A few years ago I developed a trading system as a C++ exercise which I then ported to Python.
The problem with that system was that it tied money up for months at a time (3-9) and while it was in the black, the return was minimal considering how long the money was tied up.
Well, let me rephrase that... with the amount of capital risk that I was willing to tolerate, the return was minimal.
It's been my experience that even with careful paper trading, there are still confounding variables. So, I see paper trading and "practice accounts" as only indicators that a system *might* work. Because of that, I keep my risk very small until my system proves itself out in the live environment.
It is also prudent to work with dealers that offer practice accounts that act just like real accounts. It is better to lose fake money when learning the software than real.
CMS's software is very easy to learn, but it is easy to make incorrect assumptions. For example, I tried moving a few stops by dragging and dropping thinking the software would set the price to where I dropped it. It did not and it lost me over 50%.
So, again, play with the practice account for a while to make sure you understand the software.
CMS offers many indicators as well as trading systems that will automatically attach to the chart.
Personally, I like to try to keep things simple as the more complex systems get the more they tend to be specialized to certain market activity. As this time around I'm not willing to invest the time in creating a huge trading system from scratch, I'm looking to find a few indicators that will give entry and exit signals with an emphasis on keeping losers small. Yes, I like big winners, but what's the point of big winners if the losers eat all the profit? Better several small winners (to offset the losers) and a handful of big winners.
At present I'm using the following indicators with my CMS practice account:
- Trailing Stops - Volatility (TS) with a 2 ATR lookback, 3 ATR multiplier, and a 8 period lookback
- True Strength Index (TSI) based on close, 20 smoothing periods, 13 double smoothing periods, and 7 signal line periods
- Trend Continuation Factor (TCF) based on close and 7 periods
- Chande's Momentum Oscillator (CMO) based on close and 7 periods
- Be very wary of entry signals when the CMO is not coming down from 50 for shorts or coming up from -50 for longs. From what I've seen, when it is bouncing around in between 50 and -50, it is a sign of a continuing trend that may or may not be ending soon
- Generally, a good strong entry signal follows this course (example of a long signal):
- The CMO comes up from -50 (possible short exit signal)
- The TSI turns horizontal (followed by #1, this is a stronger short exit signal). Should this be accompanied by a narrowing of the gap between the TSI and its signal line, this is a very strong indicator that a long signal is coming (and that you should exit a short now)
- Once #1 and #2 have happened, if at least two of the following happen, enter long (and exit your short if you haven't already): a) TMI crosses its signal line, b) TCF plus line crosses its minus line, and c) CMO is >= zero
- A short signal is similar to the long except #1 would be coming down from 50 and #3 would be reverced.
- On entry, the trailing stop is set to the TS of the previous period (i.e. on EUR/USD, if I entered long today 3/3, I'd set the stop to the long TS of 3/2, 1.3046)
- Going forward on a position, trailing stops are moved to the TS of the previous period. But never to a position of greater loss (or less gain).
- If, after entering, you find the TS indicating (for at least two periods) that your stops should be placed at a greater loss (or less gain) than where they are currently placed, look to offset that position (**not true in every case... but is a very negative sign)
- Keep in mind that the CMO should not be the sole determining factor on exiting a position. If it crosses the 50/-50 line look at what the TSI and TCF are doing. If they aren't signaling a reversal, ignore the CMO.
- Large gaps in the TCF plus and minus lines and especially in the TSI and its signal line are good indicators of a strong trend
- While the CMO and TCF might indicate an entry signal or change in direction before the TSI, the TSI is more reliable as to which way the trend it going. So, if both the CMO and TCF indicate a long entry but the TSI keeps showing a short (signal line above the TSI) for 2-3 periods after entering a long position, get out.
Should I confirm the above, I will enter the market with $200-$500 to confirm if what I found in the practice account holds true. If so, I'll beef up the account.
Another thing I'll be looking into is adding to my position on long running trends.
