Sunday, August 25, 2013

Week in Review: 19th August to 25th August 2013

I finished this week in the black, so I'm quite happy. :)

I only opened two trades this week, one on the GBPUSD and the other on the GBPJPY. There were quite a few more signals during the week that I could've taken, but I chose to control my exposure and ignored them while my other trades were open. I also have another position on the NZDUSD that is still open from last week. 


GBPUSD - Daily timeframe - Hermes low volatility system

This was a straightforward setup. Friday's candle from the previous week had extremely low volatility. On Monday, I went long on the break of Friday's high. Reward was 0.5 * risk.

GBPJPY - Weekly timeframe - Set two bar reversal system

The GBPJPY offered a suitable two bar reversal setup on the weekly timeframe. I used my system 'Set' and made some profit. Price moved beyond my profit target by only 0.8 pips before it began reversing, so I was quite fortunate. Reward was 0.25 * risk.


There's some good news on the system development front. I've been testing a new system based on the 200 SMA and 21 EMA, after discovering this nugget of wisdom from legendary billionaire trader Paul Tudor Jones (essentially obey the 200 day moving average. Go long if price is above the 200SMA, or go short if below).

Suppose the 200 SMA and 21 EMA are both bullish, so your long-term and short-term direction are in sync. Look for a bearish candle. The candle's range must be between 0.75 and 1 ATR(14). The candle must NOT touch the 21 EMA. If it does touch, it may suggest that the market may be consolidating or even turning. 

The next day, enter on the break of the bearish candle's high. Place stop loss at the 61.8% retracement level between the candle's high and low. According to my backtest, a reward-to-risk of 0.4 to 1 looks the most robust, although all R:R ratios appear profitable.  Below is an example setup. 

I've tested five majors pairs from 2001 to early 2013 (EURUSD, USDJPY, AUDUSD, USDCAD, USDCHF). I hope to test the GBPUSD tomorrow. Current sample size is 325 trades. Here's how the equity curve is looking so far, assuming $10,000 and 1% risk per trade.

There's some significant drawdown during 2007, but overall the system looks promising enough to warrant further investigation. 

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