Hey all,

Sorry for being a little quiet over the past day or two, but I am hard at work seeing if I am able to build an indicator that conforms to my "no indicator" ideals. I have taken the following approach:

• No complex mathematical formulations on price action, the price itself should tell me what I need to know (and I couldn't be stuffed working out the math ;))
  
• Make sure it shows you when to trade, when not to trade, stop loss and profit target (that's kind of the idea right?)
• Make it easy to read, and easy to trade so even the beginner could understand it's use
  
• If using any other indicators as part of it's calculations, ensure they are one of the very few I consider valid
• Ensure it makes lot's of money ;)

Very simple rules granted, but really what more are you after for an indicator? So now for the good news, it is just about done! Yep, 3 solid days of hard work and wife and child negletion has spawned an indicator I have code named Stormy Weather. Now comes the job of fine tuning a trading system around it, when to enter, exit, stop loss etc.


The other good news is, it meets all the above criteria at first run through, yep even the "make money" one, but of course, back testing and trading for real are two completely different beasts. For some great thoughts on that check out this blog Sharkys Trading Diary, a fellow Aussie living in Japan, where he goes through rules of backtesting, things to watch out for and to take into consideration. Bravo to Mark if you ask me for going to the effort.

Now of course you are wanting to probably see the indicator in action yeh? Well I can't show that just yet until I have added some spit and polish, but below are the initial back test results on the GBP/USD for the past 3 months (as of Dec 15). Remember this though, this is backtested as though you are trading 24 hours, which of course, is kind of hard to do, and of course, as with all backtesting, emotion is forgotten in the trades.

Ok here are the results:

GBP/USD

September 15 - October 14:
+1090 (67 trades at 73% win/loss ratio)

October 15 - November 14:
+635 (80 trades at 69% win/loss ratio)

November 15 - December 14:
+761 (75 trades at 65% win/loss ratio)

Like I said, take these results with a mighty grain of salt at the moment, you can't trade 24 hours a day, instead this is more of an indication of the pips available for you to take a piece of depending on the time of day you trade, but I dare to say there is enough room there to say there is potential for this system. This weekend I will try to do a more thorough backtest over the 4 majors and the EUR/JPY, and will report the results once done.

From there, I move to trading it live, with small lots, and see how it performs in a live situation, it really is the only way to find out. Of course I will announce each trade in the Marketiva chat room, but I would warn against necessarily following the trades until it has had a real good run.

Finally, while I work on this, I will not be trading too much today, if at all, as I trade horribly if distracted, I will be back in full force next week I think. Hope you all have a fantastic weekend and a profitable Friday.

Happy trading!

This entry was posted on Friday, December 16, 2005 at 1:17:00 PM. You can skip to the end and leave a response.