Simple Explanation of Reactive Corrective
I like the way you are thinking. So what "simple" trend indicator do you suggest? What time frame? I completely agree with no stops, they seem to kill your account.
Just a 5-period EMA on H1 or H4 charts.
Watch for the current value being 10 pips or so away from the value of 2 bars prior.
Here is an example of the kinds of results that can be obtained from this trading approach, using a highly advanced and robust EA:
http://autoforex.biz/GBPUSDDemoAutofx.htm
Keep in mind that high-risk settings were used to obtain these trades.
Mr. Marketz,
Depending on what trades are open, a reversal can be great if it penetrates back into where the trades are clustered. Then it's just more gravy.
But if the action suddenly takes off away from all of your open trades, your negative float could grow as long as that strong directional movement stays in force. But if the tactics are savvy enough to quickly kill of biggest losers one by one, the negative float is systematically mitigated, slowly but surely. Careful design went into this area.
So an important element is to keep the lot sizes small enough so the account can withstand a storm, so that enough margin will be available to open (and of course close) new trades to keep trimming off the biggest losers, even when the biggest losers are much bigger than usual.
The way in which trades are added in strong trends versus how they are added in sideways action is very important. That's another area where a lot of the thinking was done.
You'll have to excuse me Autofx, I see where you're taking this whole thing. I was under the impression since this thread was started under "suggestions for trading systems", that it was going to be a collective development thing. However, it would appear that you have other plans.
Good luck to you,
MM
Please disregard message.
There has been an enormous collective development thing behind this already. No suggestions needed!
What's the purpose of this thread?
Many times the market is smarter then the treder, and there is no indicator that can help the trader. Man, i think you are smarter then the market! My congratulations to you!
What's the purpose of this thread?
It's to let others know how they might trade this system manually, or implement their own EA along similar lines. I will be happy to give further pointers to those who want to develop their own systems. You hinted that you think I'm here just to sell snake oil or something, and that's fine, you can think that.
w4rn1ng, thanks, I'm not smarter than the market, but I'm happy to have learned how to use the market's energy. Anyone can do it, and my favorite ways are not the only ways. There are other variations on this basic concept, and maybe the best one hasn't been developed yet.
I would be delighted to see other software developers come along and use pure logic to create new, highly profitable systems. Just please don't babble about "artificial intelligence" and "genetic algorithms"! Those approaches are wrong-headed and a giant waste. It's like trying to use a hydrogen bomb to surgically assassinate a jack rabbit! Hmmm, bad analogy...maybe more like using a Cray supercomputer to play checkers...
Anyway...the market DOES seem dumb in comparison to the power of shrewd logic. Most trading is NOT based on logic, but on foolish attempts to predict what is going to happen next.
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To detect strong directional action, use one simple indicator. Trade
in direction of indicator when strong directional action is seen. Take
no more than 3 trades in indicated direction, close any other
profitable trades that were opened during sideways trading. Close
winning trades opportunistically - watch for 10 pips in the good
during trends, use no stop nor take-profit orders. Take new longs on
5 to 10 pip pullbacks when the trend is in force, but do not exceed
three trades in that direction. If all profitable trades are closed in
strong direction, open one new one. Don't open another unless pullback
is seen with trend still in force.
When the indicator shows "neutral", trade on pure price action --
short on rises, long on dips. This is done per predetermined price
action intervals, using last-trade-level anchors as reference
points. Close winning trades opportunistically - watch for 3 to 5 pips
in the good during sideways action, use no stop nor take-profit
orders.
LOGIC and ACCOUNTING are the big keys. You have to keep track of how
much in profits you've booked in relation to the biggest losing trade,
and close that biggest loser when your recently closed winners have
exceed it by a certain amount (I like one-third of one percent of the
account).
This method is hard to trade manually, software is far superior for
executing it in the best way, because computers do not need to sleep,
react quickly, and are accurate. The logic is simple, but the nuances
are devilish to those who aren't accustomed to thinking
logically. Most software weenies are busy chasing "artificial
intelligence" and "genetic algorithms"...poor saps...simple but clever
tactics are much better.
You will not get rich quick with this type of trading, but steady
equity gains are possible, and slowly increasing lots in proportion to
gains has tremendous power. I like to trade with brokers who provide
very small lot size granularity, like nanolot (penny-per-pip) on mini
accounts and microlot (10-pennies-per-pip) on standard accounts, and
who also allow hedging. No hedging, no trading this way.
Of course, you could trade two accounts on the same currency pair, one
account for long trades and the other for short trades. This would
make life more complicated, but would be feasible, whether trading
manually or with software.