05 Jun This Strategy Shouldn’t Work
This Strategy Shouldn’t Work
June 5th, 2019
I’m sitting here watching my screen to see if this new strategy will take a trade.
Nothing so far.
I’m watching it closely, though, because I’m very curious.
The strategy itself is nothing new or revolutionary. I found it in a trading book I recently finished that was written by a world champion trader.
It’s a breakout methodology, but it uses intra-day charts instead of long-term charts. It enters as price breaks the high or low of the previous day and uses ADX as a filter to only enter when the trend is of a certain strength.
Like I said, nothing super special. Good logic, but not out of the ordinary.
I did not have high hopes for this strategy on Forex, though.
When we trade Forex, obviously we’re looking at a 24-hour market. There is no “previous day” per se. It’s hard to get in at “yesterday’s” high or low. For example, does the day start at 5 pm EST or midnight? It’s not clear cut.
So, without a clear trading session to use for comparison, do you know what the code for this strategy does? It simply compares today’s signal bar to the signal bar from twenty-four hours ago.
For example, the signal bar on my charts is the 9:30 EST bar. I think that’s a good time to look for signals because that coincides with the open of the U.S. stock market.
But that’s not enough to determine a trend, right?
In short, if the 9:30 EST bar today is higher than the high of the 9:30 EST bar one day ago, the strategy goes Long. If the 9:30 EST bar today is lower than the low of the 9:30 EST bar one day ago, the strategy goes Short.
That seems thin to me. I put it on my charts to test but I did not think it would work. I was surprised.
Here are the details:
- System: Intra-Day Breakouts on Forex
- Philosophy Behind It: If price is higher than yesterday, break out and go with the trend. And vice versa.
- Need Special Indicators? No, just the ADX indicator.
- Chart: 15M
- Instrument: EURUSD
- Long or Short? Long & Short
- Long Entry: 1) 9:30 EST bar must be above the 9:30 EST bar from one day ago; 2) ADX reading must be above 40 (length 10); 3) Enter at Open of next bar; 4) Do not take trades after 10:45 EST (do the opposite for Short trades.)
- Profit Target Long: $325
- Profit Target Short: $975
- Stoploss: $1,075
- Timed Exit For Long Trades: 17 bars
- Hypothetical Profit: $64,548
- Hypothetical Max drawdown: -$10,010
- Trade size: 1.0 lots
- Hypothetical account size: $10,000-$20,000
- Test Period: 2007-2019
- Number of Trades: 754
Multicharts report is here:
A few thoughts.
You’ll notice most of the money comes from Short trades. Because Long trades weren’t as profitable, we used a timed exit and a small profit target. That seemed to be the best way to make Long trades worthwhile.
Also, there are a lot of trades. For long-term breakout trading, we only get a few trades a year.
Last, that’s a lot of profit and the ROA was great (over 600%).
I honestly didn’t think this type of trading would make a dime in Forex. Stocks and Futures, maybe. But not Forex.
I was wrong.
Can it work on another instrument?
We’ll find out in our next email.
Talk to you soon.
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