Saki's Forex Reversal Journal

S

sakimonohito

I've been trading the following system for a few months now and it has yielded almost 300%. I wanted to post the trades for a while and see if I couldn't improve the system a bit (minimize drawdowns).

1)Enter trades when "Daimyo indicator" signals overbought oversold on a 4 hour chart. I should mention, this is an indicator I have stumbled across on the CMS-Forex boards which I am not using for its intended purpose--buying and selling with the current trend. The indicator is coded for CMS Visual Charts. Please note: IT IS NOT MINE NOR DO I CLAIM IT TO BE MINE. However, I am claiming this system to be mine as I have looked all over the web for someone who trades this way and I could not find anyone.

2)Establish the High and Low Murrey Math levels for the last month. This is done by using the closest Natural Square to the Highest price for the previous month and the Lowest price for the previous month.

3)Set a stop beyond the +2/8 Overbought Murrey Math level for shorts and -2/8 Oversold Murrey Math level for Longs. This is a new part of the system I haven't implemented faithfully. I am hoping this won't cut into my results but minimize my unrealized drawdowns. Since I am now trading with a rather large sum of profits, i want to try and prevent and disasters. This rule is not set in stone as I have held positions underwater because of the relative ease of other trades to work without the use of stops.

4) Set limit exit orders for the 4/8th levels. These levels seem to correspond with the median price for standard deviations such as seen with Bollinger bands and Keltner Channels etc. Of course, they are not calculated the same way, but they seem to create price stalling, so it is a good place to exit trades safely. Many times prices continue past the 4/8th levels and go straight up to the 8/8th or down to the 0/8ths, but the volatility on the way to 8/8ths and down to 0/8ths is often emotionally challenging to watch, and the results are so consistent with the 4/8ths, I have accepted the loss of profits as such.

So to summarize the system...

1)Buy/Sell when Daimyo indicator is oversold/ overbought on a 4 hour chart.
2)Establish the Murrey Math frame for the trade by using the previous months highs and lows. This is done using a calculator you can now easily find on the web. It is attached below.
2)Set stops just beyond +2/8ths Overbought MML and Oversold
--2/8ths
3)Set targets at the 4/8ths
4) Like any trading system using exact prices, if the price does not reach the 4/8ths level but comes very close, I will exit trades manually.

Here are my current open trades. Please note the first price is the entry and second price is the target and third price is the stop loss :



EURGBP S 0.6708 Limit 0.6686 Stop .676

USDCAD B 1.3338 Limit 1.36 Stop 1.3240

NZDUSD S 0.6359 Limit .6242 Stop .6480


Trades Closed This Week:

GBPUSD B 1.8035 Limit 1.8191 +156
EURCHF S 1.5273 Limit 1.5184 +89
EURJPY B 130.30 Limit 133 +270
NZDUSD S 0.6362 Limit .6322 +40
EURCHF B 1.511 Limit 1.5293 +183


Any thoughts?
 

Attachments

I should add a 5th rule to the system. If the 4/8th line is not hit before the indicator oscillates from one extreme to the other, I have obviously reversed my position. I don't want to own a short for too long if and when the indicator is telling me we are oversold.

For example EUR/JPY is overbought at 136 the 4/8th is 133 but Daimyo indicates we are already oversold at 134, I will happily exit and reverse my position here.
 
Thanks for sharing.

Well obviously this price shock is unfortunate but it had only 50% chance to be against you since your position was obviously independant of the outcome of the US figure. Your system will experience others and in the long term they will offset each other. Not only this, but since you seem to trade a pretty good range of currencies, with a little bit of "luck" you could have held positions that were both benefitting and suffering from the price shock at the same time. That was not the case this time, but it may happen in the future. You have to study your correlations.

I have 4 questions if you don't mind. On your USD/CAD trade for instance.

1) was 1.3240 your stop loss as dictated by your system (eg stop beyond the 2/8 Oversold Murrey Math level) or was it the actual price at which you got executed ? The reason why I'm asking is because although I wasn't watching the USDCAD when the price shock occured, I was watching the EUR/USD and USD/CHF and they basically gapped down. Slippage in the execution of the stop loss could have been significant may be. In any case, what happened here is definitely a good experience.

2) before starting to trade 3 months ago, did you backtest the system ? (sorry if the answer is obvious!)

3) Your post suggests that there is a little bit of subjectivity in your exists because of your 4th rule. Not saying it's a problem though, as long as you're consistent. But as an alternative, I was thinking that may be defining a band around the 4/8ths level may render all your exit automatic now ? Just a suggestion good sir. I don't know, may be 10 pips around the 4/8ths level ?

4) I am unfamiliar with Murrey Math Lines. I do understand how the Lines are calculated in the sample Excel spreasheet you posted above. But how do you do with a currency that quotes in decimal ? Can you multiply the value of the currency by 1000 for instance ?

For instance, USD/CAD quotes 1.3240.
1.3240*1000=1324, and the nearest natual square would be, let me check in your calculator... 1296 ? (36*36)


Cheers, keep up the good work.
 
Quote from jrkob:

T
1) was 1.3240 your stop loss as dictated by your system (eg stop beyond the 2/8 Oversold Murrey Math level) or was it the actual price at which you got executed ?

no that was the oversold level, minus a few ticks. Stops are honored at CMS



2) before starting to trade 3 months ago, did you backtest the system ? (sorry if the answer is obvious!)

no backtest. I had a little experience with murrey math frames when I used esignal to trade ES.

3) Your post suggests that there is a little bit of subjectivity in your exists because of your 4th rule. Not saying it's a problem though, as long as you're consistent. But as an alternative, I was thinking that may be defining a band around the 4/8ths level may render all your exit automatic now ? Just a suggestion good sir. I don't know, may be 10 pips around the 4/8ths level ?

Its a good suggestion, but there is no way to automate such a system at present, so a little subjectivity will remain.

4) I am unfamiliar with Murrey Math Lines. I do understand how the Lines are calculated in the sample Excel spreasheet you posted above. But how do you do with a currency that quotes in decimal ? Can you multiply the value of the currency by 1000 for instance ?

For instance, USD/CAD quotes 1.3240.
1.3240*1000=1324, and the nearest natual square would be, let me check in your calculator... 1296 ? (36*36)


yes, you can do that. And I have been using the closest natural square even if it is higher than the lowest low or lower than the highest high.

Cheers, keep up the good work.
More...
 
EURUSD S 1.2310 Limit 1.2168 Stop 1.2525

USDCHF B 1.2351 Limit 1.25 Stop 1.2204

EURJPY S 133.73 Limit 130.82 Stop 135

note EURJPY target is 1/8th level since the reversal signal came on a 4/8th level
 
that seems like quite a low risk/reward strategy. I note you are trying to reduce drawdowns, but your stop appears to be considerably further away from your entry point than your limit. Am I missing something here or is it intentional/essential to have such a wide stoploss gap?

regards,

David
 
the stops are completely experimental. I have averaged down each time I got an entry signal (overbought/oversold) but wanted to try and cut my loss before I held the trade over. maybe I should just go back to the disaster stops -500 pips or so.
 
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