short on 6/23/2011, and we'd have been stopped out today for an approximate $850 loss. The Dow is now overbought again, so a new short signal is possible. Price action is suggesting that a new rally is getting underway, so it is possible that the next signal will be a long.

 

 

-optiontimer

Edited June 30, 2011 by optiontimer
updated crude chart to show prior two short signals

[optiontimer 10]

When the 21 EMA is above the 65 EMA, we do not want to be short, and we may be looking for a long entry signal. Only oversold readings of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly below. A long entry is signaled when stochRSI has turned up on a closing basis, and entry is made the next day if price makes a higher high than the prior day.

 

Aussie Dollar 6/27/2011: When the 21 EMA is above the 65 EMA, we do not want to be short, and we may be looking for a long entry signal. Only oversold readings of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly below.

 

 

Aussie Dollar 6/28/2011: A long entry is signaled when stochRSI has turned up on a closing basis,

 

 

Aussie Dollar 6/29/2011: and entry is made the next day if price makes a higher high than the prior day

 

 

I like to use 10 ticks as the buffer on these type of currency futures trades - so entry buy stop at 1.0447 and stop loss at 1.0271. This would have been a $2200 risk. But a reasonable objective would be a retest of the 1.0815 high, for a $4400 reward. It is a tough call when trading a small account.

 

We have to be patient. These markets do offer more favorable reward to risk ratios (relative to our starting equity). It is just a matter of waiting for them.

 

-optiontimer

[Avarice 10]

I am following these threads with great interest, thanks for this OT!

 

I have a few questions about the entry signal:

 

1) At what level do you consider the stochRSI to be in overbought / oversold territory? Above/below 80/20, some other threshold values or do you only consider them at 100/0? Albeit they do help to illustrate the principle quite well this is kinda hard to tell from the charts you posted.

 

2) Does the mere fact that the indicator plots at a certain threshold trigger the setup or do you wait for it to rebound?

 

Somebody somewhere asked for a simple indicator that would be present in most mainstream charting applications; I for one use MetaStock which does not have stochRSI out of the box This is the code I use (if someone's interested):

 

bars := Input("Periods",2,255,7);
Rs       := RSI(C,bars);
StochRsi := (Rs-LLV(Rs,bars))/(HHV(Rs,bars)-LLV(Rs,bars)+.000001)*100;
StochRsi

 

OT you wrote that you prefer using a 10 tick bracket for your stop. Is there a specific reason you are not taking volatility into account (by using some kind of ATR multiple for example?)

 

Last question is about the EMAs. Can you explain, in a nutshell, why you picked the number of bars you picked (21 and 65)? What did you consider? How smoothly it hugged prices? Delay?

 

Sorry for the many questions, but this stuff gets me going so thanks again

[optiontimer 10]

I have a few questions about the entry signal:

 

1) At what level do you consider the stochRSI to be in overbought / oversold territory? Above/below 80/20, some other threshold values or do you only consider them at 100/0? Albeit they do help to illustrate the principle quite well this is kinda hard to tell from the charts you posted.

 

I only consider moves to 0/100 for the purpose of this system.

 

I thought the charts were fairly easy to see. Do you have any suggestions for what I could do to make them more clear?

 

2) Does the mere fact that the indicator plots at a certain threshold trigger the setup or do you wait for it to rebound?

 

The stochasticRSI must turn up from overbought or down from oversold on a closing basis to trigger the set-up.

 

Price must make a higher high or lower low than the set-up day to trigger entry.

 

OT you wrote that you prefer using a 10 tick bracket for your stop. Is there a specific reason you are not taking volatility into account (by using some kind of ATR multiple for example?)

 

Stop bracket is for both entry and stop loss. 10 ticks is current general rule I use for currency futures, though support and resistance levels will always dictate the actual parameters for a specific trade. If I were day trading currency futures I would probably use a 1-2 tick stop bracket. I do consider volatility and range when determining the particular bracket I will use, though I admit that I "eyeball" it rather than use a formal calculation.

 

Some markets I use a few as one tick for my stops, others I may use more than 10. You can use a volatility stop.

 

Last question is about the EMAs. Can you explain, in a nutshell, why you picked the number of bars you picked (21 and 65)? What did you consider? How smoothly it hugged prices? Delay?

 

The 21 EMA was suggested by another traderslaboratory member, mrcsidney. I picked the 65 because I wanted the longer term ema to be approx 3X's the shorter, and I know that the 65 ema is popular.

 

The traderslaboratory community selected RSI as the short term indicator in a poll. I felt that the RSI did not give as visually clear a response to price action as I was hoping to illustrate, so I selected the stochastic of RSI as a substitute.

 

The selection of indicators was basically meant to be random. The strategy I am trying to show requires no specific indicator(s), and in fact, with experience, one can learn to trade this way without the use of the indicators.

 

The strategy is simple: identify an ongoing trend, and then position yourself in the direction of that trend after short term reactions against the main trend have occurred.

 

We want to use the indicators to confirm or to clarify what we see price doing.

 

To paraphrase Stanley Kroll, we want to trade with the Major trend (as indicated by the EMA's) and against the minor trend (as indicated by the oscillator).

 

Thank you for sharing your code with those without access to the stochasticRSI. I had assumed, incorrectly, that it is common enough to be part of any mainstream charting package.

 

Thank you your participation. I hope you continue along with me.

 

-optiontimer

[Ingot54 13]

 

Gold would be a new long today, though the stop would have required a $1900 risk, which is higher than the $961 that I am thinking would be appropriate for this account and this system. There will be more on money management soon.

 

 

-optiontimer

Thank you for your hard work OT - really appreciated.

 

I am seeing that we have the long term trend established by the 65EMA, and the 21EMA gets us on the correct side of the trade.

 

And I am seeing that the 7 period Stoch/RSI indicates to us what is happening on the shorter TF.

 

That would explain why it is so responsive, and it is encouraging that the strategy seems really uncomplicated. I noticed that in my attached chart - a section of your GOLD chart from post #10 above - that although the trend continues up after a small pullback, the Stoch /RSI has had a sharp and persistent pullback.

 

I don't have a problem with that, because I understand that what is happening on the lower TF may not be looking much like a trend at all, sometimes, and so we will get these signals that seem to conflict.

 

My question is rather, what should we do about them?

 

My first thoughts are to get out of the trade on the signal, whether we agree or not - ... just follow the plan. But then, a very large rally ensues, in which we are not taking part, because of loyalty to the signal.

 

Is this something that will be overcome with practice and experience?

 

The very worst thing a trader could do is have a good strategy, then second-guess that strategy. I don't have a problem with staying out of a trade that does not fit the criteria.

 

But I want to understand all that I can about this, and I like what you are showing us.

 

Thank you.

 

Ingot

[optiontimer 10]

... I noticed that in my attached chart - a section of your GOLD chart from post #10 above - that although the trend continues up after a small pullback, the Stoch /RSI has had a sharp and persistent pullback.

 

I don't have a problem with that, because I understand that what is happening on the lower TF may not be looking much like a trend at all, sometimes, and so we will get these signals that seem to conflict.

 

My question is rather, what should we do about them?

 

My first thoughts are to get out of the trade on the signal, whether we agree or not - ... just follow the plan. But then, a very large rally ensues, in which we are not taking part, because of loyalty to the signal.

 

Is this something that will be overcome with practice and experience?...

 

Ingot,

 

Go back and re-read the explanation of our system:

 

Here is our system...

 

When the 21 EMA is above the 65 EMA, we do not want to be short, and we may be looking for a long entry signal. Only oversold readings of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly below. A long entry is signaled when stochRSI has turned up on a closing basis, and entry is made the next day if price makes a higher high than the prior day.

 

When the 21 EMA is below the 65 EMA, we do not want to be long, and we may be looking for a short entry. Only overbought readings of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly above. A short entry is signaled when stochRSI has turned down on a closing basis, and entry is made the next day if price makes a lower low than the prior day.

 

In your example, the stochasticRSI can only give long entry signals on oversold readings. This is because when the 21 EMA is above the 65 EMA, only oversold readings are relevant.

 

In an uptrend, we expect the short term indicator to get periodically oversold - that is our sign that it is time to get ready to enter new longs or add to current longs. The process of getting oversold is not a signal to exit your long.

 

So no, it is not a "false signal," because it is not a signal at all. Remember, we want to be positioned in the direction of the 21/65 alignment. We want to be entering positions against the direction of the short term oscillator. We want to trade with the Major Trend (21/65 EMA) and against the Minor Trend (7stochasticRSI).

 

-optiontimer

[Ingot54 13]

Ingot,

 

Go back and re-read the explanation of our system:

 

In your example, the stochasticRSI can only give long entry signals on oversold readings. This is because when the 21 EMA is above the 65 EMA, only oversold readings are relevant.

 

In an uptrend, we expect the short term indicator to get periodically oversold - that is our sign that it is time to get ready to enter new longs or add to current longs. The process of getting oversold is not a signal to exit your long.

 

So no, it is not a "false signal," because it is not a signal at all. Remember, we want to be positioned in the direction of the 21/65 alignment. We want to be entering positions against the direction of the short term oscillator. We want to trade with the Major Trend (21/65 EMA) and against the Minor Trend (7stochasticRSI).

 

-optiontimer

That has made the world of difference to how I see what is happening, OT - thank you.

 

Had I actually made a couple of trades, it would have not been necessary to ask that question. But I am all the wiser for it (having asked.)

 

Thanks again

 

Ingot.

[optiontimer 10]

This week is a base building week for this project. I want to put together a summary of the markets and their position relative to this system. And I want to post some charts illustrating how the system is to be applied. In effect, the market has been here forever, and we were born yesterday. We need to get into the flow of these markets as they relate to our system. The trades will develop soon enough, but for now we are simply building the foundation.

 

I will post a few charts tonight. This weekend is a long weekend, and I should have time to get a chart of each market posted, along with a brief summary of where that market stands currently in relation to this system. After that, I will simply update the thread each night with any relevant price action that leads our indicators to produce actionable set ups.

 

Thank you for your patience,

 

-optiontimer

 

Today, the now defunct traderslaboratory forex contest for June ends. Here is a chart of the GBPCHF. In both May and June, I took short trades in this pair for the purpose of the forex contest. While I was not using these particular indicators, this system would have had us act in the same manner as I did in the contest. It only takes a few trades each month to do very well. The difficult part is waiting for the proper set-ups:

 

 

Here is the Aussie Dollar futures, which was shown here last night. This would be a long trade signaled two days ago, and the arket has continued to develop favorably:

 

It occurs to me now that it might help if I were to mark entry and stop loss levels n the chart. Maybe I should adopt thalestrader's blue/red line method from the Reading Charts in Real Time thread.

 

Crude is currently a short, and here it is now overbought, so the next actionable event should be a potential short entry:

 

 

Here is the 6E EURUSD futures and the US Dollar Index Futures - 6E has given two long entry signals recently. As one would expect from such action, the US Dollar Index is a short, and it has given several short entry signals in recent days and weeks:

 

 

 

And the final chart for tonight it Gold, which is on a long signal from earlier this week:

 

I do not have time to post it, but Yen futures triggered a long entry this morning. I will have each market with an updated chart and comments related to this system over the weekend.

 

Thank you,

 

-optiontimer

Edited July 1, 2011 by optiontimer

[optiontimer 10]

Gold had triggered a long based on our system earlier this week.

 

 

With today's price action, any reasonable approach to trade management would have you out with a loss.

 

 

Gold is still long-biased (21 EMA > 65 EMA) and it is now oversold on a closing basis, so we will be watching to see if the oscillator turns up, triggering an entry order.

[optiontimer 10]

Japanese Yen is currently an active long based on our system. Stop loss would either be below the 6/28 low or a close below the 65 EMA.

 

[optiontimer 10]

Coffee is now a short set up based upon our system. The 21 EMA < 65 EMA, stochasticRSI has turned down from yesterday's 100 reading. Entry would be on a sell stop below today's low. Stop loss would be above yesterday's high or a close above the 65 EMA.

 

[optiontimer 10]

I have now had three people tell me that stochasticRSI is either not available in their charting software, or that using a 7 period stochRSI the settings/data are different enough that they are unable to replicate my charts. This is not acceptable to me, as it undermines what I am trying to accomplish - a simple, easy to follow system accessible to all. By "easy," I am referring to the mechanics, of course. The hard part, as always, will be having the discipline to trade it consistently.

 

The stochasticRSI has the virtue of being unambiguous in its overbought (100) and oversold (0) readings. Any other will probably have to have an ob/os threshold. I will work on a suitable alternate and will make a decision this weekend.

 

Thank You,

 

optiontimer

[Ingot54 13]

Appreciate what you are doing here Optiontimer - providing these charts and examples is a great help to illustrate the setups.

 

I have found 5 StochasticRSI indicators for MT4 platforms on the Internet, but not all of them can be made to match the pattern of the one in use on your charts. That may be because of the platform I use having a different closing time for its daily bars, as well as having a Sunday night session included in the data. Not all platforms use the sunday night candle as a "daily" candle, but incorporate that session into the Monday data.

 

I have uploaded the actual StochasticRSI Indicator below, and provided a chart illustrating how it looks, on the Daily GOLD chart attached.

 

In the "Common" settings, I have changed the "Fixed minimum" from -5 to zero;

And the "Fixed maximum" has been changed from 105 to 100.

 

In the "Inputs" section, I have set the numbers to 7-7-9-0 from the default settings. I have experimented with other settings and this is the optimum I have found.

 

Kind regards

 

Ingot

 

PS - I can upload the other StochRSI indies if anyone thinks they might be helpful, but they do not really resemble the indicator used by Optiontimer on his platform as well as the one I have used here

Stochastic_rsi_forex-instruments.mq4

[ericmoles 10]

OptionTimer,

 

I'm enjoying your project and looking forward to seeing more. Nice work!

 

I'm curious what you are using as an exit. Sorry if it was posted. I went back to look for it and didn't see it. I'm also looking forward to hearing about your money management and position sizing rules.

 

Enjoy the weekend!

[ericmoles 10]

How much of a penetration through the EMAs will you allow and still take the signal?

 

Concerning a new signal, you posted we would take it:

 

"if price has retraced back to a level between the EMA's or even slightly below"

 

Looking at the current S&P chart, the 21 is below the 65 ema, but how do we quantify 'slightly below/above'. After the necessary downturn in the Stoch RSI, would you be looking to short the S&P on a break of Friday's low?

[optiontimer 10]

I'm curious what you are using as an exit. Sorry if it was posted. I went back to look for it and didn't see it. I'm also looking forward to hearing about your money management and position sizing rules.

 

It was not posted, because I remain unsettled as to whether I will trade this account for short term swing trades or to apply a longer term position trade approach. This is, remember, an on-going project in development, and not a turn key black box.

 

If short term swing, my take profit exit could take one of several forms:

 

1) the exit could be to limit out at a retest of prior support or resistance; or

 

2) the exit could be time based - for example, a five to eight day exit on close; or

 

3) trailing stop below a three to five day low.

 

If longer term trend following, then the take profit exit would be a trailing stop below the 65 EMA or a volatility based stop, such as using an average true range multiple.

 

The initial stop loss will be a money loss, tied to nearby support or resistance and the closest important high or low.

 

The money loss for a longer term trend following application of this system, given the size of this account and an approx. 33% win rate, would dictate a max loss per trade of $961, with a preferred level around $653.

 

The money loss for a short term swing trade application of this system with an approx. 55% win rate would dictate a max loss per trade of $1666, with a preferred level around $1133.

 

The difference in Max level to Preferred level is as follows: Max level is based on the consumption of the entire account on the road to ruin, while the preferred level assumes that if account equity falls below $8,000, then trading realistically would need to cease, and a new stake raised to sufficient levels before trading could resume.

 

The difficulty with the longer term application right now is that current volatility in those markets often dictates a stop much larger than the $961 max I would like to use, and far above the $653/trade risk I would prefer. This might make for too few trades.

 

One option I am also considering gaining some position sizing flexibility by trading the currencies as spot rather than futures, and doing so on a short term swing basis, while continuing to trade the other markets on a longer term, trend-following basis.

 

Another option is to await for what I expect to be an upcoming long campaign in the YM with its $5 tick size.

 

-optiontimer

[ericmoles 10]

It was not posted, because I remain unsettled as to whether I will trade this account for short term swing trades or to apply a longer term position trade approach. This is, remember, an on-going project in development, and not a turn key black box.

 

Ahhh....gotcha!

 

Those are tough decisions. It looks like Kroll advocates long term trend following with pyramiding. The futures markets are so leveraged, and you are right. A $25,000 acct. is small in order to position trade long term unless you have impeccable timing and tight stops.

 

I think a spot currency market with a smaller single unit and aggressive growth of unit size (fixed ratio or something along those lines) would mix well with this style of a system if you decide to go the 'long term trend following' route.

 

Enjoy the journey.

[optiontimer 10]

...It looks like Kroll advocates long term trend following with pyramiding...

 

As do I. If you read Kroll, then you know he makes use of the fact that he was "continuously short soybeams" for nearly two years from June of 1984 to November of 1985 for a profit of $10,000 per contract - a $2/bushel move.

 

As an example of the increased volatility and range we are currently seeing, July Beans traded as high as $14.54 1/4 per bushel on 2/8/2011, and by 3/15/2011, they had declined to a low of $12.78/bushel, or almost $2.00 er bushel.

 

During that time, a 14 day ATR of beans went from a low of about $0.24 or $1200/contract to a high of over $0.40, or $2000/contract.

 

Compare this to the soybean market of 1984 - 1985 (see attached chart):

 

When Kroll was short. The rolling 14 day average true range had a brief spik to $0.20, but was also as low as $0.0498 -less than a nickel/day range! If you were to use a 3 ATR stop, that would be $3600 in the current market, but only $1000 in the market as Kroll was operating.

 

Here is how it would have looked using our current system to time your initial entry and then to pyramid additional positions during Kroll's soybean market:

 

 

For now, I will continue to post charts so that we can become accustomed to using this system and to following these markets.

 

Thank You,

 

-optiontimer

[Trendup_ 10]

I’m not able to replicate Optiontimer’s StochasticRSI , (using OEC platform).

Can someone post the Easy Language TXT version of the right StochRSI?

So far I’ve tried five different versions none is matching…..