Ms. Mae’s Trade Strategy

[expiated]

After five hours all ten trades have returned a minimum of approximately ten (or more) pips profit.

Some of the pairs never did reach the designated moving average, so 10 pips will be the maximum I go for under normal conditions.

I can also use this system to trade successfully against the prevailing trend, but ONLY if I limit my profit targets to 5 pips. Any more than that and I’m giving the asset too much room/opportunity to turn against me.

 

[johnnyrock]

I don’t know what I might have typed previously, but I’m no longer really experimenting all that much—just fine tuning my targets, so I’m being much more selective about which positions I enter.

At a 90% win rate (or better) I’m not trying to achieve a 1:1 reward/risk ratio. Currently, it pretty much varies between 1:1 down to perhaps 1:3.

I know every trader who abides by conventional wisdom will give me grief over this, so I chose to delete my stop loss levels from the above image.

For me, more important than the establishment’s edicts on reward-to-risk ratios is my selection of which opportunities to pursue, primarily in terms of their structure and how the different components (moving averages and moving average envelopes) relate to one another.

I’m in the same Camp as Mark Rose…

“One of the key misunderstandings and prejudices I see again and again, even among experienced traders and so-called experts, is the cry I hear repeated so often that we should all be trading with a ratio of 2:1.

“Risk reward ratios are no judge of the profitability of a system. To really see whether a system has an edge, you need to know the success rate. A lower reward ratio will inevitably have a better chance of winning, so what matters is matching up the two statistics in a way that suits you: reward ratio AND success rate.

“Neither type of trade is ‘better’ than the other. They are different trading styles, and each has its merits. Whether you go for 3:1 or 1:3—or anywhere in between—what’s crucial is that you’ve still got that all-important edge.”

Right on! Thanks for sharing the methodology. I have not traded forex, but have tried some of the systems on stocks.

Moving average bands were actually one of the methods I tried for a brief period.

This is not a knock. My results were the byproduct of an inability to wait for setups, amongst other demons.

 

[expiated]

Instead, I was experimenting with trading foreign currency pairs on one-hour charts in place of my usual 15-, 5- and 1-minute charts to determine how much leeway I would need to give myself for me to be able to place my orders and then walk away from my trades without being stopped out due to the shenanigans of those pernicious market makers, so that I would no longer need to micromanage my positions.

This is what I believe I have learned:

It appears to me that the reason I have been able to buy and sell foreign currency pairs online successfully (if and when this has been the case) is due to accurately interpreting what goes on at the micro level.

Consequently, to trade using one-hour charts in an effort to determine how much leeway I’d have to give myself in order to place my trades and walk away without being stopped out is, for me, to go completely astray.

I don’t necessarily need to micromanage my positions once I have executed my trades, but my strength is in pinpointing optimal entry levels, and for this, I DO need to plant myself in front of my laptop until those opportunities present themselves. This requires me to monitor the markets with a level of precision and attention to detail that demands the use of a maximum time frame of 5 minutes—no more than that—and definitely not an hour.

I traded my demo account down to $30,000 (after trading it back up to $78,000) in gaining these insights, so my plan now is to go back to trading my system in the normal manner (though with a slightly improved notion as to where I can capitalize on price action to let my profits run) and grow my demo account back up to $100,000, by which time I should have the funds in place to go back to trading my live OANDA account.

I’ll regard the $100,000 as proof of my having perfected the system to a level that justifies resuming my 1.8% profit per day experiment (which I suspended in that I needed the money to purchase Christmas gifts) or of having at least gained enough competence to do so.

 

[expiated]

I wasn’t able to sit in front of my laptop and wait for the perfect moment to enter trades this morning, yet was still able to manage an 88% success rate, so I definitely think it’s pretty much time to leave all the experimental stuff behind and simply execute the system as is.

I’m very thankful for what I’ve learned in the last six months regarding how I might tighten up how the different components of the strategy work together, and I look forward to seeing what kind of results this will yield beginning at the end of this month going forward.

 

[expiated]

Changes to the rules posted last Sunday:

(These rules have been changed to correspond to five-minute charts, which have replaced the one-hour charts.)

As before, only make trades when the candlesticks have made contact with the upper or lower band of the green, intermediate SMA Envelope (xxx). However, the deviation level has been changed from 0.42% to 0.46%. (The rule about the xx-Period SMA oscillator hitting the 1.789 level of the Price Anomaly Channel on the side opposing the direction of the week-to-week trend, as indicated by the zzz-Period SMA, no longer applies.)

Also no longer apropos is the rule stating that the candlesticks have to be inside the confines of the red, day-to-day, SMA Envelope (yyy) at 0.70% deviation.

Since all rules now correspond to five-minute charts instead of one-hour charts, the references to bullish (green) and bearish (red) candlesticks are no longer applicable either.

All such stipulations are replaced by “reversal alerts” as signaled by the cluster of simple moving averages, beginning with SMA (mm) and ending with SMA (nn).

Such reversals are confirmed by the violet-colored SMA (pp)—which traders must be careful NOT to confuse with a trend line! However, what does reflect the exchange rate’s intraday trajectory is the lime-colored SMA (qq).

And finally, refraining from entering positions unless the exchange rate is outside the 0.46% deviation level of SMA Envelope (xxx) eliminates the need to avoid trades that counter the overall week-to-week trend.

But on the flip side, despite the first rule, trades CAN be made INSIDE the SMA Envelope (xxx) boundary (by traders who wish to be aggressive about entering positions more frequently) IF there is a reversal alert signaled by the cluster of simple moving averages beginning with SMA (mm) and ending with SMA (nn); AND the trade IS aligned with the week-to-week trend, meaning that it coincides with the trajectory of SMA (xxx); AND SMA (xxx) is in turn aligned with the trajectory of the week-to-week trend as designated by SMA (zzz).

 

[expiated]

I wanted to reconcile the five-minute charts I was using with my one-hour charts, but haven’t had the time.

Instead of trying to reconcile the equity-market-version of the five-minute MSMAE chart with the equity-market-version of the one-hour MSMAE chart, I now wish to compare and contrast it with the Forex-market-version of the five-minute MSMAE chart, given that it is my hope that the Forex-market version has reached a stage where no substantial modifications are likely to be forthcoming—meaning I’m essentially finished analyzing it.

I originally concluded that my multiple simple moving average envelope system was not applicable to the equity-markets, but have since revised that judgment.

First of all, the zzz-period simple moving average accurately reflects the week-to-week trend in BOTH contexts, and the yyy-period simple moving average does the same with respect to the day-to-day trend.

However, while the xxx-period simple moving average is the principal indicator for interpreting price action on five-minute Forex charts, it lags behind the intraday trend on stock charts, and yet is not a precise enough representation of the day-to-day trend to be used in that manner, rendering it a somewhat purposeless sensor for use in equity charts.

Indeed, the simple moving average that does do a good job of tracking the intraday trajectory on five-minute stock charts is the xx-period SMA. On Forex charts however, this moving average serves as an alarm signal alerting traders as to when the exchange rate is initiating a reversal after having overextended itself in extreme overbought or oversold territory, with an express warning NOT to use it for the purpose of trying to identify trends.

What is used to identify what I call the five-minute trend on Forex charts is the xy-period simple moving average (I call the xxx-period SMA the 15-minute trend). It is comparable to the threefold moving average cluster on stock charts consisting of SMAs (nn), (mm), and (ss), though this threefold cord is probably unnecessary since it is essentially little more than a smoother version of SMA (xx).

What is also probably unnecessary is the stock-chart moving average cluster that begins with SMA (ff) and ends with SMA (gg) since this is simply a faster (more sensitive/responsive) version of SMA (xx).

The set of moving averages that cannot be overlooked on the stock charts however comprise the triple set of SMAs (bb), (cc), and (dd), which delineate the short-term intraday trend.

On the Forex charts, this job belongs to SMAs (aa) through (ee), so there is a pretty close match between the two contexts when it comes to representing the short-term trend.

The big difference is found in the intraday price range, which is represented by the xx-period simple moving average envelope with a deviation level of ?.00% at the extreme on stock charts—but is represented by the xxx-period simple moving average envelope with a deviation level of 0.??% at the extreme on Forex charts (yet with a more typical “maximum” degree of separation at only 0.!!% deviation).

Based on this information, I would be looking to short most stocks if they don’t gap up on Monday, but NOT until price drops back BELOW the xx-simple moving average, which it crossed ABOVE approximately five hours after the opening bell on Friday.

 

[expiated]

“Neither type of trade is ‘better’ than the other. They are different trading styles, and each has its merits. Whether you go for 3:1 or 1:3—or anywhere in between—what’s crucial is that you’ve still got that all-important edge.”

Trainers and experts often teach that buying and selling foreign currency pairs online successfully requires some type of edge—something that gives individuals an advantage over others in the market or over the market itself. However, conceptualized in this manner, there probably is no such thing as an “edge.”

The truth is that rather than an advantage over the market, what traders need is insight into the market. As Adam Milton puts it, successful trading is not about being in competition with the market. Rather, it’s about being in agreement with the market.

This is why retail traders who believe they have an edge very often refuse to tell others what trades they are about to make—fearing that doing so will negate their edge—whereas professional traders often make public their intentions without the slightest hesitation, confident that what others do in response will have little if any impact on the outcome of their actions.

 

[expiated]

Based on this information, I would be looking to short most stocks if they don’t gap up on Monday, but NOT until price drops back BELOW the xx-simple moving average, which it crossed ABOVE approximately five hours after the opening bell on Friday.

Most of the 19 equities in my basket are located in what amounts to the middle of nowhere for me. The two exceptions are SU, which at 33.25 just now dropped to a level where I could technically justify shorting the stock, and TWTR, which appears to be pretty much immune to the bearish pressures under which most other stocks are suffering, and is still a buy for me at 31.47.

(Absolutely none of the 11 currency pairs I watch are exhibiting a structure that would tempt me to enter a position this morning.)

 

[expiated]

At $33.56 SU is now neutral. AAPL has turned slightly bullish at $163.02, JPM at $112.50, BAC at $31.33, and VRX at $18.12 (though I have my doubts about this one).

 

[expiated]

Changes in the comparison between the equity-market-version of the five-minute MSMAE chart and the Forex-market-version of the five-minute MSMAE chart:

First of all, the zzz-period simple moving average accurately reflects the week-to-week trend in BOTH contexts, and the yyy-period simple moving average does the same with respect to the day-to-day trend.

However, while the xxx-period simple moving average is the principal indicator for interpreting price action on five-minute Forex charts, it lags behind the intraday trend on stock charts, and yet is not a precise enough representation of the day-to-day trend to be used in that manner, rendering it a somewhat purposeless sensor for use in equity charts.

Indeed, the simple moving average that does do a good job of tracking the intraday trajectory on five-minute stock charts is the xx-period SMA. On Forex charts however, this moving average serves as an alarm signal alerting traders as to when the exchange rate is initiating a reversal after having overextended itself in extreme overbought or oversold territory, with an express warning NOT to use it for the purpose of trying to identify trends.

Ignore the admonition NOT to use SMA (xx) for the purpose of trying to identify trends, and apply its use in the modified manner as described below

What is used to identify what I call the five-minute trend on Forex charts is the xy-period simple moving average (I call the xxx-period SMA the 15-minute trend). It is comparable to the threefold moving average cluster on stock charts consisting of SMAs (nn), (mm), and (ss), though this threefold cord is probably unnecessary since it is essentially little more than a smoother version of SMA (xx).

What is also probably unnecessary is the stock-chart moving average cluster that begins with SMA (ff) and ends with SMA (gg) since this is simply a faster (more sensitive/responsive) version of SMA (xx).

The set of moving averages that cannot be overlooked on the stock charts however comprise the triple set of SMAs (bb), (cc), and (dd), which delineate the short-term intraday trend.

On the Forex charts, this job belongs to SMAs (aa) through (ee), so there is a pretty close match between the two contexts when it comes to representing the short-term trend.

SMAs (aa) through (ee) were replaced by SMA (ee) alone. But this particular measure was better employed in its envelope form with trades based off the 0.**% deviation bands (as opposed to using the moving average itself) and with SMA Envelope (ee) working in tandem with the previously mentioned SMA (xx) to approximate or suggest the direction of the short-term intraday trend.

However, SMA Envelope (ee) was a bit jagged, so it was replaced by SMA Envelope (ff) with the same deviation levels and used in the same manner.

The big difference is found in the intraday price range, which is represented by the xx-period simple moving average envelope with a deviation level of ?.00% at the extreme on stock charts—but is represented by the xxx-period simple moving average envelope with a deviation level of 0.??% at the extreme on Forex charts (yet with a more typical “maximum” degree of separation at only 0.!!% deviation).