Linear Regression/Heiki Ashi Strategy

[ChattiFX]

Hi,

First a bit of background... I've dipped in and out of these forums for years under a few different user names as I'm always forgetting them ha... I've posted a few times mostly asking questions, learnt a lot just by searching and reading what people have to say etc...

"Trading" wise I've tried hundreds of different strategies, mostly spread betting, Trend based strategies, Forex EUR/USD being my main interest. Originally I'd have loved to jack in my job and make a living from this but tbh I never pinned my hopes on it lol. Now I have a well paid job that I enjoy which has given me probably a more relaxed approached. I don't want to say I treat it like gambling but I guess I look on it more as something of a hobby to occupy my over active brain rather than a means to villa in the sun, like I probably, actually definitely, used to dream of... hope that makes sense! :-/

So I thought I would post my current strategy, for comment or interest, I'm not looking for anything back really. I've used it for probably a month or two and when I am disciplined it's profitable and when I get lazy it's not profitable

I'd probably label this as a trend/probability based strategy. I'll try to post a picture as that will explain what I am doing better but below is a rough summary.

Essentially I use 4 charts, 1 Day, 1 Hr, 5 Min, Tick. I SB through IG Index so use their charting software which I find very good.

On the 1 Day, 1 Hr & 5 Min chart I use both Bar and Heiki Ashi (HA) to plot price. I use HA to give me my direction.

I then plot Linear Regression (LR) with standard deviation channels (normally set to 2 SD's but I alter this to suit the bar Highs and Low's) along the trends that are highlighted by HA. I realise that prices don't move linearly but I find it helps to give me a channel to trade in.

To determine direction:

Day chart: Down if - Price is above LR. Up if - Price is below LR.
Hour Chart: Direction of HA bars
5 Min: Direction of HA Bars
Tick Chart: Down if - Price is above LR. Up if - Price is below LR

So when all 4 charts are in the same direction I look to open in the direction of the trend.

My opening point is determined by using LR on the tick Chart. I open when the price is close to the LR standard deviation channel levels in the opposite direction to the chart i.e. in a down trend when the price is getting close to the upper standard deviation level of the LR.

Now here is the bit that most people will probably not like and is where my strategy starts to more resemble betting... I open a position with a stop loss and limit that are the same amount of points away from my opening position, but obviously in opposite directions ;-) This value is equal to the distance between the LR and the SD over the longer term trend on the tick chart, so on EUR/USD it is nornally 5-10 points.

Sometimes it's a winning trade and sometimes its a losing trade but I am basically using my trend definition as a way to make it more "probable" that the price will move in my direction so I get more winners than losers and therefore make a profit... :clap:

As I said previously when I am disciplined it seems to be profitable and when I'm not disciplined I make a loss :-( I have no idea if this will work long term or could be scaled up to make BIG money... for now I'm just happy to ride it for a bit and see if I can understand and refine it as time goes by... I'll try to come back in a few weeks and update on how it is working out or not as the case maybe ha...

Anyway I hope this has been of at least a bit of interest, I'm not saying this is a system that will consistently work, it is early days but I welcome any comments, questions etc...

I'll try and attached a pic of my charts to the post which will hopefully illustrate my ramblings better

Cheers...

 

[ChattiFX]

Forgot to say... I move the stop to track the longer term LR Channel on the tick chart so my potential loss reduces if the price goes with me... I never move the limit though.

 

[ChattiFX]

Ok so just a quick update...

All charts are pointing in the right direction at the moment so I'll be looking to open if the price hits the 12955-8 level and then reverses back up.

 

[michael45]

Ok so just a quick update...

All charts are pointing in the right direction at the moment so I'll be looking to open if the price hits the 12955-8 level and then reverses back up.

Please give advance explain about this chart. Thank you for posting this chart.

 

[michael45]

Hi,

First a bit of background... I've dipped in and out of these forums for years under a few different user names as I'm always forgetting them ha... I've posted a few times mostly asking questions, learnt a lot just by searching and reading what people have to say etc...

"Trading" wise I've tried hundreds of different strategies, mostly spread betting, Trend based strategies, Forex EUR/USD being my main interest. Originally I'd have loved to jack in my job and make a living from this but tbh I never pinned my hopes on it lol. Now I have a well paid job that I enjoy which has given me probably a more relaxed approached. I don't want to say I treat it like gambling but I guess I look on it more as something of a hobby to occupy my over active brain rather than a means to villa in the sun, like I probably, actually definitely, used to dream of... hope that makes sense! :-/

So I thought I would post my current strategy, for comment or interest, I'm not looking for anything back really. I've used it for probably a month or two and when I am disciplined it's profitable and when I get lazy it's not profitable

I'd probably label this as a trend/probability based strategy. I'll try to post a picture as that will explain what I am doing better but below is a rough summary.

Essentially I use 4 charts, 1 Day, 1 Hr, 5 Min, Tick. I SB through IG Index so use their charting software which I find very good.

On the 1 Day, 1 Hr & 5 Min chart I use both Bar and Heiki Ashi (HA) to plot price. I use HA to give me my direction.

I then plot Linear Regression (LR) with standard deviation channels (normally set to 2 SD's but I alter this to suit the bar Highs and Low's) along the trends that are highlighted by HA. I realise that prices don't move linearly but I find it helps to give me a channel to trade in.

To determine direction:

Day chart: Down if - Price is above LR. Up if - Price is below LR.
Hour Chart: Direction of HA bars
5 Min: Direction of HA Bars
Tick Chart: Down if - Price is above LR. Up if - Price is below LR

So when all 4 charts are in the same direction I look to open in the direction of the trend.

My opening point is determined by using LR on the tick Chart. I open when the price is close to the LR standard deviation channel levels in the opposite direction to the chart i.e. in a down trend when the price is getting close to the upper standard deviation level of the LR.

Now here is the bit that most people will probably not like and is where my strategy starts to more resemble betting... I open a position with a stop loss and limit that are the same amount of points away from my opening position, but obviously in opposite directions ;-) This value is equal to the distance between the LR and the SD over the longer term trend on the tick chart, so on EUR/USD it is nornally 5-10 points.

Sometimes it's a winning trade and sometimes its a losing trade but I am basically using my trend definition as a way to make it more "probable" that the price will move in my direction so I get more winners than losers and therefore make a profit... :clap:

As I said previously when I am disciplined it seems to be profitable and when I'm not disciplined I make a loss :-( I have no idea if this will work long term or could be scaled up to make BIG money... for now I'm just happy to ride it for a bit and see if I can understand and refine it as time goes by... I'll try to come back in a few weeks and update on how it is working out or not as the case maybe ha...

Anyway I hope this has been of at least a bit of interest, I'm not saying this is a system that will consistently work, it is early days but I welcome any comments, questions etc...

I'll try and attached a pic of my charts to the post which will hopefully illustrate my ramblings better

Cheers...

What do we do when have down trend.

 

[ChattiFX]

Ok, so an update on this... (for michael45 if nobody else ha :-/)

To sum up I have come to the conclusion this is not a viable strategy. The reality is that it just doesn't produce a good enough win/lose ration. In a nice strong trend (which only really shows after the event obviously) the strategy will give ok results but when there is a major change in direction or sideways movement I just end up chasing the price...

There was a post by someone on this forum that basically said when all the trends line up in the same direction it's probably at the end and you've missed the boat... I can't find the post again to reference the person who said this but I think it's a valid point.

Anyway, one thing I will say is that by simplifying my approach and not using loads of complicated equations, indicators and automated signals I think I might have a better understanding. I actually look at the way the price moves rather than trying to match it up to indicators.

Maybe this will help maybe it wont. Once I understand what I am doing better and have a few months of consistent trading I will post again but... For the past 3 weeks I have only used Heiki Ashi on a day chart to give me a direction to trade, linear regression for a rough trend line on tick chart and support/resistance lines on a tick chart. I'm opening positions where I think I can move the stop to breakeven relatively quickly, 5-10 mins, with the positions running for maybe an hour or two. Its only been a couple of weeks but my SB account was down to £40 and is now up to £180 (betting 50p/pip on EUR/USD). Obviously my initial risk management is way out because I only had £40 in the account and 50p/pip is the lowest amount you can bet on IG, but with an initial stop loss of 5-10 pts I am now running at ~2.5% risk.

Anyway, I'm fairly happy with the way I'm making decisions and hopefully it will produce a reasonable return... I'm not expecting to quadruple my money every few weeks though of course ;-)

Like I said I will update once I know if I can be consistent through different market conditions etc.

I would be interested in anyone's opinions of the merits of trading what you see rather than relying on algorithms and indicators. I might start a thread on this subject when I understand what I am doing more and can be a bit more specific!!

Cheers,