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Tuesday, September 18, 2012

Impulse Mode Setup

Impulse Mode

As we all know, one of the most profitable types of Market is the Impulse Mode.
Once the impulse mode is established, there are lower than average or not pullbacks at all, so it is very difficult to enter the market until the move is finished.
This is the reason why it is so important to determine when the market is ready to start an impulsive move and get into the last pullback.
The definition of this rule is critical to avoid to take a lot of fakes moves, but even taking several failures, the profit potential is so big that compensates taking several loses before the final winner.

The rule I use to define when a market is about to start a trending mode is the Bollinger Crossover and it works as follows ;
We need a fast moving average and a slow Bollinger Band. And the the settings we must find are those that make the fast moving average to stay inside of he Bollinger on sideways and even slow trending markets.
When we get a Bollinger crossover ( Fast moving average crossing outside of the Bollinger Band) , then the setup is trade ready in the direction of the crossover, and the entry is a limit order at the middle of the band
See attached picture :

I created a set of Indicators to trade this setup :
PM_Bollinger_XO : It draws vertical lines and triggers audible and text alerts at crossovers. It is possible to filter only the first signal on each direction ( like on the picture )
PM_Trend : It paints bar colors according to the setup

For those who like doing research ( like me ) or auto trading a setup, I also created the strategy PM_Impulse_v2 :

I will post my research on different markets here and if you want to share any setting, info , comment or suggestion, please feel free to do it...

Pablo Maglio

Thursday, September 6, 2012

Trading a Moving Average

Is it possible to define a trade system only with a moving average (MA) ?
That would be something like this ;
If price is above the MA then we place a limit order at its price value...
If price is below, then we place a sell limit at the MA price value...
We could also define a zone where no trades should be placed...
...let say, while price is too close the MA, then we have no trend ; so no trades.
If price goes far enough from the MA, then we have a defined trend, so we start chasing the MA.
Sounds easy...but ;
Can we find a combination of timeframe and period of MA that produces results ?

I created a long time ago a strategy that exploits that edge, it is called PM_EMA and its first purpose was just that ; find good moving averages to work with...

Using the Strategy Analyzer Tool on Ninjatrader we can run an optimization process where we test the strategy using a range of moving averages, and then create a chart where we can get the PnL vs period ( see attached picture )

The horizontal axis represents the period of an exponential moving average, the histogram is the Profit/Loss of trading it with fixed target and stop. The red line is the number of trades ( its value is on the right vertical axis ).
So we must find the best spots where the profit is maximized and the number of trades is low enough to cover the comisions...

I started this thread to all those followers as me to discuss the best settings we find about this setup.