A online friend, Brendan (founder of Tactical Trading Academy), shared with us a valuable insight to a new perspective of using indicators for trading forex. He shared this with us through this blog post using USD/JPY and this blog post using EUR/YEN. Enough of traders that show 1 or 2 examples that indicators work. I think we are beyond that already. Brendan proved his point using historical backtest results (which is my cup of tea ).

In my clarifications, he also mentioned the following points:

• For the charts shown, the same indicators are used for both entries and exits
• The same lot size is used for the experiment
• The timeframe used is the 4-hourly timeframe
• He performs this quantitative test every weekend on a rolling basis. Then he will send the information to his subscribers on Sunday or Monday, equipping his subscribers for the new trading week ahead
• Not all financial products exhibit repeated patterns. In his research, financial products that exhibit repeated patterns are AUDUSD, USDJPY, EURJPY, EURUSD, Silver and gold. USDCAD, USDCHF, oil and GBPUSD used to show repeated patterns but not in recent weeks

The gist of the method that he advocates:

• Certain currency pairs show repeated patterns with certain indicators
• However, the same indicators don’t work forever for the same currency pair
• We can use historical results to determine the indicators to use for the next week or so

I’d also like to highlight some challenges:

•  Which indicators to try next? - I believe it takes a bit of experience here to decide which indicators to try next since there are thousand and one indicators out there
• Subjectivity of backtest result - I queried with Brendan on why he did not select Commodity Channel (to trade with USD/JPY) since its equity graph is also a upward slope. His reply was: “Yes you are right CCI is working well as well but I see that equity values start to fall, this is why I rather not. But then again, it may work next week. I will monitor closely on CCI for USDJPY.”

Then again, I believe, if we do it long enough, we would have the experience to overcome the challenges.

Since Brendan shared such a valuable piece of knowledge with us, I also decided to return him a favour by advertising for his new e-book: “Our Trading Secret: BL TS System“. It is not everyday that one get to read a e-book written by a former bank trader - who else knows the trade more? With the focus on practical trading knowledge, I believe the book is a good read, especially now it is going at a promotional price of US$20 only!

Disclaimer: jmot does not get a single cent from promoting the above merchandise.

If you find this post or this blog is helpful to you in any way...do consider buying jmot a kopi (aka coffee)!