FollowTheLeader System

[Ping]

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Who wants to test our very own FTL System?

The rules are quite simple, and best of all, no indicators needed - just the candlesticks!  Especially made for newbies and forex dummies, like me.   


Time Frame - DAILY (but seems to be ok with H4, H1 too)
CURRENCY - GBPUSD (applicable to all, I suppose)

When to BUY or SELL?
At the beginning of the day, just check the previous candle.  If it is positive, then BUY, if negative, then SELL

TP - let it ride, until a SL is met

SL - on BUY, if the candle reverses and reached the CLOSE of yday; or if the current candle closes on lower (next candle we open SELL)
SL - on SELL, if the candle reverses and reached the CLOSE of yday, or if the current candle closes on higher (next candle we open BUY)


Always trade with the direction of the last candle.  So, if the SL of the day was hit, but it came back and went to the direction of the previoius candle, we will open a new position again.  But if it is a reversal, we dont open a new position.

I think this can be best explained by using some actual candlesticks, GBPUSD, Daily timeframe



We start with Jan 2, 2009 (candle labeled as #1).  It closed lower, so the next day, we SELL (#2).  Unfortunately, it reverses so we lost!  How much did we lose?  We lost 19 pips, as we should have set the SL at the OPEN PRICE of #1 candle.  Plus the 3 pips spread.  Note, we did not chase the upward trend with a BUY position, since we are on SELL.

Day #1   -22 pips

Jan 6 (#3), we open a BUY position.  SL-1.4546 (open price of #2).  Notice that the price went to a low of 1.4506, we were stopped out and lost another 153 pips.  BUT since we are on a BUY bias, when the price went up again and went past yesterday's close price, we open a BUY position again.  Finally giving us a +218 pips, thus ending the day with +59 pips

Jan 7 (#4) - no doubt a winner on BUY.  +175 pips
Jan 8 - another winner with BUY  +118 pips

Jan 9 (#5) -  the candle closed lower, thus we close the trade, and end the day with -54 pips

So far, as of now, we have +276 pips.


If we go on, we'll have 2 more winning days with SELL, +244, +319.  Assuming we close the trade everyday, at the end of the day. That's why we count the 3 pips spread.  Then lost on the 3rd day Jan14, with -115pips.

Total is net gain of +724 pips.  Not bad for a "no-brainer," just follow the leader trading, huh?


For the first 7 months of the year, from Jan 2 to Jul 31, net gain is +3132 pips, if my computation is correct.  Maybe someone knows how to code an EA, so we can backtest/forward this?  I just used excel sheet to compute.



 

[fxjihad]

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I would quickly test this on GBPJPY and EURNZD. Clearly you need 500+ pip buffer for this method.

[daytrader]

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The trend is your friend. Wow! with this strategy, I guess the trend isn't only my friend, it's also my leader.    I'm really interested in backtesting this strategy.  However, I need some clarifications on certain things.  Feel free to add any extra information with my interpretation of sir Ping's FTL strategy..

When to buy or sell?

Example:

A.) If monday is a bullish market, then create a buy order on Tuesday (0501 Philippine time). S/L will be the previous day's (Monday) OPENING OR CLOSING PRICE??.

B.) If Wednesday is a bearish market, then create a sell order on Thursday (0501 Philippine time). S/L will be the previous day's (Wednesday) OPENING OR CLOSING PRICE??.

** Also, I'm just curious sir Ping if you placed a trailing stop on your open trades (just out of curiosity).

I would certainly post the results of my backtest if anyone can confirm that my interpretation of the FTL strategy is the right one.

[Ping]

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Let me try to answer your question via sample:



Jan 2 OHLC -
1.4565 1.4576 1.4377 1.4546

Jan 5 OHLC
1.4546 1.4738 1.4433 1.4699

Jan 6 OHLC
1.4698 1.4992 1.4503 1.4916



So for Jan 5 SELL trade, we set SL at Open price of Jan 2 (1.4565). Jan 5 opened at 1.4546, reversed and went up, hit our SL. -19 pips + the 3 pip spread, net loss of 22 pips for the day.

Next day, we BUY (based on Jan 5 bull candle), SL at Open of Jan 5 (1.4546), again it went to a low of 1.4503, thus hitting our SL and a loss of 153. But lo and behold, it went back up again, and went pass our previous day's close.

Since we are on a BUY, we opened a new position. Thus ending that trade with a nice +218, for a net profit of +59pips for the day.


Admittedly, this is as rough as this can be, no filter to enter/exit, no trailing stop, no nothing.  But the good thing is, if my computation is correct, this yielded a +3132 pips from Jan 2 to Jul 31, 2009, counting the 3 pips spread per trade. 

So a trailing stop, filters to get in, and get out, to make this a bit more profitable will be great!



 

[daytrader]

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Got it!     As a tip to all those who are planning to backtest this strategy, it's my personal opinion that you should backtest this manually and not use any EA's.  The reason to this madness is that you will generally have a better feel of why certain events happen.  Expert advisors may give you an easy time in finding out if a strategy works or not, but the online forex community is mostly divided as to the actual accuracy of historical data that is being provided by MT4.

Again, this is just my personal opinion.  I am in no way discouraging any of you guys to do things manually and stop using EA's.  As they say, to each his own.

If there are any demo or actual traders out there interested in back-testing or forward-testing this strategy or any new strategies coming up, make yourselves heard.  Maybe, we can create a small group of traders collaborating together.   

Happy trading. 

[Ping]

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I can share my results via email in excel format.

GU D1, H4, H1  -  Jan02 to Jul31


Maybe someone can do at least one week, so we can verify if we have the same analysis.


A good addition for this is the trailing stop.

I wonder who can do EA here?  Someone did it on FF, but I cant seem to get it run properly - http://www.forexfactory.com/t/189552/followtheleader-system-1.html



 

[Tyler Durden]

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for me it need more filter...i guess... to make entries 100% accurate.

[Ping]

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for me it need more filter...i guess... to make entries 100% accurate.

What filter can you suggest please?


 

[daytrader]

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I have been testing this strategy for the months January 2009 until the present time and I can say that looking at this strategy from a smaller timeframe (e.g. M5), it reveals the inaccuracy of backtesting this with just the daily timeframe.

An example would be a daily chart that i plotted from 05/07/2009



Net profit of 24 pips, you might think? Let's look at the 2nd image first...



As you can see from the 2nd image using a smaller timeframe, instead of what we thought was a net profit of 24 pips, we instead incurred a net loss of 68 pips!  It's all down to the small retracements that occur within the daily chart that can only be seen by looking at the M1, M5, or even M15 charts.

There are a lot of these "fake" candles that cannot be seen just by looking at the daily chart, i suggest that you look into this strategy when backtesting it so that you won't be surprised if you ever decide to go live with this strategy.

Now, this is not saying that this strategy isn't worth pursuing anymore.  If there are any fellow traders out there who would be willing to test this using indicators like stochastics or even EMA's, feel free to dig in.

Happy trading.   

[Ping]

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Hi,

Unfortunately, the days that you choose are losers.

May 6 candle BULL

May 7 We go for BUY, it reverses, we take the loss

May 8 We got for SELL (May 7 BEAR candle), it reverses again, we take the loss again.


We only open 2nd position if we are trading on the same trend, like the sample posted here:

Jan 5 OHLC
1.4546 1.4738 1.4433 1.4699

Jan 6 OHLC
1.4698 1.4992 1.4503 1.4916

Next day, we BUY (based on Jan 5 bull candle), SL at Open of Jan 5 (1.4546), again it went to a low of 1.4503, thus hitting our SL and a loss of 153. But lo and behold, it went back up again, and went pass our previous day's close.

Since we are on a BUY, we opened a new position. Thus ending that trade with a nice +218, for a net profit of +59pips for the day.

Jan 2009:  Net gain of +1407 pips

2009.01.02
2009.01.05 (19)
2009.01.06 59
2009.01.07 175
2009.01.08 118
2009.01.09 (54)
2009.01.12 244
2009.01.13 319
2009.01.14 (115)
2009.01.15 (92)
2009.01.16 96
2009.01.19 (102)
2009.01.20 493
2009.01.21 (32)
2009.01.22 (32)
2009.01.23 73
2009.01.26 (79)
2009.01.27 134
2009.01.28 114
2009.01.29 (68)
2009.01.30 178

 

[daytrader]

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Well, I guess there's a lot of ways to look at this strategy and that's the advantage of having more than a pair of eyes looking at it.

Still, looking at the 2nd image that I posted before, you can see that the May 6 candle was bullish so we took a buy order on May 7.  However, the trade got stopped and we took a loss of 46 pips at 03:20.  Then, the price retraced back to the close of the previous candle which gave us the impression that it would be a bullish day after all.  But lo and behold, we were again stopped as it became apparent that the bears would have nothing of it and began driving the price down which gave us our 2nd stop loss of the day for a total net loss of 92 pips.

But I'm not yet giving up on this strategy just like I know you guys aren't too.  I may post a strategy of my own in the future but for now, let's focus on this one.

Pips be with you, and also with me (hopefully).   

[Ping]

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Oh, I see you point now.   Sorry, but you were right!

I was thinking of tightening the SL:

1.  As is, if the previous candle is only about 25-30 pips spread
2.  Set it to 50% of the previous candle if it has 50 pips spread or more


Not sure if it will be too tight.  We might get stopped out too quickly too often.  But then again, if it went back to trend, then we enter the market again, right?


 

[daytrader]

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The main problem that I see with this strategy is deciding exactly where to place the stop loss.  When i backtested this system, I have seen days wherein the price went to the opposite direction of a trade (as much as 150 pips); and yet, a news came out later on in the day which favored the trade that i opened and that enabled the strategy to have a net profit of 100+ pips.

Another problem with trading using the daily chart as your main guide is that a trader must place a higher S/L than what is normally placed if that trader used lower a timeframe chart.  Sometimes, a 50-pip S/L is enough to give us a confirmation that the bulls have taken over.  Other times, even a massive 150-pip S/L is not enough to confirm that the bulls have taken over, it might be that the bears are just taking that time and waiting for a major news to come before taking their trades.

My final word on this is that we shouldn't limit ourselves to just one strategy.  Yes, I have been backtesting this strategy; but if you will take a moment to look at the images that I posted from a previous reply, you will see on the top corner of my broker's platform that there are a number of M1 Gbp/Usd charts open because I have been testing other systems as well.  Just keep on testing this strategy or any other strategy that you may encounter in different forums, and learn from them.

Happy Trading guys.
Pips be with you.   

[beast_master]

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What if you put in a trend filter in this system?  Like you're going to take trades only in the direction if the intermediate trend.  Or put in a 20 mva, if the price is above the 20mva line take only long trades if below, take only short trades.  Of course it should still be within the parameters of the system described above. Is it going to make higher probablitie trades kaya?

I'm new here by the way.  nakikisawsaw lang. hehe

[Ping]

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Hi, beast_master, our pleasure to have you here ...  yun nga ang problem ko dito, how to inject a good filter?

Or paano ko malalaman na change trend na?

Like today, GBPJPY went up after 2 days of bear candles.  So did GBPUSD and EURUSD.  USDJPY naman went down 5 days (with one doji in between), then went up din today!

Hay, nakakahilo...