We have been working very hard on a framework for automatically detecting high probability trade setups during the year 2017. We are finally in the stage where the systems used are stable enough to be used at a daily basis.
It might sound crazy since we have put lot’s of working hours and dollars into this.. ..but we will actually share some of our work for free! What we will share (for now) is two different models for detecting trend changes in different forex pairs. What we will not share is 1) risk models and 2) exit strategy nor 3) used entry methods for all of the alerts we share. This is something that the user/trader needs to figure out himself, based on risk appetite, available capital etc. etc.
What does the Forex Scanner do?
To make a long story short; it is scanning for pre defined parameters to appear in the forex pairs that it is programmed to follow. It is not the holy grail and the hit rate is not even close to 100% (aggregated hit rate is about 35% but more on this later on the EMA cross over if entering on all cross overs). The first signal/alert that we are going to push for free is when we detect EMA12 crossing above EMA36 on 1H chart. ..and there are several ways you can trade this cross over, read below.
Why should I care?
Trading is easy, all you have to do is push the sell or the buy button. However, it is the waiting process where most of us fail; when to push the buy button and when not to. Also, it is both frustrating and time consuming sitting infront of your screens “waiting-for-that-setup” to emerge on your chart. And furthermore, although you are sitting there glued to your monitors, it is hard to follow many pairs simultaneously. How many times have you noticed a setup when it is already too late? That is why we have a “robot” scanning the market for us and tells us when a good setup is found.
Why for free, do you use it, does it work?
Short answer – yes we use it all the time (some though fully automated but that is a different story). Well, it is not actually free, there is no such thing as a free lunch. We’ll co-operate with a big institution later this year and they are partially “giving” this to you, since they will be paying us for writing market analysis (DAX, SPX and Forex), that will be available for free also. We’ll introduce the partner later this year, it will be great stuff both for us but also for you!
So – does it work? Well – define “work”? As earlier said; it is not the holy grail. Period. All it does is finding the setups, you have to know howto trade (that is, pulling the trigger, have a risk model, exit strategy etc.). It will not make you a trader and if you have no prior trading experience, it is very likely that you will lose money by following these setups.
How do I benefit from the detected setups?
I’d recommend to follow the Twitter account https://twitter.com/FXRobotScanner and setup a notification on tweets. When a setup is detected, it is usually no rush to dive into the trade. As a matter of fact, it is statistically better to wait a few hours before placing your entry. This is due to how the parameters are configured; most of the setups are detected in a momentum change or price break-out. And price tend to retrace after a momentum surge or break-out. You also have to know if there are major news behind the move (use ForexFactory or similar news calendar). If the movement is news related, it is good to wait a while for the volatility to settle and then try to find a good entry from a lower timeframe (5 to 15min for example).
The biggest benefit is that it will/might save you plenty of time when you can do something else besides staring at your monitors waiting for something to happen. And our time on this planet is limited, use your time wisely!
What else do I need to know?
This alone will not make you profitable. There is absolutely no shortcuts to going from losses to profits. There is no holy grail, no signal service or magic crystal ball that will make you a profitable trader. None.
About the “systems”, it is good to know that by following the setups (i.e. long => short => long) as they emerge, the aggregated hit rate is about 35%. However, it would still be profitable although I do absolutely not suggest to blindly go long or short directly after a setup is detected.
It is also good to know, that there will be whip saws (i.e. no price continuation after detected setup). This should not matter much however, if you know howto use decent risk and position management. As an example, the short term algo can have a runners of 2-5 days with +200pips profit when you’ll only have to risk 20-50 pips. The mid term algo is designed to detect setups that can last up to 60 days (on average the cycle is though about 12 days).
Would it be possible to get an example of howto enter the trade?
First of all, for people not familiar with moving averages, this is what the scanner is looking for; when the faster exponential moving average (EMA) is crossing above the slower EMA. In the example below we have EURUSD on the hourly time frame. The cross over can be traded in several ways, below I will cover a few examples. You should also always check the news calendar before any entries since spikes etc. are very usual right after a major news events.
The first obvious way of trading this setup, is going long when EMA12 crosses EMA36. This way of trading is not to be favoured, although it has a positive outcome over a longer time period, it is very important to have a good money management.
When EMA12 crosses above EMA36, wait for price to retrace back to EMA12 before entry. This method will give you better results than in example #1 above.
After the pullback to EMA12 as in example #2, put a buy stop order above the swing high.
Since there is almost always a pullback to EMA12, more experienced traders can also try to fade the first move. I would not recommend this method unless you a) really know your instrument and b) are happy when you take a loss.
Use a scale in method after a cross over. As I wrote earlier, this is a super simple strategy and it will not always result in a winner. By scaling into the trade, you can risk less and add to the position if it goes in the right direction of your trade. Go through your favourite instruments and see how long the runners have been on average, in the example below we had a runner of close to 3 days and 300pips. Scaling into the position on new break-outs is one option.
If you have more and better ways of entering, let me know and I will add it to the example list and give you credits for it 😉