This week, the market’s attitude towards the Greenback was similar to how I feel towards immature boys – hate! The Greenback was sold-off across the board, particularly against the euro and the pound.
The only currency that the Greenback was able to win against was the yen… which really isn’t saying much since the yen practically lost against every other currency out there too!
Why did this happen?
I think it’s due to the fact that inflation in Europe and U.K. is has gone above their respective central banks’ inflation targets! When inflation rises, central banks usually respond by raising rates, which is bullish for the domestic currency. One news report I read also said that the European Central Bank (ECB) is expected to hike rates in their next meeting.
In other news, I’ve been receiving a lot of feedback on my HLHB system. Some of y’all think it could be more profitable if I do some modifications. And I agree… So for the next week or so, I’m going to backtest the new rules of my HLHB system.
Going with what one of my readers suggested in one of my previous blog post, here are the changes I plan to make on my HLHB system:
- Entries will still be based on moving average crossovers. But this time, I want the HLHB to generate more signals so I’m gonna change my SMAs to 5 and 21.
- Replace Stochastic with RSI. I know that the oscillators are like two peas in a pod, but I’m not gonna pay attention to price being oversold and overbought. Instead, I’ll use the RSI to confirm a trend.
- If the RSI is above 50, that means the pair is on an uptrend and I should go long. On the other hand, if the RSI is below 50, I would take that as a sign that the market is on a downtrend and use that as confirmation to go short.
- I’m keeping my filter but instead of 30 pips, I’m gonna reduce it to just 20. So if there’s an upward crossover and RSI is above 50, my buy order will be set 20 pips ABOVE the high of the crossover candle.
I’ve also decided to include the THREE succeeding candles after the crossover instead of just one. Why three? Well, it’s so that my 20-pip filter could cover both the European and U.S. sessions. Looking back, I noticed that I missed a few trades because the trend during the U.S. session wasn’t sustained in the Asian session due to the lack of volatility.
Here’s some sample setups:
The first one was a valid setup to go long as there was an upward crossover and RSI was above 50. My entry would have been triggered right after the crossover as the following candle closed 20 pips above the high of the crossover candle. The second one also fulfills my entry requirements, but it would have been for a short trade.
On the other hand, the last setup would have been invalidated as the next three candles following the crossover didn’t go above 20 pips the high of the candle.
As for my exit rules, I think I’ll keep them as they are. My stops will be set 10 pips below/above the low/high of the candle before the crossover candle and I’ll cap my max stop to just 150 pips. So I’ll go with whichever is smaller.
All right, that’s it. So for the next week or so, I’m gonna be busy backtesting the new HLHB system. If it shows promise, I will forward test it. If it doesn’t, then I’ll go back to the original HLHB. Wish me luck!