GBP/USD freebie trading strategy

Freebie Trend Following Strategy

The First thing that needs to be said is that this is only the basic outline of the full strategy that I use. As with most areas of trading there is a larger element of judgement. The second thing is that there is no sure-fire way of trading to make a fortune overnight. If you are looking for that then try the lottery.

In essence it is a simply the price crossing a moving average entry. Long above, short below. This is nothing new and can be found in many textbooks. I currently only trade this on a long only basis. It can be traded on Long or short only or both together. The way I will explain will be the latter and therefore always in the market using a stop and reveres strategy. Please note there are certain times when I do not trade at all these are elements that I am not explaining, as they are mostly judgement calls and as such vary from person to person. They are not relevant to what I am trying to demonstrate.

I trade this using 15minute charts and a 100ema. I believe you can trade this method with any time frame from 1-minute charts for day trading and upward, although I have only traded this way with 15-minute charts.

Entry & Exit
When the price touch’s the MA add 20 points above for a long and 20 points below for a short. Your stop and reverse point is 40 points behind your every entry. Your risk per trade is therefore 40 points max per entry and then a 20-point trailing stop and reverse behind the 100ema…. The way the most benefit can be gained is by scaling in to the position.

It is really a no brainer and that is the way I like it, it is not efficient as you can maximise the trades more but this way on its own even trading long only as I am doing now is giving me very pleasing results. The way that I use this is through CMC so that I can scale in at smaller increments than a full size contract. When I change over to trade this both long and short I intend to trade it as follows. (As it stands at the moment I do precisely the same but for long only.)

My entry has been defined at the ema +/-20. I have orders waiting every 75 points past my entry (50 has been too whippy and 100 is too far away, I have traded all three) and I will have a stop 40 points behind my entry or a reverse 20 points below the MA whichever comes first. I usually have 4 entries waiting plus my stop and reverse point. I do not move the stop & rev point down/up if the MA moves down/up. (So far this has not been a problem.) NOTE: if the stop is hit I wait for the reverse point to renter either way it will be +/- 20 ema or +/- 75 points if adding to the position.
When the stop and reverse is triggered I close out the full position and reverse by my smallest starting stake, this reduces the amount off losses when it whips around the MA. This does not actually happen that often.
The only addition thing to mention is that it is a 24 hour market and over night I have not noticed a significant size move. I normally put my stop on the MA and leave overnight, I have a text alert set up so that when an entry is executed I will know within 5 minute wherever I am and adjust my stop order with cmc over the telephone. If I am asleep then I deal with it in the morning not usual a lot has happened by 730am. For my example am using 630pm as my cut off time to put the overnight stop on the ema. If the price is before the ema the reversal stop is left in place. For the purpose of this example no trades have been placed between 630pm and 8am the following morning as it would be cheating to say what I may or may not do that can not be quantified with a rule, plus what is the reality of you being in front a trading screen 24 hours a day!!!

I have read and reread this a dozen or more time and am still not sure if I have explained this to well so I think an example is now called for. I’ve just picked last week as that was all that could fit full screen on my sierra charts so no one can accuse me of fitting… check the dates or pick a random date to see it in action for yourself.

The dates are the 20th to the 29th August in the year of our lord 2003

Visually (see chart) you can see that this method of trading can be profitable, as long as you scale in.

We will start this at a sensible time and conveniently an entry presented itself when we had a pullback to the ema just before 8am @ 1.5892 our entry is just after 8am +20ema #1@ 1.5912

#1 Long 1.5912
#2 Short 1.5885
#3 Long 1.5925
#4 Short 1.5920
#5 Short 1.5845
#6 Short 1.5770
#7 Long 1.5770 reverse triggered overnight
#8 Short 1.5761
#9 Short 1.5686
#10 Long 1.5721 price below ema so leave stop at reversal price not triggered
#11 Short 1.5682
#12 Long 1.5720 (trade after 8am)
#13 Short 1.5687 reversal stop left and triggered over night
#14 Long 1.5715
#15 Long 1.5790
#16 Short 1.5752 open @1.5775

Points
#1 -27
#2 -40
#3 -5
#4 150
#5 70
#6 0
#7 -9
#8 40
#9 35
#10 -40
#11 re-entry
#12 -38
#13 -33
#14 37
#15 -38
#16 -23 still open

Total points +32 excluding trade #16 as is still technically open.

In reality trading with cmc trade #2 & therefore #3 (spike down) did not actually execute due to cmc’s bazaar order execution system and is more often than not in your favour in this type of instance. On the same note #11 would most probably have not been executed for a similar reason but as I did not trade the short side I can not say for definite, but in the past this type of touch and go entry does not get executed with cmc.

Additional notes for maximising profit.
There are a variety of methods that can be applied to this basic strategy to get the most out of the trades. But as you can see from this, albeit small, example it is very pleasing to the pocket book. You can look for divergences to signal a top or a bottom with the indicator of your choice. With this time frame a two-peak divergence with a 14 period RSI is common. I usually look for Patterns to add to a position and support and resistance…. This is all basic TA stuff but on cable it really does work but as with any market it need a fair bit of time and energy to get the most out the analysis.

On another note I used to day trade something similar on the Ibex with 1 min and 5 min charts when the ranges were regularly 150/200 in a day this year has not seen those ranges so I have had to put day trading the ibex aside. I trade something similar on the Euro/Dollar & Gold. And also the FTSE Dax and Ibex futures on 15 min charts but there are issues with gapping on the futures that needs more attention that what I have explained here.

Enjoy :cheesy:


Edit:
The errors have hopefull been fixed and the figures and typos too
Its not a dramatic result but for a no brainer it is giving me some money in the bank :cheesy:

Impressive

Neutron it is both kind and brave of you to post this. I thoroughly applaud your noble actions. Good man.

Ive already noticed a mistake on the 25th, I will adjust the chart and the figures accordingly when i have time, it would equate to reversing long and back short again an additional 2 trades.

edit:
chart, figures and typo's fixed

Well Done Newton Bomb

A lot of people talk the talk

not many Walk the walk !!!!!!!!!!!!!!!!!!!!

ian

Well done NB for having the guts to post it.

Now here we go.... pile of pants... will never work... total rubbish.....completely useless..... ha ha just kidding!!

Always fancied trying my hand at other instruments (mainly trade the Dow) so maybe I will try my hand at £/$ with this method just to see how it goes!

Cheers

M&M

PS why can't I see the chart??

GBP/USD

hi NB......thanks for a brilliant post.....i'm trialling several FX sites atm including cmc....is it right ythat with cmc you have to place stops and/or limits after youve placed the trade?....

on the cmc demo i placed a buy GBP/USD and then set a OCO order with a stop and limit....the stop was triggered first and it closed the original trade which is what i wanted to see happen......i get the impression that if you place a stop order, if that position is reached it just opens a position in the opposite direction to the original trade.....or am i being thick?

re the trailing stop....i assume that you are changing this manually as i cant see a way on cmc to automate this......

again....thx for the strategy.....

Thanks for posting this from a "yes" voter on your previous thread.

I've not had time to fully digest this as yet or look at charts etc. My initial thoughts are that it sounds very similar to how Chartman uses 100ma with 1 min charts to trade the dow.

I don't know if you picked this up from him and built your own sytem around it or came to use the 100ma with a +/- 20 entry independently. Either way, it just goes to show a simple strategy can be successful if traded with discipline and sound money management.

I'll have another look at your post when I get time to take it in fully.

Thanks again

Darren

Bertie
The way cmc works is that you open positions either long or Short all at once which is effectively opening and closing or reversing a position. And yes I trade from home so it is easy to change the stops manually. Due to the time frame ive chosen it is not that labour intensive as it appears

Darrenf
Yes you could say it is similar to cm's.
I use a 10 or 15 point crossover on the index's it really depends on the market. The idea is in most trading books and is really just a variation of a MA crossover system.

Just thought that I would add now the figures i consider to be correct. This is really just to give you an idea of how the strategy works... if i had chosen say any time in the past few weeks we have seen cable tank from well over 1.61 I could do what all good system "SELLERS" do and demonstrated how "much you could have made" from say its dive from 1.68 blah blah send your cheques to.

I think that this example shows some of the conditions and variations of what can happen in most of the common scenarios ive seen

Enjoy :cheesy:

A quick techie question. Can someone tell me why and how to fix if possible, when a member posts a chart like the one above. I have to scroll sideways to read the postings and when I try to print it out to read, all of the right hand edge is missing. It is a real pain in the neck.

dbt

Screen resoution
ive got mine set too 1024x768 and have no problems... its also down too how the poster saves the image

Thank you NB, that did the trick. Now I can get on with reading your strategy.

cheers

dbt

NB
It might be a stupid question but at the top of the page your title is GBP/USE .Should it be GBP/USD.Im using Finnspreads and cannot find GBP/USE,but have GBP/USD to trade.

Hi Newtron,

My view is that two points a trade for such a strategy is not robust enough. You first post of 500+ points was much better.

I beleive you can do better using 5 min charts and no MA simply by either going long or short around 09:00 with a stop of 20 points.

JonnyT

granted JT, but i only chose the last week in sierra to demonstrate its application... just scroll back through the chart yourself simple enough to do a visual count it has been giving me a lot more than that long only. The figures were incorrect due to a typo i had over looked and two trades that i'd inadvertently left out... I could change it back and be called a lier i suppose

Over a longer period it has been giving good results, perhaps i should have selected a perfect trade for you. The way i trade this it is a no brainer and it gives results for me with minimal looking after and screen watching.

Another idea i played with was the over night range breakout i think you've talked about something similar.

Another option is just to day trade it but i dont have the time or the inclination to trade this market this way.

JonnyT
This is just an out line to how I trade this market and it was how I stared and then built on it. Trading it developed into a better strat than what I have posted here but as you know it is difficult to define an opinion as there are so many scenarios. 400+ points can be achieved see here again just trading long. entry was off support and compounding into the move when i tried 50 points apart total was 437 point for that trade.. its all an the other thread

Hope this helps, clear the measly 2 point a trade up.. dont forget it is just an example to demonstrate the execution of it

edit
I thought it best to add that the points have been calculated from each entry, obvious to some but not so to many!

Well done that person! 'fraid hillbillies like me need to read even no brainers about 10 times to get the hang of 'em but so far it looks pretty nifty. Much appreciated N. Bomb.

NB.
Thanks for the correction.

NB
So you only enter a trade when you are hovering 20 points either side of the 15 min ema?
Bill

For the purpose of this example yes, It is really just to be able to put a set figure for an entry.
An entry for the more TA aware may be used before or after this set figure by means of support or resistance.

I tried to post this strategy as basic as possible with a defined entry exit and stops for simplicity. If you feel confident and comfortable entering before or after these suggested area's then fine.

In the actual trade Ive put a link too i did enter long below the ema off what i considered support, there are no hard and fast rules to anything. I meant this method as a bare bones idea for those who are looking to build onto something...

This is the way i started (I actually started trading this on the ibex on 1 and 5 min charts) and added bits and pieces that i felt comfortable with. As your experience builds then the +-20 may go out the window as it did for me but for the less advanced among us we need a definition of an entry and exit until we get to that point

Hope this helps, I think ive probably thrown a spanner in the works

Newton Bomb , nice little strategy you got there, the simple ones are sometimes the best ! I’ve been developing a forex strategy based on similar principles to yours only my buy and sell signals are generated on the chart and I have a few more parameters. The system assumes your in the market all the time. Its great for catching sustained moves on a 10 or 15 min chart. The little whip saws are a pain in the arse but I can filter those out with an Average True Range oscillator ATR(10) but I have to be careful not to filter out the main signals ..doh … . Technical analysis is really the way to go with forex.