Ciao a Tutti,
first of all thanks for the terrific response to the DuettoFX Indicator which was released yesterday. It seems that most of you have already applied DuettoFX to your charts and are already hunting new “duetto” trades 😀
However, a word of caution: as for any system/strategy please use DuettoFX on a demo first, until you exactly understand how it works.
I’ll share some tips today so that you can use DuettoFX in the best way and you fully understand how to replicate the strategy described in the “1000 Pips per Month with a Single Indicator” post. I’d like to stress that this strategy can be improved a lot with a more reliable exit strategy, however it can be a good starting point for newcomers.
Look carefully at the picture below (you can click on it for a larger view):
This is how DuettoFX looks on my Alpari MT4 platform rigth now (17th Feb 2012, 08:40 GMT). Notice how the red cloud is now very small because the two white curves delimiting it (one for EURUSD and one for USDCHF) are very near. For this reason the three labels in this indicator’s subwindow are overlapping and you can’t read them at all.
First tip: you can always know the exact value of any indicator on the MT4 platform just looking at the “Data Window”. DuettoFX generates 8 output values (by the way, this is the maximum allowed by MT4) and the ones you should look at are:
- value5: the value related to the first instrument (EURUSD in this example)
- value6: the value related to the second instrument (USDCHF in this example)
- value7: the value of the spread (translated by 50)
- value8: the value of a moving average over the spread (translated by 50)
So if you cannot read the exact values displayed by the three labels on chart you should always refer to the Data Window.
In the picture above we read: value5 = 49.8856 and value6 = 49.9334, hence spread = 49.8856 – 49.9334 = -0.0478. Therefore we have value7 = 50 + (-0.0478) = 49.9522.
The fact of summing 50 to the actual spread is just a “trick” needed by DuettoFX in order to display the spread (the solid yellow line) centered around the cloud’s median line (which is 50).
In the “1000 Pips per Month with a Single Indicator” post I explained that spread must be above a fixed threshold in order to have a valid entry signal. When a candle closes with spread>=2 then we can enter Long at the beginning of the next candle. When a candle closes with spread<=-2 then we can enter Short at the beginning of the next candle. That means before entering a trade you should use the Crosshair tool of your MT4 platform, place it on the last closed candle, and then look carefully at “value7″ in the Data Window. If value7>=52 then you can place a Long trade, if value7 <=48 then you can place a Short Trade.
As an example, look at the solid yellow vertical line that I draw on chart above. At the opening of that candle (2012.02.14 18:00, which corresponds to 16:00 GMT) I entered short EURUSD @ 1.31481. As a matter of fact the previous candle (see the dashed yellow vertical line) was the first candle after the previous green cloud to have a spread lower than -2 (value7 = 47.5770). That trade resulted in a MAE (maximum adverse excursion) equal to 44 pips and a MFE (maximum favorable excursion) equal to 170 pips. So you can understand that with a good exit strategy you can pocket a lot of pips, because the vast majority of trades have MFE much bigger than MAE (in some cases MAE=0 because the trade goes straight in our favor as soon as it is entered and it never retraces to the entry price).
The last thing I must stress regards the dotted vertical lines (green and red) displayed by DuettoFX. These lines are drawn in realtime so it can happen that a new dotted line is drawn if a new cross happens within a candle, but that cross is not confirmed when the candle closes. A perfect example is in the picture above, where spread < 0 (or value7 < 50) and nonetheless a vertical dotted line has appeared. That line appeared because during a short-lived bullish momentum we had spread>0, therefore DuettoFX detected a new positive cross. However that cross may not be confirmed when the current hourly candle closes (as a matter of fact – as I said – spread is negative right now, so the cross is not there anymore).
So you should not be fooled by the dotted vertical lines: always refer to the actual spread value “after” the candle is closed. The next version of DuettoFX will have a new option that allows to draw these lines only when a candle is closed. Anyway, remember that the most reliable trading signals do not happen after a valid new cross, but when a fixed threshold has been exceeded. It usually takes some hours after a new fresh cross in order to see spread>= 2 or spread <=-2, so there is no rush to enter trades.
Good luck with your trading, DuettoFX can really put the odds in your favor, just learn how to use it at best 😉