Fixing the Flaws
We set out to develop a strategy that delivers the advantages of the original strategy, but eliminates its flaws.
We’ve created altogether a completely new, more powerful trading strategy.
Here’s how we addressed each weakness.
Too many lost opportunities
We acknowledge that the profitability of a trading strategy is not based on the quantity of entry signals that it produces. It is based on the quality of entry signals. But the original strategy ignored far too many good quality signals, not least opportunities to enter a trade at the beginning of a new trend.
We reconfigured the strategy to catch changes in market sentiment. Consequently, we’re able to enter the market when a new trend emerges.
Further, we’re now able to trade safely against the underlying trend. Experience shows there usually are significant movements against the trend, presenting profitable trading opportunities. This is an optional feature. You may choose to ignore it if you’re one of those die-hard believers in the notion that the trend is always your friend. We happen to believe your friends at times turn on you. We’ve incorporated a special ‘moving average’ line on the chart so that you literally see the trend as you trade.
Too manual
We’ve developed the ability to generate automated entries that simulate the entry signals of the original strategy. We’re only required to set the trade parameters and place an automated order (‘IF DONE OCO order) that will trigger when the parameters are met.
As you would recall from your Forex Trading School days, an IF DONE OCO order tells the system to enter a trade if a certain price is reached, and either take profit at a specified target price, or take a calculated loss (stop loss) if the trade moves against you.
Using IntelliChart software, we program the system to text, e-mail, and alert us on-screen once our profit target or stop loss has been hit. We also instruct the system to alert us the moment our trade moves into profit so we may decide whether to move our stop to break-even to lock in profits and let the trade run risk-free.
When the system gets an entry signal it automatically triggers, putting you in a trade. And you receive a text message, e-mail, and on-screen notification once profit or stop targets are hit.
Our exit, based on a strategic review of support and resistance, is also automated, being part of the IF DONE OCO order.
The trade set-up, with some practice, should take just a few minutes.
Too time-consuming
Because of the automated orders mentioned above, there is now no need to sit for hours upon hours before your computer watching your trade. You simply place the orders and get on with your life.
The text message (or e-mail, or computer beep) will in time alert you of the outcome of your trade. You can then return to your computer, set-up another trade and disappear again.
That we ask you to place automated orders and get on with your life is no coincidence. You’d recall from your time at Forex Trading School the importance of discipline to your trading success. Turning away from your trade and your computer is the most effective form of self discipline when it comes to trading.
When you remain fixated on your computer screen, your urge to interfere with the trade increases each passing second. You may be tempted to stop out your trade prematurely not giving it sufficient breathing space. Worse still, you may get overzealous and take profit prematurely, not letting your profit run. And of course you could commit the ultimate transgression – you might decide to enter a trade contrary to your strategy, on the basis of some gut feeling!
‘Forgetting’ your trades and getting on with your life prevent you from intervening needlessly, letting your trade ‘do its thing’, while preventing you from doing silly things.
The ‘forget your trade and get on with you life’ concept is critical to the success of any strategy.
Losses not cut short
We back-tested two years’ data to find the most efficient stop loss. An efficient stop loss is not easily hit but is tight enough so that if we are wrong and the trade moves against us we preserve most of our capital to fight another day.
We noted that stop loss efficiency varied with the time of day. For the trading hours we recommend, we concluded that 30 pips was the most efficient stop loss.
We exit our trades at strong support and resistance levels where we believe the price will reverse. However, immediately after we exit, we set up another automated order. This allows us to catch any continuing moves in the direction of the trend (after the hopefully brief retrace).
This approach ensures that our strategy observes the ‘let your profits run’ rule without risking profits already earned.
Poor Profit-protection
Our software alerts us once our trade has moved into profit. If we so wish, we may then shift our stop to break-even, and continue to move our stop to lock in profit as the trade progresses. This adequately protects profits.
We’ve incorporated within our strategy a method of forewarning traders of impending economic news, and their potential impact (volatility) on the market.
This serves to further protect profit.
As you know, the market isn’t active throughout the entire day. Our strategy is configured to produce better results during specific peak times when there is the highest probability that our trades will move in our desired direction
Trading hours, therefore, are significantly reduced. But you may have to make the sacrifice and arise at some un-Godly hours to set up your trades. Then again, you have the option of returning to bed and await the text message that alerts you when specific price points have been reached.
Market Direction
Our strategy does not try to figure out what the market will do or where it will go. We have no control over that. Our strategy focuses on what to do when the market gets to wherever it will. We place two automated orders, one above the current price, and another below. This ensures that as long as the market moves significantly in one direction or another, we will enter a trade.
Fibonacci
We’ve done away with Fibonacci numbers altogether. We’ve found a way to eliminate them without sacrificing profitability. This further simplifies the strategy.
