High Detail of my Strategy Development by Back-testing USDCAD
Introduction:
(Please read all thoroughly)
Be open-minded, know that price may move contrary to your emotional belief, rather than knowledge.
Never side to selling/shorting/downtrend or buying/going long/uptrend because of preconceived ideas or out of emotion.
Patience will be necessary to enter according to best signals of price direction.
(Please read all thoroughly)
Be open-minded, know that price may move contrary to your emotional belief, rather than knowledge.
Never side to selling/shorting/downtrend or buying/going long/uptrend because of preconceived ideas or out of emotion.
Patience will be necessary to enter according to best signals of price direction.
Comment:
To elaborate upon strategy/method of trading, I “shortly” will explain what is going on:
1) Basics to trend movement in price chart:
The establishment, or ‘confirmation’ of a trend is:
In the case of an uptrend, higher lows.
In the case of a downtrend, lower highs.
2) Traditional ‘Trendline’ (ray) placement:
In a downtrend, set a trendline parallel above & aligning to its major highs.
In an uptrend, set a trendline parallel below & aligning to its major lows.
>This way when indications affirm trend has changed to opposite direction, you will see it clearer to understand the possibility visually, yet, a new trough/low higher than past low must be formed to confirm/establish the trend change, as spoken at #1, and continuing up to test past resistance.
|||| There are advanced tools (which I believe to be necessary for all) besides the indicators to be mentioned. They are the counter-trendlines, & what I call “sub-trendlines” which will have its own post on its topic to see clearly, and to introduce the idea which is not traditionally used/taught, or known at all.
> The use of trendlines, counter-trendlines (“entry-lines”), and “sub-trendlines”, proves that “past resistance becomes new support; past support becomes new resistance”
>>Trendlines may be repositioned for current changes of support trendline (in bullish pennant, for example); not the same case for countertrendline (entryline) which is for unique entry use.
3) Indicators:
Though I am basing off of knowledge, not just the indicators or tools, they simply help.
With trading, you have knowledge, helping tools, and discipline for course of action.
Indicators used & their details:
> Supertrend:
At low(er) (M30) time frame, shows precisely and in advance (earlier compared to 4-Hour Time Frame chart signal) trend start while you are to keep considering & acting accordingly with the: H4 time frame, Traders Dynamic Index indicator.
At the high (4-Hour) time frame, Supertrend shows current trend to avoid manual false exits or incorrectly countertrend trading; if there were to be a reversal, while considering Traders Dynamic Index, you are to accordingly observe the lower time frame (M30) Supertrend counter trend initiation for the reversal.
||| Supertrend shows trend change at lower TF (M30), while the TDI MBL shows downtrend initiation when MBL moves across 50 to opposite side with the other proper conditions applying (to trade), such as price being rejected or bounced recently.
> KK_Traders Dynamic Index_Bar Highlighting, hereby called TDI or (Traders) ‘Dynamic Index’, & ‘bottom indicator’. Components referring to the Dynamic Index
Are: MBL, Market BaseLine, yellow (curved) line; RSI, ‘Relative Strength Index’, green (curved) line; TSI, Trade Signal Line, red (curved) line.
> When seeing squiggly lines RSI & TSI near 50 or them surrounding MBL as squiggly lines, it surely means the price is moving as a slight consolidation/ or a retracement/pullback.
> To help identify true new low, at (start of) uptrend, the low/trough is seen as an oversold (MBL) “low” price which is then supported to be bought again by the market.
1) Basics to trend movement in price chart:
The establishment, or ‘confirmation’ of a trend is:
In the case of an uptrend, higher lows.
In the case of a downtrend, lower highs.
2) Traditional ‘Trendline’ (ray) placement:
In a downtrend, set a trendline parallel above & aligning to its major highs.
In an uptrend, set a trendline parallel below & aligning to its major lows.
>This way when indications affirm trend has changed to opposite direction, you will see it clearer to understand the possibility visually, yet, a new trough/low higher than past low must be formed to confirm/establish the trend change, as spoken at #1, and continuing up to test past resistance.
|||| There are advanced tools (which I believe to be necessary for all) besides the indicators to be mentioned. They are the counter-trendlines, & what I call “sub-trendlines” which will have its own post on its topic to see clearly, and to introduce the idea which is not traditionally used/taught, or known at all.
> The use of trendlines, counter-trendlines (“entry-lines”), and “sub-trendlines”, proves that “past resistance becomes new support; past support becomes new resistance”
>>Trendlines may be repositioned for current changes of support trendline (in bullish pennant, for example); not the same case for countertrendline (entryline) which is for unique entry use.
3) Indicators:
Though I am basing off of knowledge, not just the indicators or tools, they simply help.
With trading, you have knowledge, helping tools, and discipline for course of action.
Indicators used & their details:
> Supertrend:
At low(er) (M30) time frame, shows precisely and in advance (earlier compared to 4-Hour Time Frame chart signal) trend start while you are to keep considering & acting accordingly with the: H4 time frame, Traders Dynamic Index indicator.
At the high (4-Hour) time frame, Supertrend shows current trend to avoid manual false exits or incorrectly countertrend trading; if there were to be a reversal, while considering Traders Dynamic Index, you are to accordingly observe the lower time frame (M30) Supertrend counter trend initiation for the reversal.
||| Supertrend shows trend change at lower TF (M30), while the TDI MBL shows downtrend initiation when MBL moves across 50 to opposite side with the other proper conditions applying (to trade), such as price being rejected or bounced recently.
> KK_Traders Dynamic Index_Bar Highlighting, hereby called TDI or (Traders) ‘Dynamic Index’, & ‘bottom indicator’. Components referring to the Dynamic Index
Are: MBL, Market BaseLine, yellow (curved) line; RSI, ‘Relative Strength Index’, green (curved) line; TSI, Trade Signal Line, red (curved) line.
> When seeing squiggly lines RSI & TSI near 50 or them surrounding MBL as squiggly lines, it surely means the price is moving as a slight consolidation/ or a retracement/pullback.
> To help identify true new low, at (start of) uptrend, the low/trough is seen as an oversold (MBL) “low” price which is then supported to be bought again by the market.
Comment:
The Uptrend Case:
The Summarized Event on USDCAD, 2016:
(United States’ Dollar base currency versus Canadian Dollar; “Dollar Loonie”),
On the start of May 2016.
Resistance horizontal lines were placed from past highs from the past downtrend.
(The downtrend started between the end of January 2016 ending at the start of March 2016)
Those nearby past highs, could signify future support/resistance levels.
The Summarized Event on USDCAD, 2016:
(United States’ Dollar base currency versus Canadian Dollar; “Dollar Loonie”),
On the start of May 2016.
Resistance horizontal lines were placed from past highs from the past downtrend.
(The downtrend started between the end of January 2016 ending at the start of March 2016)
Those nearby past highs, could signify future support/resistance levels.
Comment:
Traders Dynamic Index indicator (“bottom indicator”) showed market oversold end at Daily chart by the start of May indicating an uptrend at Daily chart would form after this signal.
So, market tested resistance & moved to even test the next resistance (line), so, though seeing TDI Market BaseLine (MBL) having been over 68 (as overbought), such was not sufficient to enter short trade since Supertrend indicated uptrend had not ended;
resistance would push down, but could later see a lower high form and the Supertrend show the start of downtrend, (to later on form an overall new low, for the establishment/confirmation of the Daily chart uptrend).
Counter-Trendline would be drawn to show end of retracement/pullback (as hinted at TDI by red/green squiggly line crossing, MBL nearly still (especially near 50)) for continuation down as expected with the intention of setting a verified low (oversold MBL; price low) of uptrend to draw support trendline. From Daily chart perspective, market looked like a bullish pennant forming, which was sure to rise (as Daily chart as bottom indicator signaled) to later on have Market Baseline overbought at Daily time frame to later on reverse again.
Samples of entries are viewed on chart, refer to May 2016 to start viewing, if have not already.
So, market tested resistance & moved to even test the next resistance (line), so, though seeing TDI Market BaseLine (MBL) having been over 68 (as overbought), such was not sufficient to enter short trade since Supertrend indicated uptrend had not ended;
resistance would push down, but could later see a lower high form and the Supertrend show the start of downtrend, (to later on form an overall new low, for the establishment/confirmation of the Daily chart uptrend).
Counter-Trendline would be drawn to show end of retracement/pullback (as hinted at TDI by red/green squiggly line crossing, MBL nearly still (especially near 50)) for continuation down as expected with the intention of setting a verified low (oversold MBL; price low) of uptrend to draw support trendline. From Daily chart perspective, market looked like a bullish pennant forming, which was sure to rise (as Daily chart as bottom indicator signaled) to later on have Market Baseline overbought at Daily time frame to later on reverse again.
Samples of entries are viewed on chart, refer to May 2016 to start viewing, if have not already.
Comment:
Summary of what will occur: Demonstration of how to apply the use of of trendlines, counter-trendlines (“entrylines”), and the knowledge of support/resistance movement, according to trendlines and know when reversal trend starts by trendlines, counter-trendlines and indicators.
Comment:
“Continuing Notes”: Will show the application of the knowledge/concepts and visually guide the reasoning to the moves, and give best experience/knowledge in trading I can give.
Note: I will speak of few sub-trendlines I placed; minor sub-trendlines will not be placed in this post to avoid overwhelming the reader and to have a clearer view, so that with a few posts the concepts taught/shared may be understood.
Use cursor to see dates indicated. Please refer to graph.
Note: I will speak of few sub-trendlines I placed; minor sub-trendlines will not be placed in this post to avoid overwhelming the reader and to have a clearer view, so that with a few posts the concepts taught/shared may be understood.
Use cursor to see dates indicated. Please refer to graph.
Comment:
For best understanding, read section by section by their dates, then refer to graph for each section to make sense of what I am referring to.
Comment:
(2016-05-10) Dynamic Index also showed MBL overbought May 10, though price did not reach its maximum high for the month at that time, no short/sell trade was reasonable anyway because (H4) Supertrend indicated no end to the uptrend yet, which had started on May 3 (2016-05-03);
Comment:
Between purple vertical lines: (2016-05-27) May 27 to (2016-06-02) June 2: Dynamic Index indicated retracement, consolidation. Knowing that Supertrend indicated start of downtrend on May 25, sell/short would have been possible if attentive by having placed (the red) counter-trendine (entryline) at either (black trend-line segment with arrow, representing a ray) (2016-05-03) low to (2016-05-12) low or (2016-05-16) low; or just (2016-05-12) low to (2016-05-16) low (red trend-line segment with arrow, representing a ray), but to especially consider entry after Supertrend announced downtrend start. Yet, your stop loss would have to be set at (2016-05-24) high swing (1.317).
>Trade is taking into consideration the fact that, MBL reached overbought, so price will reverse; Supertrend announced downtrend start; and due to the conviction that price had been rejected by resistance seen at May 24.
>>If having chosen to enter sell/short trade around (2016-05-25), and saw price retrace into Supertrend line but did not show uptrend start, and stop loss had already been set up at the swing high trade could be fine if trusting in your analysis and establish risk management as with the stop loss.
By trusting in your analysis/belief (not emotion) and not manually closing trade, you could even add to your trade if there is a sign of continuation downward, for example by means of counter-trendline (entryline) following. Then, your trade would have been held to reach an exit point, the verified low/trough.
A verified low/trough of overall uptrend ―this low must be higher than past low when MBL is oversold and turning back― is identified when MBL shows to be oversold (after ‘small’ downtrend). That will be our exit & being backed-up by Supertrend trend change to opposite (uptrend) for an additional exit sign, & the use of trendline price cross may be used to signal exit/close of trade.
>Trade is taking into consideration the fact that, MBL reached overbought, so price will reverse; Supertrend announced downtrend start; and due to the conviction that price had been rejected by resistance seen at May 24.
>>If having chosen to enter sell/short trade around (2016-05-25), and saw price retrace into Supertrend line but did not show uptrend start, and stop loss had already been set up at the swing high trade could be fine if trusting in your analysis and establish risk management as with the stop loss.
By trusting in your analysis/belief (not emotion) and not manually closing trade, you could even add to your trade if there is a sign of continuation downward, for example by means of counter-trendline (entryline) following. Then, your trade would have been held to reach an exit point, the verified low/trough.
A verified low/trough of overall uptrend ―this low must be higher than past low when MBL is oversold and turning back― is identified when MBL shows to be oversold (after ‘small’ downtrend). That will be our exit & being backed-up by Supertrend trend change to opposite (uptrend) for an additional exit sign, & the use of trendline price cross may be used to signal exit/close of trade.
Comment:
At this point, uptrend trendline ray can be drawn/placed from May 3 (2016-05-03) low to June 8 (2016-06-08) as newly identified trendline.
Comment:
(2016-06-10) Entry buy/long could be held until price reaches resistance (sub-trendline use; red arrowed as a representation of the ray) or (RSI/TSI) reach overbought zone as trade is illustrated at graph by green (entry) & black (close) vertical lines placed for viewing purpose; or Take-Profit at (black) major resistance line.
Comment:
(2016-07-26) Sell/short entry by entryline & MBL overbought, & conviction of price rejection at resistance near above. If trader enters late, or with more confidence at Supertrend downtrend start signal, stop loss must still be at recent past swing high, at (2016-07-25) high, so with confidence, trade is held even after seeing the retracement of (2016-08-01) to (2016-08-08) because of the conviction that the major resistance rejected price and will deny price from reaching the stop loss which coincides with it, and that MBL must reached the oversold condition of under 32 at indicator window since it was recently overbought.
>The trade is closed by price nearing support trendline, and MBL being in oversold condition, and due to trendline placed having a price cross to opposite trend as exit sign.
>The trade is closed by price nearing support trendline, and MBL being in oversold condition, and due to trendline placed having a price cross to opposite trend as exit sign.
Comment:
At this point (2016-08-18), support trendline ray may be repositioned to fit with new angle by the use of the recently formed low.
Comment:
>Between May 24 (2016-05-24) & July 26 (2016-07-26) there is a battle of price to be supported by sub-trendline resistance if placed. Also note that MBL did not achieve overbought/oversold condition during this area. Section is covered in white for a different (future) lesson example.
Comment:
“Downtrend is established” (text explanation=>) due to lower high seen, acknowledged as a pullback/retracement.
Comment:
Profit taking is increasingly quicker since support/resistance battle is heavy & moves price a long way, & a long way back in lesser days; bullish pennant is nearing its end.
Comment:
(2016-08-19) “Entryline, trade to resistance line” is by the use of resistance sub-trendline, and expecting for at least (RSI/TSI) (MBL at most) to reach overbought zone which practically coincides when price is rejected (2016-09-01).
Comment:
(2016-09-01) Sell/short trade is due to resistance shown by sub-trendline; Dynamic Index showing reversal since MBL is at overbought zone, and Supertrend confirmation down, so trade exit/close is expected to be at support trendline of the forming Daily chart bullish pennant.
Comment:
(2016-09-07) Buy/long trade since Supertrend at low time frame shows uptrend initiation, and Dynamic Index shows reversal start, and is at support trendline, trade with TP on major resistance for maximum profit.
At this point, the bullish pennant is squeezing, the resistance sub-trendline will be important within, likely to become support of price movement as the support/resistance saying goes.
>Also, between support placed by first low nearly halfway between the end of the pennant, and major resistance created a zone of consolidation / sideways movement / ranging. To trade in this market condition, more skill/experience is needed to set up trades which I do believe possible, but for the moment I must move ahead to continue proving my point, what I have learned and may be for your use/knowledge.
At this point, the bullish pennant is squeezing, the resistance sub-trendline will be important within, likely to become support of price movement as the support/resistance saying goes.
>Also, between support placed by first low nearly halfway between the end of the pennant, and major resistance created a zone of consolidation / sideways movement / ranging. To trade in this market condition, more skill/experience is needed to set up trades which I do believe possible, but for the moment I must move ahead to continue proving my point, what I have learned and may be for your use/knowledge.
Comment:
(2016-10-19) Buy/long entry available for the end of its consolidation which would not be identified except for: bottom indicator MBL having moved nearest to 32 (but RSI/TSI at oversold condition) at that occasion, & sub-trendline being hit by the bottom wick at hour 09:00 to support a buy trade & by counter-trendline (entryline) signal to enter trade, & by the fact that Daily chart MBL must become overbought in the future since it had been oversold in May 2016. Price moves above past resistance and so consolidates again.
>Close of trade would be when MBL (and/or RSI/TSI) gets to be overbought, or even that Supertrend signals end of uptrend. Also, it would be of consideration to hold long trade expecting price to reach the next major resistance placed as next black horizontal line set as a precaution, yet staying alert for reversal indications that could wipe out the gain.
>Close of trade would be when MBL (and/or RSI/TSI) gets to be overbought, or even that Supertrend signals end of uptrend. Also, it would be of consideration to hold long trade expecting price to reach the next major resistance placed as next black horizontal line set as a precaution, yet staying alert for reversal indications that could wipe out the gain.
Comment:
(2016-10-24) to (2016-11-07) during this consolidation zone it would be most wise to avoid counter-trend trading since Supertrend continued to indicate uptrend. The overbought MBL at the consolidation zone is recognized & taken into consideration though no entry is acceptable here, until after (RSI/TSI) are found again at overbought zone which in fact moved price higher & at the same time you can note that the resistance rose; or (RSI/TSI) alone was at oversold (2016-11-08) to push for uptrend.
Comment:
(2016-11-18) Conditions change: Price seems to be rejected once second high was seen lower to previous high, so I infer it is the start of a downtrend, especially due to the fact MBL was in overbought condition, and that at this point (RSI/TSI) was overbought and MBL must sell to be oversold again. After analyzing lower time frame bottom indicator, saw (RSI/TSI) spike up to overbought, and move back down, and since Supertrend did not signal end of uptrend no sell/short trade should be set; following minor retracement and placing counter-trendline (entryline) with lower time frame Supertrend for trend continuation down indication such as aligning sub-trendline high to identify best entry when (Low TF) Supertrend shows downtrend start with such circumstances.
Comment:
At this time I place a horizontal rayline at the high swing to identify as the near-major resistance for future use.
Comment:
(2016-11-27) Sell/short entry available as analyzed.Trendline (ray) set to indicate reversal. Dynamic Index: When (RSI/TSI) was oversold and turning back, MBL finally at oversold level, would be a fine exit/close for the trade, or Supertrend signal of the end to the downtrend.
Comment:
(2016-12-14) Support zone could be detected by noticing past support as shown by line. While, MBL (& RSI/TSI) are oversold, & Daily chart indicated an uptrend, I infer price may retest past resistance such as the high swing of November 14, 2016. This way, long/buy trade is placed by TP at the price of the high swing.
Comment:
If the trade was missed, you could also use Fibonacci to see where to enter, but that will be explained on separate posts such as consolidation trading ('scalping'), sub-trendlines.
Comment:
At (2016-12-28), sell/short entry was possible, also identified by lower time frame Supertrend & confirmed later on H4, and by Dynamic Index indication, & cross of trendline to reverse. Trade would be set to have TP on, at most, the same past support level while checking on MBL oversold for exit too such as (2017-01-12) for seeing the RSI line spike down or (2017-01-17) when noticing MBL rising.
Comment:
(2017-01-12) to (2017-01-18) a buy/long trade would be possible but only with preparation/skill by using sub-trendlines according to Traders Dynamic Index.
Comment:
Note for (2017-04-03) to (2017-04-12), “Mountain Breakout” refers to a price move that seemed to cause a new trend (as if of an uptrend in this case) due to a rally in the eyes of the inexperienced traders, but price comes back down to find support which by use of sub-trendline (purple line) you can view it. These I have seen occur in other currencies which confuse traders that don’t wait for the higher lower to confirm trend (as only best indicated through Dynamic Index).
To me it is a gem, jewel that I am sharing, it is a way to give experience to people;
I believe that what seems like low time frame trend reversals, are higher time frame chart retracements/pullbacks because the market is headed on a long journey.