Simply Old, Complexly New

[gazuz]

So I noticed that it's been about one year since I went to a Forex Convention held by some company that was trying to sell MACD software for thousands of dollars. It got me thinking of where I am today with those 10 page codes...

Well here is my view on Old versus New and how I think the way to go is to stay with what I started with.

As humans we try to get as much money as possible, we feel bad when the market goes the wrong way, hardly accept losses, etc. With new technology and life moving at an extremely fast pace, we want LOTS of money and we want it NOW.

The old strategy was start with a big 5 or 6 digit number (tens to hundreds of thousands) and work with a huge margin, where 10 pips is seen as only pennies in the bank; The strategy was buy when there’s an up trend in the 1H or 4H market and most of the moving averages in the other time frames agreed, and sell when it was going down. Then close when there are 100 pips in the bank.

The new strategy is to make hundreds of trades per day starting with a few thousand dollars, making small amounts of money per trade which in the end accumulate to a lot. A position is always opened, we try to squeeze the market for every pip that it has.

As you can see the first one requires lots of money and not a lot of brains, just the need to know when to close. The second one requires lots of brains, a way to read the market for every direction it goes; which, to my knowledge, is near impossible.

Here is my proposal: A mix of both. Sounds rather cheesy but I believe this could be successful. Open trades using the old strategy, but not aim for huge gains, a mere 10-20 pip gain on a big scale looks like nothing. One trade per day with good money management will make a steady and good income. We traders need to come back to earth and stop expecting millions of dollars from this. As the commonly used Forex quote I keep hearing goes "it takes money to make money". I believe that is 100% true not only in the way that we are buying and selling contracts for exchanging money, but that the rich get richer, more money means bigger gains (and bigger losses).

Now let me come back to my story about my one year anniversary. So I was sitting at a sort of presentation which introduced a program that was basically just MACD/Moving Average on different time frames decorated with shiny, large, green and red buttons telling you when to sell and when to buy NOT when to close. This was sold at $2,000 with a huge monthly fee. I noticed that the way they were selling this is that when you start the trade you DO make profit; the problem is when to stop? In such a big timeframe, 50 pips can easily go in the market's direction no problem, but then it can go back and smack down in the other direction. So why don't people close at 50 pips? GREED

GREED is the key element in a human, it makes us want to keep going, hope that it will go our way. Money management usually doesn’t cross the mind; most of us just think “Let’s gamble it all on that trade. The market will end up touching that 200 pip take profit that I set.”

I say scalping is probably not the right way to go, too much noise to make something out of it.

The moving average IS a lagging indicator, but on a big time frame with smaller time frames backing it up, it WILL show you the direction the market is going for at least another candle or two, which is easily a 50 pip move. A small goal with a high amount of lots almost guarantees a win.

I will be testing out this strategy; I will look up old threads in various forums involving SIMPLE indicators on LARGE time frames. I am almost certain they will have a big goal, and because they can't reach it gave up on it.

This is my view on the market, stick with the old and add a touch of modernity.


Thanks for reading

[zztop]

Ain't bad at all so what are we looking for the fusion system? Ohh one more system is "the walls have ears" That is the best system

[scorpion]

Very nice post.

I think the way to go is to become a trend follower like Bill Dunn, John W. Henry, Ed Seykota, Jerry Parker, Donchain and many other market wizards. They make 25% avg. per year (1000% if compounded) for more than 30 years now. That's millions every year.

Most of these market wizards created their on system decades ago from simple indicators like MA, MACD, Stoch and RSI. The originals are being used profitably till nowadays, though there're some minor adjustments. That said, the Simply Olds still work beautifully.

Those trend followers have something in common:

• They don't predict the market but go with it.
• They don't aim for fixed profit; they just let the profit run and cut the loss quick.
• They dont "buy low, sell high", because doing that would be pure prediction.

Like gaz, you said "aiming for 10-20 pips". But why so while the trend is going the right direction? Just let it run until the trend breaks up. If the market retraces, close the position to get breakeven or some profit. Although it's easy being said than done, those wizards can do it, so we can do it too.

I'll be writing some trend following strategies later, stay tuned.

[scorpion]

my zztop, write in lower case, or you're gonna be in big trouble. Come on man, make this world a better place.

Anyway, why do you make fuss about the Fusion System? any good part of it you want to share?

[zztop]

Originally Posted by scorpion

my zztop, write in lower case, or you're gonna be in big trouble. Come on man, make this world a better place.

Anyway, why do you make fuss about the Fusion System? any good part of it you want to share?

Hi Scorpion what I mean is like the restaurant with jap food ,continental food ,eur food and mix it become a one stop restaurant I hear some one has made the indi some where . I am still looking for it.Some time I am so happy to write till I for got da caps lock ,so dont take it to serious mate .LIVE a bit Fun a bit no big heart no small hearted it is just the world what we are living for (jhon lenon,) as I write some time a go 10 pips /day or look better thig to do till 10 > 200 pips @day by WhizzMaster dont mean to pick or point to some one here ,just the reality check of the fx player .Preety wild now adays B&S code IT by morse code and I dont belive the mambo jumbo is gona make a small changes .cheers

[gazuz]

Originally Posted by scorpion

Like gaz, you said "aiming for 10-20 pips". But why so while the trend is going the right direction? Just let it run until the trend breaks up. If the market retraces, close the position to get breakeven or some profit. Although it's easy being said than done, those wizards can do it, so we can do it too.

I do a fixed gain like this because we don't know when the trend will turn. BECAUSE they are lagging indicators, the price could be going way down and maybe even lower then we started. Also the market wont be going one direction for a whole long, itll be noisy, go up and down but go in that direction, one might take it as a break of trend.

At the end of this post is a link to a screenshot I took:
-That first fall I circled in red is of 35 more pips. Now I don't know about you but as a human that would make some sirens go off...
-Second red circle is to show around where we would buy
-Blue circle shows that the MACD shows a lot of difference but the low of those candles is around where we bought, I would have taken that as a break in the trend
-Third/Fourth red circle during the down trend shows a break in the MACD, once again
-Last red circle once again goes a crazy in the other direction for about 50 pips, I would have taken that as a break in trend.


The problem is that when the trend breaks, it usually breaks very harshly. I would like to create rules for myself so I don't just say "come on 5 more pips", touch that and then tell myself "its definitely going up, another 10 pips"

Then end up going in a spiral down trend still hoping it will recover. Once I am in the market and my emotions get involved it doesn't work very well. I need a fixed price to take my profit at... I might play around with support and resistance actually...


MACD LINK:
http://www.forex1000.com/FXFisherman/MACD.gif (1080 x 655)

[scorpion]

You should stay away from discretionary trading. It won't do you good, really. If you make decision at your own discretion, you'll put your emotion--fear, nervousness, greedy--into it. Instead, you should have specific rules to evaluate when to enter, exit, stop loss, and take profit; and how much money you should risk each trade. Mechanical trading works beautifully for many market wizards for many years.

You seems to have entry signal from "raw" indicator crossover. My research has proved it's a bad idea--basically lots of crossover system that I've tested fails miseribly because of whipsaws. When market swing wildly, the indicator just crosses up and down wildy too. That is lots of false entries. Hence, as whipsaws is uninvitable in highly volatile market, entry from indicator crossover is really a suicide.

But, in fact, indicator crossover is best used for exit. A crossover of moving average or MACD represents a break in trend either temporarorily or permanently. In other words, it suggests that "the old trend is most likely dead, just close your positions and be ready for new trend." You can see in the chart, whenever MACD crosses, the trend breaks, then eurusd goes sideway for hours until new trend is created. This answers your question, "how to identify break in trend."

When the trend is broken, it doesn't mean the market must reverse itself. Says, when the uptrend is broken, it doesn't suggest the succeeding trend would be downtrend. The market can choose to go up or down freely. That's why you see the eurusd moves up, sideway and then up again, and sometimes up, sideway, down...

While the indicator crossover suggests diminishing of trend, a significant break of support/resistance line suggests the birth of new trend. Price penentrating support line suggests a downtrend, while price penentrating resistance line suggest an uptrend. At any given time, the market has many levels of support and resistance, each has unique degree of importance. The more important the level, the stronger the trend is. The stronger the trend, the farther and faster the market moves. If confirmed by some indicators, the break of support/resistance will ultimately signal a good entry.

To sum everything up:

• Don't use indicator crossover to open position.
• But do use crossover to close position.
• Break of support/resistance + confirmed by indicators = good entry

Well, what I briefly described is thoroughly writen in Alexander Elder's books:
"Come Into My Trading Room" and "Trading For a Living" (check my blog). Highly recommended for you.

[scorpion]

As told, trendfollowing doesn't buy low or sell high; it buys and sells at the safest price.

If the strategy I described above is used for the given chart, you will make 145 pips profit.

[zztop]

Nice to see fxfisherman make a come back.:o

[gazuz]

Awesome help scorpion, greatly appreciated.

Just thought I'd share, I use the support/resistance indicator i think its custom from the yahoo group (if you need it, please post and ill upload it). Then instead of using MACD I use stochastic because they are shorter trades... Since I don't have a lot of time in front of the comp, this is the "less dangerous" way of approaching this