The quest continues!
As a lot of you know, I’m looking for a way to make the Huck Loves Her Bucks (HLHB) Trend-Catcher System to yield more signals and still get the same cool results as it did in 2016.
Read all about the HLHB Trend-Catcher System if you want to know more about its original entry and exit rules!
Last week I presented the backtest results when I use the 4-hour system instead of the usual 1-hour time frame. Not only that, but I also widened the trailing stop from 50 to 150 pips while the profit target was also raised from 200 pips to 400 pips.
The backtest results were not bad, but they weren’t too fantastic, either. I ended up missing a lot of good trades while still getting more than a few fakeouts.
This week, due to popular demand, I’m adding the Average Directional Index (ADX) indicator.
Basically, the index measures the STRENGTH of a trend. A reading of 20 and above usually means that the pair has momentum to go in either direction. For my purposes, I’ll use 25 as my basis for entry.
So, without further ado, here’s a breakdown of my latest tweaks:
Tools:
4-hour charts of EUR/USD, GBP/USD, and USD/JPY
RSI (10) applied to the close
ADX (14)
5 EMA (blue line)
10 EMA (red line)
Rules:
1. BUY when the 5 EMA crosses above the 10 EMA AND ADX is above 25 AND RSI has just crossed above the 50 mark.
2. SELL when the 5 EMA crosses below the 10 EMA AND ADX is above 25 AND RSI has just crossed below 50.
3. Use a 150-pip trailing stop.
4. Set profit targets 400 pips away from entry price.
5. Close open trades when a new VALID signal, well, signals.
Signal 1: Invalid – ADX is below 25
Signal 2: Short at 1.0616, close at 1.0630 on new signal (-14 pips)
Signal 3: Buy at 1.0630, close at 1.0559 on new signal (-71 pips)
Signal 4: Sell at 1.0559, close at 1.0417 on new signal not shown on the chart (+142 pips)
Signal 5: Invalid – RSI was already below 50
In our example above, only signals 2, 3, and 4 are valid. And, unfortunately, only signal #4 yielded positive pips. Still, the system gained a net of +57 pips from the period above. Not a very promising start, I admit, but still looks legit enough for a closer look.
I’ll backtest the tweaks on the past couple of trading quarters and let you know of the results next week. Let me know if you have any questions!
Fingers crossed!
See also:
Latest Weekly Trading Prep
My Q4 2016 Forex Trade Review and Reflections
HLHB System’s 2016 Performance Summary
Read the risk disclosure!
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.