As I said, I am looking to make some changes to my HLHB system, but I’m going to ask you all to help me pick out the best one!
Just vote which one you like best, and I’ll back test that change. If it is profitable, then I will forward test it for 2011.
Here they are:
Makeover Option 1: Remove the Stochastic, replace with ADX indicator, and reduce 30-pip filter to 20.
I have read that the ADX measures the strength of the trend. Since my system is a trend-following system, I believe it only makes sense to use an indicator that determines whether price is trending or not.
What I will do is apply the ADX indicator with a length of 18 (equivalent to 3 days) and use it as a “confirmation indicator.” If the ADX is higher than 25, it would mean that price is trending, which means that I could enter once price goes 20 pips beyond the high or low of the crossover candle.
The stop will still be placed 10 pips below the crossover candle for a long trade or 10 pips above for a short trade.
Makeover Option 2: Reduce 10 and 20 EMA to 5 and 10 EMA
Why? Looking at my past trades, I missed out on a ton of great moves. By shifting to the 5 and 10 exponential moving averages, I may be able to hop onto trends earlier. This may allow me to catch the beginning of trends that I can hopefully ride out and grab more pips! I just gotta be careful because it might end up with a lot of fake outs!
Makeover Option 3 (courtesy of tradecraft): Keep all indicators, but change entry timing
No major changes to the parameters of the indicators and the system rules. I’ll just tweak the entry timing so I can still take advantage of strong moves even when the stochastic is overdone during a crossover.
As you probably noticed from some of my trades last year, I ended up missing out on a bunch of sustained EUR/USD moves because the Stochastic invalidated the trade signal.
I don’t want to eliminate the Stochastic indicator completely because it did save me from taking some hits on my account. Instead, what I’ll do is include another rule so that I can still jump in a trend even if the Stochastic is overbought or oversold when the crossover occurs. Here goes…
If a downward crossover occurs and the stochastic is below 20 already, I will patiently wait for it to move out of the oversold area first. Once it does and while the 10EMA is still below the 20EMA, I will set a sell stop order 10 pips below the previous candle’s low.
On the other hand, if an upward crossover occurs and the stochastic is above 80 already, I will wait until the stochastic moves out of the overbought region. When its below 80 and the 10EMA is still above the 20EMA, I will set a buy stop order 10 pips above the previous candle’s high. In these scenarios, I will set my stop 10 pips above/below the previous candle’s high/low for short/long orders.
Makeover Option 4: Don’t change anything at all
I made a bit of profit last year on the HLHB system.. No reason to change anything at all.
So that’s it! Please help a lady out and help me decide what indicators I should style with my charts. Ooohhh, I just love mixing up fashion and forex!