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Archive for the ‘Systems’ Category

Hello all,

From time to time, I will be posting some a system that other coaches may have developed, heard of, or even tested. I want you to take the opportunity and test it yourself and see how it works on a particular pair of your choosing. As a word of caution, I want to point out that there is no guarantee that this particular system works in this type of trading environment but this system may give you an idea on how to set up a system of your own.

Some of you may have seen this system before or it may be new, I would suggest you read it, test it and re-test it and make it your own system. That way you will own it at that point and understand it. I ask one thing, post your findings in the comments section and share with others what you find. That way, others can learn from your findings. Have fun!!!

~ G

CCI and Simple Moving Average (50) System

The Commodity Channel Index (CCI) and Simple Moving Average (SMA) trading system is a simple approach to trading the currency market. The CCI is used to determine the entry point into a trade, while the SMA is used to filter the signals. The management of risk is accomplished by using a 100 pip stop loss. Winning trades are exited with a 100 pip profit.

The system employs a bracket approach to exiting winning and losing trades. Both the profit target and stop loss are 100 pips away from the entry point, which means that the system must achieve a high win/loss ratio in order to be profitable. The following table displays the rules of the system:

Timeframe: Daily Chart

Indicators: CCI (14); SMA (50)

Enter Long: When CCI crosses above -100 and SMA is greater than or equal to yesterday’s SMA value.

Enter Short: When CCI crosses below +100 and SMA is less than or equal to yesterday’s SMA value.

Exit Point: Set profit target of 100 pips.

Stop-loss: Set stop of 100 pips after entry.

Pairs Traded: EUR/USD, USD/JPY, USD/CAD, EUR/JPY

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stanfordlogo.gif     Want empirical proof that you need to avoid getting your emotions tangling into your trading, that using a strict investing plan to trade according to black and white rules is the way to go?

    I came across an old study by Stanford’s business school which I had printed out a long time ago. I can’t find the original study online, but the summary is here.

    The title is really shocking. Brace yourself:

Emotions Can Negatively Impact Investment Decisions

    I know, I warned you. It is now official thanks to this study. Here’s something interesting:

 

Of the 41 participants in the study, 15 had suffered damage in the areas of the brain that affected emotions, and these were the people who took the most profitable approach to the game. They invested in 84 percent of the rounds, earning an average of $25.70. In contrast, normal participants invested in just 58 percent of the rounds, earning an average of $22.80.

Fear seemed to play a large role in risk-avoidance behavior of the normal participants. What was especially interesting, said Shiv, was that all the players started out in roughly the same place: investing $1 rather than withholding it. But over time, the normal participants (and control patients) grew more cautious, declining to play almost as often as agreeing to risk $1 on the coin toss. “And what we found out, through additional analysis, is that normal individuals were reacting emotionally to the outcome of the previous round,” said Shiv. “If they lost money, they got scared and had the tendency to fall back and decline to play further.”

    Does it make sense to base a trade decision on something that happened to you in the past? Not really, especially if the signal is just as good quality as ever.

    How to stop this? Choose a method to trade and STICK TO IT. I know we throw a lot at you here and other places, but it is to show your different things and because the audience is large. Trade your method and don’t abandon it. It can’t be repeated enough …

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