Being on the correct side by following the momentum

Hi all,

My new trading strategy is based on bounce from the bottom or pull back from the top price. Until now, I have tested and have been trading this strategy on XAU, Crude Oil, S&P500, Wheat and Coffee. Let me explain you the details of the strategy by examples. Lets start from the XAUUSD. Now Gold is priced at 1275 and the highest point is 1278. Now I put sell stop at 1268(10 points below the recent highest price). This sell stop will be valid if the gold doesnt make any new high. If it continues to rally before my sell stop hits, then I will modify my sell stop price always 10 point lower of the new high. Lets say Gold goes down and my sell stop is hit at 1268. Now my take profit level is 1258 and Stop Loss will be at 1278 at first step. By the price goes down my Stop Loss will be adjusted always 10 points away from the last low price. For ex if the XAU drops until 1260, my TP will be still at 1258 but my SL will be at 1270. Assume that we started the first position by 0.10 lot and my profit will be 100USD if its successful in the first try. Now if XAU bounces from 1260 my stop and reverse point will be at 1270. Since I sold it from 1268 at first, I lost 2 point which is 20% of my potential profit, now i have to increase my lot size by 20% on my reversal. So, I will be long at 1270 by 0.12lot and the new TP will be 1280. This cycle continues as long as XAU makes 20 point move from the bottom or top. According to my backtests from the begginning of March 2016, if you start by 0.05lot, the max drawdown would be 750USD. It means you risk max 750usd for 50usd gain. But this only happened one time, usually you hit the TP averagely in 2 days. Since from beginning of the last week(Monday to Friday) I ve made 250usd(initital lot size was aimed for 30usd gain) and max lot I ve carried was 0.50lot S&P500 for 3 hours on friday. I am not sure if someone can write an EA for this strategy but if it can be, it would be awesome to do backtest on several products in longer time periods.

Thanks for your efforts

But back testing period from March 16 is very short period such strategy you should do back testing for at least one year t o understand DD

Thanks

Hi Masis;

Be careful with any kind of back testing, you do, because no matter how far you go back in time you will be backtesting with a Bias.

In this case your Bias is Bullish what if the next three months produces a Bearish Bias?

Actually the major trend doesnt affect me a lot. In order to test this strategy you should use 30min or 1h chart to identify the low and highs clearly. In the excel sheet attached, you can see the position details. From the beginning of March 2016, there are 20 long and 17 short successful positions. Since the gold moves at least 20 dollars, you can get out of position by profit.

You can trade blindfolded as long as price is moving up and down. Unfortunately, that doesn't last. It might seem like it does because you are looking at really high time frames, but eventually they will collapse, and consolidate flat. Unless you can see that coming, you will give away all your profit in the ensuing whipsaw. Good Luck