March 29, 2008

Weekly Trading Update - 24-28 April

(Edit: date should read 24-28 March not April)

A mixed trading week for me this week, but a profitable one nevertheless. I decided to experiment with the ADX and Directional Movement indicators this week to add to my existing 4 hour trading strategy.

I've been reading a lot about ADX recently and thought I'd try out my own method of using this indicator which combines this indicator with other indicators such as TRIX, EMAs and MACD.

I basically only entered a position when the ADX crossed upwards through 20 as this signifies that a new trend is emerging. I use the DI lines and the EMA (5) and EMA (20) to show the current trend.

The DI+ crossing upwards through the DI- shows a bullish upwards trend and vice versa. I entered as close to the EMA (5) as possible for maximum value.

I started by studying the 5 minute charts but I quickly discovered that you get a lot of false signals, ie the ADX indicator looks like it's crossing through but will subsequently fall back, or it will go over 20 and quickly fall again indicating that a strong trend is not emerging,

So I then started trading for real (with small stakes) on the 30 minute charts and this seemed to work extremely well. On Wednesday at around 9.30 the USD/JPY crossed upwards through the 20 level on the ADX chart shortly after a bearish crossover of the DI lines, which was a very positive sign that a new downward trend was emerging. Further confirmation was offered by the MACD and TRIX crossing downwards.

As it turned out this was indeed the start of a new downwards trend and after entering on a pullback to the EMA (5) at 9941 I closed half my position at 9920 and let the other half run until the key level of 9900 was reached, so this yielded a nice average profit of around 30 points.

On Thursday at around 10.00 it was the GBP/USD this time that crossed upwards through the 20 level on the 30 minute charts shortly after a bullish DI crossover. Again this followed a nice upwards crossover on the MACD and TRIX so it looked like a nice upwards trend was emerging.

After going long at 20152, I closed half the position at 20170 and let the other half run until 20192 as I didn't feel we were going to breach the 20100 level so this yielded nearly 30 points again.

Unfortunately on Friday I encountered the downsides of this strategy when trading the EUR/USD. If you look now at the 30 minute ADX chart you will see that it didn't breach the 20 level at all on Friday indicating no trend was present.

However trading live the 20 level was reached twice at around 9.30 and 10.00 but on both occasions this was a false signal and the ADX dropped again. The first of these moves indicated a downwards move and having entered at 15767 I got stopped out for -25 points and then after a bullish DI crossover and what looked like a strong break through 20, I got stopped out again for -25 points having entered a little prematurely at 15805.

On the latter occasion the price did go on to move upwards to around 15840 but even so this strategy clearly still needs some refining and tweaking, although a 10 point profit for the week is a good base to work from.

This could turn out to be a good shorter term strategy to add to my arsenal, but I may decide ultimately not to pursue it as my 4 hour trading strategy continues to reap excellent profits.

This week my strategy of trading when the EMA (5) crosses the EMA (20) on the 4 hour charts when it's in the direction of the daily trend as signalled by the Supertrend indicator, threw up three trading opportunities, two of which I traded.

The first crossover was on the USD/JPY pair on Wednesday and after entering at 9949 I closed half at 9890 and let the other half run looking for a few hundred points but unfortunately my adjusted stop of 9900 was triggered.

My other trade was going short on the GBP/USD on Friday when the EMA (5) crossed the EMA (20) on the 4 hour chart (the daily trend was downwards as signalled by the Supertrend so I was only looking for shorting opportunities / crossovers). Despite entering slightly early at 19995 instead of waiting for more of a pullback to the EMA (5) I closed my entire position (as it was Friday afternoon and I fancied an early finish) as soon as 19920 was reached for a nice 75 point profit.

So to sum up (sorry for such a long post), including the result of my experimental ADX strategy it's been a reasonable week with profits of around 140 points.

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1 Comment on Weekly Trading Update - 24-28 April »

August 13, 2008

Russell @ 11:17 am:

Hey mate…

I enjoy the way you write these weekly blogs… I have been trading a similar system using a 4 hour chart for my trend with MA's RSI and MACD with trend lines and Spport and Reistance… I have then been going on to the 30 minute chart and using an entry signal of 20MA 5 MA cross with RSI confirmation…

The biggest problem I find is the entry… When I enter on the cross I get some false signals and when I wait for confirmation I seem to miss the trade…

Other things like the discipline to stop out and hold for proper profit taking levels I am finding simple whe in the trade… I was wondering if you have any tips to give me the extra confidence to know I am pulling the trigger at the right time…

I like the easy going approach you got and was hoping some of that might rub off on my entry…

cheers mate

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