Thursday, April 29, 2010

4/29 Forex Method

I'm changing my analysis method for forex. As I've discussed in earlier postings, I'm getting fairly horrible results with the parabolic sar as an indicator. One reason for this is that the psar is designed for strongly trending instruments. Most forex pairs are weakly trending.

The new method uses Persons' Proprietary Signal, a black box that gives bull and bear signals, developed by John Person.


On a chart, the pps shows an arrow when the phase changes, up-pointing for a bull signal and down-pointing for a bear signal. The chart also includes two moving averages, built in.

Now, the pps is prone to whipsaws, even more than the psar is. So I propose to use it in this way: When the signal occurs, wait for a pull back to the moving average. If there's a bounce, then consider the signal to be good and enter it for the Watchlist. If there's not a bounce, then consider it to be a false signal.

Exit on any switch in the signal, without waiting for confirmation, or an any pull back to the moving average.

The Person's package also includes pivot point levels, and I'll treat those as support and resistance. A pause or change in direction near a pivot point will prompt an examination of whether or not to exit.

At this point on the Watchlist there are no bull psar signals. I'll maintain the bear psar signals until they all go away, so there's be a dual listing for awhile.

I'll also apply this method to the top exchange-traded funds.

Options as a Strategic Investment

Options as a Strategic Investment is a one-stop source of practical information, clearly presented, about the the trader's most important tool for managing risk. This book occupies an important place on my desk.



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