|
Automatic Forex System Described
In discussing Automatic Forex on this web site I have been rightly
accused of sounding like an advertisement.
I'd like to offer something of substance here. Please allow me to
start with a quote of Albert Einstein's:
"Everything should be made as simple as possible but not
simpler."
This was a guiding thought to the design implementation of
Automatic Forex's trading system.
I am about to reveal every conceptual thing about the Automatic Forex
system without posting my source code etc. Please read on!
When I was striving to become a consistently profitable trader I
would spend hours reading thick books on technical analysis. I
believed there was some deep insight I could gain by studying enough
technical indicators by cross referencing them possibly by
squinting at them!
On web sites like MoneyTec.com I read about traders investors who
proudly describe the amazingly thorough job they do of bringing just
about every technical indicator world economy news item to bear on
their forex trading decisions.
My question to them is "How much time are you willing to put into
deciding on a trade when you know the trade can go against you no
matter how much time effort you put in?" Traders who have traded
a long time might chuckle over this because they know that just about
ANYTHING can happen in a financial market especially on Friday
mornings in New York GBPUSD or EURUSD trading! NO ONE can know for
sure what is going to happen next. It is unknowable. So few traders
ever fully accept that. They keep looking for a "system" that will
let them be right every single time. Keep on looking folks
please let me know if you find it!
Our idea was to devise a trading system that is simple but not too
simple. Deciding to go short or long can be done with a very small
amount of information. There are certain statistical indicators that
ALWAYS precede every strong move up or down. This is not to say that
strong moves always follow these indicators (I hope you see the
distinction dear reader) so money management is a huge key to
trading successfully -- you must consistently act correctly when you
are wrong. you should get used to the idea that you will be wrong
about half the time at least.
With me so far?
Okay let's get down to the nuts bolts.
Many of you use the MACD. We use a "tweaked" version of the MACD
using two signal lines not just one. In other words we calculate
TWO EMA-filtered versions of the delta between two "base" EMAs giving
us a fast signal line a slow signal line. This means both
components of our buy/sell triggers are smoothed. Also for the two
base EMAs whom the delta is taken we do not use the default
parameters of 12 26. We exp those parameters slightly so as
not to overtrade but still get in quite early on the worthwhile
strong moves.
When the fast signal line crosses above the slow that's a signal to
go long. When the fast signal line crosses below the slow that's a
signal to go short.
This is all we use in deciding to go long or short.
"Too simple!" some of you may cry.
"Far too unsophisticated!" others will object.
We believe it's exactly simple enough exactly sophisticated
enough.
As you more seasoned traders know there is much more to trading than
deciding when to go long or short. We have built robust money
management into our system.
Since our trading system is fully automated we never fail to place a
stop order a limit order every time we enter the market.
Our system always closes any open position whether in profitable or
losing territory when a new bullish or bearish signal is seen. Since
a computer does all the work these actions are taken with zero
emotion.
We have several ways of taking a profit. The one with the most
potential is the trailing stop. If the market moves at least 60 pips
in our favor within 8 hours of entering the position we set a
profitlock stop at 10 pips in favor of our entry. As each hourly bar
close more in our favor the trailing stop is tightened per a
proprietary algorithm that behaves similar to the Parabolic SAR with
which many of you are familiar.
Since our limit (profit target) is 450 pips we can do
occasionally see profits that large on a single trade.
A second way profits are taken is when the market moves less than 60
pips in our favor within 8 hours of entering the position. After the
8 hours has elapsed if there is some profit -- any amount --
available the automated system liquidates part of our position. Each
subsequent hour sees any available profit partially liquidated until
the entire position has been closed. This gives a mild-intensity move
time to mature by patiently waiting an hour between actions the
market has a chance to go more in our favor.
Profits taken this way usually range 15 pips to 55 pips but
sometimes over 100 pips when the stronger movement occurs after 8
hours have elapsed.
A third way profits can be taken is when some of the position remains
open when a signal in the opposite direction is seen. Since all open
positions are closed when this event occurs profit will be dumped
into the account if there is some available at the time of the
reversal. Intuition may tell you that this would be a rare event
it is. Sometimes however a strong move occurs then reverses in
less than 8 hours we can see profits taken in excess of 100 pips
by virtue of closure on the new signal.
Success depends on using appropriate stop levels. We like the 45- to
55-pip level for GBPUSD EURUSD. These levels are not too tight
not too loose in our view.
It is also vital that a stopout not represent more than 2% of your
account. So a 45-pip stop when you are trading with a lot size of 20
(leveraging $20K with $200 in a mini account) would require an account
of $4.5K to be prudent.
Using stops that represent 1% or less of your account is most
desirable but we admit this is on the conservative side.
If you feel you could go higher than 3% at risk keep this in mind:
when markets get choppy any trader can easily have 10 consecutive
stopouts (quite rare but possible) which would cut your account in
half if you let the stop represent 5% of your account. If you let the
stop represent 10% of your account (yikes!) 10 consecutive stopouts
wipes out your account. Most online brokers have safeguards in place
that won't let your account be completely drained but it could
dwindle down much lower than you would like it to.
Let the "10 consecutive stopout" scenario serve as a sobering thought
for you. If you set yourself to be hurt too much by this possibility
you have failed to assess prepare for risk correctly.
I hope this discussion is helpful to many of you.
__________________
Bob/autofx
Last edited by autofx : 04-08-2004 at 00:26.
|
Licensed Brokers
Linear Mode
