Currency Secrets

FXCM have released a new version of their platform aptly labelled FXCM Trading Station 2.

The new features of this platform include:

• Cosmetic changes to skins
• News and charting plugins integrated within the same platform - although you still need to download them separately
• Customization of look and feel of just about everything in the platform
• Hot keys (create your own)
• Tabbed browsing

Unfortunately there’s nothing too exciting with the changes, however, it is a change and I guess a change is as good a holiday!

Since changing the way people can access the Top Currency Secrets section to a new registration process I was recently captivated by one member’s profile.

Steven, a Currency Secrets member, writes in his profile:

People tell me my profile is that of a Greek god. To my unbearable good looks, I add the genius of an Einstein, the sexual attraction of an Errol Flynn and the wealth of a Saudi sheik. And above all my other virtues, modesty and humility crown the whole thing with a patina of magnificence that stuns even me. Other than that, I’m just your ordinary joe.

…and here I was thinking that forex traders were a dull, colourless and boring bunch!

Thanks Steven for the laughs, and I’m glad you were able to successfully register.

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Since the start of the year the USDCAD chart has been range trading between 1.2000 and 1.2700. While this range is no tight congestion, it has formed an interesting slightly upward trending support line this is extremely close to the current market price.

So what will the USDCAD do?

Well, obviously it will do one of two things:

1. Bounce, or
2. Break

Nothing profound there!

Why bounce?

The most obvious reason for why the USDCAD may bounce at the support area of around 1.2050 is due to the fact that from the trend line which it will bounce from it has done so 3 times in the past.

I personally consider a trend line that has had 3 prior touches to be extremely significant.

So what should we be looking for if we are to expect a bounce?

Well, quite simply, a reversal candle.

I personally prefer the more aggressive type reversal candlestick patterns such as the engulfing types, but other notables would include inverted hammers or dojis.

What if we have a break?

If we have a successful break we should see the USDCAD close by today (1700 NY EST) below the support level of 1.2050.

To confirm the break we would need two things to occur:

1. A breakout type candle
2. Two consecutive closes below the trend line

Once we have this we have a confirmed break.

So how am I be viewing this?

One thing I like about the support trend line is the lack of wicks piercing the trend line. See for yourself (click on image to enlarge):

And due to the lack of wicks I wouldn’t hesistate in placing a stop entry order beneath the trend line at around 1.2035.

If I were playing it extremely safe I would place my initial stop at the previous high of 1.2430, but considering that having a 400 pip stop isn’t my style I would reduce it to the high of today (or the day of when the stock breaks) - this will reduce my initial stop loss point to around 70-80 pips.

Anyway, just thinking out aloud. I will see how the USDCAD travels later this morning and determine whether or not such a strategy will be a viable one.

Keep an eye on it.

One of the last activities that need be done when system testing is removing the sample constraints. This will allow you to test your system over the entire period of your data to see whether it is still profitable and that the drawdowns aren’t increased.

Here is the resulting code without the sample space constraints: CLICK HERE

And for the last time let’s run a watchlist scan as well as Simulation to see how the numbers have panned out.

Watchlist Rankings = 254 trades
6% risk per trade…
Starting Capital = $10,000
Ending Capital = $77,136.58
# Trades = 241 (13 neglected or 5.1%)
Strike Rate = 43.15%
Avg Win = $2,499.55
Avg Loss = -$1,407.42
Avg W/L Ratio = 1.78
Drawdown = -53.75%
Recovery Factor = 0.98

Unfortunately, as discussed in our previous post, this system has an increase in drawdown, but now the drawdown is WAY outside what we’d be comfortable with.

So, it’s back to the tweaking board.

And that’s pretty much it.

I will not have the time to go into detail with reversal based systems, but with these types of systems you are mainly look for price extremes and then looking to take advantage of price moving back to normal.

Here are some entry conditions that you may want to test:

• Bollinger bands on price burst
• High volatility
• Bollinger bands on range bound indicators
• Bollinger bands on non-range bound indicators
• Reversal indicators - stochastics, RSI, Williams %R
• Reversal price patterns - engulfing patterns, piercing patterns, dojis

Those should be enough to wet your appetite in your design of reversal based systems.

Well I hope this FREE series has helped you understand the process of system designing from an area that really isn’t discussed in much detail anywhere else. I hope that with the knowledge you have gained that it has helped you design your systems better and quicker and more robust than what you previously were accustomed at doing. Even if this series has helped you to see another side to your system that you weren’t previously aware of then I would have achieved my result.

In ending, I have tested many forex systems and many fall short of my goals and targets for the system I personally prefer to trade, and this is the very reason why I trade discretionary, however this does not mean that I do not stop testing new methods and techniques searching for a profitable mechanical system because in the end the best way to trade is automatically (without thinking). In fact it would even be better if the entire process is done automatically… the only thing needed done on my behalf is withdrawing the profits!!

So, dear friends, I wish you all the best in your testing of new ideas and hope that one day you will find that system that complements you perfectly.

Ryan Sheehy
Currency Secrets.com