Poseidon is an offspring of famous Donchian Channel and Turtle Trading Strategies. It is a trend following strategy aiming to capture a trend and not letting it go until trend fades. Simple enough?
In this article, I will define the Poseidon with entry and exit rules. After defining the strategy, I will be testing the Poseidon in EURUSD, USDCAD, AUDUSD and GBPUSD pairs without any money management.
The profits may seem low for 7 year period, however in my next article I will be demonstrating how money management can be used to boost profits and how I use money management to optimize strategies.
Furthermore, if I got enough feedback I will be revealing my Metatrader Code of Poseidon in the third article.
1. DEFINING TOOLS OF POSEDION
20 days’ Average True Range (hereinafter “ATR&rdquo value, 55 days’ highest high and 55 days’ lowest low are the only three information we will use to setup this strategy.
The motto of the strategy is to buy high to sell higher, sell low to buy lower.
1.A. RULES OF ENTRY*
-BUY if Price breaks above 55 days’ highest high. We will buy when the Price gets one tick higher than the 55 days’ highest high.
-SELL if Price gets below 55 days’ lowest low. We will sell when the Price gets one tick lower than the 55 days’ lowest low.
*I use daily pending orders which are opened and closed at the end of the day. (10 GMT)
1.B. RULES OF EXIT
i) Exit without profit
- Stop Loss uses 0.5* ATR distance.
This is the entry stop loss. If it is hit, we will wait another day to enter a new pending order. The new pending order will use latest highest high or lowest low.
ii) Exit with profit
- Trailing Stop uses 1.5* ATR distance.
Since this is a trend following system, I do not place any take profit target and letting the momentum ride as far as it can.
*These multipliers can be optimized and later I will demonstrate my way of Poseidon Money Management and Optimization in a separate article.
Here is a recent example from EURJPY. Blue line is the line of 55 days’ highest high. In other words, blue line is the highest price in 55 day period. Red line is the lowest price in 55 days’ time.
Where I inserted thumbs are the places where the prices broke the 55 days’ highest high and the BUY entry signal is given.
The first two buy signals are false signals; about 50 pips were lost in each transaction. Our stop loss stopped the transaction when the price reversed transaction for 0.5 ATR value.
The third signal is a success. The price rallied about 104.480 to 126.400 and due to our trailing stop we got stopped around 123. Profit is 1.850 pips
The percentage of success in this strategy is low. However, when a transaction is successful, it compensates for all losses.
2. TEST RESULTS
In my testing, I use Metatrader 4 with additional patch to use raw Dukascopy tick data. I conductied my tests on AUDUSD, GBPUSD, EURUSD and USDCAD not because these are most profitable pairs, but because these are the only pairs that I concluded my tests on with my limited computer power. On the other hand, strategy is not working on NZDUSD pair due its random spikes. Here are the test results;
The testing does not include money management, every transaction is executed with 1 standard lot.
As I proved above, Poseidon is a simple, profitable trend following strategy. Since Poseidon tries to catch big moves occurs once or a twice year, it is percentage of winning is low. However, once it catches the move, it covers all the losses and leaves additional profits.
Next article will be about Money Management and Optimization of Poseidon. I believe money management is the philosopher‘s stone which turns simple edge giving strategies to gold. Also if there is demand, I am planning to reveal my Metatrader 4 Code of Poseidon in a separate article.