Hog's,
Yes, this is worth looking at, although it's gonna be tough to draw firm, tradeable conclusions for two reasons:
1. Because this is essentially a reversal strategy, the point at which price hits or breaches the bands is likely to be the next swing high / low - as can be seen from the chart.
2. The previous swing high that you picked out is where I entered at 8421. I had a confluence of price approaching the purple band and what, at the time, I imagined was a double top. (how wrong I was!) Even when price continued to rise, I wasn't concerned as I could enter the other half of the trade in the vicinity of the dark blue band at 8450 in the expectation of a pullback to test the breakout. At that point I'd have to decide to get out at b/e or there abouts or, have a profitable trade, if price sailed back down to test the 8300 lows. Unusually, the pull back never came.
Don,
The genesis of the idea comes from 30XTCi - in this thread in which he explains the use of the 5WMA (what I refer to as the 'fence'):
http://www.trade2win.com/boards/forex-strategies-systems/33407-can-anyone-recommend-strategy.html
The bands are self adjusting according to the volatility of the instrument being traded. This is absolutely critical for position sizing purposes. They pretty much tell me everything I need to know: where to enter, position size and stops. I suspect I'm not understanding your points fully as I'm afraid I don't see how - or why - I'd be any further forward than I already am? It's really only the freight train issue that concerns me; in all other respects I'm very happy with the way the strategy works.
Ian,
1) Yes, after an endless amount of playing around I find these are my default settings and work pretty well on most instruments. That said, it is timeframe critical, I'll come on to that later.
2) I didn't take this trade, although I could have done. It's a good example of how normally -
normally - one can get out at b/e even if it doesn't work out. Notice how the bulls come in on the subsequent two green candles. Not much buying pressure, but the freight train of the downward trend slowed sufficiently to get on and off without doing any real damage.
3) No, this isn't the 2nd half of the previous trade. We're starting over here, not least because price has returned to the 5WMA. I'll come on to the significance of this in a mo'.
4) This is a slightly embarrassing question that I hoped wouldn't get asked!
In other words, there's a tad more work to be done on refining this. That said, there are some rules in place:
- take half profits when price hits the fence (5WMA) and raise stop to b/e on the other half. This is to protect against the possibility that the traded move is nothing more than a brief pullback and that the prevailing trend will continue.
- if price crosses and closes above the fence, then a reversal is deemed to have taken place. Close the remaining half on the breach of the low / high of the previous candle and/or if price closes the 'wrong' side of the fence.
- If price hits the purple band on the other side of the fence, then stop and reverse.
5) Good point, I do check for news and economic announcements etc. and don't take signals around those times. I wasn't aware of anything coming out at 15.00 - or just before.
6) Typically about a dozen, although it varies according to market volatility. When I traded stocks, I tended to overtrade. To combat this, I traded SPY (via direct access) and the DOW daily Cash with EXT as I don't have a futures feed from eSignal. (SPY, QQQQ and DIA are more than adequate proxies, I find.) If the market is very flat, I scalp a one minute chart. But I'm wary of this because there are quite a lot of freight trains in this timeframe! On this note, it's worth noting that had I traded a 15 min' chart instead of a 5 min' one, yesterday's 'freight train' move would have produced the only trade of the day and it would have yielded a profit, if taken when price 'returned' to the fence.
I hope that answers everyone's questions. Thanks for your interest, help and input guys - much appreciated.
Tim.
