Im somewhat of fan of Dr. Elder and had gotten inspiration for this method from " triple screen trading system " from " Trading for a living" by Dr. Elder .
The basic premise behind the method in the book is to sneak into the weekly trend with a trailing buy/sell stop on the daily according to what the oscillators have to say . I cant say Im in love with oscillators or any indicators but do have trust in MACD and have used it in place of MAs if I am in need of such a tool .
My version is modified very heavily , is only for forex , trades only on 15 + min. charts , uses only macd histogram and is still a work in progress .
The screenshots show a 240 min. EU chart and a 15 min. EU chart . The 15 min. is where the signals appear and the 240 min. is where the trend is defined . The back color on the charts shown reflect the level of MACD histogram ( above or below 0 ) . If the 240 min. histogram is > 0 the trend is up and we look for longs only on the 15 min.
A signal exists ( long in this example and inverse for short ) when the 240 min. histogram has closed > 0 ( bullish mode ) , the histogram is < 0 on the 15 min. ( retracing ) and a downbar is followed by an upbar and that upbars high is taken out , we enter with a stop buy order . The long signals from today and yesterday are pointed out with red arrows ( I didnt feel like changing the color ) .
Stops should clear the swing low by 5+ pips and the targets can be the 00 psych levels or trailed with the EMA to your tastes .
DONT bother trading this on < 15 min. unless you like lots of stopouts before you get a runner .
Ill update this and will trade it with 1 cent pips on Oanda until it proves itself profitable .
Im sharing this to give back a little for all Ive gotten out of futures.io (formerly BMT) and hope some people try it , use it consistently , form there own unique rules and make tons , I mean tons baby !
Set it up , try it and lets share results and feedback .
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Two longs triggered today . The first easily achieved > 1/1 risk and the 2900 level was a good target , not a runner but profitable . The second triggered 1145 EST and is going sideways now , no big suprise .
The N in factor of N means that the proportion between the lower and higher timeframe is subjective and can be whatever you find to be effective . For EU a factor of 16 between the timeframes seems to be best for me . Dr. Elder suggests a factor of 5 because theres 5 days in the week etc. I havent found that to be credible for my use and it might work for others so find your own comfort zone levels . For EURGBP I found that a 60 min. and 480 min. works best and the current conditions play a role in this too . Strong trending conditions call for adjusting the timeframes accordingly .
I have read a couple of books by Dr. Alexander Elder. I all like them, they were some of the first books I read on trading (along with those of Van K. Tharp) and it is a good introduction. After reading them, I understood
- that psychology is more important than mathematics (I thought otherwise before)
- that you should understand what the others are doing, in particular look at higher timeframes
Since that time I always have multiple timeframes on my screen. More timeframes also mean more contradicting signals, so I only use the long time frame for preparing my trading day, in particular to identifiy important lines of support and resistance and sentiment. The second timeframe is my trendfilter. The smallest timeframe is the timeframe that I use to look up my setups.
If I have a short setup on the smallest timeframe, and the second timeframe suggests a long position, I do not trade.
I have played around a little with the Elder Impulse System and the Elder Force Index. The Elder Impulse system works well if you have wedge shaped tops, but it gets easily confused with parabolic moves. In intraday trading there are lots of parabolic moves, so the impulse system should be used for that. It is more suited to swing trading - and that is what Dr. Alexander Elder uses it for.
The Force Index is a simple device for identifying w-shaped tops and bottoms, by using volume and range. I have found the better volume indicator to be a more reliable and more versatile tool.
I also like the MACD to detect divergences and as a trendfilter. But it does not work in strong trends, as it only measurse the second but not the first derivative (momentum), and therefore can interpretate a weakening trend as the end of the trend. I use a longer period modified MACD-like oscillator instead.
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The LTF bias is still long on EU and three signals triggered today . The 1st one was a nice runner, the 2nd was handily stopped out and the third is still capitulating ( it did produce close to 1/1 risk though ) . So far the signals > 1100 EST are mostly dogs and it wouldnt be a bad idea to play them tight or skip them altogether.
Hey FT , thanks for posting . I also have read Elders work and think he is a good trader / author / educator . " Trading for a living " is my favorite , especially the psychology section pertaining to gurus and how being a follower is a road to nowhere in trading . Impulse system is interesting and as Ive said in the past , MACD and RSI are the only two indicator / oscillators Ive ever had any use for . Multiple TFs for setups never do anything except add confusion to the equation for me , as far as confirming setups on the lower timeframes . This project seeks to harness the potential of MTFs . I do use a long timeframe as a road map in my other trading for critical ( or what I feel as critical ) levels so Im not launching trades right smack into a confluence of levels .
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I read an article once where the guy used the macd histogram for entries, but he also used it for stops. For example, if the subsequent wave was weaker than the previous, then he stayed in the trade even though the price may have pushed past the prior swing, i.e. he hung in through divergances. He traded stocks and I never really looked into it, but just a thought.
Also, this is similar to the vegas 4 hour tunnel method (no relation), where he used a weekly 5 SMA and 21 EMA on the median price to define the trend (which he later updated with the use of fractals) and a 8 SMA on the close and 55 SMA on the median. If you haven't already seen it, it may give you some ideas.
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