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 Minimum Prices

This is an extremely simple short signal I came across while prospecting for new indicators to add to my EUR/USD trading system. Here's how it works:

Timeframe: Daily (24 hours)

Signal: If the previous trading day's minimum price is greater than or equal to the closing price the trading day before that, a short signal is generated for the next trading day.

These conditions occur disproportionately often during US weekends, with price gaps occurring between Friday's closing price and the minimum price in Sunday trading. So let's say it's the end of trading in the Sunday session. Sunday's minimum EUR/USD price never fell below Friday's closing price. Therefore, this signal indicates you should go short the EUR/USD on Monday.

I tested this little signal out on over 4 years of daily price data going back to September 2002, and in that time it would've generated 37 short trades (selling the EUR/USD pair) and 506 pips in profit after subtracting a 3 pip spread. Of those 37 trades, 23 would've ended positively, for 62% accuracy. Here's a chart of its performance:

So it's not the commonest signal, occurring less than once a month, and it doesn't yield gigantic profits. But on the other hand, it's extremely simple and has a fairly consistent track record, so it might be worth adding to your trading system.

So why does it work? (Keeping in mind that past performance doesn't guarantee anything, anytime, anywhere.) My theory is that it's a type of overbought signal - basically you're spotting a point when the market spikes upward without dipping back even slightly, and in those conditions a correction back downward becomes more likely the next day. This is especially true after the weekend break, when traders return to the markets anticipating a correction or reaction to the previous week's activity.

If nothing else I hope this gives you some ideas for creating your own signals using minimum price data. Stay tuned for a similar long signal using maximum prices...

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Signals Using Maximum/Minimum Prices
Simplest. Signals. Ever.

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