Huck Needs YOUR Help!

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!


  • BonA

    Hmmm, I’ve been following your trade for nearly a year.
    I believe the first thing you really have to do is, have a good concept.
    A good trading system is based on a good concept, not bunch of indicators. Indicators are just tools, a manifestation of the concept behind.
    Any indicators will work fine if you know why and how to use them.
    Makeover, wheter it’s reducing period, changing ma, or replacing one indicator with another won’t do you any good if you don’t have a concept.
    So my suggestion to you, start developing one, good luck, :)

  • BonA

    Hmmm, I’ve been following your trade for nearly a year.
    I believe the first thing you really have to do is, have a good concept.
    A good trading system is based on a good concept, not bunch of indicators. Indicators are just tools, a manifestation of the concept behind.
    Any indicators will work fine if you know why and how to use them.
    Makeover, wheter it’s reducing period, changing ma, or replacing one indicator with another won’t do you any good if you don’t have a concept.
    So my suggestion to you, start developing one, good luck, :)

  • Dainius

    I sooooo… agree with the post above. You can make a lot of pips with a single MA. Patients and discipline is all you need… and concept.

  • FX4Sure

    Stochastic doesn’t work well on good trending markets, if you ADX is too weak you can use surely stochastic, I think your system saves you from bad trades but you must find the way to let your profits grow.

    Also I’ve heard as you work you miss good moves, why not change to a larger timeframe?

  • Dainius

    I sooooo… agree with the post above. You can make a lot of pips with a single MA. Patients and discipline is all you need… and concept.

  • FX4Sure

    Stochastic doesn’t work well on good trending markets, if you ADX is too weak you can use surely stochastic, I think your system saves you from bad trades but you must find the way to let your profits grow.

    Also I’ve heard as you work you miss good moves, why not change to a larger timeframe?

  • sergeyrar

    maybe you should try and code the options above into an expert advisor, and try to backtest for the periods of 2001 – 2002 , 2003 – 2004 , 2005 – 2006 … up until 2011 and see if it makes constant profit
    If not, you may use optimization with some combinations of moving averages and price filters as external variables
    It worked quite good for me…

  • sergeyrar

    maybe you should try and code the options above into an expert advisor, and try to backtest for the periods of 2001 – 2002 , 2003 – 2004 , 2005 – 2006 … up until 2011 and see if it makes constant profit
    If not, you may use optimization with some combinations of moving averages and price filters as external variables
    It worked quite good for me…

  • Huck

    @BonA I completely agree! There should be a philosophy behind your system, and for me, it’s all about catching the big trends while avoiding fakeouts!

    @FX4Sure I do miss good moves at times, but I also miss a LOT of fakeouts… So it’s a 50/50 kinda of thing. Perhaps a change is needed so I can continue to avoid fakeouts but not miss the good moves

    @sergeyrar I’d love to put them in an EA for auto backtest, but I don’t know how to code! I also don’t have the tim to learn… Maybe I can in the future!

    Again, thanks for your comments… Looks like option one is leading!

  • tradecraft

    Hey Huck, I voted for makeover option 3, but I might be just a wee bit biased. ;-) Glad you think it might help. I’d reiterate the advice to make sure of the concept you are trying to implement in your trading, but with all due respect to the other posters who also recommended it,let’s not get all voodoo on “the concept,” fashionista though you may be. I think you’ve made it clear that you are trying to follow trends. Your HLHB system is designed to do that. The concept any MA crosover system is trying to implement is buy when closing prices(or whatever other prices you base the average on) are rising, vice versa when they’re falling, over whatever time frame you are looking at with the average. I’d say you’re conceptually golden there.

    As far as stochastics not working well in a strong trend, I’d say it depends on how you are trying to use them. If you are trying to use them as an overbought/oversold indicator to call major trend reversals, I’d agree completely. That use of stochastics works best in a trading range. In a strong trend, stochastics will go right on being overbought or oversold as price continues on it’s merry way.

    HLHB doesn’t use stochastics for that. All HLHB is using stochastics for is to spot short-term retracements in the trend as indicated by the 10/20EMA crossovers, as you put it, to avoid fake-outs. You are not requiring stochastics to be overbought when you SELL or oversold when you BUY, but merely that they not be overSOLD when you sell and not overBOUGHT when you buy is a good way to adjust the use of stochastics for a strong trend while minimizing the risk of curve fitting. I think HLHB has the concept of enter on or after retracements covered too. I still think your problem is with implementation rather than formulation of concept. Hence, option 3.

    I don’t think you should replace stochastics with ADX or anything else. I would recommend you consider adding ADX to identify when the market is in a trading range and when it is trending. The purppose of ADX is to determine when your 10/20EMA crossovers(which don’t work well in trading ranges) might be faking you out rather than price action itself. You are, of course, free to use ADX however you prefer, but that’s how I’ve had the most success with it. For more details, I have been expounding(ranting? babbling on?) about it at http://www.meetpips.com/members/tradecraft/blog_entries/42298-how-i-use-indicators-2-price-action-and-trend-structure.

    Hope this didn’t just add to the confusion. Good luck with your decision.

  • Huck

    @BonA I completely agree! There should be a philosophy behind your system, and for me, it’s all about catching the big trends while avoiding fakeouts!

    @FX4Sure I do miss good moves at times, but I also miss a LOT of fakeouts… So it’s a 50/50 kinda of thing. Perhaps a change is needed so I can continue to avoid fakeouts but not miss the good moves

    @sergeyrar I’d love to put them in an EA for auto backtest, but I don’t know how to code! I also don’t have the tim to learn… Maybe I can in the future!

    Again, thanks for your comments… Looks like option one is leading!

  • tradecraft
  • tradecraft

    Hey Huck, I voted for makeover option 3, but I might be just a wee bit biased. ;-) Glad you think it might help. I’d reiterate the advice to make sure of the concept you are trying to implement in your trading, but with all due respect to the other posters who also recommended it,let’s not get all voodoo on “the concept,” fashionista though you may be. I think you’ve made it clear that you are trying to follow trends. Your HLHB system is designed to do that. The concept any MA crosover system is trying to implement is buy when closing prices(or whatever other prices you base the average on) are rising, vice versa when they’re falling, over whatever time frame you are looking at with the average. I’d say you’re conceptually golden there.

    As far as stochastics not working well in a strong trend, I’d say it depends on how you are trying to use them. If you are trying to use them as an overbought/oversold indicator to call major trend reversals, I’d agree completely. That use of stochastics works best in a trading range. In a strong trend, stochastics will go right on being overbought or oversold as price continues on it’s merry way.

    HLHB doesn’t use stochastics for that. All HLHB is using stochastics for is to spot short-term retracements in the trend as indicated by the 10/20EMA crossovers, as you put it, to avoid fake-outs. You are not requiring stochastics to be overbought when you SELL or oversold when you BUY, but merely that they not be overSOLD when you sell and not overBOUGHT when you buy is a good way to adjust the use of stochastics for a strong trend while minimizing the risk of curve fitting. I think HLHB has the concept of enter on or after retracements covered too. I still think your problem is with implementation rather than formulation of concept. Hence, option 3.

    I don’t think you should replace stochastics with ADX or anything else. I would recommend you consider adding ADX to identify when the market is in a trading range and when it is trending. The purppose of ADX is to determine when your 10/20EMA crossovers(which don’t work well in trading ranges) might be faking you out rather than price action itself. You are, of course, free to use ADX however you prefer, but that’s how I’ve had the most success with it. For more details, I have been expounding(ranting? babbling on?) about it at http://www.meetpips.com/members/tradecraft/blog_entries/42298-how-i-use-indicators-2-price-action-and-trend-structure.

    Hope this didn’t just add to the confusion. Good luck with your decision.

  • tradecraft