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[overgrowth]

Hi guys,

As a newbie to forex, I've been reading many posts on this forum (and elsewhere) with interest and have a question for all you experts out there.

Whenever a new system is posted or advertised it seems to me that it is always invariably a trend following system, i.e. it uses moving average crosses (e.g. bunny cross etc.) or some other similar gubbins to achieve amazing results.

From what I can see, there are many keen proponents to take on these systems in a trending market and they post great stats. until we hit a ranging market, then these guys just disappear - I assume that they become disillusioned when the system doesn't work any more from blindly following it.

If you have a "sure-fire" system which works say 80% of the time in a trending market but falls over and dies in a ranging market, then why isn't everyone looking outside the box?

To me it seems that if you have a system which gives you excellent results in a trending market (say 30% of the time on average), then why not use that system at the right time ?

Using ADX on say 4 hourly, daily or weekly charts should give us ample indication of whether a particular market is trending or not - so isn't it just a simple matter of avoiding trading such a system when ADX tells you it's going to be a bad move ?

Consequently, If you know that the system really brings home the goods in a trending market then you up your stake and make a fortune only when the ADX is clearly showing a trending market on longer time scales. In a non-trending market (whether it be days or weeks) you just keep out and go and play golf or practice rock guitar or whatever.

This all seems so obvious to me (and I've been trading live for a good while so appreciate the psychological dilemmas that can easily kill you off if you don't watch out).

Am I missing something here ?

[TheWolf]

ADX doesn't predict trends. If you use a crossover method with ADX - it does not work particularly well because it often misses out trades when a trend develops from a ranging market, and it puts you in trades when a trending market develops into a ranging market, so imo it balances out.

But yes, I feel that trend following is def the way to go forward. =) With a nice R/R you can go very far.

[overgrowth]

Wolf - thanks for your comments - you're obviously speaking from experience.

I'm not suggesting that ADX can predict a trend, all I'm saying is that when it's evident from taking a glance at ADX that you're already in a trend and you get a crossover signal then that's the time to take it - otherwise leave well alone and go and think of something less boring to do instead (if you remember that TV program lol !).

[Soheilsb]

overgrowth,
I'm not an expert here, so you can count me as a rookie, but I think , by using the indicators like ADX , you can probably find a trend in motion , but maybe you will catch it a little too late and on the other hand , you've already missed a lot of great oppotrunities there. I think , it's all based on your own approach to the market ,that's why everyone says there's no magical rule or strategy to be an always winner, or a strategy that works for one , will not probably suits the other trader , so if someone wants to gain a big profit , he/she has to predict the trend and it's side at it's early stages , but others prefer the confirmation of the trend in move , and then they enter the markets , and their profits are so much less accordingly.
I suggest you try to see , what signals the indicator you are comfortable to use with , has generated in the previous situations, open your trading software and move backwards and examine all the signals it has given at that time, then you will have a better understanding of the way that indicator is designed to work.

[TheWolf]

Originally Posted by overgrowth

Wolf - thanks for your comments - you're obviously speaking from experience.

I'm not suggesting that ADX can predict a trend, all I'm saying is that when it's evident from taking a glance at ADX that you're already in a trend and you get a crossover signal then that's the time to take it - otherwise leave well alone and go and think of something less boring to do instead (if you remember that TV program lol !).

I have had a look at a few crossover systems using ADX, and most of them only take the crossover signals at ADX>20 to show they're already in a trend as you say.

Ok. Have a look at the pic below (usdjpy h4). A, B , and C crossovers are all whipped even though they are above ADX. Look at B, it is in the middle of a ranging market, but it is above 20 ADX level because it is not dropping fast enough from the bull momentum before. So you might say, just buy when the ADX ticks up/down. You can see from point A that that doesn't work either.

[overgrowth]

Sensible comments Soheilsb, and a good tip on simply scrolling back the charts rather than doing full blown backtesting to get a flavour of how indicators move.

Wolf - thanks for the chart - very interesting, I see what you mean about false signals from the ADX.

I'm sure that someone must have done research into which indicator is most reliable in trend identification. I was always led to believe it was ADX which we can see from Wolf's post is not infallible by any means - though perhaps it it still the best tool we have.

I know that parabolic SAR can give us entry and exit points in a trend, though does it tell us that we're already in a trend ? I'll go and check it out.

[TheWolf]

PSAR can make a great trend following system. Have a look at this thread:

Yet another newbie system!

and the system:

http://www.moneytec.com/forums/showp...&postcount=136

[Matsu]

If you are interested in using ADX in your trading you should take a look at this.


Regards,
Matsu

[overgrowth]

Cheers guys - some interesting links at first glance and will give me plenty to read on this rainy afternoon.

I wonder if PSAR and ADX can be used together in some way which will improve the reliability of a system...

[TheWolf]

Originally Posted by overgrowth

Cheers guys - some interesting links at first glance and will give me plenty to read on this rainy afternoon.

I wonder if PSAR and ADX can be used together in some way which will improve the reliability of a system...

Maybe, but with the new YANS system, there is no need for adding any other signals, given that it gives so few trades already. But with another system, perhaps.

Btw, where are you from? I'm from Bristol. =)

[overgrowth]

As I've essentially been scalping bits of trends before retracement, the longer term YANS system seems a mite risky with 100 pip stops, though I must agree that the results look pretty good and it means that you're not glued to a screen all day - worth further investigation definitely.

I'm based in Herts., I haven't been to Bristol for yonks is there a thriving FOREX scene there ?