- [Narrator] Hey now, I'm back
with another trading system review.
What happens when we take the strategy
from this extremely popular video
and test it for 100 trades?
After a review of the test data,
I am going to share my thoughts
on improving this system's profitability.
Just remember, even if you are a superhero
there is still plenty to learn by subscribing.
- [Man] I'm Spider-Man.
(objects clatter)
- [Narrator] I call this system the two-step,
and like most trading systems,
it can be adapted to forex, crypto, options, stocks, indices
or any instrument that has significant volume
and market participants.
This trading strategy utilizes
one free TradingView indicator.
As always, the link and settings
to the indicator is listed in the description below.
The first indicator are the ATR bands.
I am going to set the upper and lower multiplier at 2
and color the bands in white.
The average true range is a Wilder indicator,
and at default settings, calculates the absolute value
of the previous 14 bars expressed as a moving average.
This study will provide our stop-loss levels on each setup.
Let's go over entry criteria and review some examples.
As always, system rules and details are listed
in the description.
This chart is Microsoft, 15-minute and 5-minute candles.
The rules to enter a long on the two-step are,
first, on the higher timeframe,
and in this case, the 15-minute chart,
we are looking for a clear uptrend characterized
by higher highs and higher lows.
Second, on the higher timeframe still,
we are looking for a pullback into support.
Third, on the lower timeframe,
we wanna see a price rejection expressed as a wick.
The next rule requires a bullish candle to close
on the lower timeframe.
Our rules are met when this candle closes.
That is our trigger candle.
Replace our stop at two times the ATR
at the lowest level of the pullback
and target two times risk.
And this example continues to trend and hits the target.
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I have one more long example.
First, we have a clear uptrend signified
by a series of higher highs and higher lows.
Second, on the higher timeframe,
there is a pullback into a previous level of support.
Next, on the lower timeframe,
there is a rejection wick and a bullish candle.
When the bullish candle closes, it becomes our trigger.
The stop is placed at two times the ATR
of the lowest candle in the pullback,
and 1:2 is our target.
And after another pullback, this example hits the target.
Now, we flip the shorts.
This is what I will test for shorts.
First, on the higher timeframe,
we are looking for a downtrend characterized
by a series of lower highs and lower lows and price.
The second thing we are looking for
on the higher timeframe is a pullback
into previous resistance.
On the lower timeframe,
we are looking for a rejection wick.
The final rule requires a bearish candle to be printed
on the lower timeframe.
All of that happens on this candle here.
That is our trigger candle.
The stop is placed at two times the ATR
of the highest candle in the pullback,
and the target is set for two times risk.
And this short hits the profit target.
I'm gonna show you one more quick short example.
First, we can see a clear downtrend
on the 15-minute timeframe.
Second, there is a pull back into resistance.
Next, there is a nice rejection wick
at the resistance level.
Finally, a bearish candle closes.
This is our trigger candle.
The stop is placed at two times the ATR
of the highest candle on the pullback,
and our target is two times risk.
And this instrument gaps down to the target.
I'm going to share some great ideas
on how we can improve this system
along with a Trader's Landing score.
And now it's time to do what I do.
(upbeat music)
If you enjoy this content, hit the like button.
Remember, this is just 102 tests on three instruments.
If you are thinking of using this system,
please do extensive back and forward testing,
and be sure to let our community know what you discover.
This test was done on a combination
of high volume instruments,
specifically the euro versus the US dollar,
Bitcoin versus the US dollar and Microsoft.
Combined results are inclusive of 102 setups
over 12-plus months.
Most consecutive winning trades came in at six,
and the most consecutive losses turned out to be five.
The win rate was just under 60%,
and the combined maximum drawdown turned out to be 5.21%.
The inclusive profit factor came in at a very healthy 2.98,
and the total gain on account was a nice 162% gross,
risking 2% per position.
Something to note was an outlier on Microsoft,
which had an amazing profit factor of four.
This could portend
a certain system compatibility with equities,
but clearly more testing is needed.
The equity curve here further illustrates my previous point
about the profit factor.
The volatility of Bitcoin during this testing period
seems to have caused a more dramatic drawdown
in the equity curve, specifically more than 7.5%,
which is almost double the other two instruments.
This point should be further examined with more data.
What score would you give the strategy?
Log on to the community site and let's discuss.
I'd give this system a Trader's Landing score of 8
because this system takes full advantage
of a trending market,
accounts for KING-MARKETS structure,
(fanfare blares)
and gives a great starting point to develop a system
with plenty of headroom for improvement.
Remember, the enemy of great is good.
I have six ideas on how we can improve this system.
First, there are different ways to enter the market.
The way that I tested this is really the most basic.
What Steven mentions in the original video
is to enter on a double top or double bottom.
On this chart, we can see the bounce off support,
and then we would enter
on the second bounce off of that support level,
which would be considered a double bottom.
Another way to enter on the lower timeframe
is to use Williams fractals,
which adds another element of price action into the system.
And yet another, and perhaps a more trendy way to enter,
would be to wait for the SuperTrend
to confirm the trend change on the lower timeframe.
The next item you can add is hidden divergence
on an oscillator like the RSI.
On the higher timeframe,
we can see a lower low on the RSI
and a higher low on price.
This is hidden divergence and portends a trend continuation.
In addition, when going down on the smaller timeframes,
regular divergence can forecast a change
in the short-term trend,
and thus a continuation of the higher timeframe trend.
Here, we can see a higher low on the RSI
and a lower low on price,
which indicates the weakening of bearish momentum.
Furthermore, you can combine tips two and three,
looking out for hidden divergence on the higher timeframe
and then regular divergence on the lower timeframes.
This double confirmation can be a powerful entry signal.
Additional, you can combine more timeframes
to better match your trading style.
Some of the timeframes
that match up well in this system are inclusive
of what I tested which was the 15-minute and 5-minute,
but you can also move up to the 1-hour and 15-minute,
or the 4-hour and 1-hour,
or even the daily and 4-hour.
Generally speaking,
the higher timeframe combination you choose,
the better your win rate will be
because there will be less market noise.
Another item you can add on the lower timeframe
to increase your win rate is volume.
You can see that all of the volume spikes here coincided
with a trend continuation.
If you wanna support this channel
and the work I'm doing here,
in addition to connecting with some like-minded traders,
I encourage you to check out our community site
where we are discussing all things trading.
Have a great day because you deserve it.
(bright music)