The Cowabunga System
The Cowabunga System is a Forex trend trading system that has been posted on the Baby Pips website for a number of years. Anyone who has completed the Baby Pips School of Pipsology would have read about it.
This is one of the simplest trading systems I’ve ever come across, and I’m curious to see how it performs in a real-world forward test.
How the Cowabunga Forex System Works
The Cowabunga System is designed to catch small intra-day trends while avoiding fakeouts.
It works by first identifying a trend on the 4 hour (4h) chart, and then looking for trades in the same direction on the 15 minute (15min) chart.
According to it’s author, this should only be traded on the GBPUSD currency pair between 05:00 GMT and 21:00 GMT.
If the 4h chart is showing a bullish trend, then on the 15min chart I should be looking for long trades, or to buy the pair. The opposite is true as well: if a bearish trend is identified on the 4h chart, then only short (or sell) trades should be taken the 15min chart.
Establishing the Main Trend
The main (4h) trend is considered to be bullish when:
- 5EMA crosses above 10EMA, and
- RSI is above 50, and
- Stochastic oscillator is moving up, but not in overbought territory (i.e. below 80)
The main (4h) trend is considered to be bearish when:
- 5EMA crosses below 10EMA, and
- RSI is below 50, and
- Stochastic oscillator is moving down, but not in oversold territory (i.e. above 20)
Once the main trend is established (based on these rules), I will then look to enter a trade on the 15min chart in the direction of the trend.
all chart images via Babypips
Cowabunga System Trade Entry Signals
Buy trade signals on the 15min chart are identified by:
- The same uptrend indicator criteria as those on the 4h chart, and
- The MACD histogram going from negative to positive, or is negative and starts to increase in value
Sell trade signals on the 15min chart are identified by:
- The same downtrend indicator criteria as those on the 4h chart, and
- The MACD histogram going from positive to negative, or is positive and starts to decrease in value
Taking Profits & Losses
The author mentions that the stop loss should be set at the previous price swing, while the target profit should be set at round numbers (like 50 or 00).
For example, if the entry on a GBPUSD long trade is 1.4273 the take profit should be at 1.4300.
He also says to avoid taking trades with large stop loss orders, but without specifying what “large” means so there is some subjectivity involved here.
A Few More Points
According to the Cowabunga System, I’m not supposed to trade a news candle or the candle before the news, so I will be avoiding the times when high impact economic are released out of the UK and US.
Last but not least, there’s a trade duration restriction. All trades must be closed at 04:00 PM ET, regardless of whether it’s a winning or losing trade, due to the low trading volume after that time. At the same time, any trade signals that occur before 12:00 Midnight ET should be taken with discretion.
Trading Lot Size
Curiously, the author doesn’t say anything about the recommended trading lot size to use.
So since I have no prior experience with the Cowabunga System, I will be testing it on a demo 2,000 USD account and will be using 1 mini lot per trade for a value of approximately 1USD per pip.
The Cowabunga System combines two the most popular trading styles: short term trading, and trend trading. Due to its visual appeal, it is likely to appeal to many traders (it sure appeals to me!)
From my point of view this trading system looks pretty straight forward, but the messy part comes with the actual trade execution as there are multiple variables and constraints to consider.
So will the Cowabunga Forex System prove to be profitable? Let’s put it to the test and find out!