A Different Kind of System… 35 comments. ClickBank's role as retailer does not constitute an endorsement, approval or review of these products or any claim, statement or opinion used in promotion of these products. If you've ever feared a losing streak, fear no more! Analyze graphs The variety of charts in TradeMiner allows you to see the results of the previous years, identify historical risk vs. The 20 SMA with RSI swing trading strategy in a trending market has the potential to add hundreds of pips to your count. Try to come up with three or four different approaches to the market.
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I dont quite follow this. I understand this adds risk to the system as the trader would trade the system based on the backtest results which showed profit from the price shocks when they wouldnt really rather be losses , so if most of the system edge came from those and in real life it missed them then the system would have no edge. Price shocks become part of the data history just like any other prices.
When we select which parameters we use based on testing, we favor the best results. Those best results would have profited from large unexpected moves shocks or at least not hurt as much by them compared to other tests.
So I expect the choice of parameters based on back testing will be the ones that reflect the most favorable price shocks.
Then we get to real trading. If we are trend followers, then a price shock is nearly always in the opposite direction to our position, because there is a void in the liquidity. Based on that premise, the difference between the number of favorable price shocks in your test, and the actual price shocks that were profitable in reality, will be your error in expectations of profits. Are the profits from price shocks in the past larger than the total profits in the test?
No, but they are larger than they seem because they would be more likely a loss in the future rather than a profit, so some of those past results would be reversed. The biggest issue with accepting test results with shocks will not be the returns, but the risk. When you assume a profit when you might have had a loss, you believe that the risk is much lower than it really is, and you are not prepared for the actual trading risk. I suggest that you verify this yourself.
I am using the period simple moving average in conjunction with Bollinger Bands and a few other indicators. So, after reviewing my trades, I, of course, came to the realization that one moving average is not enough on the chart. The need to put more indicators on a chart is always the wrong answer for traders, but we must go through this process to come out of the other side. I felt that if I combined a short-term, mid-term and long-term simple moving average, I could quickly validate each signal.
You are welcomed to use any setting that works best for you, but the point is each moving average should be a multiple or two from one another to avoid chaos on the chart. I used the shortest SMA as my trigger average. When it crossed above or below the mid-term line, I would have a potential trade.
The sign I needed to pull the trigger was if the price was above or below the long-term moving average. So, going back to the chart the first buy signal came when the blue line crossed above the red and the price was above the purple line. This would have given us a valid buy signal. Then after a nice profit, once the short line crossed below the red line, it was our time to get out. Notice that the price was still above the purple line long-term , so no short position should have been taken.
The purple long-term prevents is from always being in a long or short position like in the cryptocurrency case study mentioned earlier. Looking back many years later, it sounds a bit confusing, but I do have to compliment myself on just having some semblance of a system. At this point of my journey, I am still in a good place. That's what I was hoping to represent with the green smiley faces. The green also represents the expectation of the money flow as well. It's around late summer at this point and I was ready to roll out my new system of using three simple moving averages.
It became apparent to me rather quickly that this was much harder than I had originally anticipated. Once I landed on trading volatile stocks, they either gave false entry signals or did not trend all day.
This level of rejection from the market cut deeply. I remember staring at the screen thinking, "Why is this not working? Charts began to look like the one below and there was nothing I could do to prevent this from happening.
Anyone that has been trading for longer than a few months using indicators at some point has started tinkering with the settings. Well, I took that concept to an entirely different level. I was using TradeStation at the time trading US equities and I began to run combinations of every time period you can imagine. As you can see, these were desperate times.
I was running all sorts of combinations until I felt I landed on one that had decent results. The goal was to find an Apple or another high-volume security I could trade all day using these signals to turn a profit. Similar to my attempt to add three moving averages after first settling with the period as my average of choice, I did the same thing of needing to add more validation checks this time as well.
So, instead of just moving forward with the settings I had discovered based on historical data which is useless the very next day, because the market never repeats itself , I wanted to outsmart the market yet again. It's important to note that I was feeling pretty good after all this analysis.
I felt that I had addressed my shortcomings and displacing the averages was going to take me to the elite level. For those of you not familiar with displaced moving averages, it's a means for moving the average before or after the price action.
I'm not going to drain this concept in this article, as the focus of this discussion is around simple moving averages. The point is, I felt that using the averages as a predictive tool would further increase the accuracy of my signals.
This way I could jump into a trade before the breakout or exit a winner right before it fell off the cliff. To illustrate this point, check out this chart example where I would use the same simple moving average duration, but I would displace one of the averages to jump the trend. The reality is that I would jump into trades that would never materialize or exit winners too soon before the real pop. I think this feeling of utter disgust and wanting to never think about trading again is part of the journey to consistent profits.
Going back to my journey, at this point it was late fall, early winter and I was just done with moving averages. This is clearly reflected in my red unhappy face. This of course left me feeling completely broken and lost. I don't say that lightly. I mean the feeling of despair was so real; you feel like quitting, to be honest. Al Hill Click to tweet. Technical indicators and systems lead to more indicators to try and crack the ever-elusive stock market.
I would try one system one day and then abandon it for the next hot system. This process went on for years as I kept searching for what would work consistently regardless of the market. If you get anything out of this article, do not make the same mistake I did with years of worthless analysis. You will make some traction, but it's a far better use of your time to zone in on yourself and how you are perceiving the market. After many years of trading, I have landed on the period simple moving average.
At times I will fluctuate between the simple and exponential, but 20 is my number. This is because I have progressed as a trader from not only a breakout trader, but also a pullback trader.
I use the period moving average to gauge market direction, but not as a trigger for buying or selling. At times a stock will crack right through the average, but I don't panic that a sell-off is looming.
I just wait and see how the stock performs at this level. It's funny to think that I have essentially reverted to exactly what I was looking at over 10 years ago - one average. You may ask "Are you upset that it took you this long to come to this conclusion? It wasn't all death and gloom along the way and the simple moving average is just one component of my trading toolkit.
In other words, mastering the simple moving average was not going to make or break me as a trader. However, understanding how to properly use this technical indicator has positioned me to make consistent profits. The thing is they have little to do with trading or technicals. Both disadvantages for me deal with the mental aspect of trading, which is where most traders struggle - the problem is rarely your system.
This is something I touched on briefly earlier in this article, essentially with a lagging indicator, you will never get out at the top or bottom. Now, you could be thinking, well if we make money that is all that matters. Well, if only your brain worked that way. You could fall into the trap of doing look backs on your trading activity and anguishing at all the loss revenue from exiting too early. Very simple, you let go. You stop obsessing about what you did not receive and start praising and thanking God for what you have!
The other very real disadvantage is the intestinal fortitude required to let your winners run. You are going to feel all kinds of emotions that are telling you to just exit the position. Or that you have made enough. Or that the pullback is going to come, and you will end up giving back many of the gains. You must find some way of just charging through all of that and letting the security do the hard work for you.
We have been conditioned our entire lives to always work hard towards something. The market is a lot like sports. A lot of the hard work is done at practice and not just during game time. Asset Allocation Strategies Investing in the right asset categories accounts for Trend Trading System Top performer lists sorted by trend strength with ability to compare across asset classes.
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Speedwealthbiz Proprietary Trend Trader System™ for Forex Market Low costs, broad diversification, the ability to buy and sell on an intraday basis, the increasing number of highly specialized ETF offerings, the ability to profit from a unique trending market sector just to name a few. Dear Followers, I regret to inform about my intention of closure of this Forex Blog, commenced posting since January until May , and rode through 8 and a half years of forex market turbulence. Most traders have had the painful trading of setting their stops system to have the system retrace to system stop before continuing in the trend. Although some traders swear that other traders are "running the stops," actually what happened is the trader placed the stop too tight.