Strategy Help (with chart for analysis!)

L

lindec

Hi all, I've been working with a very simple strategy (pretty much the Rockwell strategy): Plot MACD and Bollinger (10,2). Wait for bullish divergence, positive MACD histogram and for the price to break the upper bollinger band, then go long. Reverse for going short. T/P @ 20 pips, S/L @ 15 pips.

What I'm running into problems with is it seems, a decent amount of the time, all the indicators will be pointing the right direction, and the price will solidly break bollinger upper by 5 or 6 pips, I'll go long and then it will just dump back into the bollinger range and I'll stop out. So what my real question is, <i>is there an indicator I can add to my strategy that will give me a better idea of whether or not this breakage of the upper bollinger is really a solid break, or whether it will fall back down into it's normal range?</i> Look at the chart below for an example:

<img src="http://www.linuxspark.com/images/chart.jpg">

Notice at 13:20, all the factors seem to come together perfectly and I go long on a solid break of the Bollinger top with a great looking MACD, but then it falls right back down to earth! I've had this problem a few times now... what gives? Is there any indicator I can add that will help me discern whether a break like this is for real? Thanks!
 
lol......if u find such an indicator, u will surely be challenging D.E. Shaw for his crown.

Anyway, what is the w/l ratio? what % of your profitable and loss trades does transaction cost account for? What underlying statistical anomaly or characteristic are you trying to exploit? Then maybe i can help constructively but unfortunately i don't have the holy grail.
 
Thanks for your reply. I understand there is no magic bullet and I wasn't trying to go that far. Right now, when I trigger my strategy in a manner that is following the overall trend of the currency in the larger time frame (i.e. currency is for the most part going down that day or over the past few hours and I trigger a short) I tend to win over 50% of the time. However, when I trigger the trade in counter-trend conditions more often than not, I fail. So perhaps this system is just fine as long as I follow the greater trend?

All I was really hoping for was for someone to say, hey check out the CCI or the RSI or whatever, and if that it says "x" then you have a better idea of whether or not this will be a winning trade.

Also forgot to mention about the statistical stuff. I know it's very rudimentary, but what I've been doing is going back and looking at my losing trades, where the current indicators I used all pointed to a winning trade and then looking at different technical indicators to see what the difference in that indicator between winning and losing trades; i.e. trying to find out if there is an indicator that refines my strategy to so I win a greater percentage of the time.
 
I don't think that you understand what bollinger bands are.

"Bollinger Bands - A chart overlay that shows the upper and lower limits of 'normal' price movements based on the Standard Deviation of prices."

It shows the normal price range for the trade, whenever the price goes in or out of the band it is showing abnormal trading. You should be doing opposite of what you are doing now. Short when it pops out of the top and go long when it gets out of the bottom. Buy low sell high.

Also try looking at some lower indicators such as RSI or Stoch's.
 
Quote from mike007:

I don't think that you understand what bollinger bands are.

"Bollinger Bands - A chart overlay that shows the upper and lower limits of 'normal' price movements based on the Standard Deviation of prices."

It shows the normal price range for the trade, whenever the price goes in or out of the band it is showing abnormal trading. You should be doing opposite of what you are doing now. Short when it pops out of the top and go long when it gets out of the bottom. Buy low sell high.

Also try looking at some lower indicators such as RSI or Stoch's.
More...

I think you can use the bollinger bands either way, depending on your trading style. From wikipedia:

<i>"The use of Bollinger Bands varies wildly among traders. Some traders buy when price touches the lower Bollinger Band and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger Band. Moreover, the use of Bollinger Bands is not confined to stock traders; options traders, most notably implied volatility traders, often sell options when Bollinger Bands are historically far apart or buy options when the Bollinger Bands are historically close together, in both instances, expecting volatility to revert back towards the average historical volatility level for the stock.-technical analysis.</i>"
 
Quote from lindec:

Thanks for your reply. I understand there is no magic bullet and I wasn't trying to go that far. Right now, when I trigger my strategy in a manner that is following the overall trend of the currency in the larger time frame (i.e. currency is for the most part going down that day or over the past few hours and I trigger a short) I tend to win over 50% of the time. However, when I trigger the trade in counter-trend conditions more often than not, I fail. So perhaps this system is just fine as long as I follow the greater trend?

All I was really hoping for was for someone to say, hey check out the CCI or the RSI or whatever, and if that it says "x" then you have a better idea of whether or not this will be a winning trade.

Also forgot to mention about the statistical stuff. I know it's very rudimentary, but what I've been doing is going back and looking at my losing trades, where the current indicators I used all pointed to a winning trade and then looking at different technical indicators to see what the difference in that indicator between winning and losing trades; i.e. trying to find out if there is an indicator that refines my strategy to so I win a greater percentage of the time.
More...

Ok just read this one. If you want to continue this strategy, look at the RSI and whenever the price breaks out of the top bollinger (just for example) make sure the RSI is not in overbought territory. Look for it to be around the 50 mark so that it has alot more upside potential. Also look at the stoch indicators,( I use Full Stoch) to go up into overbought and maybe come back down and reset before the next move up.

Hope this helps.
 
Quote from mike007:

Ok just read this one. If you want to continue this strategy, look at the RSI and whenever the price breaks out of the top bollinger (just for example) make sure the RSI is not in overbought territory. Look for it to be around the 50 mark so that it has alot more upside potential. Also look at the stoch indicators,( I use Full Stoch) to go up into overbought and maybe come back down and reset before the next move up.

Hope this helps.
More...

That helps A TON! I just plotted out my winning/losing trades with my usual indicators and also added the RSI, and low and behold, just like you said, with <b>almost every losing trade</b> I had, regardless of whether it was long or short, the RSI was solidly overbought or oversold. And, with all my winning trades, the RSI was pretty close to 50, certainly above 30 and below 60 or so. I will keep testing for a few more days and report back later.
 
Quote from lindec:

That helps A TON! I just plotted out my winning/losing trades with my usual indicators and also added the RSI, and low and behold, just like you said, with <b>almost every losing trade</b> I had, regardless of whether it was long or short, the RSI was solidly overbought or oversold. And, with all my winning trades, the RSI was pretty close to 50, certainly above 30 and below 60 or so. I will keep testing for a few more days and report back later.
More...

Sweet, glad to help. Do you have MFI on forex? It is also good at judging strength. MFI is weighted on volume where the RSI is not.
 
since you like using BB for trading extremes maybe you should try laying on 3 BB @ 3 STD @ 1, 2, and 3 when price hits the extreme 3rd STD band and RSI corresponds with the movement such as RSI is below 30 and price is hitting the lower 3rd std BB... then you know its comming... wait till price moves from the 3rd to between the 2nd STD and 1st STD and enter... exit 1/2 pos in center of the upper and lower 1st STD BB and move stop to break even as long as RSI isnt too high you should still see another push ... if you get it exit the rest of your position at the 1st upper STD BB or when RSI hits 70..

I like this when using BB because if you stack it right about 95% i think of fluctuation in price occurs between the 3rd upper and lower...
 
You must log in or register to reply here.
Back
Top