FXiGoR DYNAMIC Breakout system on Daily Average Range

iGoR 2006.09.28 21:14

Hi everyone,

I have a topic on the TSR method (Trend Slope Retracement) somewhere else on this forum.

In that method I develloped a daily range indicator (Ogeima did the programming for the indicator).

This indicator is not to be mistaken with an ATR indicator (Average True Range).

I use this indicator to help us in our money management. We only want to take trades were know that we have a potential reward/risk ratio of 3.

But this indicator brought me on an idea. So this system is still just an idea. And those of you who are into breakout systems can maybe help in develloping to make it as robust as possible.

So don't ask me for results nore how long that I use this system. The only thing that I can say is that I looked over a lott of historical data and it lookes like it has great potential.

Ok first how does this indicator work?: the indicator calculates the previous daily range. It takes the High minus the Low (Yesterday High - Yesterday Low). Then it does the very same for the last 5 previous days. It does that for each seperate day and then makes an average of those 5 days. Then it does the same for the last 10 previous days. And as last it does the same for the last 20 previous days. Of those 4 results it makes a new average. It calculates the averages as a exponential moving average would do.

Now the rules as how I see them. But the help and experience of those who have experience with breakout systems is welcome. So if some of you have better ideas ...go ahead...

I see it like this: Lets say that pair X has an average value of 100pips (remember that this value can and will change every day). So at the opening of the new day we know that in AVERAGE there is a 50pips move waiting at the down side of that opening price and a 50pips move waiting at the up side of the openings price. That is the perfect AVERAGE day. So we place a limit buy at 50 pips above the openings price and a limit sell at 50pips bellow the openings price. When the first one is hit the other order gets deleeted.

Lets say that price gets up. When it raises 50 pips above the openings price we get in a long position. If it's an AVERAGE UP day price will go further up for 50 more pips. That would the profit.

The same for an AVERAGE DOWN day. But as we know its not gonna be that easy every day.

Lets say that we hit that buy level but that price then falls back down. Or that price went in some profit and then starts to race back to the openings price. The way I see it is that once the first positon is taken we constantly trail it or have a stoploss of 1/2 of the daily range.

If the trailingstop or the stoploss is hit we turn our postion that moment. We do that only once. The worst case scenario is: price goes up and hits the 50pips level were we go long. At that very same moment price falls back to the level of the opening price so the stoploss get triggered plus we go short on that moment (we reverse from long to short with 1 order). Emmidiatly after we went short price goes back up for 50 pips so again our stoploss gets hit. This is the finall for that day. Result 100pips loss.

Next example: Lets say That price goes up and hits the 50pip level. We go long. Price moves up an other 50pip (at that moment it hits the compleet daily range on the upside). At that moment price starts to fall down again. We trail this position with 50pips (1/2 the daily range). So if it fals back to the 50pip level we reverse from long to short. On that long position we have 0 profit.

If price now contious back down to the opening level we have 50 pips profit. In the worst case that it contious back up we have on this postion an other 50 pip stoploss. If that would happen we have also here 100pips loss that day.

I'm not gonna say that those 2 worst scenarios (heavy reversall days) will never happen but they are less lickely to happen then more or less normall days.

A rule that I still think about is the following: as we know that the everage range is 100pips on pair X then that means that there are 50pips above opening price and 50 pips bellow. Or 30pips to the upside and 70 pips to the downside. Or 20 pips to the down side and 80 pips to the upside etc etc (on an AVERAGE DAY). So I think that we should do the following:Lets say that after the opening price goes up with 30 pips and then starts to fall back down. On an average day its gonna go down for an other 70pips bellow the opening price. Here I think we should trail the top it made. So if price falls back down with 50 pips from the top it made (without hitting the buy order) we take our sell order (that is 20 pips bellow the opening price). If price contious further down as on on AVERAGE day its gonna go down for 50 more pips. So profit here would be 50pips.

But lets look to this case again on a bad day full of reversalls. Price goes up 30 pips. It reversalls and goes back down. We taril out op it made with 50 pips. It drops to indeed 50 pips down that is 20 pips bellow the opening price. We go short. The moment we go short price reversalls again and goes back up and above the opening price. Then we know that there is on AVERAGE 80 pips above the opening price. We have a stoploss of 50 pips. It hits that stop (that is on the previous top it made. There we reverse our positions from short to long (50 pips loss on the short trade). Price goes further up 50 on an average day so we would have a 50 pip profit on the long positon and a 50 pips loss on the short positon that makes the day break even.

But we are not going to take profit after 50 pips. We let our positions run.

I wrote every time the word average in capital letters. Because that is important. The statistician said: this river has an AVERAGE depth of 60cm (2 feet) while he drawned. Meaning that in our setup there will be many days that levels will not be hit. Or that they will be hit and then reverse but we will get away with a small loss. Or they will be hit but we will get only a small profit. But if you look to a daily chart there are plenty of days were the range is nearly 2 x times the average day range.

If we look to today on gbp/usd the average range is 109pips (shown by the indicator). After opening price (1.8890) went up with 25 pips (to 1.8915). After that it came back down. So whatever top it makes we trail it with 1/2 of the daily range (55pips). Price fell under the openings price and contioud further down. So at 1.8860 we sell (1.8915 -55 = 1.88.60). Price kept on falling further down without ever looking back.

Now I sujest that positons would be closed at 18.00cet whatever the profit or loss is at that moment. Today it would be at 1.8751. Profit for today +109pips on cable.

I sujest to take the 3 majors to trade this system or pairs that show on a daily chart smooth price action and or trend.

As I said, every bit of help or positive contributions are more then welcome...

regards...iGoR

RUN WITH THE BULLS AND HUNT WITH BEARS....

Files:

dynamic_breakout_daily_range_v10.mq4 4 kb

iGoR 2006.09.28 21:34 #1

results for 28/09/2006

GBP/USD = + 109pips

EUR/USD = - 4pips

USD/CHF = + 11pips

_________

Total = + 117pips

aelimian 2006.09.29 15:41 #2

iGoR:
Hi everyone,