One of the first books I read on Forex trading was John Person’s Forex Conquered. I was just re-reading parts of that book this week, and I wanted to highlight some of the best parts of the book.
John Person has a whole section on Trading Systems in which he explains how some of his tools and strategies from earlier in the book can be applied to automated trading systems. Person’s strategies are excellent for automated systems because they are clear-cut; he has discrete rules for entries and exits, as well as for profit targets and stop losses. In fact, the almost every chapter of “Forex Conquered” has knowledge that can improve your automated trading systems.
Person has a couple trademark tools he describes in almost all of his books: Pivot Points, seasonality, and the Doji chart pattern. The Trading Systems chapter covers Pivot Points, and touches on seasonality with respect to automated systems.
Person takes three separate automated trading systems and compares their results. He first explains a system that uses Pivot Points and the Stochastics Oscillator; he describes the system’s sell logic in that it waits for price movement through Pivot Point R1, R2 or R3, and then looks for the Stochastics Oscillator to cross up over the 80 percent level, and then back down over 70 percent level. (Buy signals are similarly calculated.) He also explains some of his thought process on setting stops, and reasonable profit targets. And best of all, he provides some actual code to look at. In this example, he shows the system written in TradeStation’s EasyLanguage programming language.
At the end of this section of the chapter, Person presents some statistics showing net profit, profit factor, winning percentage, and the standard stats you would expect to see from a trading system. Just for a point of reference, the Profit Factor of this system is 1.86.
The second system that Person explains is one that uses Pivot Points and the MACD histogram indicator; the program logic is essentially the same as the Stochastics program, with just the indicator switched to the MACD. Again, Person presents the statistics for the MACD version, and compares the results with the Stochastics version. The Profit Factor for this MACD system is 1.35.
He concludes that the Stochastics version is a bit better, because the MACD’s signals lag a bit behind the price movement, and thus we are not able to enter a trend at the beginning or exit at just the right time.
The third system Person looks at is his Moving Average Pivot Point system (which he calls Defcon III). This is his trademark system, and it has served him very well over the years. When Person teaches trading to new traders, the Moving Average Pivot Point system is usually a part of it.
John Person describes much of how the moving average automated system works, and gives nice hints as to how it should be programmed. However, he does not provide code for this system, and in a conversation with him last year, he mentioned that was intentional. It’s left as an exercise for the reader.
I spent some time writing this system for Metatrader 4, and it is working quite well. It’s not perfect yet, and I need some more time on it, but I like the results I see.
At the end of this chapter, Person shows the statistics for the Moving Average Pivot Point system, and as you might expect, the stats are much better for this system, compared with the other two. The profit factor for this system is a nice 2.03.
Even though the book has been out for a while, if you haven’t read “Forex Conquered”, I recommend that you do. The Pivot Point Moving Average system is explained in a number of chapters throughout the book, and I believe the concepts should be part of every trader’s toolbox.