An example of a very good combination is a combination of impulses in the direction of the trend and the capital management method "Decreasing waves". In this case, there should be 3 waves. That is, we make the last attempt to enter in the direction of the dominant trend.
We will need a working trend indicator. It is desirable that the indicator could earn on its own, and was not just a two-color ugliness, hanging aimlessly on the chart.
Let's first look at how opening a position should look like. And in our case, it is also the first position of the series.
Entry rules: A strike bar must form against the trend, immediately after it a strike bar is formed in the direction of the trend. It is desirable that the strike bar along the trend is larger than the bar against the trend. It is also reasonable to set a filter on the bar along the trend and not open a position if the bar is smaller than a certain size. You can open a position both at the opening of a new bar and with a stop order, set, for example, at the maximum of the previous bar. But in our case, this does not matter much, a regular opening at the market will be more than enough.
We will close the position with a profit by take profit, since take profit is a limit order and in case of any unclear situations on the market we will only be in the plus. We will close the position not by stop, but by closing the bar. But only after a certain distance is passed against us.
We have looked at how to open a position and what happens when everything is going well, but as we know on the market most of the time it is not like that and quotes turn around and go against us, this is where the expanding waves capital management system comes in handy. Let's take a quick look at what it is.
The method of managing positions "Decreasing waves". This method is developed specifically for working with stock charts and works great on the Forex market. The essence of the method is that price waves cannot decrease all the time and when a wave of increased size comes, we return all the losses from previous transactions.
It is known that price movement patterns are always changing and price patterns that have been working for years stop working without any reason and instantly. This is what makes predicting the prices of financial instruments such a difficult task. However, there are rules that the price simply cannot bypass.
The Basic Tenets of the Shrinking Waves Model
- Stock market charts reflect the real state of affairs and cannot be whatever they want. In other words, a chart cannot draw absolutely any picture (no matter who controls it). Although there are rumors... the Russian ruble chart can be...
- A series of successively smaller waves cannot continue indefinitely.
- The greater the number of successively decreasing waves in a series, the longer and more continuous the waves will be when such a decrease ceases.
Now let's move directly to our system and see what happens if everything goes wrong as we planned at first. All trades in the series try to close at take profit or at market if the price continues to go against us.
As multiple tests have shown, the best result is achieved if subsequent trades in the series are opened with a larger lot, but require them to go a shorter distance before reaching the take profit. The last trade in the series is opened in the direction of the trend. And this is just great, because if you really caught a big trend, you can try to stay on it with a large volume and, consequently, get a huge profit. Yes, this is a big risk, but there are no X's without risk.
We assemble and automate the system
As a trend indicator, we will take AceTrend, since it currently occupies first place in the RBTI rating. We will add the ability to select take profit and lot size, as well as the distance at which we reverse the position.
The backtest results are impressive
We have named this expert Eternal and have great hopes for this system, as it is assembled using an indicator based on completely new concepts. The system should have amazing stability on new real quotes. We have also started testing this system on a real account and are eagerly watching its results. Reality check is what really matters!
You can start your testing with us, using a completely free version of the expert. The only limitation is the minimum lot on real accounts. Our team will be very grateful if you share your results and opinion. Just do not forget to check everything in the strategy tester first.
