I mentioned in a previous post I hadn’t covered what goes on in my algorithm, so it was going to be hard for you to all follow what kind of trading decisions I’ve made and why I’ve made them. I certainly apologise too that it’s taken this long to find the right space and time on the blog to discuss it.
Of course, I also have to apologise for the lack of information I’m about to give you too. If I was to give away my methodology, strategy and system as a whole, it wouldn’t be very effective for very long. The Big Banks and their analysts are sharp. When they see growing pools of money in one area, they’ll manipulate price the other way and snatch the lot for themselves. That’s kinda just Finance 101 really.
Maybe when I’ve made my millions and can retire I’ll give the idea away for free, because I’m a kind giving soul really, but I can’t change the world the way I want to without the big sack of cash necessary to do it first.
Let me tell you what I can reveal instead. I’m going to give away the identity of the most crucial confirmation indicator I have in my lineup. Not my entry, but the indicator that holds the balance for my trades being on the right side or not.
That is the Heiken Ashi Smoothed.
I call my current algorithm PinPoint. The reasoning for that is how I see each confirmation indicator preparing the ground for my entry. If the Main Entry Indicator signal is my alarm to take a shot, then I need to know my confirmation indicators have lined up to make that shot accurate.
The indicators I use all come from different families as well. My main entry is a nice, simple, repainting trend indicator that works strongly in the moment but really cannot be used for any kind of backtesting. Confirming if that’s valid are:
A Price Action indicator: The Heiken Ashi Smoothed
A Cycle indicator
A Momentum indicator
They’re all important, but that Price Action indicator also acts as my key for trade management and exits too. Just so we’re clear too, the Heiken Ashi Smoothed I use doesn’t rely on default settings. Sorry to any contrarians who think they’re going to pick up my money reversing my strategy.
I’m going to assume everyone reading knows what Heiken Ashi is. If not, go and do some research here and then come back. Heiken Ashi Smoothed simply takes the logic behind Heiken Ashi candles and adds a set of moving average calculations. It provides a ranged area where a pair is either in pullback/ranging, or freely trending in the implied direction.
Heiken Ashi Smoothed is not best used on its own. After all, it’s literally only a method of smoothing real Heiken candles, and those don’t work as a single indicator system either. However it is exceptional as confirmation, and even better as a trade management system.
When I have a signal, I set a firm emergency stop loss 3* higher than my preferred risk. The rationale for that comes from the philosophy that the Big Banks can see where the price points where most of the current trading volume was taken. Whilst my real world stop is probably somewhere around there, I don’t want to be caught in a stop hunt. Equally in case of a flash crash or unexpected gains, I don’t want to be caught up in a margin call that completely destroys my account.
This presents me with emotional management challenge #1 – when price closes above my actual risk, manually close the trade without question.
The real stop is set on the back end of the smoothed candle. Ultimately if price is travelling back into or across that range I know the trend is either dying or in pullback. If it’s in pullback, I want to give it just enough room to get back on track. Additionally, the HAS is so smooth that it will carry on gradually travelling every candle until it’s caught up with price. If it’s sitting in that range, I too can gently pull my stops closer and closer – invaluable if it turns out that price has turned into consolidation.
Ultimately, unless things have gone really wrong outside of anyone’s real control, by following HAS in this way I’ll be well clear of closing for loss as big as my risk or emergency stop.
Likewise, I can use HAS movements to stagger my profits too. When my trade goes into profit, I create zones between certain percentages of profit. As a HAS candle stick starts to enter that zone, I move my SL into profitable territory at the start of the zone. The trade has room to breathe and move on, but no longer needs active management either, unless I want to move it throughout zones (which I do, but at least I don’t have to worry about losing money and can step away from the screen for a second).
This is merely how I use Heiken Ashi Smoothed. It’s my diamond in the rough and probably the most important indicator I have. It’s not the strongest confirmation I have, but mixed with its trade management properties and you have something that gets you into profit without cutting too much of it off, and keeps your lossy runs short.
Trade management is the most important part of this game. I’d rather win 10% of my trades and have 90% break evens than an algorithm that gives me a 1% winning edge but all the losses are equal the other way.How stressful! You may as well just flip a coin for what good that is.
Use the indicators in your strategy to ensure you’re taking a winner whenever possible.
So, I know that was all kinda light on real information. Again I apologise, I had intended this to be a clearer breakdown until I realised just how much I would be giving away and potentially ruining my own money making abilities. However, there is a point there of varying your confirmation indicators too, and finding the one – whether it’s HAS, ATR or something else – that’s going to be that friend who says “Come on mate, you’ve had enough, let’s go home.”
Because you know what? That friend saved you money AND you from a 3 day hangover. Good friend to have, no?
I’ve been through many, many systems and algorithms in my trading career so far. Some I’ve chopped too early, some I’ve made some profit on but not understood either the risk or plan itself and have resulted in some swings so intense that I’ve ditched them in a confused state, and some just straight haven’t worked.
Suffice to say, I’ve always felt on the edge of glory, but something has stopped me from crossing the line for whatever reason.
At this point, I’ve gone so far down the road that I’m not sure what failed where historically, but I did want to highlight some of my past algorithms which have come close but no cigar, and my interpretation of why they failed.
Let’s start with the rather unhelpfully named “Age of Destruction”. Yeah, I have naming convention issues. Live with it.
NihilistRSI (Specially developed indicator)
JB_Center_of_Gravity (a non-repaint version of the Center of Gravity indicator)
MTF ATR (1D over 10 periods, used for setting P/L targets)
This was created around about March-April 2019 time, for use on a 1H chart. I was still learning NNFX, but obviously hadn’t taken enough information on board at this time, hence my use of RSI (which I agree today, isn’t particularly helpful). Simple enough approach with minimal indicators.
NihilistRSI is a combination of two indicators – RSI (durr) and Nihilist Ultra Trend. Nihilist Ultra Trend is a propitiatory indicator and I have absolutely no information on how it works, but I saw a link between how RSI reversed in certain territory when Nihilist Ultra Trend changed from red to green and vice versa. It seems to give fairly keen reversal signals, and when accompanied with these signals appearing outside of the CoG bands, these elements together made up a reversion to the mean strategy that seemed to be pretty solid.
In trading, it didn’t work. At all. Why?
Well, here’s your super dumbass moment from yours truly – Nihilist Ultra Trend repaints, quite significantly far back too. The very nice looking arrows on this chart would never appear in live trading, and with the myriad of colours on the Nihilist Ultra Trend indicator it’s quite hard to spot this repainting.
I went all in on backtesting this particular indicator and seeing the number of trade opportunities that would come out of it. It was only after I’d spent quite a bit of effort on crafting the combination that I went more into detail to investigate the problem.
From this, I learned the following:
Test, retest, triple test that the indicator you’re intending to use doesn’t repaint. If it does repaint but you still think it’s going to be useful, be sure this is factored into your system and additionally, be aware that backtesting your system is going to be largely impossible.
Have a concept of how your main entry indicator works even if it’s a remote one. This is just stupid. Even if you don’t know the ins and outs you need the know the loose concept.
Combining indicators is actually really powerful providing they are the right indicators. RSI on its own, as NNFX has been very clear, is not a great indicator for Forex. However, if you are using it to measure the strength of another signal, it can turn into a very powerful separate confirmation of a single indicator. Don’t be afraid to throw these things together as an experiment, and don’t think you always have to look at them as oversold/overbought indicators. It can be as simple as “my confirmation indicator is giving me a signal, and also RSI has reversed past a certain level on the same candle. Might be worth a look”
Center of Gravity is a great indicator for both trend following and mean reversion strategies, but it does not fit as any kind of primary confirmation tool. Use it as your last defining tool.
Another variant of this I have in my old template list is “BreadOfJustice”. Must’ve had toast that day. This was exactly the same as the above but with an added TEMA baseline with a 34 period in order to try and fight the repainting issue after I’d discovered it. It relied on a NihilistRSI signal popping outside of the CoG lines followed by a change in the TEMA direction. The two problems were, the repainting of NihilistRSI can stretch back quite a significant distance, and the change in the TEMA would always pop too late to be able to get onto any mean reversion move. It was quickly binned.
The last template I’ll look at today is a variant of Oma Ally’s BBMA strategy. If you haven’t come across BBMA before, it’s worth looking at as a study. Conceptually it’s a solid system that didn’t particularly work hand in hand with my own approach to trading.
BBMA stands for Bollinger Bands Moving Averages. At its core, the approach is to observe when moving averages pop out of a Bollinger Band, and other conditions apply (such as reversal candles) you get into the market. I made several modifications to the idea to see if I could get something together I found more tradable, but obviously the key issue here is trying to trade a reversal in Forex is just not a smart idea.
The closest I got was “BBMA-Xtreme-Confirm”. This would’ve been during Summer 2019.
X-Treme (these two do combine to give a slightly clearer picture than using one of their own, but they are essentially modified Zig Zags)
Powered_Trend_Signal_Arrow_Alert – 2
Powered_Trend_Signal_Histo_Alert (these two have different HL settings. I’m not sure why)
The “Extreme” part of the system remained the same – you’d need the X-Treme indicator to show an initial signal outside of the Bollinger Bands. At that point, you’re playing reversal signals. The Trend histo and the Trend arrow then need to match up to take an entry. Very simple to apply, very simple to use.
The one massive problem is Powered Trend Signal repaints. Badly, too. There’s a bit of lag on the X-Treme indicators too. That’s the nature of Zig Zag based indicators. That said, having looked at it again now for this post, there are big chunks I would like to incorporate into my current algorithm. I wonder if taking it into the MTF domain would improve its consistency and ability to pull out great trades. It’s certainly a concept I’d like to revisit, and it’s something going to add to my worklist!
That’ll wrap this post up. I think I’ll try doing this on a semi-regular basis. It’s been a great learning experience for me, and hopefully for anyone reading this struggling for ideas it’s given you some base to start from too.
Disclaimer: At no point is this article intended to downplay, attack or otherwise damage the excellent work of VP at NNFX. Without him and his videos my trading would not be at 1% of the level it is now. It is purely intended to provide an alternative angle to what he provides, and how to get the most out of these teachings.
Definition of Renegade noun: a person who deserts and betrays an organization, country, or set of principles. adjective: having treacherously changed allegiance.
Wow. The adjective definition of renegade seems very harsh. I don’t think I’ve “treacherously” changed allegiance, or, actually, changed allegiance at all. I’ve just adapted it. I still subscribe to the basic theory.
Either way, I’m a renegade. I don’t follow the rules. Here’s why.
VP from NNFX has always stated that everyone trades in a different style, with a different approach. A system, theory or algorithim that works for one person certainly won’t work for everyone. In fact, it’s very likely it will only work for that person, or at least it won’t be as profitable for others. The person that invented and developed that strategy or system will know how each piece of their engine integrates together to create the desired result. Why do they take profit where they take it? Why do they set their stop loss that way? Why do the special rules they’ve applied work so well together? How have they taken their own trading style and applied it to the technical analysis they’ve put together?
There are so many different and complex variables.
When I started down the NNFX route, I immediately knew there was one element of the algorithmic process that I wouldn’t get on with – trading on a daily chart.
I am not someone who needs instant gratification, far from it, but I do need to see progression in my results. Trading on a daily chart naturally leads to bigger stops and longer waits to see how markets develop. It’s not something I can personally learn from.When you attempt to learn in a way that your brain doesn’t appreciate or respond to, you simply do not absorb and act on the information effectively.
I think back to my old school science lessons. In biology, I had a teacher who just lectured. Experiments were very minimal, and the lessons were all about disseminating information. It was not a particularly interesting or entertaining learning environment, and I am someone who has to learn by doing. Obviously, I can put a certain amount of blame on myself for not adapting my ability to learn, but as a qualified trainer myself today, I know that every good trainer MUST adapt their training method for their audience. You’re doing it for them, after all.
So to get back to my point – what is the point of me trading the daily timeframe? I am far more comfortable intraday trading where I can more immediately see mistakes and progress in action.
That leads me to my second consideration that I haven’t seen VP cover yet. Multi Timeframe Analysis.
I do not have the vocabulary to explain how important I think MTF Analysis is, across any timeframe, even the Daily where true students of NNFX trade. Not just in a single indicator either. In confirmation indicators, in volume indicators, in exit indicators, in price action – you can get a snapshot on your preferred timeframe, but you will never get the full picture.
Take the following set of screenshots as an example. We’re going to use a highly basic single 50-period MA with some very basic fundamentals to say if we should be going long or short. I know we don’t normally trade like this, but bear with me here.
The above is what our 15m trade looks like. Price has broken the 50-period MA to the long side after a period of consolidation. I think this is pretty tradable on paper.
The above is what happens after I’ve taken this trade north (the green line denotes where I’ve taken the trade). Naturally, it goes south. There’s little opportunity to take profit – I might be able to take break even I suppose, but it depends on what I’m using to say actually, no, this is a bum trade. If I don’t get out, within 48 hours, I’m down over 100 pips. Ouch.
I could have possibly averted this trade if I had checked the exact same indicators and fundamentals on a higher timeframe. Here’s the example on the 4H (screenshot below).
The green line represents the time when I would’ve taken the trade, but the previously closed bar is under the moving average, indicating a short rather than a long. Furthermore, there is such a low volume in the market – look at how comparatively minimal the movement is over the past few bars. There’s no indication of how the market is going to move in a fundamental sense – if anything, things are still consolidating. Sure enough, after a brief pullback above the 4H, the market travels down for another couple of weeks before finally reversing in our expected direction.
There are at least 3 signals – 2 fundamental and 1 technical – on the higher timeframe that should tell us that taking that trade on the 15M is complete insanity.
This was an incredibly basic analysis using a single indicator I don’t even personally use, but it shows that MTF is absolutely part of the game. I can’t tell which direction any market is travelling in without knowing what the timeframes above me are doing.
It would seem with such differences I’m not really a student of NNFX. That is not at all the case. NNFX taught me a couple of very important things, as follows:
Confirmation indicators, and having at least 2 of them. Something that confirms your suspicions, and then reconfirms your suspicions of your suspicions.
The importance of having all your ducks lining up before jumping into a trade
The number of different things that you can use as a baseline, not just relying on moving averages that look good when you look left but never provide enough to the right
Volume and Volatility. No one should trade when the smart money is out of the market, or when it’s being pulled out back into a consolidation.
Let’s look at VP’s algorithim shell. He believes there are 6 components to an algorithim.
Baseline – You only trade in the direction your baseline tells you to
Main Confirmation Indicator – The main source of entry signals
2nd Confirmation Indicator – Data that tells you your entry signals are valid or totally out of whack
Exit Indicator – Your guide to telling you when to get the fuck out of dodge
Volume Indicator – Shows you if there’s enough liquidity in the market to trade
ATR – For trade management
Now, to break it down from my point of view, here’s what I’ve taken, and here’s what I’ve left on the shelf.
I don’t use a baseline, at least not in the traditional sense. On my chart, a baseline can’t possibly tell me which direction the market truly lies in. The only thing that can tell me that is Multi Timeframe Analysis, and if I am using entry and confirmation indicators anyway, they probably give me more accurate information of the market condition and direction.
I do use all of the confirmation indicators suggested and more. I have one which I classify as my entry indicator, as well as an higher timeframe version. I need the higher timeframe version to be pushing in the direction of the trade before I get the signal on the lower timeframe too. I have another which indicates price action across several timeframes too. Another which concentrates on the shorter term price cycles, and finally one which ONLY concentrates on the extreme higher timeframes.
In all, I count 4 confirmations, 3 of which run across higher timeframes. Do you see how important this element is? I think it’s probably true that the lower your timeframe is, too, the more confirmation you want that your entry signal is strong enough to trade.
My exit indicator is based on my price action indicator, and I also use that to set targets and stops – so I don’t need ATR, although I respect its value and importance. As for volume? Well, that’s the missing piece for me at the moment – I haven’t found one that works for me. Yet. My mind is constantly working and looking over the rest of my algorithim and seeing that MTF has worked for all other elements… well, maybe that’s something I should pursue next.
Lots of words in that breakdown there, but I think it’s important to demonstrate just how extensively you can modify something for your own values if you’re struggling to use the original variant. NNFX taught me, above all, the value of strong confirmation, something I have really taken on with the lower timeframes in mind.
Being a renegade is no bad thing. Read the original source material and know that for many, it works. It might work for you. Know as well that if it doesn’t but it has such strong feedback, it might just be you and not the source material.
Open your mind, embrace the elements that work, and fashion them into something that replaces your own shortcomings and empowers your strengths further. If the original isn’t working, be a renegade.
So you’ve read my His(my)Story (all five parts. Why did you do that? Terrible idea), and you’ve taken a look around, and you’re a bit of a moron so you didn’t even click About and you want to know what this place is.
Well, I’m going to copy and paste the text from my About page and then elaborate a little bit. I’m a bit lazy like that (That’s okay, because you’ve been a bit lazy to not look at my About page!)
DoubleThree is the home of Syxx –husband, dad, digital trainer, writer, occasional tech wizard and wannabe day trader. He’s 30-something, supports Arsenal Football Club and is in the trading game partially to make life comfortable for his family, and partially to fund a charity project idea he’s working on. He hates typing in the third person, but creating an about page any other way seems wilfully unprofessional.
DoubleThree is intended to serve as an independent trader’s look into the ridiculous world of foreign exchange trading and finance – and that includes the random musings and thoughts the brain stretches to when there’s nothing to trade in a flat market. Expect sarcastic observations, completely incorrect technical analysis, unwanted commentary and the frustrations of balancing trading, work, family life and staying sane.
His favourite number is three – since three is the magic number – and what’s better than the number three? Two threes. Hence the website name. And of course, two threes make six, which would explain the online handle.
It’s unnecessarily complicated. Let’s just leave it at that.
Article wise, you can expect to see the following:
Weekly breakdowns of the market as I see it, and how my own personal trading went.
Observations of how I can improve my algorithim and approach to my trading
Reviews of indicators and systems I find for free on the web that I either take something from or I think might be beneficial for someone’s system somewhere
The odd personal mind dump that I can dump all over my social media for whatever reason (movie review, game review, rant about Arsenal)
That’s probably it, really. Doublethree is something personal and for me, but equally, if you get something from it, I’m happy for you. Just be aware, I’m not writing for anyone but me. You are welcome to comment on any post here, but unless it’s pleasant, insightful and could raise an interesting conversation I probably won’t approve it.
Oh my days! It’s time for the first weekly review! Fireworks! Pom poms! Hopefully not buckets of tears and self-loathing! I need to make a fancy graphic for this and the CountDowns really, don’t I?
Since this is the first one, I’ll highlight just this once how this’ll work week to week:
I’ll tell you when I was able to trade
I’ll tell you my results clipped from my trading journal (not the full thing, just the relevant bits to my trading)
I’ll go through my highlights and mistakes
I’ll try and break down losses I think were unavoidable (situations affected by news for instance)
I’ll explain what I think the next steps are in terms of system or strategy development (if relevant. I’m not changing a damn thing if I made 3000% profit and no losses in a single week)
I’m well aware I have not yet published an article on my strategy or current revision of the algorithm so I’m sure profit and exit points won’t make a lot of sense to you, but bear with, that’s coming shortly down the line.
Without further ado then…
Monday: Off on my prediction – I had a full day of trading in mind whilst dealing with all of my work admin bits and pieces but there were a handful of impromptu meetings and some rustiness getting back into the groove of trading. I was all off and missed quite a few entries (which might be a good thing), but still got stuck in. I took a whopping 5 trades across all of Monday.
Tuesday: Quite a bit more trading time than I thought thanks to a cancellation of a work meeting early in the day (at close of play, basic trade management was used to encourage trades to be closed either in profit or at break even where possible). Of course, I only had 1 trade so whatcha gonna do?
Wednesday: No new trades, maintain any pre-existing open trades
Thursday: Traded in the gaps (at close of play, basic trade management was used to encourage trades to be closed either in profit or at break even where possible)
Friday: No new trades, all positions to be closed before 1pm GMT
With these times in mind, my personal target would be 15% profit on the week (5% per day * 3 tradable days). I know this seems high but my algorithm shouldn’t be giving me any more than 3 to 4 viable signals a day, so I shouldn’t find myself over-leveraged at any time. Famous last words.
Here’s how things looked. Ooooo shiny tables.
Profit as % of daily starting bank
The week started off with a bumpy start but accelerated into two solid losses. It’s hard to complain with a +10% ROI straight off the bat. The raft of break even trades that started Monday caused me two problems – firstly, despite my pleas above I did find myself over leveraged at one point, and unable to take another signal (which would’ve turned a profit), and secondly gave me some major unexpected hassle in management when a good 3 hours of my day were taken up by work at short notice. This happens sometimes and is something I have to accept, but I need a better way of managing them.
Tuesday proved the point about a lack of signals too, as…
In terms of next steps, there isn’t anything I would change about the system right now. I smashed my 15% target and my money management has proven to be tight enough to get me in and out of trades at break even smartly.
There are two points I do need to consider, though.
Planning with the CountDown posts. It’s going to be difficult for me to write these out at the weekends. Indeed, this week’s CountDown was written on the 1st January. Yes, before the US killed the Iranian General. Problematic in terms of the impact it could have on the markets. That should’ve been factored into my trading approach which it was not. I’m not in the game of being dishonest with any of you either. Any article I write from this point will have a scheduled date on which it published, but if the article is relevant to trading or something within my system that is subject to change, I will be adding a note at top of the article to state when I originally scrawled it. If it turns out to be a CountDown or something in my system and a major event happens that would affect the market, I will try and find the time to update these things – but I can’t promise that, so ensuring there’s a confirmation of the original time of writing will help you make informed decisions from it.
I have three propitiatory indicators in my system at present. I know how they work which is good, but I only have ex4 versions of the files and not mq4 (and to my knowledge, the mq4 versions have not been released). This is bad for many reasons, the most principle of these is what happens when my broker discontinues support for MT4? I would be dead in the water. Either I have to find open source indicators that provide the same or similar results to the propitiatory ones I’m using, or I have to find entirely alternative ways to provide the kind of information I need to make informed trades. Believe me, even if this algorithm produces 5% a day, it’s no good to me if the tap is turned off by a technical rather than a fundamental issue.
I need to add a news indicator as well. That one is easy though.
Hope you all had good trading weeks. Enjoy your weekend!