The Scientific System Development Process in Action: Changes to FX Renew’s Signals in 2017

We launched our signal program in March 2014 and after returning over 40% with a very flat equity curve, we experienced our first drawdown above 5% at the end of 2016 (7%).

This prompted a major review of the signals using the scientific system development process. We analysed in depth the trades across a variety of measures. A great amount of credit goes to Trading Tribe member, Pater, for doing much of the heavy lifting in this process. Thank you, Pater!

We also received a great deal of well-considered feedback, which has helped us make decisions on what to change.

While the essence of the signals remains the same, below are some upgrades we will implement this year, which we believe will make the signals stronger than ever.

What we want to keep

Before we kick off into the changes, let’s review what we want to keep.

There are plenty of things we like about the current signals.

  • The accuracy rate: We have a win rate of around 65%. We want to keep up this level of consistency.
  • A wide stop: In general, our stops have been well placed, away from any market noise.
  • The 3-part exit strategy: Scaling out of position three times allows us to win often and to have the occasional big win.
  • The trade management: Our studies show that trade management significantly enhances performance over simply leaving trades to hit the targets or stop.

Make the signals easier to trade

The easier it is to place the trades, the simpler it is for you, our customer, to follow the signals.

At the moment, we are employing a split approach, with 50% of the order placed at market and 50% on a limit order.

In 2017, we will be employing a different approach, with trades taken either at market or on limit and not split across the two. This will mean that if you are following the signals it will be half the work to place the trades each day.

This applies to the day trades only. We will continue to employ a split approach on the weekly trade.

Improve the risk/reward

One of the most requested changes is to improve the risk/reward profile of our trades. To do this without compromising the accuracy rate, we will do two main things.

1. We will look to close out of losing trades early. This will generally be if the price holds below the Asian high or low, depending on the direction of the trade, as these levels cap prices in trends. This allows us to cut our losses short if prices reverse.

Improve the risk/reward

Improve the risk/reward

2. We will, if there is a strong close in the direction of the trade, hold trades overnight. This allows us to let our profits run in trending markets.

Being more selective

We have made the decision to be more selective in our signals if they are unclear. In the past, our methodology has been to pick the “best trade”, even if there was not one we had a great deal of conviction in.

We will change this in 2017 and be more selective. This will result in less trades, but of higher quality.

Avoiding volatility

In the main, our losses have come from periods where volatility has increased and the signals have not adapted. For example, we experienced losses in the heightened volatility around Brexit and Trump.

We will be more cognizant of this moving forward, either avoiding trading or adapting the signals to fit volatile market conditions.

Trading with strong trends

We acknowledge that we can be too conservative when the market is trending strongly. We will aim to trade more in daily fast bull and fast bear MTs.

You can see fast bull/bear MTs marked on this chart below of USDJPY.

Trading with strong trends

With the improved risk/reward and ability to close out early, we don’t need to be so concerned with the sell-offs that occur in over-brought and over-sold markets. This means we can attack trends aggressively.

What else do you want to see.

What do you think?

Is there anything else you would like to see from us in 2017?

About the Author

Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is the owner of a provider of Forex signals from ex-bank and hedge fund traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.