When using swing systems, most of the time traders choose to close the losing trade before entering the swing trade into opposite direction. This approach is most conservative one, however when trend reverses clearly, closing the trade means leaving money on the table.
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The more aggressive option (and the one we prefere) is to increase lotsize in increments and enter the trade in opposite direction. This gives us a chance to overcompensate for any loss that already exists and add some profit to it.
We accept loss only after new trend fails.
System was tested extensively both in historical data and real time market. When looking at historical data, losing period are infrequent and can be easily tracked on historical data, increasing the accuracy of test. To put it simply. System either closes all existing trade in profit, or it takes loss on high calculation period EMA crossover.
This specific forex strategy can be traded by Chaos warfare MT4 EA by theforexkings. Expert advisor was also used for testing and it has lot of similarities with our other favorite system : Red king MT4 EA, that was tested extensively during the period of last 6 months.
Used tools and indicators
Main inputs of Chaos Warfare MT4 EA used to be able to trade this forex strategy:
Allow close all on trend reversal: FALSE
Add stop loss and take profit: FALSE
Allow hedge and overcompensate: TRUE
Trend filter: Two ema tandems (EMA filter 300,100 EMA main TR 600,200). In both EMA tandems position of fast Ema relative to slow confirms the trend (uptrend/downtrend).
Entry: On candle close (new candle open).
First level trades
Averaging rules: Not applied, strategy allows opening only 1 first level trade.
Max number of trades: 1 (first level)
Averaging module: not used when Chaos warfare MT4 EA trades this forex strategy
Averaging interval input : not used when Chaos warfare MT4 EA trades this forex strategy
Increase factor: not used when Chaos warfare MT4 EA trades this forex strategy
Second level trades (hedge and overcompensate):
Allow hedge and overcompensate: First level trade exists in opposite side. Primary trades remain open as the trend reverses. Expert will now enter second level trades in opposite direction with increased lotsize and number of trades.
Averaging conditions are omitted. The goal is to overcompensate for existing loss and close all trades in overall profit. Once the second level trade fails, we accept loss (trend reverses back to primary trade direction).
Lotsize : For first level trade. Modify targets proportionally with lotsize (in account currency, in test we used 0,01 lotsize).
Hedge lotszie: Increase the lotsize for second level swing trades.
Hedge max number of trades: Max number allowed for second level swing trades.
Closing of trades: We will close all existing trades at once as soon as the overall account profit reaches target profit (2 USD if we use lotsize 0,01 – increase proportionally). In expert, close all on trend reversal must be set to TRUE.
Taking the loss: We take loss only at the second level trades, when new trend fails (EMA TR crossover). First level trade will remain open and we will try to close it in profit if trend continues in previous direction
Rules of the forex strategy
SELL:
No long trade exists.
EMA fast trending below EMA slow. In both tandems. Downtrend is present in the market. Enter short only.
We enter the trade on candle close (new open).
We close all existing trade in overall account profit. If trend reverses (EMA TR crossover), we enter second level trade long.
BUY:
No short trade exists.
EMA fast trending above EMA slow. In both tandems. Uptrend is present in the market. Enter long only.
We enter the trade on candle close (new open).
We close all existing trade in overall account profit or loss. If trend reverses (EMA TR crossover), we enter second level trade short.
Second level trades (hedge and overcompensate)
SELL:
Long trade exists.
EMA fast trending below EMA slow in both tandems. Downtrend is present in the market. Enter short only.
We enter the trade on candle close (new open).
We increase the hedge lotsize for second level swing trades.
We use hedge max number of trades for second level swing trades (we also increase this number)
We close all existing trades in overall profit. If trend reverses (EMA TR reversal) we close all existing hedging trades (second level swing).
BUY:
Short trade exists.
EMA fast trending above EMA slow in both tandems. Uptrend is present in the market. Enter long only.
We enter the trade on candle close (new open).
We increase the hedge lotsize for second level swing trades.
We use hedge max number of trades for second level swing trades (we also increase this number)
We close all existing trades in overall profit. If trend reverses (EMA TR reversal) we close all existing hedging trades (second level swing).
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Disclaimer: Expert advisor was tested for profitability on historical data. All screen shots provided are displaying real results of the test. However past data will never guarantee future success. Every expert advisor needs to be tested properly on demo account. LIVE use only on your own risk. Read full disclaimer. TheForexKings Team does not give any financial advice. TheForexKings does not take any responsibility for any user’s investments and investment decisions. All rights reserved. Strictly for personal use.
