Build A Waves Surfing Strategy ( Auto Trading ) - Chapter 1

Build A Waves Surfing Strategy ( Auto Trading ) - Chapter 1

10 May 2016, 00:33
Juan Fernandez
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1. Introduction

In this chapter I will speak about what kind of strategy I will try implement for auto system. As I commented in last article I will simulate a Wave strategy ( ABC pattern ).

This strategy can be split in 3 big areas

  • Swing
  • Trend
  • Range 

 The basic idea is follow trend while I will avoid enter trades in swing/range area.

 

2. The Strategy

The strategy can be grouped in 3 groups of indicators.

  • Trend
  • Momentum
  • S/R

Every group have one task and one priority assigned in EA.

The lead group is Trend. Will be formed for MAs. This group will catch the path between Highs/Lows and will open trades with support of other groups.

S/R is the support group of Trend. This group will be formed for swings candle detector ( HLH or LHL ). Main task is close trades and detect breakout/fakeouts in consolidation area.

Momentum is the group which fade the mix when we are in consolidation area. Will add the delay/filter for avoid entries in wrong direction. 

 

3. Creating the base

Now its the moment to decide what settings and tools we can use how basis for the implementation stage. The chart will help in that task.As Trend group is the main group, I added one MAs for search how will work filtering signals. I add a S/R tool for have a consolidation areas reference too

The 'paper' where make the sketch of our strategy. Really this looks very good...or maybe not

 

In this first look we can see both areas very easy. Trend areas are long paths in Trend indicator changing his slope near a S/R zone. Range zones are conformed for Trend indicator slow movement and some S/R with small distance between them. Normally Trend indicator move around middle of S/R formation.

An interesting thing in this look is Trend indicator is filtering enough fair giving little signals and long path when price is outside range.

The plan seem easy. But really will EA works like we are planning?

 

When we analyze range area we see a long consolidation area with strong movements inside a small range ( around 100 pips ).

For know how can work open/closes in theory I will use study version of Trend indicator for know the worst case and see if this strategy is viable using Trend group as lead group.

Every point is formed for 2 trades. The current closed and the new opened ( the most simple trades logic ). All trades are opened/closed at candle close when slope change. This avoid the 'future bar' effect.

We can see 2 studies here. One with all bars in chart ( 1000 H4 bars ) and other only with the area we are interested to use in our EA set up

 

Its clear this Trend settings is profitable. But the most important thing is the profit ratio. We have 67% profit . Its bigger than win ratio ( 56% ).

More interesing is the short range. We have same win/losses but trades in profit overpass clearly the losses ( 82%/18% ). That means loss trades are shorter than winner traders. How traders know, 'you cut losses and let run profits' phrase seem be accomplish fair here.

Its evident we have good base for work. I only need handle the range areas for remove some bad trades. This task will do in the strategy implementation stage when I will be use EA for mix the different groups.


4. Final words

In next chapter I will speak about the different tools I will use for create the auto strategy. See you soon :)


5. Links

If you liked some tools you can take it here
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