Hi traders, I would like to introduce you my trading system which I am trading on daily basis, everything described here is on LIVE trading account and most trades shown here I took - either with profit or lost. I am not native english speaker so be patient with my easy language.
I have been live trading for nearly 5 years, sometimes trading solely made my living, sometimes not. In the beginning I did all classical mistakes of newbie traders - overtrading, using way too much indicators, doing way too much everything, focusing on news, watching charts all day long (Which actually is among the most important skills u will need in profitable trading. I mean, to develop some sense for charts, price action, what is market doing, what are buyers and sellers doing, but does not necesarilly mean that u will have to sit 10 hours a day by computer). As I developed my trading skills, I understood the importance of understanding price action and more, importance of proper money management and discipline. Trading as I do it now is very simple, lacks indicators, u do not even have to watch news (maybe except those with biggest impact as is NFP).
Using candlestick reversals is very easy and takes only minutes a day. Frequence of trades is very low, there is no overtrading, no "hot heads", no "I will beat the market" as you take only few trades a month, with higher probability of winning setup. Therefore it is very stable, promising trading system suitable mainly for traders who had problems with overtrading in the past and also for traders who do not like big drawdowns in their equity and want stable increase...
Basic of this system as you can see on attached picture, is to trade on daily charts, you can trade mechanically and take every signal or check it also on 1 week timeframe and 4 hours chart, just to "pinpoint" better, when take a trade. U never go with the flow, this is not trend following system, u are always trying to pick bottoms and tops with very high probability. On the picture below, I focused on the trades I took from January 16th till March 6th. As you can see, its very simple, you wait during any rally and instead of trying to take a trade and go with the flow, you wait for the first daily candle with another color. Then you take a trade in the new direction of last candlestick, setting SL as a whole day candle, maybe little above a swing. PT I usually set about 200 pips, that is quite reachable for every rally, I checked EUR/USD back many years and target about 150-200 pips works well and you do not have to worry that it tops 5 pips under your PT and goes opposite direction. Of course you can set your own PT and SL numbers, but I strongly recommend to be somewhere between RRR 1.8 - 3. Important is, to take such reversal day signals after a few days rally, not in the narrow range, where you would take signal exactly on S/R level. Very good is also to check weekly timeframe for S/R and sometimes simply avoid the signal, but it all depends, how much filtering you want to apply. This works well even with 100% mechanical approach to trading.
It is understood that trading this system, trader will knows at least basics of price action and candlesticks. It is not important to know japan names of the candles, but is important to know its meaning in terms of market...As you can see below, trades taken on bottom where usually appear some kind of "hammer" type candle (trades 4 and 6), show strong refuse of that price, same with "star" type of candles on top, they suggest you can await nice downswing on daily basis. Few of them are visible in the middle of the daily chart and on the 4 hour TF.
First is daily, second is 4h, you can see how colored setups looked liked on both timeframes. You can check results of all trades during January 2012 till March 2012...you can see SL used for every trade, as well as PT. Then in the first chart on the right u can see if imaginary trader started with 10 000 USD and used fixed risk 2,5% of capital on every trade with position sizing, how his capital would increase. In the second chart you can see example of using 5% with position sizing and last example is using fixed 0,5 standard lots. You can examine all trading system, which in the end gave over 600 pips in 2 and a half months, working with minimal drawdown, 60% win/loss ratio and RRR over 1,8. Of course its only a small sample of trades, but I hope, that it is visible, that less is sometimes more.
And the funny thing about this is what I recommend the most, after placing your trade, setting PT and SL, simply switch off the platform and do not bother more. You can check your position only once a day, waiting for your setup. Rest of your time you can spend with your hobbies or family.
Thanks for reading and be ready for more articles on trading systems, psychology and a life of a trader in general.