You probably know that only about 5% of the Forex traders make money on a regular basis. How many of these successful traders use Forex robots? Difficult to put a number, but you can be sure that the answer is "not many". You buy an EA to enable them you to make trading fully automatic and profitable. Most EA developers give out tall claims, exhibit ten year back test that are as smooth as a straight line, hard sell with fabulous product launches, etc. Any EA can make money during certain periods. The fact remains that there is no holy grail. Give it a thought - why do systems which never failed in the last ten years start failing just when you bought it!
Long term professional traders make a lot of money. Aggressive day traders make money for a living. One thing common between the long term players and day traders is that they trade with strategies that use Fibonacci system in some form or the other. To Survive in Forex, you need a professional system that can not only just follow trends, but also be predictive in nature to enable identification of patterns as and when they form. Patterns like Head & Shoulder, Double and Triple Top/Bottom, Wedges, Flags, etc. are great patterns which present excellent trading opportunities. The more advanced harmonic patterns and channels have higher success potential.
Several manual Pattern recognition algorithms have been developed over the years, the most successful being the AutoChartist - this enables manual traders to pick out patterns as and when they form. User discretion and further technical analysis is used to validate these trade setups. Like all technical analysis - the aim here is to put the odds in your favor. 100% accurate entry is still a dream - the search for the holy grail continues!
Any algorithm/logic, however advanced can only provide us with a suitable entry point. How the trade pans out after that is as unpredictable as ever. A Simple and Concise trade management system is needed to keep the account safe. Stop Loss, Trailing Stop Loss Management and Profit Booking at ideal levels are important skills professional traders have acquired over several years of experience - both good and bad.
Fibonacci numbers were used by Gann and Elliott, pioneers in technical analysis of the stock market. Phi and Fibonacci numbers define the price movements of stocks in Elliott Wave Theory. Phi (1.618), the Golden Mean and the numbers of the Fibonacci series (0, 1, 1, 2, 3, 5, 8, ...) have been used with great success to analyze and predict stock market moves. Stephen Wolfram in cellular automata (underlying rules that determine seemingly random phenomenon) stated "The seashell may hold the secret of stock market behavior, computers that think and the future of science."
Phi, or Golden Ratio, patterns often define the timing of highs and lows and price resistance points. These levels appear frequently enough making this tool ideal to identify key turning points. Professional and day traders have strategies based on the above logic. Why these levels work is still on for debate - There are a good number of forums and websites dedicated to research on this.
But for traders whose intention is to make money, the Fibonacci levels and price action patterns at these levels are GOLDEN OPPORTUNITIES to trade.
PhiBase Synergy relies on Fibonacci levels to set its hidden targets and trailing stoploss levels. If multiple price patterns generate signals at crucial Fibonacci levels, the EA will more than one position since it is considered very strong and potential of success is higher.
PhiBase SYNERGY EA has been developed based on harmonic price patterns and channels that are formed at important Fibonacci levels. Pattern recognition technology used in speech recognition has been used to make predictive recognition a reality.
So, what is common between speech recognition and Forex price action pattern recognition? Speech is very much like Forex.
For example, the digitized version of the phrase "Pattern Recognition" can have hundreds of different output. People don't always speak at the same speed. Human language has numerous exceptions to its own rules, even when it's spoken consistently. Accents, dialects and mannerisms can vastly change the way certain words or phrases are spoken.
This is very similar to Forex price action patterns - Some patterns form over larger time frames, while some on smaller time frames. For example a Butterfly pattern may be clearly visible on a 4H chart but will not make sense on 1H chart. The shape of the Butterfly pattern will also not be clear in most cases due to several intermediate price movements that can totally hide the pattern.
Today's speech recognition systems use powerful and complicated statistical modeling systems. These systems use probability and mathematical functions to determine the most likely outcome. Why is this so complicated? If a program has a vocabulary of 60,000 words (common in today's programs), a sequence of three words could be any of 216 trillion possibilities. This makes it tough even for the most powerful computers.
The Synergy uses a unique technology that enable the EA to recognize various price patterns/actions using an abstract model template. The EA creates a price action model by normalizing the price action, adjusts it to a constant level eliminating the differences cause by different price action ranges. The price model is also time adjusted to remove the differences introduced by slow and fast moving markets
The earlier versions (1.23, 2.2 and 3.2 ) of Synergy EA traded Breakouts/Fallouts basic price patterns like Falling and Rising Wedges, Triangle Formations, Head and Shoulders, Inverse Head and Shoulders, Head-and-shoulders Throwbacks, double/triple tops and Channels.
Synergy V4 has been rebuilt from ground up. The EA's strategy now trades the more advanced harmonic price patterns and Breakouts/Fallouts from channels. The basic patterns used in earlier versions have been discontinued.
When the EA is started (or restarted) the preceding four price patterns legs are always initialized. The EA can look back up to a period of two months to find the legs for normalizing in to harmonic pattern of the form ABCD. These patterns will also provide the EA the required trend lines, channels and basis for calculating the Fibonacci levels.
Synergy V4 has the ability to trade break outs, fall outs and reversals. The EA can trade inside wide channels or trade break outs from the narrow channel formations. The strategy is very powerful and has the potential to withstand the unpredictable nature of the markets.
Synergy does not need optimization. Simple indicators are used to provide the core logic with inputs of price action at various legs. indicators used to provide price feeds include Stochastic Oscillator, Bands, moving averages and Hourly ATR. Almost all the indicators are above 10 period as the minimum. Most use period between 20 to 150 history bars. The exact values are not critical.
We have derived the pattern based on the PhiBase view point. Please note that PhiBase does not work exactly on the lines of auto chartist. So you may not always find the pattern/predicted pattern in line with normal patterns methodology.
The yellow circles are the points used by PhiBase for deriving the normalized pattern. The Buy trade was taken on reversal confirmation from the bottom of the channel. The Sell was triggered on reversal/reject near the top of the channel.
The normalized vector image of the above price action as seen by PhiBase may be graphically represented as below:
(This is only a graphic representation for providing clarity - this is not the actual output of the normalized data)
When this trade was in place there was no double top formation - the double top which has formed may influence the next trades taken by PhiBase.
We consider this short entry safe since the price is well inside the downward sloping channel/wedge. The SL is well beyond the channels topside. The 38% and 50% fib levels on D1 time frames also provide potential resistance on the upside limiting the risk for the short. The risk reward is 1:2 - but in the choppy price action the trade is more likely to be closed out with the trailing SL.
The screen shot shows the pattern encompassing the EURUSD on the H4 timeframe. The blue line on top and orange line at the bottom show the wedge pattern controlling the EURUSD price action.
Prior to the open Long trades, PhiBase had made a short entry at reversal near the top of the wedge and booked a gain of 170 pips on most accounts.
The first long entry was made at 1.3138 based on the reversal and possible pattern leg formation (predictive logic).
This trade setup has potential for gain based on the current price action - with the base of the wedge providing support and over sold conditions which can force a reversal on even mildly positive interpretation of news.
The hidden Stop Loss is placed below the base of the wedge at around 1.3010. A H1 close below 1.3010 may close out the position if the indicators do not support holding the long any longer.
PhiBase SYNERGY V4 has been designed to open multiple trades in the same direction. But this does not make it into a grid or martingale strategy.
PhiBase SYNERGY EA does not open additional positions to all trades, but only when a new trade trigger occurs, a better price entry or Fib level - further the additional position is allowed only at certain fib levels or when the price is close to the SL of the first trade. This reduces risk of adding more positions, while increasing the over all gain potential.
Trading Safely with Multiple PositionsPhiBase uses multiple entries to reduce risk. We will explain this using trade set up seen in chart below:
Case 1 MaxPosition = 4 ----------------------------------------------------------------
Lets assume the following settings are in place: Start Capital = $10000, MaxPosition = 4, Max Allocation = 10, EURUSD chart. Suppose a long trade is triggered
Long #1 > 0.1 lot @ 1.3137
Long #2 > 0.1 lot @ 1.3058
Long #3 > 0.1 lot @ 1.3077
The trades were closed at 1.3137 booking gains of ($0 + $79 + $60 = $139)
Suppose the trade had not recovered and the price closes below the hidden SL at 1.3010 then the total loss would have been $ 242 ( #1 : $ 127 + #2 : $48 + #3 : $67)
Case 2 MaxPosition = 2 ----------------------------------------------------------------
Lets assume the following settings are in place: Start Capital = $10000, MaxPosition = 2, Max Allocation = 10, EURUSD chart. Suppose a long trade is triggered
Long #1 > 0.2 lot @ 1.3137
Long #2 > 0.2 lot @ 1.3058
The trades were closed at 1.3137 booking gains of ($0 + $158 = $158)
Suppose the trade had not recovered and the price closes below the hidden SL at 1.3010 then the total loss would have been $ 350 ( #1 : $ 254 + #2 : $96)
Case 3 MaxPosition = 1 ----------------------------------------------------------------
Lets assume the following settings are in place: Start Capital = $10000, MaxPosition = 1, Max Allocation = 10, EURUSD chart. Suppose a long trade is triggered
Long #1 > 0.4 lot @ 1.3137
In this case since maxposition is set to 1, the trade will not close at breakeven of the first trade. The EA will wait for the target level 1 to trigger trailing SL or will close the position in case of reverse trade trigger. If the trade closes at trailing SL 1 then the profit would be about $300.
Suppose the trade does not reach target 1 (or there is a sudden drop without a reversal trigger) and the price closes below the hidden SL at 1.3010 then the total loss would have been $ 600 ( #1 : $ 600)
PhiBase SYNERGY EA, uses the multiple entry with an aim to reduce the overall risk. Using maxposition 4 does not increase risk, but may be effective in reducing the risk comparatively.
Synergy EA trades every signal that is generated. The following actions are taken by the EA under different circumstances during a signal trigger
No Open trades : long/short signal > New Trade Entry Executed
Long Open : short signal > Long Closed and New Short Trade Entry Executed
Long Open : Long signal > Additional long added - Long signal ignored if Max Positions exceeded
Long Open : Better price/Feb Level > Additional long added - ignored if Max Positions exceeded
Short Open : Long signal > Short Closed and New Long Trade Entry Executed
Short Open : Short signal > Additional short added - short signal ignored if Max Positions exceeded
Short Open : Better price/Feb Level > Additional Short added - ignored if Max Positions exceeded
Existing Trade Closed at SL/TP during current H1 bar: long/short signal > New trade entry may be executed if signal is present
Synergy EA is to be traded on all days. The EA being a price pattern trader can take into effect the markets sentiments which reflect in the price action. This makes it especially good for trading news based price action. As part of the study, we did internal lab tests to study the EA's ability to trade news. Tests were conducted by allowing new trades entries only on Fridays and also only on first Friday of the month to simulate Non Farm Pay Roll data release days. The backtest were conducted with fixed of 0.1 lots.
Synergy has an option to switch off new trade entry on Fridays until markets close for the week. But open positions will continue to be managed as per the EA's exit logic. For Synergy the exits is based on Fibonacci levels or opposite trade trigger. Our internal tests conducted show that Friday and news events present good trading opportunities for the EA. You can read more about Friday trading at http://pro.phibase.com/Report/Tech_Report_2012_March_10.html
The day wise gain/loss chart below derived from our standard backtest is given below:
Synergy EA is designed to trade 24 hours when the Forex markets are open. Almost 80% of the trading happens during the European/American market hours. Many traders find trading the duration between American close and European open to be risky and difficult to trade. A detailed hourly trade breakup shows that the EA's success rate is consistent across all hours. There is no additional risk involved or any disadvantage in using the system 24 hours.
The hour wise gain/loss chart below derived from our standard backtest is given below:
Deciding to trade during the year end holiday season has been a tough decision for all traders. We receive queries seeking our advice/recommendation if it would be safe to run the right through the Christmas - New Year Holiday season.
It would be impossible to make this recommendation based on price action or expected price action. Ray Scalper is built on an innovative strategy and we are very confident that it can handle most price actions very well. Drawdowns are common and an unavoidable part of any trading strategy - It would not be possible to predict if the EA will do well or go through a DD phase.
We have conducted strategy tests for the period between 26th November to 31st January for the past 12 years. Based on the tests, the performance during these two months has been with in the equity curve has been within normal DD - Gain limits and all averages are in agreement with the long term (12 year) backtests. We do not see any reason to recommend switching off the Ray Scalper EA during the holiday period.
Members can study these tests in detail and include the results of these studies in their criteria on making a decision regarding running/stopping the EA during the December January Holiday season. You can read more about Friday trading (based on V3.2 - report will be updated with study on v4) at http://www.phibase.com/pro/Report/Tech_Report_2012_December_15.html
Recommendation based on above study
Based on the above historical performance and our confidence in the strategy, we would recommend letting Ray Scalper EA trade un-interrupted.
Members who wish to stop trading during the Holiday season can safely switch off the Ray Scalper EA or Close MT4 platform running Ray Scalper as per the trader's discretion. If there are any open trades, it would be advisable to disable live trades in the EA properties to enable the EA to close out existing positions - while preventing new trades prior to stopping the EA / MT4.