Hey Now! In this video i am going to review, test, and analyze, the extremely popular
system from Forex Factory: "Trading is as Simple as 1-2-3". This is Traders Landing.
In this installment of Traders Landing we are going to examine the Trading is
as Simple as 1-2-3" system including the indicators used, or in this case not used.
Along with the entry criteria and examples. Then i'm going to test it 100 times in a row.
Followed by an analysis of the test data, a review of the equity curve,
ideas for improvement, and conclude with my thoughts on this strategy.
You can review the system specifics along with a link to the thread where i found
this strategy on Forex Factory all in the video description below. Just to note before we begin
the poster of this system Too Slow notes that it is not a trading system per se. However it
is more of a method to get entries. What i did in this video is turn Too Slow's method into a
complete trading system with rigid entry stop loss and take profit criteria. Please subscribe to my
channel and turn on notifications so you know when more content is released. Now let's get into it.
This system does not require any indicators. In fact Too Slow does not even want charts
posted on his thread with indicators so we are going to respect that. To better
see entries we are going to change the standard candlesticks to a bar chart.
With the bar chart you can more clearly see our setups with this system. Since the strategy
requires knowing where the daily open price is we are going to add the trading session
indicator to the chart. I'm going to use the one by Zen and the Art of Trading.
With this on the chart we are going to remove the alerts and change the settings to 5 pm to 5
am eastern standard time. I chose 5 a.m as this is closer to the time i would start my day.
This is not a standard mathematical indicator which Too Slow asks you not to use. But rather
this will highlight the time on the chart where we are not going to take a trade,
and show us where the daily open is. So there will not be any setups taken in the shaded areas. Too
Slow mentions that he considers the daily open as the broker's daily open. Which for most brokers
would be 5 p.m. Eastern Standard Time (EST), and that is exactly what we're going to use here.
Let's go over the rules and review a long entry. We have the daily open here.
We are looking to take trades in the direction of the daily open which is this level here. So in
this case we're looking for longs. The next thing we are looking for is price to make a new daily
low; which is this bar right here. The third thing we are going to look for is that the bar after the
daily low does not make a new daily low. Which it does not. We are going to place our order above
the open of the bar that made the daily low which would be this level here. We do not
enter if the stop loss is greater than five pips. Once our entry is hit we are going to target 3:1.
When our trade goes five pips in our direction we are going to move our stop to break even.
Let's see how this trade plays out.
And this one is a winner, hitting our second target. So let's try another long example. Again
we are looking to take trades in the direction of the daily open, which is this level here. The
next thing we are looking for is price to make a new daily low which is this bar right here.
The third thing we are looking for is that the bar after the daily low does not make a new daily low
which it does not. We are going to place our order above the open of the bar that made the daily low.
Which would be this level here. We do not enter if the stop loss is greater than five pips.
Once our entry is hit we are going to target three to one. When our trade goes five pips in
our direction we are going to move our stop to break even. Let's see how this trade plays out.
And this one got stopped out of break-even which we will consider a win for our test.
Now let's flip to shorts. The rules for shorts is exactly the same as that for
longs (except for reverse). We have the daily open here. We are looking to take trades in the
direction of the daily open, which is this level here. So in this case we are looking for shorts.
The next thing we are looking for is price to make a new daily high which is this bar right
here. The third thing we are going to look for is that the bar after the daily high does not make a
new daily high which it does not. We're going to place our order below the open of the bar
that made the daily high which would be this level here. We do not enter if the stop loss is greater
than five pips. Once our entry is hit we are going to target 3:1. When our trade goes five pips in
our direction we are going to move our stop to break-even. Let's see how this trade plays out.
And this one got stopped out of breakeven, which we will consider a win for our test.
Let's do one more example. We have the daily open here. We are looking to take trades and
the direction of the daily open which is this level here. The next thing we are looking for
is price to make a new daily high, which is this bar right here. The third thing we are looking for
is that the bar after the daily high does not make a new daily high which it does not.
We're going to place our order below the open of the bar that made the daily high,
which would be this level here. We do not enter if the stop-loss is greater than five
pips. Once our entry is hit we're going to target 3:1. When our trade goes five pips in
our direction we're going to move our stop to break-even. And let's see how this plays out.
And this one hit our second target. And now it's time to do what we do.
Before i get into the results i just wanted to make a note that this thing did a lot better
than i expected going into it. It was a fun one to back test as there were so many signals and
easy criteria. So if you wanted to start your own back testing this would be a great one to try out.
Let's review the test data. This test was done on the Euro / USD using one hour bars. It took three
months to find the 100 trades. There were 50 that hit our first target which would be break-even,
22 that hit our second target at 3:1, and 28 that stopped-out. For a winning percentage of
72 percent. Most consecutive wins in a row is 12 most consecutive losses in a row was 4
and the gain on the account was 38 percent, risking one percent per trade. There's a lot
to unpack on this data set. First target one is break even so all trades that went five pips,
did not hit our 3:1 and then return to the entry level is considered a win. Secondly
there were a lot of signals. Three months on a one hour bars for a 100 trades is fast,
that i can tell you. Also taking into consideration that i only took setups for 12 hours
out of the day. Third is this data does not take into account spreads and fees which you would
certainly need to include in your testing before being able to determine the true gain on account.
Furthermore you must be fast with this system to move your stops to break even after the five pips.
An automated system could be useful for that. I had a developer create a system that moves my
stops to break even when a particular price level is met that utilizes my broker's API.
If you want to know more about that please ask me in the comment section and i could point you
in the right direction. Additionally and of note Too Slow says not to go against the freight train.
For example if you see a bunch of long bullish candles you may not want to short,
as it is very impulsive. That is more of a subjective observation
and where a mathematical indicator may come in handy. But i did not consider that in my testing.
It would be in the eye of the beholder and take many many hours in front of the charts to get a
feel for that particular point. But if you do want to add any indicators on your chart and
share on Forex Factory please do it on another thread and be respectful of Too Slow's wishes.
The equity curve here describes a lot. You can see that you start to draw down
then come up a bit then flat and then you start on a nice uptrend.
That part will really test your mental toughness. There are long stretches of time
with this system that you just hit break even over and over and over and over again.
This is where it gets very tiring. Can you handle all these break-even trades in a row?
How do we find the crumbs on this system? Since we
are not using indicators you must test what we can test that, is our entries,
take profits, and stops. Maybe you want to take profit on one third of your position
when you get the five pips in your favor. Maybe you wish to consider taking trades with
a larger stop loss margin which i would highly recommend on instruments with higher spreads.
Additionally reading through this thread Too Slow and Hal7 have been very active
and seem to be responsive to questions. So while you can ask me questions here,
and that would be appreciated for the YouTube algorithm; they are there to help you too.
So in conclusion Too Slow posted about an entry method. It is up to you to create the system.
I created a system and over three months it was profitable. This is a very popular threat on
Forex Factory and a very novel approach to a rigid rules-based trading system.
Maybe you can improve what i came up with? Let me know in the comments.
Thank you for watching, if you want to see more content like this it makes sense to hit that
subscribe button and turn on notifications. And if you enjoyed this video please give
it a like. Let me know if you have any questions comments concerns in the comments section below.
Bye for now.