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Homemade Strategies: Getsuga Tenshō – A Complicated Name for My Complicated Strategy?

Today I’m gonna try to do something different regarding strategies: I am not going to review someone else’s strategy and instead I am going to explain one of my own. And I say “try” because I might miss some details which I take into consideration when trading, but I promise I’ll do my best to include all the steps. Sometimes a strategy is not everything you need and discretion in picking the best trades is also required, but hopefully this article will give you a reliable system. As a side note, I use this system mainly for trading EUR/USD, simply because I haven’t tested it enough on other pairs, not because it doesn’t work on them. The time frame of the chart is 5 minutes.

 

 

Getsuga Tenshō Components and Trade Rules

In case you’re wondering about the name, well… my strategy – I get to choose the name… just a perk of making your own strategy. Ok, now for the real deal. Let’s keep it structured because we have a lot of work ahead (All Indicators are available to download at the bottom of the page):

 

The first indicator is called XPMA and it’s basically a colored Moving Average (Triple Exponential, but let’s not go into details) which will show us the trend. In other words, if the XPMA is Red, don’t even think about Calls. If the XPMA is Blue, don’t touch the Put button. A little on the technical side: for a reason that eludes me, by default this indicator shows Red for an uptrend and Blue for a downtrend, which I find confusing. When you attach the indicator to your chart, go to the “Colors” tab and switch the colors. I also disabled all alerts and arrows displayed by the indicator. The settings period I use for this indicator is 75.

 

The second indicator is called HAMA and it’s sort of a hybrid between Heiken Ashi candles and some moving averages. Its purpose is to give us an entry signal by identifying a retracement and the end of that retracement aka trend resumption/continuation. Just like the XPMA, this indicator has 2 colors (Red for down and Blue for up) but it is faster (default settings cannot be changed). So far we have two indicators which work together to show us waves, cycles within the prevailing trend, just like in the picture below:

 

Getsuga Tenshō - Strategy

When the XPMA (which shows the main trend) becomes Blue we consider the market to be in an uptrend so we will wait for a move lower followed by trend continuation. In other words, we need the HAMA (the faster line) to become Red, suggesting the retracement has begun and then to become Blue once again, indicating the end of that retracement. Ok, half way there… you didn’t think it was this easy, did you?

 

The third indicator is the MACD, but not the normal one… it’s special and also has special settings: 100, 150, 90. We all know that trend following strategies fail in ranging markets and the purpose of this MACD is to keep you out of this kind of markets. So when a Call is taken, the MACD has to be above its zero level (even better if it’s Green) and for a Put, it has to be below the zero level (even better if it’s Red). If the waves of the indicator are small, ranging above and below the zero level, don’t trade because you are probably in a ranging market.

 

The fourth and final indicator is the Stochastic with settings 15, 6, 9, with levels set at 70 and 30 (not the usual 80 and 20). Calls will be taken when the Stochastic is showing oversold and Puts will be taken when it shows overbought, with all other conditions in agreement, of course. Now that we discussed all the indicators, here are some pictures of the complete strategy:

 

Call entry:

Getsuga Tenshō - Strategy 2

Put entry:

Getsuga Tenshō

Getsuga Tensho

The last picture shows a Put taken in real time, while I was writing this article. The XPMA was Red, indicating a downtrend, HAMA went up to show a retracement higher, followed by resumption of the downtrend (HAMA became Red once again). Also, MACD was below zero and Stochastic indicated an overbought condition so all the rules were met. Expiry time should be set according to how fast the market moves and can vary quite a lot… just like the market conditions.

 

 

Why does Getsuga Tenshō Suck?

Let me be honest here (and maybe a bit subjective): it doesn’t suck. It’s what I use on a daily basis for trading Forex and although it gives me bad trades sometimes, the winners clearly outnumber the losers. The thing is that you will need some experience to trade it and all its signals should be taken with a pinch of salt. For example, if the entire day price moved strongly to the upside, don’t trade Calls in the evening just because you missed the entire move. Price is likely to retrace after an extended move in one direction and your signal might generate a losing trade (retracement appears to be over but it is not). The strategy is designed to keep you out of such bad trades but not always, so apply some discretion when trading.

 

 

Why the Getsuga Tenshō doesn’t Suck?

A strategy with such an awesome name has no chance of sucking. I’m joking, of course. The real reason why it doesn’t suck is because it keeps you on the right side of a trend, giving you a good entry after a retracement, while price is overextended against the trend, which is the best place to open a high probability trade. The MACD also keeps you out of choppy, ranging markets and shows price momentum so I believe it incorporates enough quality components to give you profitable trades no matter if you trade Forex or Binary Options.

 

 

Wrapping it up – Even the Best Strategies Suck Sometimes…

This strategy is the result of a lot of trial and error and many hours spent staring at my charts. It tries to incorporate a lot of what I know about the markets and also, basic trading principles such as trend – pullback/retracement – continuation, but is not fail proof. You will get bad trades with it and here is where your own experience and view of the market comes in. Avoid trading at news time or when volatility and volume are low. Last but not least, I don’t recommend you to trade this strategy, but I do recommend you to test it and see if you can get a good grasp of it. Only if you are satisfied with the results, invest real money, but understand there are no guarantees so trade it at your own risk.

 

 More Downloads and Discussions:

 

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