Build A Waves Surfing Strategy ( Auto Trading ) - Chapter 4

Build A Waves Surfing Strategy ( Auto Trading ) - Chapter 4

20 May 2016, 11:09
Juan Fernandez

1. Introduction

In last chapter we started the strategy. We place one instance of profitable Trend and we added SnR for help to filter range moments. Even the first results over the chart looked good, we saw some possible problems in range areas. In this chapter we will analyze how use our tools for can filter those bad moments avoiding fix rules or adding a lot of extra indicators doing the mix so complex.

Our first task will be come back to our origins and check how is working our lead indicator. This will help us to understand if we will need extra filters or Trend indicator is enough for build strategy accomplishing our first rules. Build strategy simplest we can.

2. Range problem

We will analyze one example of range market destroying EA. Normally range areas produce many bad entries. Depending EA settings that losses can be small or big. In our case exit strategy avoid have big losses per entry but dont remove global DD in those range moments.

How we can see in the logs, the Trend settings are profitable in long term. But even this is good, win ratio/profit ratio show us the problem. We want know if that range moments making losses can affect in our balance even blowing the account.

In first capture we have a hard range area. This area is making many false entries doing small losses. Even Trend filter very well the opposite price movements, the low volatility affects negatively to Trend signals ( slope change color ). And those small losses combined make a 5 days area with big loss ( 20% win, -123 pips )

When we compare win ratio against profit ratio we see the problem. Much entries with small losses

This area dont looks good. This create us some serious DD 

We need check others MA types for see if we can resolve this problem without help of other tools.

3. Trend approach 

The main goal we want is have the best realiable strategy using the most simple approach. The most simple we can get is use only one indicator. Then before search that realiablity mixing it with others indicators we will try see if we can have good filter in range markets without loss profits in trend moments.

For default we are using AMA with period 16. We will check other 2 types of MA without change other parameters. DSEMA and TMA can be good options. First give you better response than default MA, while second give you smoother MA filtering better range moments.

AMA performance for 1000 H1 bars was 1000 pips. We will see if we improve range losses without loss profits. This will be our reference in next tests.



How we can see in the capture, DSEMA is more sensitive to price changes. We think will work better in range moments but will be sure have fake moments in consolidation areas before price swings because those moments do enough movement in both directions for lie MA showing fake trend begins.


First surprise. DSEMA dont improve win ratio. We continue suffering much small losses ( 53% bad trades / 25% losses  in profit )


The real life showed us how theory demostrate our knowlegde is wrong normally. Not only we didnt improve the win/profit ratio. Even we worst it. But the big surpise arrive whe we analyze our range test area. The improvement is awesome. We converted -122 pips in 80 pips. And losses are very short trades. Its evident this improvement is lost in other part. The conclusion is our "fast" version of MA dont give advantages and creates doubts about DD in hard moments due to negative win ratio.



4. TMA

Its time to check our "soft" MA. The theory say will have less trades in range moments but we will catch that big trend moments losing some pips in entry/exit. How we want reduce DD exposure then maybe its good idea sacrifice some profits to get better DD. But maybe we get other surprise again.


Im sure nobody through this result. "Soft" version is not working as expected.

Two surprises are better than one. Range moments improved comparing with default MA but...we still suffer losses

This test dont let doubts about Trend how only indicator in our strategy. We will need add SnR for help it in auto trading

5. Final words

In this chapter we decomposed our first strategy build for check the weak areas better. We get some surprises about how is working lead indicator ( our strategy base ) in range moments. In next chapter we will try analyze the problem using the second tool we added in last chapter. We will get real information about if improvement showed at first look was real or only an illusion.

6. Links

If you liked some tools you can take it here
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