Tuesday, November 20, 2007

Laguerre RSI Ma-Rsi Setup

Setup for Laguerre RSI Trade

Indicator settings for Trade
Laguerre Inputs
Common: Fixed minimum: -0.05 Fixed Maximum: 1.05
Gamma 0.85Count bars 9500Levels 0, 0.85,0.45,0.15

The Gamma setting on the Laguerre indicator will determine whether you get an aggressive entry or a more conservative entry. For this trade I am using a conservative setting of 0.85 to hopefully eliminate any whiplash.

MaRsi levels
Again the Rsi cross on the ma-rsi is set to 34 for a conservative entry.
For the MA-RSI moving average periods I have used 8, 13, 21, 34, 55. All the RSI periods are set to 34 for a conservative entry.

The ma-rsi is a combination of moving averages and RSI.
All the indicators used for this strategy are attached as downloads. I am not certain if this indicator is available on trading platforms other than Meta Trader. They are free downloads as additional indicators for the Meta Trader charting.

If you cannot find it for your particular charting package and want to test it out on the meta trader charts then click here to download your free demo.”

The Rsi period of 34 is set to trigger at a cross of the 50% line on long or short. The lines will change colour from red to blue or blue to red when all the MA’s have crossed the 50 RSI on a 34 period setting.

The above settings allow for short medium and long term crosses and help to remove many fake outs and whipsaw in the market.

We enter the market long when the Laguerre line crosses the 0.15 line from the bottom up and short when the Laguerre line crosses the 0.85 line from the top down. When the market is trending strong in a direction the Laguerre line will flatten into a straight line above 0.85 (when long) or below 0.15 (when short) indicating that we stay with the trend until it starts to move up or down between the 0.15 and 0.85 range

To enter a long trade (buy) we wait until the Laguerre indicator crosses above the 0.15% mark and the ma-rsi changes from red to blue signaling that 34 period rsi on all the ma’s have crossed the rsi 50 % line to go Stop loss Our stop loss is placed below the last low in the market.

Risk management:
Calculate the difference between the stop loss and the entry level to determine the size of the stop loss. Ensure that this is not more than 1 to 2% of your capital. If the risk is larger than the 2% then rather give the trade a miss there will be other opportunities for less riskier trades.

Exit strategy
There are a number of strategies we can use to exit the market. For this trade I have used the previous support levels as profit targets. Then later added the fibonacci expansion levels once I had a low and high to work from.
If the Laguerre indicator crosses below the 0.85% line and the ma-rsi changes colour then it is an indication that the trend is about to reverse. Close the trade regardless of how much profit has been made. The reason for going long now no longer exists so rather get out with some money in the bank.

Alternately you can use pivot points for targeting your profits.

For short trades (sell) we wait until the Laguerre indicator crosses below the 0.85 line and the ma-rsi changes from blue to red across all the settings to enter the market. See blue highlightrd areas on chart. The stop loss is placed above the last high in the market.

I have found the method works equally well on most time frames from 5 min to 1 hr. see the following diagrams from actual charts.

Gbp/usd 1hr chart
As we can see on the above GBP/USD 1hr chart the blue Highlighted areas show the MA-RSI change from blue to red and the cross of the Laguerre line below 0.85 to go short. We enter short at about 2.0380. Our stop loss is placed above the previous high at 2.0427 and target our 1st support line at 2.0300.

Our risk is 47 pips for a reward of 80 pips on the trade. We targeted our first support at 2.0300 to close half our position if in the market with more than 1 lot. The second target is our second support price of 2.0276, 96 pips from entry.

The flat line at the bottom of the Laguerre indicator shows the market is in a strong down trend and we can stay with the trade till we hit our target. After the 1st low had been made and we had a pull back I added a fibonacci expansion for targeting. As we can see the blue highlighted area price dropped all the way down to our fib 1.618 target ensuring we made more than double our risk on the trade.
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Friday, November 9, 2007

Trading with Laguerre RSI and QQE


For this trade I have used the Laguerre RSI indicator with a filter line on the screen as well as an arrow indicating that the price has crossed below the filter line. I have also used the qqe indicator to confirm the short trade. There is also a stochastic histogram and colour MACD to confirm the direction. The daily pivots are also used to confirm the entry and to provide targets to exit the trade.

The vertical red line on the left is the entry point for the trade. Price dropped below the Laguerre filter line and the red arrow confirmed the market was about to go short. The fast laguerre line crossed short below the 0.85 line. The qqe line also crossed short and so did the stochastic and MACD. Price also crossed below the up trend line. With all the indicators in sync we entered short at 165.69 The fast laguerre also crossed below the 0.85 line and qqe crossed through the 50% line further confirming the strong down trend.

15 Min EUR/JPY Meta Trader chart.
Price continued to fall throughout the day and eventually we exited the trade at 163.63 for 300 pips just before price crossed back above the Laguerre filter line.
None of the above indicators are standard with the Meta Trader charting but all are freely available as downloads

The Laguerre RSI was introduced by John Ehlers in his book “Cybernetic Analysis for stocks and futures” It uses a Laguerre filter to provide a “time warp” so that the low frequency components are delayed more than the high frequency components, enabling much smoother filters to be created using less data.

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