TLT Trender v2

I've been working on a new trend following system for some time now and I'm finally starting to feel like some progress is being made. After some initial testing, I've decided that the TLT Trender v2 is finally ready for some programming, a task that I will be outsourcing because I know very little about programming.

So far I've been focusing on the Hourly time frame with this system because that time frame fits my schedule, although at some point I would like to use the 5 minute time frame more because I do like trading that time frame quite a bit. I've done some back testing on the hourly time frame and the results are in. Since September of last year, this system has only given 28 entry signals on the Eur/Usd and of the 28 entries, 16 were winners. The biggest winning trade was a whopping 1,461 pip trade and the largest loser was -253 pips. These results are pretty typical of trend following systems...you generally have one or two huge winners that make up for all the small losers. There was also a 56% draw down at one point, another typical attribute of a trend following system. Here's an excel chart of the equity curve in pips:This system is showing some promise, at least enough to warrant some coding so that I can automate it and test it further. First, I'm getting the TLT v2 indicator coded which will break up market action into four categories and the candles on the chart will be colored to indicate what stage of the trend the price action is in. The four stages will be:

Green=markup or uptrend
Blue=accumulation or neutral with an upward bias
Red=markdown or downtrend
yellow=distribution or neutral with a downward bias

Hopefully the indicator will be ready soon and then I'll use that indicator to have the automated strategy programmed. I've been putting in a lot of work into system development lately and hopefully it will pay off at some point. With my busy schedule as a practicing attorney, I think systems trading is my best shot at trading currencies because I don't get to be in front of my trading screen that much in the mornings...and the big trades seem to be in the morning.

So what does the new system say about the Eur/Usd right now? It's currently giving a yellow reading on the 1 hour time frame.

Here's a screen shot that shows the last 2 trades that the system made:Not too shabby.

TLT

Weekly Wisdom Quote

“Training for any kind of [violent] encounter occurs every moment of your life. Whether or not it is productive depends on how you handle each situation.”

Don Pentecost

Put ‘Em Down, Take ‘Em Out!

(Knife Fighting Techniques from Folsom Prison)

Review of a Live Trend Trade: ATW

April 13, 2009, I purchased ATW at just under $21.00 a share and today I want to review the trade and see if it's still worth holding onto. I initially put this stock on a watch list because it had been consolidating for a several months and it looked like it might break out of it's consolidation channel. Well, on April 13th it did and here is the chart:A little over a month has gone by now and the stock has shot up to $28-29, back down to the $22-23 neighborhood and now it's hovering around $25. I am going to hold onto this stock because the current chart pattern indicates that the uptrend is still intact and there is not a sell signal. Here's today's chart with some annotations:Based on the above observations, I think this is still a great stock to be in and this might even be a good point to jump in or add to a position. I personally will not be adding to my position because I have a sufficient exposure to equities right now, but I might wish I had later. We'll see.

TLT

Trade Review: Eur/Usd Long

Yesterday I put on a long Eur/Usd position and posted the chart that showed my entry. The trade was successful and I exited yesterday evening right after I got home from work. Here's the chart:As you can see, I booked about 45 pips from this trade. Not a huge trade, but a good one. Fortunately, I kept an eye on the pair later on into the evening because the hourly chart was in a really strong uptrend. I put the trade back on when my system gave me another buy signal later in the evening and I set a profit target of 1.3615, which the pair hit early this morning and I booked another 55 pips from the follow up trade.

The reason I would refer to these trades as good trades is because I had a plan and followed it. The trades may or may not have been profitable, but I stuck with the initial trade plan. That is very important, although the importance of sticking with a plan does not become apparent until you've been trading for some time.

TLT

Live Trade and A Quick Look At Multi Time Frame Trend Alignment

I've got an open long position in the Eur/Usd this morning. I got a buy signal about an hour and a half ago and I quickly thought that this trade would be a loser because the pair fell and consolidated right after I bought. Now the trade seems to be coming to life as it is moving to newer highs...sometimes you have to have patience and let the trade develop. Here's a five minute chart that shows my entry along with a couple of notes about the setup:As you can see, it's the same basic setup that I've been using lately. Trender line is green, the Fisher MA crosses the Zero line and the RSI is trending but not in extreme territory. I've really been working on keeping my entries and exits as simple as possible.

The above system generates a lot of good signals and also quite a few false signals. One thing that helps eliminate some of the false signals is to look at a higher time frame (like a 1 hour chart if I'm trading off the 5 minute) and only take signals that are aligned with the trend on the higher time frame. Here are the correlated time frames I tend to use when trading currencies:

• Trading with 1 minute chart--align with the 15 minute chart
• Trading with 5 minute chart--align with the hourly chart
• Trading with 1 hour chart--align with the daily chart
• Trading with Daily chart--align with the weekly chart

These aren't hard and fast rules, they're just combinations that seem to work well for me. You can match them up in whichever way makes the most since to you. I know that other traders, like Brian Shannon at Alpha Trends, like to use 3 different timeframes. An example of his approach would be using the daily to determine the primary trend, the hourly to determine the secondary trend and then when both of those are aligned using the 10 minute chart to place the trade.

The point I'm trying to make is that by using trend alignment in multiple time frames, you can reduce the number of false signals and only take trades that have a higer chance of being profitable. There are many mediocre systems out there that could be much better if they incorporated some of the above techniques. Just some food for thought.

I'll post an update when the trade is closed out.

TLT

Weekly Wisdom Quote

"Look for the setup that scares you the most. That's the one you probably need to trade. Don't expect to feel comfortable until an active position finally closes out. If it feels too good, everyone else will trade it the same way and become the crowd."

Alan S. Farley
The Master Swing Trader

Under The Weather

Came down with something last night...hope it's not the "Swine Flu." Needless to say, I didn't get to watch the markets much this week. I did notice a big drop in the Eur/Usd at one point when flipping past CNBC today. Hopefully I'll be up and running in time for the open on Monday.

TLT

Brief Update

As you can tell from the lack of posts, this week has been a busy one for me. I've been in court quite a bit over the past couple of days and I haven't had much time to watch the markets. I did manage to make two currency trades (one made 75 pips, the other losts 21 pips) this week and I might put on a long Eur/Usd trade this evening because my system looks like it's about to give a buy signal.

As for stocks, there has been a lot of fear in the air lately. I saw a woman on the today show the other morning tell investors to start trimming back their stock holdings and books some profits. Things like that tell me to just sit tight and hold the stocks that I've got. The S&P has bounced off it's 20 day moving average and has been working off overbought levels. It will be a very good sign to see the market continue to consolidate without giving up too much ground. We'll see.

Good luck out there.

TLT

Weekly Wisdom Quote

"Even being right three or four times out of ten should yield a person a fortune if he has the sense to cut hiss losses quickly."

Bernard Baruch

System Caught A Good Buy Signal

Got a buy in the Eur/Usd early this morning on the hourly chart. The trade has roughly a 200 pip profit and it's still open. Check out this chart:Not too bad. The Euro is showing incredible strength right now, we'll see if it continues or if it quickly reverses like it has after the last several Euro rallies. It all seems to come down to risk appetite and the equities markets. Everyone's jumping into stocks and chasing the great returns that equities have been offering over the last couple of months. We'll see amazing strength in the Euro if the move in stocks continues. On the other hand, we'll likely see the Dollar bounce back (flight to safety) if the equities markets start tanking...which could be ugly given all the longs and their current optimism.

Have a great weekend.

TLT

Profit Taking?: A quick look at the S&P

Yes, as Charles Kirk mentioned recently, making money in stocks has been a little too easy lately. Given today's slight sell off, I thought it would be a good time to take a look at the S&P. Now remember, this is on the S&P and is not representative of the full market, just the big caps...note that the Nasdaq is selling off quite a bit more today. Here's an hourly chart that shows the S&P from April 23 until today. As you can see, yesterday was a good time to take a little off the table. The uptrend is still in place...now we'll just have to see if it remains that way. I'll exit most of my longs and even look to short if that linear regression trend channel doesn't provide support.

TLT

A Stock To Watch: TSYS

This one's channeling nicely...might be worth keeping an eye on.

AAPL Update and DXO

I bought some Apple back on April 13, 2009 and posted my trade plan, which included a couple of profit targets. Target number 1 was hit this morning and Apple looks to be in another trending move up. Here's the daily chart:So far this has been a pretty good "textbook style" trend trade...hopefully it will stay that way.

On a different note, I put on a trade in DXO this morning. DXO is the double leveraged long Oil ETF. I have a wide stop in place and also a big profit target...kinda necessary to have big profit targets when making trades that require wide stops. Here's the chart with my trade plan:Hope everyone's having a great start to the trading week.

TLT

Weekly Wisdom Quote

"When everyone knows beauty is beauty,
this is bad.

When everyone knows good is good,
this is not good."

Loa-Tzu

Live Currency Trade: Long the Eur/Usd

Yes, the Eur/Usd has been all over the place. Up, down, down, up...etc. Attempting to trade it has been a roller coaster for me. I put on a long trade about 20 minutes ago and to time the entry I used the new trading method that I mentioned earlier this week. Here's a 5 minute chart with the 1, 2, 3 Setup spelled out on the chart. Take a look:I'm still gonna post a more detailed explanation of how the method works, but for now you can just take a look at the chart and note the various indicators used. The main problem with this method is that you can get lots of bad signals in choppy markets. The key is to look at a bigger time frame (I look at the hourly chart when trading off the 5 minute) to determine the primary trend and whether the currency pair is trending or consolidating...easier said than done, but I've been working on ways to work this out.

TLT