325# Past Regression Deviated Method Trading System
Regression Forex Trading System
Submit By Ozzy Trader (Written by Robert Hill) 19/03/2012
The past regression deviated method is a strategy that evolved from the Jaimo Method or Hoover Method by Robert L. Royce. That method used a regression channel, EMA 5/8 Cross and MACD. I have modified the method by using past regression deviated, CCI and Stochastics. The basic idea is that when price is far from the central regression line it tends to return. You can think of the red lines as very overbought/oversold levels. This is similar to other oscillating indicators like Stochastics , RSI and CCI when using hook from extreme.
Even though this is a work in progress it has been very successful on the GBPJPY one hour timeframe for the past year. The rules are easy to follow and only require a few indicators. By adjusting the standard deviation settings the method should work well on any pair.
Past regression deviated – Plots the end point of the regression channel as lines.
When I first began using this method in May of 2008 I only used the past regression deviated indicator with default settings for entry and CCI_Woodies_Lnx_v1_1 (14, 6 , 25) for confirmation. I use Stochastics (5, 3, 3) for confirmation of exit.
When a candle closes between the lower red line and lower orange line on the past regression deviated indicator wait for a close above the lower orange line. At this point the CCI is usually crossing the -100 line from below as a confirmation of the buy signal.
When a candle closes between the upper red line and upper orange line on the past regression deviated indicator wait for a close below the upper orange line. At this point the CCI is usually crossing the 100 line from above as a confirmation of the sell signal.
My rule for exit was very simple. If a Sell signal occurs then exit any open Buy positions. If a Buy signal occurs then exit any open Sell positions.
It is also possible to use the past regression deviated as a scalping tool. When the price hits the upper red line place a sell trade. When the price hits the bottom red line place a buy trade. I have not tested this but even on the 1 hr chart there are many trades that result is small wins. It also allows for a better entry when the scalp signal is confirmed by a trade signal crossing the orange line. It would also be interesting to try scalping on lower timeframes. It might be necessary to adjust the Standard Deviation settings to better fit a currency pair.
There are several approaches to this method.
You can place a single trade and only exit at a reverse signal or when stop loss is hit. The first stop loss is set at the red line above the entry for buy and below the entry for sell. I try to use a minimum stop loss around 90 pips for this pair. The stop loss is moved as the trade progresses. This has worked well for me in the past but my new approach allows for applying new strategies for exiting of trades with no risk.
The following example assumes you are trading 1 standard lot. It is easily adjusted to use mini lots with micro lots.
I prefer to place several trades with targets for each trade. Instead of placing 1 trade for 1 lot I would use mini lots for several trades. The first trade would be for 5 mini lots or 50%. The second trade would be for the remaining 5 minilots. If you prefer to place more trades you can use any combination like 5, 3, 3 or 4, 3, 3 or even 4, 2, 2, 1, 1.
The target for the first trade is the yellow mid line. The target for the second trade is the opposite red line or the opposite trade signal. The third trade runs until the opposite signal or stoploss is hit.
Even more trades can be used like 4, 2, 2, 1, 1 with targets of the yellow line, green line, orange line and red line with the final trade waiting for a reverse signal or stop loss.
This would allow the use of take profit settings for each trade with a trailing stop move to breakeven + lock on each remaining trade when the first target is reached or a standard trail at the first target.. TrailingWithPartialClose is an EA that can be used for this purpose.
In the pictures Past Regression Deviated Method forex system in action.
The first entry signal at Buy 1 in Chart 1 was a Buy on April 28 at 10:00. The entry price was 139.45 with the spread added. The stop loss set at the red line value of 138.83 was too tight so I set it at 138.55. I would normally place 2 orders. The first would have a take profit set at the first target at the yellow line at 140.30 for a potential 85 pips. If placing multiple orders the targets are the yellow line at 140.30, the upper green line at 140.86, the upper orange line at 141.27 and the upper red line at 141.87. When I look at the trades live I use the same lines as targets but use the value at the time the price reaches the line. I also use the lines for moving the stop loss.
The first partial close occurred at 13:00 when price reached the yellow line at 140.16. At this point I would close the first position for a profit of 71 pips. I then move the stop loss on the remaining position to the lower orange line or lock in 10 pips, whichever is better. The orange line was at 139.17 so I moved the stop to 139.55 to lock in 10 pips.
The exit signal occurred at 19:00 when the bid was 140.93 and is labeled Sell 1. The second trade was closed for a profit of 148 pips. If you had placed 3 trades the second exit when price hit the red line at a price of 141.85 for 240 pips. The third trade would then close with a profit of 148 pips at the signal.
Placing 1 lot with exit at signal would net 148 pips.
Placing 2 trades with first target and exit at signal would net (71 + 148)/2 or 109 pips.
Placing 3 trades using minilots of 4, 4, 2 would net 71*0.4 + 240 * 0.4 + 148 * 0.2 or 154 pips.
At this point I placed the Sell 1 trades at 140.93 with a stop loss of 141.95. This trade resulted in a loss of 102 pips.
Another Sell signal at Sell 2 occurred on April 29 at 7:00. The entry price was 142.19 with a stop loss of 142.95. This trade resulted in another loss of 81 pips.
Another Sell signal at Sell 3 occurred at on April 29 at 15:00. The entry price was 143.10 with a stop loss of 144.05. This trade reached the yellow midline before reversing. The first half was close at 142.20 plus 5 pip spread for a profit of 85 pips and the stop loss moved to 143.00. The second trade was stopped out for a gain of 10 pips.
The next signal at Buy 2 occurred on April 30 at 18:00. The entry price was 145.92 with a stop loss of 144.75 if using the red line. The trade exited at the next signal at Sell 5 when price was 146.07 for a profit of 15 pips.
The sell signal on April 30 at 20:00 resulted in an entry price of 146.07 with a stop loss of 146.96. The trade was closed at the next signal on May 1 at 2:00 at Buy 3 when the Ask was 145.94. The profit on this trade was 13 pips.
The next Buy trade was entered at Buy 3 at 145.94 with a possible stop loss of 145.55. I considered this a little tight so I set the stop loss at 145.04. When price reached the yellow center line at 146.59 I closed half the position for 63 pips and moved the stop loss to 146.04. The second half of the trade stopped out for 10 pips.
On May 1 at 6:00 there was a Buy signal at Buy 4 at a price of 146.18 with a stop loss of 145.71. I again considered this too tight so set the stop loss to 145.28. When price reached the midline before the European Open I closed half the position at 146.85 for 67 pips and moved the stop loss to 146.28. After the large move I modified the stop loss to 147.21, about half way down the large candle. The trade exited at Sell 6 price of 147.99 for 181 pips on the second half of the trade.
The final chart shows the entire period of this study.
The first 6 sell trades were counter trend. The next 2 sell trades were during a sideways market and the final sell was during a downtrend.
The first buy trade was at a trend reversal. The next 3 buys were during an uptrend. The next 2 buy trades were during the sideways market and the final 4 buys were during a countertrend.
Buy 1 71 + 148 = 219 Sell 1 -102 - 102 = -204
Buy 2 15 + 15 = 30 Sell 2 -81 - 81 = -162
Buy 3 63 + 10 = 73 Sell 3 85 + 10 = 95
Buy 4 67 + 181 = 248 Sell 4 21 + 10 = 31
Buy 5 54 + 66 = 110 Sell 5 13 + 13 = 26
Buy 6 88 + 213 = 310 Sell 6 24 + 10 = 34
Buy 7 -86 - 86 = -172 Sell 7 107 + 65 = 172
Buy 8 235 + 235 = 470 Sell 8 44 + 233 = 277
Buy 9 -87 - 87 = -174 Sell 9 202 + 294 = 496
Buy 10 40 + 40 = 80
Total Net Buy = 1540 – 346 = 1194 pips. Total Net Sell = 1131 – 366 = 765
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