Introduction

The strategy contest to me has been one of the most challenging contest for me in the Dukascopy community because i have traded manually for the past couple of years. Though I have been a member of the Dukascopy Community for over a year now, my first month of participation was December 2014.

Monthly Analysis

I have been attempting to build a winning scalping strategy based on the EURUSD because of its high liquidity, huge market depth and low spreads. However it has not always been rosy as evidenced in the Fig1 below

Fig 1: Monthly performance on the strategy contest

From the chats in Fig 1, the following points can be noted from the performance:
  • The returns for the first three months of participation were negative whilst the March strategy, Talia13 had a positive return.
  • The January strategy resulted in the most number of positive trades at 90% of 51 trades entered
  • The number of positive trades has always been above 70% in all the months. This means that the risk reward ratios in the first three months has been adverse, with the few negative trades wiping all the profits.
  • The Strategy in February resulted in the most number of trades and the worst loss, whilst the strategy in March 2015 had the least number of trades and the greatest profit.

March Strategy - Talia13

In this article, I would like to share the March 2015 strategy.

Strategy Concept

  • Currency Pair
The currency pair used in the strategy is the EURUSD. The choice for the currency pair has already been explained in the earlier parts of the article.

  • Time Frame
The strategy uses the 4-Hour time frame. This means that in a day there are 6 chances of the strategy entering into a trade.

  • Indicators
The strategy makes use of four indicators, namely the EMA, SMA, MACD and Stochastic Oscillator.

MACD


The MACD turns two trend-following indicators, moving averages into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The MACD has the advantage of offering both trend following and momentum.

SMA


A Simple Moving Average is formed by computing the average price over a specific number of periods, calculated by adding the closing price for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.

EMA

The EMA is similar to a simple moving average, except that more weight is given to the latest data. This indicator counters the lagging weakness of the SMA indicator by weighting more recent prices more heavily.

Stochastic Oscillator

A technical momentum indicator that compares a security's closing price to its price range over a given time period. The oscillator's sensitivity to market movements can be reduced by adjusting the time period or by taking a moving average of the result.
This indicator is used to identify possible points of oversold and overbought positions in a trending market. Buying in overbought markets may result in more losses and selling in oversold markets may result in losses if there is a market correction.

  • Trade Size
The size of the trade is 5 million.

  • Take profit and stop Loss
Take profit levels is at 15 pips while the stop loss order is placed 30 pips away. No slippage will be allowed on the order.

Strategy Creation on Jforex

Fig 2: Candle Instrument and period.

  • Currency Pair
Use the logical IF component and link it to the onCandle startpoint
In the first parameter, Use Candle Instrument
In the second parameter, Use Default instrument. The default instrument is set at EURUSD. This can be changed to any other currency pair of the trader’s choice.

  • Time frame
If the candle instrument is equal to the default instrument then link it to a second logical IF component as shown in Fig 2.
In the first parameter, Use Candle Period
In the second parameter, Use Default Period. The default instrument is set at 4-hours.

  • Indicators:
MACD

If the condition is met, then link it to the MACD indicator as shown in Fig 3 below.

Fig 3: MACD indicator

The inputs to the MACD indicator are as follows
Instrument = Default Instrument (EURUSD)
Period = Default period (4-Hour)
Shift = 0
Fast period = 12
Slow period = 26
Signal Period = 9

The output values will be the:
MACD, MACD Signal and MACD Hist. The trader can rename the results in a manner that will make it easier to understand.
In the settings, the offer side is bid and applied price the closing price.
Then link the MACD to a logical if indicator.
The first parameter will be the output result of the MACD
The second parameter will the result of the MACD Signal
The BUY signal path will be triggered when MACD Signal is less than the MACD
The SELL signal path will be triggered when the MACD Signal is greater than the MACD

EMA and SMA

Fig 4: EMA and SMA

After the path has been chosen, then link it to the EMA indicators. For simplicity sake this article will only follow the buy path.
When MACD signal is greater than MACD then link it to the EMA indicator as shown in Fig 4 above: the inputs to the EMA indicator will be as follows:
Shift = 0
Time period = 5
The output value will be the EMA line that is named EMA_Buy in Fig 4.
Link the EMA to the SMA indicator
The inputs to the SMA indicator will be as follows:
Shift = 0
Time period = 20

The output value will be SMA line that is labelled Line31 in fig 4.
Then link the SMA indicator with a logical IF component.
The first parameter will the EMA_Buy
The Second parameter is the line31
The BUY strategy will be when the EMA_Buy is greater than Line31
For the SELL strategy will be when the SMA line is greater than the EMA line

  • Candle close
Fig 5: Candle close

As in Fig 5, link to a Logical IF component.
The first parameter will be the Candle close and
The Second parameter the SMA line (line31 in Fig 4 and Fig 5)
For the BUY path, continue if the Candle close greater than the SMA line
For the SELL path, continue if the Candle close less than the SMA line

  • Stochastic Oscillator indicator
Fig 6: Stoch indicator

The stochastic oscillator indicator will have the following input variables:
Shift = 0
Fast %K period = 5
Slow %K period = 3
Slow %K MA Type = SMA
Slow %D period = 3
Slow %D MA type = SMA

The Output values will be the Slow %K and Slow %D .
The STOCH indicator is then linked to the IF component whose first Parameter is the slow%D line and the second parameter is a variable created named overbought whose value is 70.
In the SELL, path the input parameters will be the same, but will create a parameter, labelled oversold whose value will be 30.

  • Trade
On the BUY path if the Slow %D line is less than 70 then proceed to open at market as shown in Fig 7 below.

Fig 7: Open at market

The Inputs to the Open at market will be as follows:
Lot Amount = 5
Slippage = 0
Stop Loss = 30
Take profit = 15

The SELL strategy will proceed if the slow %D is greater than 30. The other parameters on the open at market trading component will be the same.

April Strategy

The April 2015 strategy, named Eliana13 is a slight modification of Talia 13. The basis of this in that there in no need to change a winning strategy, rather perfect it to make it more potent. The slight modification made to the strategy are as follows.
  • On the stochastic oscillator index, the Overbought has been reduced to 65 whilst the oversold has been increased to 35. The effect of this is that it will reduce the number of trades entered.
  • The Lot amount has been increased to 10
  • The slippage increased from 0 to 10. This means that the probability of getting a 100% fill on the 10 mil trade size has increased.
Keeping modification will help me assess the consistency of the strategy as an effective strategy should deliver positive results always.

Conclusion

The foundation has been laid and looks solid. At the moment I’m happy with the progress made to date. My objective will be to perfect the strategy to an extent of registering profits on a monthly basis for at least 3 months. Then I will take the strategy to the live accounts.

I hope this simple story has inspired a lot of traders. You have the destiny in your hands and anything is possible. If we remain focused we can achieve great and mighty things.

Happy trading everyone.
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