Shellsnail 1.0 - A twist on the NB method

[shellsnail]

Hi everyone,

I am going to present a simple trading method that I devised that works on the 4H time frame.

I trade all 22 pairs available to me.

It's very simple.

All you need is a 20EMA based on weighted close, a 10.2 TMASlopeTrueNT indicator at the bottom, and some basic understanding of candlestick patterns.

We are not going to be very precise and exact about candlestick patterns, it's all about the context, but generally, we want to see RED candles appear before we think of selling and BLUE candles appear before we think of buying - this is the only immutable law that I hope everyone will follow.

Let's look at a chart and let me illustrate the different buy/sell triggers in this system.

Trigger 1:

The bread and butter trade.

Let me show this with a sell trade on the GBP/USD.

The reason why I call it the bread and butter trade is simple - it's the easiest, you simply follow the trend and we want to do it MOST of the time.

Edit: you can scroll to the left and right to see the full image or if that doesn't work, go to the bottom and open the attachment.



So in summary, the preconditions for a sell trade are:

1. Price makes a lower low
2. TMA goes below -0.4

Upon a return to the 20 period Weighted Close EMA,

We wait for an appearance of a RED bearish candlestick pattern (pinbar, engulfing bar, dark cloud cover bar, or just general large red bar v.s. previous blue bar) that is touching the 20EMA.

We sell upon a BREAK below the red bar, with stops above the swing high.

Trigger 2:

The reversion to the mean trade

Here's an example of this on the GBP/JPY.



In summary, the conditions are as follow.

1. Price must be away from the 20EMA, sufficient to allow a good RR for the first target.
2. TMA must be > 0.8 for a sell trade or < -0.8 for a buy trade.
3. Candlestick pattern must be present.

The second target can be based on whether you are trading in the direction of the trend on the daily time frame.

What about overall exit strategies?

I will post more about it as we go along but for now what I am using is a basket based strategy. I enter as many trades as I can with fixed SL, and let them run. Whenever my whole account grows by 25% I will close all the trades automatically, rinse and repeat. This allows me to profit from spikes in the market that are sometimes quickly reversed.

Position sizing is up to you but for me I prefer a conservative approach, I use 0.02-0.03 lot for every $1000 in my account and I only do this on a 4HR time frame.

The key is to not interfere with your positions too much, and really just let it run. You can exit when price prints a new low/high but the indicator does not AND you get a candlestick pattern that signals a reversal (that's a good point to exit).

That's all for now, all the best

Basic templates and basic indicators are attached.

©Hanfei, 2013

[shellsnail]

A bit into the background/ logic behind the system.

Personally I think it is extremely important that everyone knows the logic of the system that they are trading.

Ok, here's what I think about the whole market model.

1) Trends are driven by long term fundamentals.

2) Traders facilitate these changes by moving prices.

3) To trade profitably, we need to identify the
a) current value/ fair value of the asset that is relevant to our holding time.
b) current impulse/ trend.
c) buy when undervalued and sell when overvalued.

How can we identify current value?

Perceived Fair value is usually around the current price.

Price will find the fair value, trade around it, and then move off from there to find the next equilibrium level in a trending environment.

In this context, the 20EMA serves as a dynamic average that measures the fair value as perceived by traders, speculators, hedgers, anyone trading the currency pair.

Remember we are trading price, not time frames.

What about current trend/impulse/order flow?

We can never tell what is going to happen in the future, but we can have a reasonable expectation of the future based on the past.

So basically, we determine the current trend or impulsive direction by looking at the TMA slope. When TMA slope goes to +0.4 or -0.4 and travels away from the 20EMA, we assume there's sufficient order flow to move the market in a particular direction.

We cannot know for SURE, but we can expect there to be.

So how do we buy when undervalued and sell when overvalued?

simple. If the order flow is bearish, i.e. TMA slope < -0.4 in the last period, we look for a return to the perceived fair value which is the 20EMA. If we are right about our order flow theory, there should be many traders who are willing to do transactions at the 20EMA level, because that's the current fair value of the currency in the short-term.

hence, if we are right, we should then expect price to PUSH OFF that level into the direction of the trend. thus the last piece of the puzzle is the candlestick pattern.

As for reversion to the mean trades, we are simply buying into fear and selling into greed. Whenever price gets far away enough from the perceived fair value (20EMA) and does so in an accelerating fashion (TMA slope> 0.8 or < -0.8), it means emotions are in place and when we see profit taking taking place (i.e. a solid candlestick pattern signalling a reversal) we can enter and take out all the poor traders who are buying the high and selling the low.

What else can this market model explain?

1. Why trading at NY and London sessions are advised -

Market price and fair value are decided by volume. The greater the trading activity the more we can expect prices to be truer to the actual value that people perceive.

2. Why trading is simple, but not easy.

It is simple! As you can see it's all about being part of the process that facilitates the movement of prices. Our job is to provide the liquidity, so learn how to do your job well so you don't get fired (or go broke).

It's not easy because there's risk and there's money involved. We are moving prices, but we never know when a large order will come in when the fundamentals change and blow past our liquidity limits (stops) and target a higher area of liquidity or even change the underlying order flow (in the case of monthly S/R levels, where large amount of buying/selling take place over a week or two that reverses the underlying order flow)

And the fact that we CAN LOSE, just plays with our mind and if we can't accept the fact that losses are inevitable in any business then we can't be traders.

Also, there's the cardinal sin of selling and buying when price is NOT at a good value. Ever heard the term VALUE FOR MONEY? Buy low sell high is the way to go - we are traders looking to profit from short-term price movements, NOT investors hoping asset prices keep going up.

Starting from today, NEVER ever take a trade when price is not at value (either a resistance area in a downtrend or a support area in an uptrend or the 20EMA), unless it's a mean reversion trade, and see how much your results improve.

[shellsnail]

FAQ

Why the 4H timeframe?

It's easier to do so when you are trading all the currency pairs and anything smaller than that you will be micromanaging too much and fretting over any candlestick pattern that you see.

It helps to keep emotions out at bay as well, because you are can trade smaller lot sizes and you have more time to make decisions and place orders (no rush).

Good for anyone with a day job in fact.

What charts do I use?

I prefer NY close charts and that's the only one I use in fact.

What is the Risk-reward ratio for this?

Definitely at least 1:1 overall. I'd say 1:5 is a more apt description but tbh I agree with NanningBob that RR ratios are irrelevant for the most part as long as you trade with the trend and have predefined exits that don't hurt you much.

Every system has losers, just keep them small and it'll be painless. In general my advice is, try not to worry too much about the RR, just take the good and obvious trades and you'll be more than fine

Can I use S/R levels as well instead of just using the 20EMA?

yes definitely, if price moves beyond the 20EMA, feel free to use the S/R levels you identify on the daily and 4H time frame and take signals off them, as long as previous order flow is in agreement - these signals might have a slightly higher rate of failure BUT a higher RR as well.

But for a start, I'd say stick to the 20EMA first until you get good at picking those levels.

How can I trade all the currency pairs when some of their spreads are so high?

Choose a good broker, go with GlobalPrime

-Reserved-

[hansnl]

Thank's for sharing this simple and clean system here.
it could be an option to trade only in the direction of the trend ?? with will make the system even more profitable.
and maybe some kind of alert which tells you the distance between price and ma20 would be helpful if you following all pairs?

let's see how it goes

regards and success,

hans

[shellsnail]

Thank's for sharing this simple and clean system here.
it could be an option to trade only in the direction of the trend ?? with will make the system even more profitable.
and maybe some kind of alert which tells you the distance between price and ma20 would be helpful if you following all pairs?

let's see how it goes

regards and success,

hans

Sure thing, I'll post set-ups as the day goes along.

I trade a another set-up as well that involves a trendline break of an impulsive move and 50% retracement entry - my way of drawing TL is different, well defined and not subjective - I'll post examples of it in the future, and for the counter-trend trade I seldom do it unless there's other confluences as well for example fib extension ratios.

[hansnl]

[quote/]
Sure thing, I'll post set-ups as the day goes along.

I trade a another set-up as well that involves a trendline break of an impulsive move and 50% retracement entry - my way of drawing TL is different, well defined and not subjective - I'll post examples of it in the future, and for the counter-trend trade I seldom do it unless there's other confluences as well for example fib extension ratios.[/quote]


My personnel favorites are simply support and resistance levels who could be easily integrated in your 20 or 21 ma philosophy.
Nice that you are sharing the details on FXbook.
don't know what part of the globe your bed stays and what your daytime trading hours are?
I will follow you with interest.

hans..

[shellsnail]

[quote/]

Sure thing, I'll post set-ups as the day goes along.

I trade a another set-up as well that involves a trendline break of an impulsive move and 50% retracement entry - my way of drawing TL is different, well defined and not subjective - I'll post examples of it in the future, and for the counter-trend trade I seldom do it unless there's other confluences as well for example fib extension ratios.

My personnel favorites are simply support and resistance levels who could be easily integrated in your 20 or 21 ma philosophy.
Nice that you are sharing the details on FXbook.
don't know what part of the globe your bed stays and what your daytime trading hours are?
I will follow you with interest.

hans..[/quote]
I'm GMT +0

Yeah the market is acting weird though.. there's a 100 pip gap down on GBPUSD and all the yen pairs gapped up 100+pips.

[hansnl]

Shellsnail, better change the name of this tread in "how to kill my account quickly "
kicking in a order which make up your losses on 30 positions in a 15 pip move is a sure way to blow your account.
Get smart trade small.
according to your "rules"you should have a total of 0.03 lots instead off the 1,31

regards,
hans..

[jtpada]

Hi shellsnail!

Could you please post the

10.2 TMASlopeTrueNT ?

Cannot find it in Naningbob´s zip files.

Thank you!