The Setup

I’ve been playing around with TESS the last few hours after watching the daily overview video that TUFXP put out. A couple of things caught my attention. Firstly, I love the after timing of avoiding the first trade as the stop was ‘too small’ and common sense would have told you to make it bigger, he said he’d put it at 30 pips or so. Convenient, very convenient.  But I did take something useful from it. I’ve added a 50 SMA to my 5 min chart and also the Stochastics indicator available within TESS. I’ve then gone back to start of June and noted if everything lines up when a trade has triggered as per the normal rules. Currently, using 100% extension for stop and capping it at 35 pips if any bigger, I am currently +90 for the month after spread.  An okay return but not exactly setting the house on fire given last week was +100! I observed something that I think will be a winner. I disregarded any inperfect setups and only took what I considered a perfect setup. After spread the total is +200, quite a difference! Monday was a double loss if following the usual rules but by using the 50 SMA and stochs, you’d have missed the two losers and found a winner. I’ll demonstrate those examples here: (Click on picture to enlarge)

I classed this as invalid as %K isn’t leading %D. For it to be valid, the blue line (%K) needs to be above and clear of %D.

This was the second loser:(Click on picture to enlarge)

A stochastic oscillator is a momentum indicator and can define overbought and oversold areas. The red lines represent this. Beneath 2o represents oversold and above 80 represents overbought. On this trade whilst the 50 SMA is showing red, you can clearly see the lines on the stochastic being beneath 20. Whilst there is a possibility it could have gone lower, it wasn’t an ideal entry.

By adopting a ‘perfect’ setup, you’d have missed the two losers and have got a nice winner:(Click on picture to enlarge)

I think this is something I’ll definitely pursue further and I’ll go back and test April and May using the same theory. Am I clutching at indicators to eradicate losing trades? Maybe, but there is no harm in trying to improve a strategy and I think there is something there. I’ll report on April and May results when I’ve finished. And last but not least, I’ve kept a record of every stop value for each trade this month and the average has been 28.9 pips. So whilst not an ideal risk:reward ratio, it’s not too far gone either and a winning percentage over 65% would see positive equity.

Update: I’ve just finished May and pretty impressed!! Standard results were +165 pips after spread. By going for the ‘perfect’ setup, you’d have gained +323 pips after spread with just 1 losing trade in the whole month!! Staggering stuff. I’ll crack on with April when I get a chance.

    • Steve
    • June 24th, 2010

    Hi John, I sent you an email earlier – hope you got it.

    Just to point out that the first trade of the day which you show (and also reported on the CM website) was not a valid set up if the rules were followed to the letter. Take a look at the PSAR? It only turned green AFTER the entry level was broken. At entry the PSAR was still red. If you look at the previous two bars then you can work out where the red PSAR would have been before price turned it green. You can clearly see that the PSAR would have been a red dot a few pips past the entry level. This alters the series of trades which would have been taken that morning if CM’s rules are followed.


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