TS: outline


A Basic outline of my TradeSpotting (TS) System

1. Outline:
My TradeSpotting (TS) system is a technically based, mechanical, trend-trading system that uses a range of indicators to generate trade entry signals. Indicators that are used include EMAs, pivots and the ADX to name a few.  The most significant indicator in the TS system is the ADX.  The ADX measures trend strength and, as such, contributes to the TS system being able to catch strong, market momentum moves.

A common criticism of technical indicators is that they are 'lagging'. I am quite happy to catch just part of a strong market move once it is in place though.  I am aware that I will miss the first and, probably, last section of a strong trend or move; but catching regular 'slices' out of the middle section of strong moves is just fine with me.

One major advantage of my trading system is that it only requires the humble technology of a simple laptop!  That is all I use in my trading.  See that photo of me in the top left corner of this blog site?  Well, that's how I operate.  I do not need fancy, complex work stations with multiple screens or monitors.  Thus, I can trade from anywhere and at any time.  You simply need to manage your time to be able to access your charts on your candle update times.

My TradeSpotting system with Forex can be applied to any time frame chart but I use it mostly on the 4 hr  charts.

I am finding the best TradeSpotting results come with trading the most liquid of the currency pairs.  For example; the AUD/USD, EUR/USD, GBP/USD, EUR/JPY, USD/CHF, USD/JPY, USD/SGD, NZD/USD and AUD/JPY.  I am wary of the Yen and CHF pairs currently though given the recent currency interventions on these instruments.

TradeSpotting is technically based and potential trades are evaluated by checking charts for the alignment of several indicators and, then, waiting for these to attain specific and optimum levels.  When these levels have been reached on ALL of the indicators then a valid TradeSpotting signal is determined to have been received.  My TradeSpotting system is, thus, very visual and takes only moments to assess on any trading instrument (Forex, Stocks ETFs Futures etc) and, on any time frame.

The TradeSpotting system is, therefore, quite mechanical. That is, it does not require a great deal of decision making.  The charts are evaluated every 4 hrs, or whatever time frame you trade from, and there will either be a TS signal or no signal.  Mechanical systems like this offer an advantage in that they take out much of the anxiety and / or guess work about whether to place a trade or not. TS signals can be taken in isolation or with some reference to wider market parameters.

Do I trade every received TS signal blindly? No and I give three reasons why:
1)  I tend to assess the indices for the USD dollar (USDX) and for the Euro (EURX) to gain information about the general and wider market trend.  I then evaluate any TS signals with respect to this information.  I report on my indices findings in the regular posts on this blog site.
2)  I always trade within my strict money management rules.  I will only risk 4 % of my account per trade.
3)  Some currency pairs will have extra chart patterns confirming a particular trend direction.  This may take the form of Support and or Resistance trend line levels or triangle patterns etc. This is referred to as Confluence when you have 2 or more factors that support a trend direction on a given pair.  For example, a currency pair may generate a TS signal but, also, have just broken out of a triangle trading pattern or broken a significant trend line.  So, I would always choose to trade the currency pair that has extra confluence over a pair that may only have the raw TS signal. BTW: Dean Malone, from Compass FX, has released a great video explaining how to apply Support and Resistance levels. This can be viewed @ http://www.compassfx.com/video/ip/60412/60412.html

2.   TradeSpotting Examples:
An example of a TradeSpotting trade is illustrated below in the simplified screen shot of the 4 hr AUD/USD. (click on chart images to enlarge them; you may need to click a few times to achieve this though!)

The following chart shows how a TradeSpotting trade earned 120 pips on a short on the USD/SGD and was confirmed with a trend line break as well:


The following chart shows how TradeSpotting enabled a 190 pip haul if trading from 15 min charts on the GBP/USD:

The above charts show a simplified version of the TradeSpotting template that I use in my trading.  My full template contains the other key indicators that I use to generate TradeSpotting trade entry signals.

The chart below gives an illustration of the benefit of my full TS system, compared to simply using the ADX alone. In this chart there were a number of ADX trade signals; 4 are shown with arrows on them.  Of these, only 2 were further supported by my other confirming indicators.  This is noted on the chart and the possible pip tally for these two TS trades is also shown.

3.   Applying my TradeSpotting System:
Given that my TS system is a trend trading system it is important to know, and understand, what the current market trend is and, then, to trade with this predominant trend. I analyse and assess the FX indices, USDX and EURX, to determine my understanding of the market trend. I will then look to take TS signals in line with this trend.  I also look for other supporting evidence for a possible momentum move such as a break out from a significant trend line, triangle ot channel pattern.

4.  TS and different market conditions:

I find that TradeSpotting has a number of trading benefits. It helps to find trend trades once there is strong momentum behind a move within a currency pair. It also keeps me out of potentially losing trend trades when there is not enough momentum to give sufficient follow through on a move.

My experience has led me to summarise that there are, really, two major types of FX market conditions:
·        Trending markets and
·        Range bound / choppy / bouncing markets.
Trending markets: These are the preferred markets for using my trend trading TS system. That is  obvious I hope! TradeSpotting works well when the markets are trending on most time frames, especially the 4 hr time frame that I trade from.

Range bound markets: My experience has shown me that there are two main ways to best trade choppy,  range bound or bouncing markets. One way is trade from the bounces at pre-prescribed levels. This type of trading does not suit my trading style or time zone that I trade from. The other way is to trend trade using TradeSpotting BUT from smaller time frame charts, such as the 15 min charts. I do tend to find that trend trades off 15 min charts, during choppy periods, generally present more often during the late London or US trading session though. I live in the Asian trading zone so, sadly, I generally miss these opportunities. So, whilst I do find that the lack of 4 hr chart trend trades during choppy markets is frustrating, at least TS keeps me from losing money, more often than not, during these periods. Preservation of capital is very important in trading!

I have provided an example below to illustrate this exact point with ranging markets. This EUR/USD chart is from April 24th 2012. This was a period of choppy markets with few lasting trends on the 4 hr time frames. I have labelled the zone of the Asian session and you can see that there was little movement during that time frame. There were short term trend trades to be had though that kicked in after the London open and these are labelled. Sadly, that is a time when I'm rather busy down here!

I find that the USD and EUR indices are often helpful for assessing whether the markets are range bound or trending and that is why I analyse these instruments so carefully. 

5. Summary of how I apply my TradeSpotting system:
  1. I determine the overall market trend using the indices USDX and EURX.
  2. Check my Trading Calendar at the start of each week, and day, for significant items. ( http://www.forexfactory.com/calendar.php)
  3. Look for valid TradeSpotting trend signals in line with overall market trend.
  4. Look for other supporting evidence such as: trend lines, triangle patterns or channel breaks.
  5. Trade with the trend and trade what I see, NOT, what I think.
  6. Check in throughout the day on market commentary at Forex Live ( http://www.forexlive.com/) and CNBC ( http://www.cnbc.com/).

Please feel free to ask me questions.  Send these to Mary @ gmail:  tradespotting1@gmail.com

NB: Please, also, read the Disclaimer Information on the home page of this blog.  Only ever trade with funds that are allocated as part of your 'risk trading' account and do not start to trade with a Live account until you have demonstrated consistent success in a simulated practice account.


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