DEEP PULL BACK STRATEGY

[astral77]

I was wondering if anyone here is trading a system similar to FXDD`s James Chan, he published a webinar and an article in sfo magazine couple of months ago. It seems this together with Squalo`s S/R indicator would make a powerful system.

The following is quoted from his article:

"The deep pullback strategy is a technical trend-following approach characterized by three key elements of high-probability trading:
• following the prevailing trend
• watching for a substantial pullback/correction
• trading the recovery of that pullback in the trend’s direction of the trend
BACKGROUND
This trading strategy offers a cost-effective location to enter into a trend trade where price begins to recover from a significant pullback within that trend. For a long entry into a bullish trend, consider adding a position after a substantial price dip.
For a short entry into a bearish trend, the most cost-effective location for entry is after a substantial price rally. If the correction does not turn into a trend reversal, a deep pullback is better than a shallow one, because the entry on a deep pullback occurs at a more advantageous price.
When a deep pullback occurs, trade entry should be considered only if price indicates a potential recovery from the pullback by turning back in the direction of the prevailing trend. Hourly charts of major currency pairs are used to scan for trade entries.
GETTING IN
Let’s take a look at the entry rules. The first criterion is trend. A trend is in place only if there is separation and correct order of three moving averages(MA): 50-, 100-, and 200-periods. For an uptrend, the correct order of moving averages is the 200-period MA on the bottom, followed above it by the 100, with the 50 on top. For a downtrend, the correct order is just the opposite.
The second criterion is a deep pullback. Within a trend, a pullback trade is considered only if price moves to the 100-period MA or more. For an uptrend, that means the 100-period MA or lower. For a downtrend, that means the 100-period MA or higher.
The third criterion is pullback recovery. This is indicated in a bullish trend bystochastics crossing/closing above the oversold (20) line, or on a bearish trend by stochastics crossing/closing below the overbought (80) line.
GETTING OUT
After a trend trade is entered when all three criteria are met, the exit strategy can be considered. For a long trade in an uptrend, the stop-loss can be placed just below the pullback’s low. For a short trade in a downtrend, the stop-loss can be placed just above the pullback’s high.
With defined risk in place, a profit target can be set using a predetermined risk/reward ratio. For example, if using a 1:3...
risk/reward ratio in an uptrend, the trader would take the size of the defined risk (entry price minus stop-loss price), triple this risk amount and add that to the entry price to derive the profit target price.
The deep pullback strategy is a high-probability approach to trading trends in currencies and other financial markets. Its strict, built-in trading criteria filter out lower probability trades and present potentially higher probability trades that can contribute significantly to an effective overall trading approach when coupled with strong risk management."

end of quote (article in SFO Magazine)

Kind regards

[Gamma_gallus]

That Looks really interesting !
Thanks for sharing Astral.

I found the video explanation : http://www.youtube.com/watch?v=eYw2-zxx7N8

thx
Olivier

[mackaozy]

Hi Astral..

Looks great nice and simple. I'll run Steve's EA on a demo account.

Thanks for sharing the idea.

[sini]

I was wondering if anyone here is trading a system similar to FXDD`s James Chan,
The deep pullback strategy is a high-probability approach to trading trends in currencies and other financial markets. Its strict, built-in trading criteria filter out lower probability trades and present potentially higher probability trades that can contribute significantly to an effective overall trading approach when coupled with strong risk management."

end of quote (article in SFO Magazine)

Kind regards

Hi,

Do you wait for candle to close and new one to open to confirm the third criterion pullback recovery? This is indicated in a bullish trend bystochastics crossing/closing above the oversold (20) line, or on a bearish trend by stochastics crossing/closing below the overbought (80) line.

[Jack1]

The first criterion is trend. A trend is in place only if there is separation and correct order of three moving averages(MA): 50-, 100-, and 200-periods. For an uptrend, the correct order of moving averages is the 200-period MA on the bottom, followed above it by the 100, with the 50 on top. For a downtrend, the correct order is just the opposite.


Hi, trend lovers,

I found if waiting for 50/100/200 ma line in order, then, trend is nearly changed. Only when a super trend is running, a deep pullback entry strategy may be good. Problem is no much super trend run in often.

Spotting a trend end or price hit the wall (key reversal level or key R/S level) may be a new trend start. We need "a new trend indicator". Then, jump on the trend at a pullback to ma20, 50, 100, 200, or 38%, 50%, 61%, 78%. eg, eur-usd had been rejected at 78% fibo level - 1.3380, then, crashed down.

If use this 50/100/200 line order rule, then, I found ma line order is not for sell on daily, H4, H1 charts. This may be a reason for massive long stoploss to be hit. This may be one of big reasons for most of EA to fail in live run.


Cheers !