103# Vegas Tunnel Trading System
Submit by joy22 (from Workin paper of the author)
1) When the black dots are above the tunnel, initiate short positions. When the black dots are below the tunnel, initiate long positions. It is important to remember that just because the market breaches a fib line, it doesn’t mean it’s time to enter a position. We must wait [have patience] for the market to tell us when it’s over. We want the market to exhaust itself before we enter.
2) Stops are placed above the recent market high for short positions, and below the recent market low for long positions. An example will clarify. Go to Appendix J and look at chart 38 [S & P 500 Index]. The first black dot on the chart is a classic reversal day about 3/10/03 at the third  fib level. This is our signal to initiate a new long position at approximately the 803 area and change. Stop would be placed below the 790 area, the most recent market low.
3) After initiating a new position, and stops are in place, we look to take 50% of position off at/or around the tunnel. In other words, we book half the position for a profit. Stop on the other 50% of position is raised to an appropriate profit level or breakeven.
4) The last 50% of position is held until we get opposite signal on the other side of the tunnel at about the second fib level.
5) If you have 2 losing trades in a row, it’s a message that the market is in a very strong trend. You therefore must not initiate a new position [with appropriate stop] until you get a signal at the LAST fib level on your chart. For the S & P 500, this would be at the fifth  fib level. If this leads to a losing trade, then we must wait for the market to come back to the tunnel and start over.
6) Just as in the ‘Vegas Currency Daily’, I have no problem for those who wish to adjust the last 50% of their position to something else. Perhaps you will trail the market with a stop, or look to get out, for example in a bull run, with a violation of the previous days low. Maybe you have something else in mind. That’s OK because this is not trying to fit a square peg into a round hole.
7) I would be very careful about initiating new short positions at the second fib line. Granted, you may catch some winning trades, but I think the third fib line is much safer....(To see Manua in attach)
In the picture Vegas Tunnel Trading System in action.
Vegas Tunnel with Fibo
Swing Trading with Fibo
This system is inspired by a guy called Vegas
so I must give credit where it is due but
also he outlined this as a model and also said that he does not "mind" that the system I am about to describe is let out in the open. Because this is a model its not a complete system but with
your help i think there is room for improvement to what already is so far as i can tell a profitable system.
If any of you been to forexnews lately then you may have seen many of us trading what we call the Tunnel System.
OK lets me get on and describe it.
The original concept used 1 Hour bars using different SMA but for ease of use and increased profit ratio some of us looked at the 4 hour model to which I will describe here. The benefit of 4 hours is you get good nights sleep, can go out during the day for many hours and so basically are not tied to the PC all day. 4h also provides a balanced blend between the short term intraday 15m 20m 1h time and longer daily and weekly cycles so we are still capturing a good portion of the market swings.
It uses a 55 SMA as its core. This is not a random picked number it’s a fibo number sequence and has
been found to follow on almost any time frame the general movement of the market.
Overlaid on the same chart are fibo number sequence lines where we take profit. In case you didn’t know for newbie’s reading this the sequence is 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, and higher.
However it has been noted that in the case of euro it will only deviate from the 55 SMA out 233 pips away before it has to retrace. There are some rare spillage exceptions but this is a rule of thumb. Other pairs like cable and some volatile crosses will go to 377 pips away from the 55 SMA and retrace.
So the basis of the system is we buy as soon as we are above the 55 SMA and sell below it.
Now this is the clever part that makes nearly ALL moving average systems fail. Fibo numbers are well known retracement points and they are also excellent support resistance areas so by taking a partial profit at 89, 144 and 233 use on euro we capture the main places a price is most likely to reach before it returns back to the 55 SMA line.
For pound and others the 3 fibo numbers used are 144, 233 and 377. OK so you might ask well how do I know what set to use on each pair? Easy plot these lines based on the 55 SMA then SHIFT and draw these fibo lines 144 pips 233 pips and 233 pips higher and lower off the SMA so the chart looks like wavy rail tracks both above and below the 55 SMA then look to see for a particular pair it will fit like a glove 98% of the time to the furthest price you can see on the charts over many months.
The age old problem is should we use filters to make sure the price goes over the 55 SMA to take a long or visa versa for a short. Vegas suggested that a 12 EMA is overlaid and needs to cross over the 55 SMA to take a long position. I found 13 (fibo) JMA Jurik much better then EMA. If you don’t know what Jurik JMAis then Google it. I seen a thousand other filters can be used BUT anything you use will result is a delay and can miss major moves. It matters not if you CCI, EMA, momentum, RSI etc it will result in some moves being completely lost.
Just recently on MT they have a Moving Average Expert to play with as standard on new MT 4. That system just appears to wait for a complete bar close above or below the 55 sma and that’s your signal. I was amazed how well this works. It needs no stops, no filters nothing. If it closes above we go long, a close below we go short.
Now we left the tunnel going long with say 4 lots. At the 1st fibo I take 1 lot profit at 89 fib, another lot at 144 fib and another lot at 233 fib. Because the price won’t go further than this 98% of the time we have locked in the entire range but the last lot is left open. This is because if the last lot is left open if we return to the 55 SMA it is so small it wont really harm our profit but there is a chance the 55 SMA can begin to slope up at a steep angle and the price and the 55 SMA will run for hundreds of pips. So the last lot left open begins a free trade. This is the opposite of most conceptions where you think you should be adding to trades but we are reducing our risk by taking profits in fibo stages. In practice this is MUCH safer.
OK you hopefully have the basis of this system. It’s a swing trader with partial profits but instead of saying TP at "normal" 30 50 or 100 pips we are using something of real mathematical substance of where the market is likely to stall at the fibo points.
In practice a risk map needs to be defined the 55 SMA does get whipped. Most of the danger is in the crossing because we are fully loaded. An expert script on mt4 is really needed to find the initial risk value of the system eg I have 100k to start risk %= 30% will this blow the account??
Next most important I described taking 1 lot at each fibo but ideally this should be a % of the initial order eg 30% This is so we can scale in any size of account and compound growth.
So 100k cap start with 30% = 30k or 30 lots
fibo % is set to 30% TP so
30 lots - 30% = 9 lots TP on 1st fibo = 21 left
second fibo hit now 21 - 30% = 6.3 so round this to 6 leaves 15 lots
Third fibo hit 15 lots left - 30% = 4.5 round up to 5 = 10 lots.
These last lots are left runnning incase we trend hard but its likely also to return back to the 55 SMA but we haven’t gone back empty handed as profits have been taken yet we have left some open in case we catch a nice trend which happens about 10 times a year.
What I need to know is the optimal % of the TP order value that should be used. If any one can script this on MT4 the back tester has an automatic optimizer to find the max profit of any user variable. My manual testing has shown that 30% may be fine and certainly a starting point.
Also one can see the greatest portion of the order is taken at the 1st fib. This is because the market ranges more at the 89 fib than it does trending so we lock in the greatest portion of the profit early rather then later. Incidentally profit is only taken at each fib level once. If the market ranges between the 1st and 3rd fib level we only take profit only once the first time it was hit. Only a break across the 55 SMA clean on bar close reverses the trades and opens a fresh full lots order based on the initial capital % risk value.
I’m open to serious ideas to improve this system but please I don’t wish to include any indicators to aid theSMA break.
I think this system is brilliant. I use a similar system but instead of fibo I
use quadrant lines placed around a median price point for a certain time frame. I think trading shorter time frames is a crapshoot because the price movements in shorter time frames are in my
opinion just random noise. There may seem to be a trend going on in a shorter time frame but I think it is just merely coincidence.
The only thing I don't like about a long trade when the price closes above the sma is that it is still a gamble on how far the price may rise above the 55 sma. It could very well just cross over and turn around again. Also we don't know if it will hit the first fibo level let alone the 2nd. You could end up taking profit too early or, you may not take profit at all because of loftier expectations. Since we know that retracements to the 55sma are very likely to happen, I would take an opposite position and that is, I would instead short at the 2nd or 3rd fibo position above the sma. We can be more certain of the magnitude of the move from this perspective more than the other perspective.
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