Further work on trading system stability

Ensuring I know what I'm doing going into next challenge

I have spent a large part of this week ensuring that the trading system I am planning to use is stable and reliable. I was going to make a quick start so that I can get going without delay, but I’m glad I have ironed out these details now over 3 or 4 days as they will set me in good stead for the future and for the verification stage. If I had passed the challenge too easily and not done this work I think my position would have been a lot more uncertain and I may have joined the ranks of those who lose their live accounts very quickly, or at least not made much in the way of profit.

To do this I have backtested on the minute charts and above, as well as running through the indicators I hope to use as additional entry signals for a final pre-flight check.

I concluded that VSA alerts are not useful on the lower timeframes as of yet, even with the use of the 4x multiplier signal that I added. This gives higher timeframe signals on the lower timeframes. So a signal on M15 from the 4x multiplier would be the equivalent of a H1 signal, except it can come at any 15 minutes throughout the hour, which is much more useful for timing your reversal than only at the top of the hour.

As such I will be running a 15 minute chart alongside the lower minute charts that I use for entries.

The liquidity zone indicator in its 2nd version is proving to be very useful at highlighting entries for quick scalps and continuations in trends. I would be tempted to almost trade it on its own, except I have the strength indicator which appears to work well with it, showing when a move is likely to be over in either direction.

Profit targets will be between 1 and 2 R, but happy to leave up to 5R or more if the trade is working out, with a trailing stop. The more the better, within reason, depending on how realistic the TP is.

Otherwise it seems good to keep the volume indicator and take entries when volume is low but that is not essential and in quick moving markets, not practical. I have also brought back into play the moving average cloud that is a simple version of the Ichimoku cloud, with the difference being that it shows the same MAs or “kumo” on every timeframe so you can plan your entries with the higher resolution of the minute chart while observing where the moving averages are on the HTF.

I may also draw my own liquidity zones manually as not every zone is caught by the indicator. I think that is probably one of the significant improvements to come, by ensuring that every reversal in price gets highlighted. In fact I have a plan for that already which I may implement before starting. It involves the z-line indicator I have made previously and a little more logic added to it.

As mentioned in the previous post I also made the status bar for prop trading. It is not yet fully featured but it will be a useful guide to start with. The implementation of floating drawdown is still to be done but if I keep my risk in check that should not be an issue. I.e. I cannot let a position in great profit then go on to drawdown too much. But that would involve a position that goes over 5 percent on its own, which I don’t expect to make a habit of, at least without closing most of it first.

I am spending a lot of time sharpening this axe because I want to get through this challenge as quickly as possible and as neatly as possible with zero tilt. That means minimising my time spent at the charts and maximising my profit while at the charts.

One final thought is that we have school holidays coming up for the kids in just under 2 weeks and that means I will be wanting to spend less time trading where possible but also if I could get the challenge mostly completed before that time then I won’t have that overhead to deal with.

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