Mabenn's Machine | Foreign exchange EA download - MT4/MT5 resources
***New updated templates***
This trading theory is based on dynamically approaching the market. Because market dynamics are always changing, for example, a simple 20 pip stop loss in 5 minutes is not always the best because volatility changes. We've seen crazy volatility over the past month and I think those who have used set stops have run into problems and it makes sense for them to do so.
I don't know if anyone can write anything from this template and method...any ideas let me know!
So here it is:
I will try to spend as little time as possible on entry techniques and more on position sizing and exit techniques, which are the only real ways to determine your trading results...
I plotted 3 Keltner channels, all plotted around the 20 period MA (invisible), the first plotted as the bias envelope at 1.618, the second at 2.618, and the third at 4.236 for Fibonacci fun.
Using deviations of 2, 3 and 4 may work just as well, but using magic numbers seems to cover most of the price action and provide the best areas to look for when placing trades. Plus...they're the magic numbers, so it's almost as good as having a crystal ball on your desk.
Market transactions are divided into the following stages:
rising and fluctuating,
Up and quiet sideways swings sideways while quiet down and down swings are low and quiet.
Knowing how to react in all situations is key, or knowing how your system reacts...but ultimately, you are your system aren't you?
The Fast Color RSI is designed to look for convergence (confirming price action) and divergence patterns. If you don't know what that is, there's a great page on researching its uses, which includes several articles:
http://www.trading-naked.com/Divergence.htm
When the market is up and choppy , or down and choppy hopefully you have gotten a signal or found a good place to go long/short and are still in your position, but... look for a pullback to the area between the white center mov avg (21 EMA) and the golden dotted Keltner Channel. (or 5ema - see Philip Nel's 5 Minute Strategy)
When the market is up and quiet , or the down and quiet bands should be tighter, so you might look for a pullback to the first set of bands that are directly opposite the trend, a pullback to the 5/21 EMA area, or just a pullback supported by support/resistance, the key here is to follow the trend! Watch OB/OS on fast RSI.
Sideways and choppy , look for retracements between 1.618 and 4.236, which provide the best signals for long/short areas between the 2 outer bands. Use RSI, OB/OS or divergence patterns for confirmation. Trade at the extremes of a sideways channel.
Sideways and quiet , look for retracements between the 2 inner bands (1.618 and 2.618), looking for areas to go long and short. Watch OB/OS on RSI.
ATR can be used for your stops, as well as a visual measurement of volatility confirmation - see the position size calculator on the next page to learn how to use RSI as a stop loss measure!
I have found that 2x ATR provides an excellent stop loss that is not too far away to create a good risk to reward ratio while still being outside of the market noise (i.e. 1x ATR).
Note to mt4 programmers: I would rather have the ATR displayed on the chart screen like this: 1x ATR="", 2xATR="" 3xATR="" etc. Instead of looking at the lines and atr and multiplying them. If anyone has the skills to program this it would be great to see and use!
Relative Strength Index: If the fast RSI is covering (confirming) or diverging, these are the two things to look out for, then it will always be both (duh)... Convergence is confirming price action, so if you buy on a down trend and the RSI confirms price action, then that is a safer point - it would be better if the RSI diverges on the down, but you may have to zoom into a smaller time frame, for me this would be the 1 minute chart.
Therefore, if there is a divergence from price in a sideways market, it may mean that it is an excellent position to go long/short; if it is converging with the trend, the pullback is an excellent and safe position to go long/short; if it is divergent from the trend, there may be 2-5 divergences before the trend undergoes a major correction or change. Sometimes great formations occur when you see the first divergence followed by a convergent retracement. This also applies to the second divergence/convergence mode. If this is confusing, read the Naked Trading article. I think this is self-explanatory.
The colored parts of the Rapid RSI look great on the eyes.
The easiest way to adjust your position size is to keep your risk level at whatever risk level you are comfortable with. I personally find that using a low risk approach at the beginning of the month and scaling up as the account grows works well, but taking an approach that is more than twice the original risk level can affect the results.
So, let's say you start the month with 1/2% risk and make a few good trades so that you have 5 winners and 2.5% gains, you can choose to scale up to 0.75% or 1% risk/trade, but be careful, if you have a few losers, scale back to 1/2% to protect your original capital from last month's realized gains. These numbers are just a guide and an example... position sizing is more complex than this, so let me explain it better with an example:
Assume the market is moving sideways and volatile, and your setup requirements are met. You can open a position with a stop loss of 2x ATR. If the ATR on the 5 minute chart is 10, then set the stop loss to 20 pips and adjust your position so that 20 pips is also equal to your risk % parameters.
Now 20 pips is your risk and your reward depends on where you exit... There are multiple strategies for this, countless in fact. As a trader, your job is to trade so that you consistently generate good returns for your risk.
One thing I've found is that when the market moves out of one band, it moves to the opposite band , so you can simply take profit there, with 1-2x risk and good accuracy, or once you get to the opposite band trajectory, you can put a stop loss in any way that seems reasonable depending on market conditions and volatility (my stop loss as an example, 1.5x seems to work well). In case of a trend/swing, tracking it via the opposite inside bar seems to work well. The purpose of a trailing stop is to maximize your profits while protecting realized gains, so you can choose to chase tight or relax.
For example: If you are long and the market reaches a key level, such as an even or resistance level, you can choose to tighten the trailing stop, or loosen the trailing stop if that level is breached.
Keep an eye on support/resistance, trend lines, I'm sure someone will find a use for pivot points, or some other way to filter bad trades or increase accuracy, it should make sense and not just end up making your system more complicated
This is how I like to set up my template because I think it's very simple and it shows me the areas I need to pay attention to. Everything in the middle of the channel doesn't matter to me unless the market is trending and pulling back...the 50, 100 and 200 SMAs serve as visual aids/confirmation of the trend.
When the market diverges from the RSI, pay attention. The idea is to look for low-risk entries with a high probability of exit, thus leading to positive expectations. For example:
I ran a quick simulation in my Excel worksheet that I created using Van Tharp's Numerical Principles of Trade Tracking, Position Sizing, and System Quality...I'll attach this when I get home tonight (I know someone may ask for it). This is from The Definitive Guide to Position Sizing, - Van Tharp
When I enter a 50/50 win rate and go with a 2-1 winner, the system quality number goes up to 7, which is holy grail territory. I enter a 50/50 win rate, a return of 1.25 x risk, an SQN of about 3.5, it is tradable and will make money consistently. So you don't necessarily need to catch most of the moves, you just need to have a good risk/reward ratio and a win rate that creates positive results, whatever that is, it will be different for every trader/trading style. I like to choose 2x risk because it gives me room to trail my stop loss if I think the market is going to continue moving forward when it gets close to my 2x exit zone, or it also gives me room to place a stop loss at BE when I'm trying to protect capital and increase my risk by 1x.
On the other hand, I see major players on our trading floor putting $5+ million or so in call bets, and once they hit 10 pips in profit, they set their stop loss to breakeven, which may or may not be a smart strategy, but I will tell you, it greatly increases the likelihood of being stopped out simply because of market noise, and you may be very "right" on the trade, but not give the market room to breathe. Also, most of the people who call our floor have no idea what they are doing in terms of risk reward, position sizing, they are just gambling... This is the conclusion I have come to after seeing many such traders go bankrupt. You don't want to be like them. They use huge leverage, so they have to have a high degree of accuracy. They don't, only 50% at best... They always lose big, their emotions are an emotional roller coaster, they have no edge.
Trade very small amounts (ideally 1-1 leverage on your account) until you have 20-40 trades and then analyze your trades. If everything goes well, check yourself in and scale up. Rinse, repeat, keep going…
So I hope I've given some people a really good way to get into the market while still keeping it simple.
I should mention (although this seems like common sense) that I closely follow the markets relevant to my target market, which for USD/CAD is Oil, TSX, Dow, etc. If you haven't discovered this yet, cross-market analysis is very useful. It makes sense that if oil falls, the Canadian dollar should fall as well, and therefore the U.S. dollar should rise. It makes sense that if the TSX falls, foreign investors will sell their Canadian stocks and Canadian dollars (unless they have Canadian dollar stock accounts). If the TSX goes up, foreign investors will need to buy Canadian dollars to buy Canadian dollar stocks... There are many books written on intermarket analysis.
Also, I probably don't have to say this, but just in case - watch the news releases and use live feeds (no lag). For example, if U.S. retail sales data is expected to hit a certain number, but it turns out to be much weaker than expected, then it's bye bye for the dollar... especially if oil and the TSX rise.
Knowing when to hold them and when to fold them is either an art or a science. You can simply set your exit at a predetermined level to provide good anticipation, or hold your winners for as long as possible, etc...
Any input would be greatly appreciated (that's why I'm posting this after all...).
When I have a minute or two I'll post a diagram to show you what my template looks like. But you should be able to figure it out, or the template should work as-is. I'll try to avoid posting "cherry-picked" examples.
I also learned to track every trade and every trading decision and keep a journal. Maybe I'll start posting my daily journal on this thread, but I don't think I'll put my live trades here as my system/method may not work for others and it will be delayed...
If you are not familiar with Van Tharp's work, please visit www.iitm.com There is at least Trade Your Way to Financial Freedom and The Turtle Way by Curtis Faith, and I also highly recommend The Peak Performance Course and The System Development Course.
Also please only offer constructive criticism. Thanks for any comments and suggestions, it will be interesting to see how others adapt to this, hope it helps in some way.
I forgot to add that this is mainly used in the 5 minute and 15 minute time range . But I always take the long view and take a minute to track the trades. Short term trading provides me with many opportunities and helps me not get too bored...I am a "risk trader". You can go to www.tharptradertest.com and answer the questions - very insightful!
****Only trade during the most active periods for your currency pair. ****
The position sizing calculator is in post #22.
This trading theory is based on dynamically approaching the market. Because market dynamics are always changing, for example, a simple 20 pip stop loss in 5 minutes is not always the best because volatility changes. We've seen crazy volatility over the past month and I think those who have used set stops have run into problems and it makes sense for them to do so.
I don't know if anyone can write anything from this template and method...any ideas let me know!
So here it is:
I will try to spend as little time as possible on entry techniques and more on position sizing and exit techniques, which are the only real ways to determine your trading results...
I plotted 3 Keltner channels, all plotted around the 20 period MA (invisible), the first plotted as the bias envelope at 1.618, the second at 2.618, and the third at 4.236 for Fibonacci fun.
Using deviations of 2, 3 and 4 may work just as well, but using magic numbers seems to cover most of the price action and provide the best areas to look for when placing trades. Plus...they're the magic numbers, so it's almost as good as having a crystal ball on your desk.
Market transactions are divided into the following stages:
rising and fluctuating,
Up and quiet sideways swings sideways while quiet down and down swings are low and quiet.
Knowing how to react in all situations is key, or knowing how your system reacts...but ultimately, you are your system aren't you?
The Fast Color RSI is designed to look for convergence (confirming price action) and divergence patterns. If you don't know what that is, there's a great page on researching its uses, which includes several articles:
http://www.trading-naked.com/Divergence.htm
When the market is up and choppy , or down and choppy hopefully you have gotten a signal or found a good place to go long/short and are still in your position, but... look for a pullback to the area between the white center mov avg (21 EMA) and the golden dotted Keltner Channel. (or 5ema - see Philip Nel's 5 Minute Strategy)
When the market is up and quiet , or the down and quiet bands should be tighter, so you might look for a pullback to the first set of bands that are directly opposite the trend, a pullback to the 5/21 EMA area, or just a pullback supported by support/resistance, the key here is to follow the trend! Watch OB/OS on fast RSI.
Sideways and choppy , look for retracements between 1.618 and 4.236, which provide the best signals for long/short areas between the 2 outer bands. Use RSI, OB/OS or divergence patterns for confirmation. Trade at the extremes of a sideways channel.
Sideways and quiet , look for retracements between the 2 inner bands (1.618 and 2.618), looking for areas to go long and short. Watch OB/OS on RSI.
ATR can be used for your stops, as well as a visual measurement of volatility confirmation - see the position size calculator on the next page to learn how to use RSI as a stop loss measure!
I have found that 2x ATR provides an excellent stop loss that is not too far away to create a good risk to reward ratio while still being outside of the market noise (i.e. 1x ATR).
Note to mt4 programmers: I would rather have the ATR displayed on the chart screen like this: 1x ATR="", 2xATR="" 3xATR="" etc. Instead of looking at the lines and atr and multiplying them. If anyone has the skills to program this it would be great to see and use!
Relative Strength Index: If the fast RSI is covering (confirming) or diverging, these are the two things to look out for, then it will always be both (duh)... Convergence is confirming price action, so if you buy on a down trend and the RSI confirms price action, then that is a safer point - it would be better if the RSI diverges on the down, but you may have to zoom into a smaller time frame, for me this would be the 1 minute chart.
Therefore, if there is a divergence from price in a sideways market, it may mean that it is an excellent position to go long/short; if it is converging with the trend, the pullback is an excellent and safe position to go long/short; if it is divergent from the trend, there may be 2-5 divergences before the trend undergoes a major correction or change. Sometimes great formations occur when you see the first divergence followed by a convergent retracement. This also applies to the second divergence/convergence mode. If this is confusing, read the Naked Trading article. I think this is self-explanatory.
The colored parts of the Rapid RSI look great on the eyes.
The easiest way to adjust your position size is to keep your risk level at whatever risk level you are comfortable with. I personally find that using a low risk approach at the beginning of the month and scaling up as the account grows works well, but taking an approach that is more than twice the original risk level can affect the results.
So, let's say you start the month with 1/2% risk and make a few good trades so that you have 5 winners and 2.5% gains, you can choose to scale up to 0.75% or 1% risk/trade, but be careful, if you have a few losers, scale back to 1/2% to protect your original capital from last month's realized gains. These numbers are just a guide and an example... position sizing is more complex than this, so let me explain it better with an example:
Assume the market is moving sideways and volatile, and your setup requirements are met. You can open a position with a stop loss of 2x ATR. If the ATR on the 5 minute chart is 10, then set the stop loss to 20 pips and adjust your position so that 20 pips is also equal to your risk % parameters.
Now 20 pips is your risk and your reward depends on where you exit... There are multiple strategies for this, countless in fact. As a trader, your job is to trade so that you consistently generate good returns for your risk.
One thing I've found is that when the market moves out of one band, it moves to the opposite band , so you can simply take profit there, with 1-2x risk and good accuracy, or once you get to the opposite band trajectory, you can put a stop loss in any way that seems reasonable depending on market conditions and volatility (my stop loss as an example, 1.5x seems to work well). In case of a trend/swing, tracking it via the opposite inside bar seems to work well. The purpose of a trailing stop is to maximize your profits while protecting realized gains, so you can choose to chase tight or relax.
For example: If you are long and the market reaches a key level, such as an even or resistance level, you can choose to tighten the trailing stop, or loosen the trailing stop if that level is breached.
Keep an eye on support/resistance, trend lines, I'm sure someone will find a use for pivot points, or some other way to filter bad trades or increase accuracy, it should make sense and not just end up making your system more complicated
This is how I like to set up my template because I think it's very simple and it shows me the areas I need to pay attention to. Everything in the middle of the channel doesn't matter to me unless the market is trending and pulling back...the 50, 100 and 200 SMAs serve as visual aids/confirmation of the trend.
When the market diverges from the RSI, pay attention. The idea is to look for low-risk entries with a high probability of exit, thus leading to positive expectations. For example:
I ran a quick simulation in my Excel worksheet that I created using Van Tharp's Numerical Principles of Trade Tracking, Position Sizing, and System Quality...I'll attach this when I get home tonight (I know someone may ask for it). This is from The Definitive Guide to Position Sizing, - Van Tharp
When I enter a 50/50 win rate and go with a 2-1 winner, the system quality number goes up to 7, which is holy grail territory. I enter a 50/50 win rate, a return of 1.25 x risk, an SQN of about 3.5, it is tradable and will make money consistently. So you don't necessarily need to catch most of the moves, you just need to have a good risk/reward ratio and a win rate that creates positive results, whatever that is, it will be different for every trader/trading style. I like to choose 2x risk because it gives me room to trail my stop loss if I think the market is going to continue moving forward when it gets close to my 2x exit zone, or it also gives me room to place a stop loss at BE when I'm trying to protect capital and increase my risk by 1x.
On the other hand, I see major players on our trading floor putting $5+ million or so in call bets, and once they hit 10 pips in profit, they set their stop loss to breakeven, which may or may not be a smart strategy, but I will tell you, it greatly increases the likelihood of being stopped out simply because of market noise, and you may be very "right" on the trade, but not give the market room to breathe. Also, most of the people who call our floor have no idea what they are doing in terms of risk reward, position sizing, they are just gambling... This is the conclusion I have come to after seeing many such traders go bankrupt. You don't want to be like them. They use huge leverage, so they have to have a high degree of accuracy. They don't, only 50% at best... They always lose big, their emotions are an emotional roller coaster, they have no edge.
Trade very small amounts (ideally 1-1 leverage on your account) until you have 20-40 trades and then analyze your trades. If everything goes well, check yourself in and scale up. Rinse, repeat, keep going…
So I hope I've given some people a really good way to get into the market while still keeping it simple.
I should mention (although this seems like common sense) that I closely follow the markets relevant to my target market, which for USD/CAD is Oil, TSX, Dow, etc. If you haven't discovered this yet, cross-market analysis is very useful. It makes sense that if oil falls, the Canadian dollar should fall as well, and therefore the U.S. dollar should rise. It makes sense that if the TSX falls, foreign investors will sell their Canadian stocks and Canadian dollars (unless they have Canadian dollar stock accounts). If the TSX goes up, foreign investors will need to buy Canadian dollars to buy Canadian dollar stocks... There are many books written on intermarket analysis.
Also, I probably don't have to say this, but just in case - watch the news releases and use live feeds (no lag). For example, if U.S. retail sales data is expected to hit a certain number, but it turns out to be much weaker than expected, then it's bye bye for the dollar... especially if oil and the TSX rise.
Knowing when to hold them and when to fold them is either an art or a science. You can simply set your exit at a predetermined level to provide good anticipation, or hold your winners for as long as possible, etc...
Any input would be greatly appreciated (that's why I'm posting this after all...).
When I have a minute or two I'll post a diagram to show you what my template looks like. But you should be able to figure it out, or the template should work as-is. I'll try to avoid posting "cherry-picked" examples.
I also learned to track every trade and every trading decision and keep a journal. Maybe I'll start posting my daily journal on this thread, but I don't think I'll put my live trades here as my system/method may not work for others and it will be delayed...
If you are not familiar with Van Tharp's work, please visit www.iitm.com There is at least Trade Your Way to Financial Freedom and The Turtle Way by Curtis Faith, and I also highly recommend The Peak Performance Course and The System Development Course.
Also please only offer constructive criticism. Thanks for any comments and suggestions, it will be interesting to see how others adapt to this, hope it helps in some way.
I forgot to add that this is mainly used in the 5 minute and 15 minute time range . But I always take the long view and take a minute to track the trades. Short term trading provides me with many opportunities and helps me not get too bored...I am a "risk trader". You can go to www.tharptradertest.com and answer the questions - very insightful!
****Only trade during the most active periods for your currency pair. ****
The position sizing calculator is in post #22.
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