FOREX Gambit
Posted: Wed Jul 21, 2010 4:19 am
Is anyone trading this system? I did a limited backtest and it seems to perform pretty well. Also, has anyone programmed it in thinkscript?
On this topic, the following letter to the editor of Technical Analysis of STOCKS & COMMODITIES magazine will appear in the next issue:
Editor,
I really enjoyed reading the article “The Forex Gambit” by Walter T. Downs in the June 2010 S&C. However, I have some queries.
1. Is this a two-bar strategy (that is, two consecutive lower lows and a close above the midpoint of the second bar and above the simple moving average)? If there are two bars of lower lows, and a third one is an inside bar, having closed above the midpoint of the bar and above the simple moving average, can this setup still be valid?
2. Can I use this strategy to trade stock index futures, where the leverage is approximately 1 to 10? If yes, do I need to change the bet/position size formula?
Author Walter Downs replies:
In response to your first point, it is important for the bar that completes the pattern to have reversed from its lows and closed above the midpoint of the bar and also formed a lower low. I would not consider your suggested setup a strong enough indication that the trend was resuming. Of course, this is my preference. One of the tenets of highly systematic discretion (HSD) analysis and trading is that you utilize your own knowledge of the market in your decisions.
In response to your second point, the leverage afforded isn’t nearly as attractive as in the forex market, and also, with a market that is closed overnight, a sudden price shock and resultant large gap could be dangerous to your account. Personally, I would feel that the gambit is too aggressive for these markets, given the greatly reduced leverage and overnight exposure.