Simplest. Signals. Ever.

For anyone who thinks the search for trading signals is an arcane, arduous, and complicated one, here's some reassuring proof to the contrary. I set out to find the simplest signals I could, just to see if any actually existed. I was pleased to discover that they do -- at least, they do in my backtest. Whether they do in the future is a question for the future to answer.

Here's an example of two interconnected short and long signals I came up with while playing around with my daily Euro and Pound data:

Super Simple Long Signal
If the previous day's closing price is LESS THAN the average of the closing prices of the four days before the previous day, a long signal is generated. (Strange, isn't it, that the trigger is less rather than more than the previous average.)

Over 23 months of backtesting with the EUR/USD, this generated 277 trades yielding 1491 pips before spread costs, probably 1100 or so pips after spread costs, which can vary depending on your broker. You'll often get a series of days with the same signal, which allows you to consolidate them into a single trade, thereby saving on the spread costs of entering and exiting multiple times.

The overall success rate for this signal was 51.99%. Remember, you can have signals that have a success rate of well below 50% that will still turn a profit, because they're good at identifying the really important trades.

And on the short side, we have this formula:

Super Simple Short Signal
If no long signal has been generated, AND the previous day's close was greater than the closing price two days ago, then a short signal is generated. Note that this references the Super Simple Long Signal in order to exclude it, thus improving the signal's odds.

Over 23 months this signal generated 205 trades generating 1512 pips before spread costs. With spread costs factoring in, total profit was probably around 1100 pips, possibly more if you use a low-spread broker like Oanda. The overall success rate was 54.63%.

Here's a chart of the two signals combined performance over 23 months, totaling out at over 3000 pips before spread costs:



Note that it's a pretty nerve-wracking trajectory in places -- the trade-off for the simplicity of the signals is that they don't give a very consistent performance. But overall, they are profitable.

Incidentally, I tried them out on the GBP/USD pair with equally profitable results. Now, will they work in real life? Who knows...but good luck if you try them out!