I think it is not a secret now that I have always believed that one of the biggest problems faced by people new to automated trading - and their general lack of success - is the almost complete absence of evaluation and the use of a system that has accurate evaluation and a real statistical edge that can be used for longer profitability. This becomes evident if you start to ask traders about the long term characteristics of the systems they use or intend to use. You will find out that the large majority of people ignore the maximum draw down the draw down period lengths, the probability to have a losing or a winning month, etc. It is easy to see then why traders switch so much between different systems and why following a system is so terribly hard.
Today I want to help new traders by sharing with them a simple strategy they will be able to use everyday which is adequately evaluated and has clear long term profit and draw down expectations that have been calculated according to reliable simulations, bringing them the opportunity to trade a system knowing in advance what to expect in the long term and what difficulties they will face when trading. This system also has the advantage of taking only 5 minutes to trade everyday giving you the opportunity to rely on it if you do not have the time to be "glued to the screen" many hours everyday.
It is however clear for me to say - before I start describing the system - that the most important achievement you will get while trading this technique is most likely not going to be monetary (since the profit and risk targets are very conservative) but you will achieve a good education regarding forex trading and - most importantly - you will learn to trade a system which is likely to be extremely difficult to handle from a psychological perspective. If you want to become a better trader and polish both your psychological and trading skills then I advice you to trade this system, but do so seriously and for at least 5 years. Trading this system wont take more than 5 minutes everyday and you will learn to be disciplined and to follow a system for which the statistical expectations are clearly laid out in advance.
This trading system is a very simple trend following system designed to be used on the daily time frame only on the EUR/USD. You should check for an entry signal everyday when your brokers daily candle closes (broker must have chart without Sunday candles, you can use the WithoutSunday EA available for free online to create a chart without these). The rules are very simple :
Long Trades :
If the past 6 bars show an increase in the 10 period simple moving average indicator (average in bar 6 smaller than 5 smaller than 4 smaller than 3 smaller than 2 smaller than last closed bar) and the difference between the close of the last bar and the tenth bar in the past is larger than 3 times the past closed bars 30 period daily ATR value then enter a long trade.The trade is entered with no TP and an SL value equal to 2 times the mentioned ATRs value.
If a long trade is opened and the last bar close is higher than the close of the bar before the last long was opened open another buy trade and move the SL of the old trades to the value of the new one (which is 2 times the ATR from its opening point). Do this to open an additional maximum of 4 positions.
If a long trade has been entered and the past 4 bars 10 period moving average in the past show a decline ( average in bar 4 is greater than bar 3 greater than 2 greater than last closed bar) then exit all trades.
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-Short Trades :
If the past 6 bars show a decline in the 10 period simple moving average indicator (average in bar 6 greater than 5 greater than 4 greater than 3 greater than 2 greater than last closed bar) and the difference between the close of the last bar and the tenth bar in the past is larger than 3 times the past closed bars 23 period daily ATR value then enter a short trade. The trade is entered with no TP and an SL value equal to 2 times the mentioned ATRs value.
If a short trade is opened and the last bar close is lower than the close of the bar before the last short was opened open another short trade and move the SL of the old trades to the value of the new one (which is 2 times the ATR from its opening point). Do this to open an additional maximum of 4 positions.
If a short trade has been entered and the past 4 bars 10 period moving average in the past show an increase (average in bar 4 is smaller than bar 3 smaller than 2 smaller than last closed bar) then exit all trades.
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-Lot Sizing
The lot size is defined by a very simple equation outlined below. This equation adjusts lot size against market volatility and account equity.
Lot size = 0.01*AccountBalance/(ATR*ContractSize)
The ATR is the value of the 30 period ATR as calculated on last bars close. (ATR of the last closed bar) (value of the ATR as absolute price, (for example 0.0102)). The contract size is the contract size per STANDARD lot.
As you see the system is very simple and the entries can be checked very easily using just 5 minutes of your time everyday. Unlike other trading strategies with a similar approach - like the turtle trading system - this strategy does not require you to be constantly monitoring the market for breakouts and the addition of positions but it works your way so that every trading decision is executed at the exact same time each day - what I would call a perfect system for a beginning trader busy with a full time job.
On tomorrows post we will learn more about this trading strategy as well as its results over 10 years of simulations, we will talk about the challenges this strategy poses to traders, the rewards you would expect to get and why challenging yourself to trade this everyday (even if only on a small 100 USD live account) will prove to be extremely beneficial in the long term not only regarding possible profits but also regarding what you will learn from both yourself and your psychological characteristics as a trader.
If you would like to learn more about how strategies like this can be turned into mechanical systems for their accurate evaluation and analysis please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach automated trading in general . I hope you enjoyed this article ! :o)
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