The Crossroads FX System

The Charts published on this website visualize the trading signals of the Crossroads FX trading system.

The System uses an algorithm that analyses the highs and lows of a defined period of bars that preceded the current bar. As a result, and after passing a secondary volatility analysis component, two price lines are plotted on the chart: a green line ("buy line") and a red line ("sell line"):

The Crossroads FX System is of a trendfollowing nature. This means that it is designed to capture price movements in the direction of a trend. The trend is identified by analysing the relation between the price bars and the red and green line.

If prices trade above the green line for 2 consecutive bars, then a buy signal is generated. The System assumes then that prices are in a trend with rising prices, an uptrend.

In contrast, if prices trade below the red line for 2 consecutive bars, then a sell signal is generated. The System assumes then that prices are now in a trend with falling prices, a downtrend.

Crossroads FX applies the System to different time frames of the same underlying, and analyses for example the price action of the 2 year US Treasuries on a 1000 Tick chart and on a 3000 Tick chart. Why ? Because each time frame offers a different detail level of the recent price action. On the 1000 Tick chart, the shorter term trend can be seen in a more detailed way, as each bar represents the information of 1000 trades. On the 3000 Tick chart, you can better see the big picture trend. 

Like this, it is possible that the 1000 Tick chart shows a downtrend, while the bigger term timeframe shows an uptrend. The chart with the shorter time frame (in our example the 1000 Tick chart) is usually more sensitive to price movements. So if the bigger timeframe is in a maturing uptrend, the shorter timeframe will generally show first if and when this trend turns down.

The most significant price moves usually happen if the shorter and the longer time frame chart show the same trend direction.

The Crossroads FX system allows for a certain amount of discretion with regard to profit taking.

Let's assume we have an uptrend in both the shorter and the longer term chart, and have opened a long position consisting of 3 futures contracts in the underlying, say at a price of 1000.

The first possibility to take (partial) profits would be after the trend has taken prices a certain percentage amount higher, say to about 1040. An argument for doing so is that the system cannot make any predictions as to how long a given trend will persist. By closing part of your position, you make sure that you have taken some profits just in case that the current trend turns. The disadvantage is however that you will not participate in a further upmove in prices.

The second possibility is to close (another) part of the position when the trend of the shorter timeframe turns in the opposite direction, in our example if the uptrend turns to a downtrend as prices trade below the red line for two consecutive bars. This technique has the advantage that you might ride the trend longer than if you just wait for a certain percentage gain. The disadvantage might however be that it usually takes a significant decline in prices before a sell signal is issued even on the shorter term timeframe. If the trend turns up again in the shorter time frame, you might add to your existing long position again.

At least part of any long position should be carried until the bigger timeframe changes its direction. This enables the trader to ride a given trend as long as possible. The disadvantage however is that the trader will in return give back quite some profits if you measure the most favorable price of a given move, and the price when the bigger timeframe chart turns its direction by generating a signal in the opposite direction.

The point where all existing long positions should be closed at the latest is when the bigger term timeframe generates a sell signal as prices trade below the red sell line for 2 consecutive bars. 

It has been mentioned above that the Crossroads FX system is a trendfollowing system. 

Trendfollowing systems make significant profits when a given market is strongly moving up or down, as the systems identifies the trend and keeps a position until the trend ends. 

The disadvantage of any trendfollowing system is that there may be a number of consecutive losing trades if and when there is a directionless sideways market, or if prices go up only a little and turn down again thereafter, only to go up again then.

It has been mentioned above that the Crossroads FX system is a trendfollowing system. 

Psychologically, this means that the trader of a trendfollowing system has to have a mindset that works accordingly: the trader has to accept the fact that he will certainly have some losing trades during a sideways market. He will also accept that not every trend will be a big trend. This is why he will always try to take some profits.  The tradere must also be ready to take every signal of the system, as he will never know in advance which signal will be the one that occurs at the start of THE big move. Finally, the trader has to be patient enough to "sit on his hands" and ride a given trend with at least part of his initial position, as the big moves that occur once in a while are generally those which render the trendfollowing system as a whole a profitable system. 

Furthermore, the risk taken on every trade should only be a little fraction of the total account equity, so that the trader survives a couple of consecutive losing trades that can and will occur. This is important because otherwise the account equity might have been reduced too much to make further trades, so that the trader is "out of the game". This tends to happen usually just before THE big move occurs in the given market.

If using a trendfollowing system, the best average profits tend to be made if it is used on a variety of different markets that are not closely correlated, so that you have a certain amount of diversification. An example might be to use a trendfollowing system on gold, 30 year treasuries, the japanese yen future, the euro fx future and a stock market future. 

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