Easy Signal Tweaks to Boost Trading Performance

Happy holidays fellow forexers - hope your trading's going merrily. Before heading off for a week of no charts, no trading, and probably no blogging unless I get really bored, I thought I'd pass on a couple little tweaks I use with some trading signals that I've found can crank up their profitability significantly.

High/Low Breakouts

Take one of your usual signals and for the last trading period (hour, day, whatever) specify that the maximum or minimum price was higher or lower than the previous period's maximum or minimum. In some cases this type of breakout may point to a reversal, in others an accelerating trend in the same direction. How do you find out which? Backtest, backtest, and backtest!

Price Closed Up or Down

Take your usual signal and add the requirement that the previous period's price movement was up or down. For instance, if a moving average indicates a downward trend, specify that the price closed up in the last trading period. Backtest and see what happens to the performance. Then specify that the price moved down in the same period, and backtest that pattern.

I've found some of the most dramatic results occur when the trend indicator is pointing in one direction and the last period's price moved in the other direction. This is a good example of a simple divergence pattern that can be attached to just about any indicator.

Try out various combinations of these rules and see if they help boost your signal performance. They might not work for every indicator, but in my experience they'll definitely work for some.

Best wishes for a wonderful holiday and a happy (and profitable) New Year! And if you find yourself thinking about your next forex trade while opening presents, you may want to read this.

Related topic:
Signals aren't set in stone - so don't be afraid to fine-tune them

An Easy Signal Using Maximum Prices

This signal is basically the mirror image of the one using minimum prices I discussed yesterday, and while that one triggers short trades of the EUR/USD, this one signals long trades. While it's not the highest yielding signal you'll ever see, having these two complementary signals in your toolkit could make you a few pips now and then. Coincidentally, this signal just fired a couple days ago, predicting a long trade that made 64 pips on Monday, December 11.

Here's how it works:

Timeframe: Daily (24 hours)

Signal: If the previous trading day's maximum price is less than or equal to the closing price the trading day before that, a long signal is generated for the next trading day. So if it's the end of trading on Tuesday and Tuesday's maximum never exceeded Monday's closing price, a long trade would be signalled for Wednesday.

Tested out over 4+ years of data going back to September 2002, this signal would've generated 44 long trades (buying the EUR/USD pair) and 263 pips in profit after subtracting a 3 pip spread. Of those 44 trades, 25 would've ended positively, for 57% accuracy. If you combined this with the mirror-image short signal using minimum prices, you would've made a total of 81 trades and 769 pips in that time; not something I'd build an entire trading system around, but certainly worth keeping an eye out for when monitoring maximum and minimum prices.

I haven't tried these out on other currency pairs or timeframes, but I'll probably be testing them out with the GBP/USD soon.

Related topics:
An Easy Signal Using Minimum Prices
Signals Using Maximum/Minimum Prices

Signals Using Maximum / Minimum Prices

One type of signal you may find profitable to study is the behavior of maximum and minimum prices during a particular period of trading. I've found that some pretty reliable signals can be discovered by comparing maximums and minimums over time. What you'll need is an extensive set of historical price data and a willingness to test out various min/max iterations.

Just about the simplest signal to try is comparing the previous trading day's maximum or minimum price against the maximum or minimum for a selected preceding time period. What happens if the previous day's maximum exceeds the previous week's maximum? Or if the previous day's minimum drops lower than the previous week's minimum? How about the two preceding weeks, or the preceding month?

You can treat a given week's maximum or minimum the same way, for instance by comparing last week's max or min against the previous month's. Or try reducing the time scale and see what happens when the previous 15 minute period's max price crosses above the previous 4 hour maximum.

You get the idea - it really couldn't be more straightforward. Give it a try and I have a feeling you'll start discovering some profitable signals. Once you have, your next challenge is to trade them consistently - even after they've been wrong, which they inevitably will be every so often. Maximum luck to you!

Related topics:
An Easy Signal Using Minimum Prices
An Easy Signal Using Maximum Prices