New Trial System: HLHB Trend-Catcher version 1.0

One of the biggest problems of the original HLHB system was that its trade signals were too few. The Stochastic and also prevented me from getting into a lot of trades. So, with a little bit of research and School of Pipsology review, I have found two indicators that could replace the Stochastic.

The first one is the Relative Strength Index (RSI). According to the School of Pipsology, the RSI can be used to determine the trend. If the RSI is above 50, then it is likely that the price is on an uptrend. On the other hand, if the RSI is below 50, then price is probably on a downtrend.

The second one, the Average Directional Index (ADX), complements the RSI perfectly as it measures the strength of a trend. If the ADX is greater than 20, it will confirm the reversal and the strength of the trend.

The setting for both indicators is 12.

The new entry rules are as follows:

  • Long: If there is an upward crossover, enter two positions at the open of the next candle if the RSI > 50 and the ADX is > 20.
  • Short: If there is a downward crossover, enter two positions at the open of the next candle if RSI < 50 and the ADX is > 20.

I will keep the exit rules the same. I will place the stop of the two open positions above/below the high/low of the candle BEFORE the crossover candle by 10 pips. The first position will have a 150-pip profit target. The second position has no set profit target but will have a 150-pip trailing stop IF the first position hits its profit target.

Now let’s take a look at a few setups, shall we?

The first crossover was a valid signal to go long. As you can see, the upward EMA crossover which hinted an uptrend was confirmed by the RSI being above 50 and ADX which was over 20. However, the second crossover was a no go. Although the EMAs crossed and RSI was below 50, the ADX wasn’t above 20.

EUR/USD 4-hour Chart

Last week we saw another buy signal when the signals lined up (EMA crossover, RSI above 50, and ADX above 20).

Going long at the open of the crossover candle at 1.4145, stop 10 pips below the low of the candle prior to the crossover at 1.4058 (it’s smaller than using a 150-pip stop), I would’ve taken profit on half of my position at 1.4295.

According to my HLHB rules, my stop would’ve been moved to breakeven and I would’ve closed the remainder of my position at 1.4376 with a 231-pip win!

EUR/USD 4-hour Chart

Selling the pair yesterday at 1.4376 with a tight stop at 1.4386 would’ve been a valid trade too. Will it be another winner? Let’s see how it works out!

Okay, so what do you think of using the RSI and ADX? Be sure to let me know what your thoughts are through Twitter (@LoonieAdventure), Facebook, Google+, or by writing your suggestions in the comment box below. I’ll be back-testing and forward-testing my new system over the next month on demo, so wish me luck!

  • M_shuja

    hi hope all is well, was just wondering what emas you are using and if this system would be valid on a shorter timeframe eg hour?

  • Markpounder

    can you confirm settings for rsi and adx on the screenshots rsi is 9

    • huck

      Yep, it’s 12. It’s weird that it showed 9. Maybe because it’s the default figure?

      • pritou

        Hi,
        I am bew on forex. Could you please tell me which broker you use?

  • Limsphere

    Hi, is this strategy good only for 4 hrs time frame?can I use it on 1hr or even 15 mins?
    Thanks

    Edwin

    • huck

      I wouldn’t recommend it as of now. It hasn’t been performing well lately, so I’m creating a new one for 2012. Stay tuned for that.

      You can backtest and forward test it on a demo though, be my guest. Inform me of your results!

  • Pippi Longtrading

    What about filtering the RSI so you don’t enter if its oversold/overbought?

    • huck

      What do you mean? Like I shouldn’t buy if it’s above 80?

  • Cheng Yu

    It seems to work in EUR/USD. Does it work well in pairs such as AUD/USD too?  Should I adjust some of the indicator parameters? 

  • Max Fernandez

    Hi Looney, I am just a newbye looking for advice, it seems you are long ways ahead. Do you know of a simple EA using Bollinger Bands, using data from last two prior candles, need to use the parameters along with other indicartors, but cant figure out how. Can you help?
    Thanks in advance, Max (cipresal)

  • TUnitG6

    What settings are you using on your ADX? I guess I need your smoothing period b/c mine is not matching yours.

  • ani

    Dear Huck
    Will you go long if the RSI is above 50 but pointing downwards
    ANI

  • Andrew Caldwell

    Hi Huck,

    What are your thoughts on back testing a system using EMA? It’s not really valid as EMA applied to an old chart looks different to the EMA in real time? So it’ll display different buy/sell signals than what actually took place at the time?

  • maxximus

    Hi, I have some questions:

    1) Do you move your SL to BE after certain pips gain?
    2) For exit, beside recommended setting 150pips TP for 1st order and 150pips trailing stop for 2nd order, do you exit with other signal? for example:
      – Exit when RSI show trend change
      – Exit when ADX show weaken trend
      – EMA crossover to opposite direction

    Or we just leave it until it hit either the TP or SL.

    Thank you

  • Graham Wadsworth

    What are your EMAs set at Huck?  Your article does not appear to mention these.

    • huck

      10 and 20. Forgot to mention that again, my bad!

      • Abdallah Douha

        Is the ema supposed to be closed, or open? EMA 10 and 20 but is it set to close or open?

  • rocky1980

    Hi
    this system works well and with well defined ATR one can carry long trades and to be very frank the Stops aren’t hit. I have back tested the this method; out of 20 trades stops have been only on 6 times. Please add the ATR values… if this can be worked out this system will get and edge.

    thanks for this wonderful thread

    regards
    rocky1980