Support and Resistance Trend Trading with Recovery

[jmatheny81]

I want to start this thread off by saying I have only been trading for about a year and do not recommend trading this on a live account. I began trading this method yesterday, so it has not been tried and tested. This is an idea that just popped in my head from reading a lot in the Forex Robot threads. Only time will tell if this will amount to anything.

From what I understand Forex Robot is used to trade in a market that does the same thing for a long time. It has shown a lot of promise, but when a trend gets going, it doesn't do so well. I have decided to try to make a system that trades with the trend, but uses a recovery system to try to catch the trend change and hopefully have some success when the market is ranging too. I will only use 2 indicators. First will be an indicator to detect the trend called ZCOMFX daily trend v2. This is optional, you could take a quick look at a daily chart to see which way the market is trending, but this makes it easy for those who don't want to switch charts. This indicator has some things on it I will not be using. I will only use the big arrows on the right side of the screen. The second is a support and resistance indicator using pivot points. It has a built in gmt shift that you can change. I will be using the default of zero on a GMT+2 broker because I have read many times that is the best time for using pivot points.

Initial trades will be placed at the beginning of each day. I will be testing this on 6 pairs for now. I believe if it works, it should work for pretty much any pair, but 6 is more than enough to keep me busy. Once you have chosen a pair, load the indicators on the chart. (note: the trend indicator will show up to 6 pairs on one chart) Look at the trend indicator and determine whether the trend is up, down, or sideways. If it is up, you will only buy, if it is down, you will only sell, if it is sideways, you will wait for another day. Once you have determined whether you will buy or sell, you look to the pivot point indicator. There should be 3 blue lines (resistance), a yellow line (daily pivot), and 3 red lines (support). If the trend is up, you will place a buy stop at r1 (the closest blue line to the yellow line). You will place your take profit at r3 (the top blue line) and stoploss at s3 (the bottom red line). If the trend is down, you will place a sell stop at s1 (red line closest to the yellow line). Take profit will be at s3 (bottom red line) and stoploss at r3 (top blue line). If the market keeps going nice and strong in the same direction, you will not have to touch it again until the next day.

Recovery trades will be made if the market heads away from the trend after you are in a trade. We will be using a 1.1.2.4 recovery with a hard stoploss. On a buy, you will place your first recovery at the pivot point (yellow line)with a lot size equal to your initial trade. Take profit will be set to r1 and the stoploss will be set at s3. You will also need to change the take profit of your initial trade to r1. If this closes in profit, you are done for the day, If the market continues against you, you will move to the next level of recovery. This one will be double the lot size of the other trades you have placed. You will place a buy at s1 with a take profit at the pivot and stoploss at s3. Then move the take profit of your open trades to the pivot point. If the market continues to move against you, you will open a final attempt at recovery. This will be a buy at 4 times the origial lot size at s2. Take profit will be at s1 and stoploss will be at s3. Move the take profit of the 3 open trades to s1. At this point, you are done and will either win or lose. To recover on a sell order, you would do exactly the opposite.

Trades can carry over into the next day (or days). When this is the case, use the pivot points from the date of the original trade. I do not recommend opening another initial trade until the original is completed to avoid confusion. I will be running a demo account following this system as much as possible. You can follow it at https://www.myfxbook.com/portfolio/sr-t ... ery/307942. You will probably notice I am using a large lot size. This was an accident, but I decided to stick with it and see what happens.

Please remember that this is only an idea from an inexperienced trader and has not been tested. Do not assume because it had a good day, it will continue.

[jmatheny81]

Here are a couple of pictures I took of trade examples. Example 1 shows a trade that went into the first recovery level, then closed in profit. The green dot shows where the sell stop was placed at s1. The price went back up and the recovery was entered at the pivot point, which is the magenta dot. The price went back down and both trades were closed at s1 at the orange dot for 41 pips. This can also be seen in the history on the myfxbook link.

Example 2 shows a trade that is still heading in the right direction. A sell stop was entered at s1 as noted by the green dot. It close at the take profit which is placed at s3, which is the orange dot if it continues to follow the trend. If not, I will attempt to recover it. This trade can also be seen on myfxbook as an open trade and is currently up 80 pips.

Update: Example 2 has reached original take profit and made 109 pips.

[verb]

I'm a fan of pivot point + trend based systems therefore I will be lurking your thread.

I normally buy/sell at the D1 Pivot Point in the direction of trend. The best risk/reward can be found there as you can place SL around the mid-pivot between the D1 Pivot Point and R1/S1. And then drop into your original trade strategy.

You might consider having 2 different trade types.
1 - buy/sell at R1/S1 (as you currently have) in direction of trend with R3/S3 targets and 1.1.2.4
2 - buy/sell at D1 Pivot Point in direction of trend with same targets, small stop.

I'm not familiar with your trend indicator but many of are finding wonderful success using NB10.2.

Last point, I've looked at your demo and your position sizes are overweight when compared to your equity. You may want to scale back position sizes or open a larger demo account and calculate your hard stops from 1.1.2.4 4th recovery final stop.

0.02 cents. Good luck.

[jmatheny81]

Thanks for the reply, Verb.

I thought about your pivot point entry today and looked back and it seems that most days hit the pivot point at some time, so it would make sense to try that as my first entry instead. I would probably still use a recovery with it set up the same, but it would just be a 1.1.2. That would make the profit bigger if recovery was not needed and the losses smaller. The trend indicator was one I found while searching for one that would show a simple arrow and the D1 trened without having to change timeframes. I took a look at the NB 10.2 thread today and have a lot of reading to do, but it sounds like it is a worthwhile read. I realize my positions are very large. This was originally an accident, but I decided to stick with it and see what it did since it was just a demo, but I think I will reduce them next week. My schedule varies a lot with work, so I'm not sure how much time I will have to play with this, but I'll try to keep it going when I can. Thanks again for you 0.02 cents.

[jmatheny81]

I have been too busy to continue to test this method due to a new job. It was working well when the market was in a strong trend, but I never got to test it after the market settled down. If anyone else was testing this and has some results (good or bad) please share. thanks.