How To Optimize Profits and Anticipate Entries 2

Salve a tutti,

in this post I’ll explain you how to “optimize” profits by using better entry signals than the simple crossover between the two PotenzaFX powerlines.

Let’s assume that we don’t use the DLS for our entries but that we simply enter long/short at the crossover of the powerlines of two currencies and we reverse the positions at the following crossover. Well doing that we’ll find that many times we’ll both enter and close our position when it’s too late.

To have better timed entries and exits we should look at “extreme” positions. With extreme positions I refer to power scores above +50 and below -50.

The entries are made when both the currencies come out of extreme positions. Let’s consider for example a daily chart of AUD/USD (click on the image for a larger view):

We see that on the 5th of October AUD crossed above the -50 line from the “extreme low” area. The same day USD crossed below the +50 line from the “extreme high” area.

This is a good long entry for AUDUSD. We have a confirmation cross (the regular entry) between the two lines on the 10th of October, more than 300 pips above.

The exit is made in two steps.

The first half is closed when the power score of one of the two currencies involved in the pair crosses again from an extreme position. The second half is closed when the same thing happens to power score of the other currency. If the power scores don’t reach extreme values then you close the whole position at the cross of the two powerlines.

In the above example we’d close the first half when the USD crosses from the low extreme the -50 line (October 31st) for 800 pips gain. And the second half when the AUD comes back from a high extreme by crossing the +50 line the day after (November 1st) for another 580 pips gain.

At this point we can enter the short trade as we have the conditions to anticipate the short trade that is confirmed by the cross between the AUD and USD 8 days later (November 9th), 190 pips below our anticipated entry.

That short trade would be exited on the 11th of November for the fist half as USD crossed the +50 line from the higher extreme (+50 pips) and the second half on the 28th of November as AUD crossed the -50 line from the lower extreme and (+420 pips profit).

At this point we’d be long AUDUSD with a gain of more than 374 pips from the “regular” signal coming from the powerline crosses.

This is another (more aggressive but even more profitable) approach to trading with PotenzaFX.

This can also lead to a different approach to basket trading. But we’ll talk about that more in depth in the next days. Remember that we’ll release the “basket trading” indicators set (hopefully) Dec 9th. We are not yet sure 100% but in case the release will be deferred only a very few days.

A presto,

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2 thoughts on “How To Optimize Profits and Anticipate Entries

    • Paolo

      This is a new approach that we have not yet backtested. I guess it is difficult to use on lower timeframes and with currency pairs that have an erratic price action. Looking at charts this “anticipation” technique seems quite effective on the daily charts od AUDUSD, AUDJPY, NZDUSD and NZDJPY. Of course we’d love to hear feedback from PotenzaFX’s customers who have envised other ways to exploit this novel approach. Ciao and good luck with your trading.