Engulfing candles that let us at least break even.

[Rich Fitton]

Hi Lewis,

Looks like your engulfing candles project is rolling along nicely 🙂 I’ll keep myself updated as you post new data but I don’t want to get in your way too much!

Remember the entry pattern is just one of the on-the-day tactics. It’d be interesting to see how your data changes for breakeven on the candles once you apply the ‘bigger picture’ directional bias stuff too… or have I just created more work for you there? 😉

[Lewis Nicolson]

Was away at the weekend for T in the park. So recovering from the big hangover. but will start going through this during the week 🙂 Yip, more work, but it needs to be done.

Cheers

[Lewis Nicolson]

Hi troops,

i have been pretty busy doing summery things to actually get this done, but it is complete now.

These results are based upon directional bias and following the strategy of trading above/below the DOR etc.

Same idea as before with results, and they are as follows. These were taken from early april and again, there may be errors etc on my counting, and also same rules apply to human error in judgement and so on which i will explain later.

Pair. total. yes. no.
GBPUSD . 195. 120 yes. 75 no.
EURUSD. 150. 95 yes. 55 no.
EURGBP. 200. 130 yes. 70no.
USDJPY. 172. 97 yes. 75no.
AUDUSD. 170. 105 yes. 66 no

As you can see the results are great, and I would highly recommend that you take time to try this yourself to get a understanding of how the markets move etc.

These results actually show less success than what would actually be the case when trading live and i will explain why. Let say for example you want to trade USDJPY (image USDJPY1looser) on this day. Realistically you would of took the trade at the first engulfing candle, and this would of then went on to be a looser, however, before this trade lost, there was another engulfing candle which I added to the tally of fails. You would of only been in 1 trade from these 2 engulfing candles which means that you would of only lost 1 trade instead of 2 if that makes sense?

The same happens here in AUDUSD (check image), you would of took the trade on the first engulfing candle, when the next engulfing candle comes you would of already been in a trade so wouldnt of taken it, however this has been added to the tally. This happens time and time again on times when we get loosing trades, realistically we would only be in 1 trade for that day however I added these numbers to our tallys etc.

I would definitely say that (and this is a little obvious) that this strategy is least effective when the market is in consolidation. But when the london opens at 7am, the market tends to move in a particular direction far enough for the stop loss to break even. Also, the easier solution to situations like these is to just keep the risk/reward low. dont stretch out for huge winners. If you have a engulf candle that is 10pips long and the market moves 20 pips, then you have bagged yourself a 2:1, so dont be afraid to close the trade and take the profit. However, above all, there is plenty of markets to choose from, so just stay away from markets that you dont think has any particular bias.

What I have also learned from this is that, when you think the market has finally peaked, and is due a reversal then you are probably wrong. Stick to the strategy, if the market is going up, then if DOR engulfing candles goes in your favour, dont be afraid to take it. These numbers above a sure sign that you will at least break even.

I think I have missed a couple of things i wanted to add, so i will add them when i start to remember.

This strategy is hands down the best one I am using. I still make huge mistakes like forgetting to check resistance levels etc and i’m still able to profit from this. So just keep practising really. 🙂 Rich is pretty much a trading genius hahah.

When I take a trade I always say to myself i only need 4/10 trades right to profit from, it makes it all that much easier.

Cheers,

Lewis

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[Rich Fitton]

Great stuff Lewis! You just can’t beat the confidence taken from seeing stuff working with your own eyes. And thanks again for sharing your research and ideas.

FBAers, if you are experiencing any hesitation in pulling the trigger on your trades try running a small manual backtest yourself along the lines Lewis lays out. It might just help you shift that mental block.

[DAVID KING]

Hi Lewis, this is great research that you have shared with us. And Rich’s comment that confidence is important is surely true.

But I am just thinking that we would need to see an average amount of profit on the ‘yes’ candles to be in profit in the long run. Not just break even.

Taking EUR/GBP as an example. 130 yes, 70 no. I think we would need a profit of 1.54 units on average, if each loss was 1 unit.(If I can calculate this right.) I know that the losses and profits for each candle would vary, ie  the 70 ‘no’s would have different loss values, so this is very difficult to quantify. And I don’t mean to be negative, I just look at both ‘best case scenario’ and ‘worst case scenario’.

If we are looking at the 4/10 trades ratio, we need to make sure our profit ratio is higher than 1.54, I think.

Just to end on a positive note, I believe that the law of averages can give us quite a long string of losses from time to time and still give us our 4/10 ratio, so we should not be put off by this and keep focusing on the long-term.

Cheers…

Dave.

ps it would be good if we could start a thread where members of the forum could post how many trades/winning trades they have made, whether it be demo or live…

[Lewis Nicolson]

Hi Dave,

I understand where you are coming from, but if you set yourself limits, and exact rules to follow then they average out.

What I mean by that is within the core strategy itself, set yourself your own rules that you follow. like an ‘if then syntax’ (if the market does this, then i do that.)

So boundaries like lengths of candles should be added to your strategy. So say you only trade candles between 5 pips to 20 pips long then, using our position size calculator, we can average out how much profit is lost and how much profit is gained. Even with larger candles the amount lost is fairly similar because we have used the position calculator to find suitable stake size for the trade.

Putting up a thread showing how many loosing trades/winning trades wouldnt work because everybody is going to trade differently. The best thing to do is continue putting up battleplans, and help show each others personal style of trading. Just because someone made profit from one candle doesn’t mean that someone else would.

the thing is that every trade we take is going to be different, thats why we need to learn how to manage our risk.

Cheers 🙂

Lewis

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