Trade strategy on volatility compression

In the fifth issue of ForTrader.org we will look at a very simple trading strategy that can serve as a basis for developing what we think is a good profitable system.

The system is based on compression volatility. The entry signal is formed when the market forms the smallest candle in a certain number of bars.

Rules of formation of a signal to enter a position

– При образовании очередной свечи просчитываются последние 8 баров, начиная с предпоследнего, и находится минимальное значение.

– Если первый бар по размеру принимает значение меньше минимального, то устанавливаются:

• order to buy at the maximum value of the candle + 1 point;
• order to sell at the minimum value of the bar -1 point.

На рисунке 1 минимальное значение за 8 баров – 8 пунктов.

– При появлении бара минимальное значение требует перерасчета: если первый бар становится меньше минимального значения, это означает сжатие волатильности, и мы выставляем ордер на покупку по High+1 и ордер на продажу по Low-1.

The important point is that pending pending orders are not deleted. In this case if, say, the order on sale remained not triggered, it remains, and before its triggering the installation of orders only on purchase is made. The same rule is valid for sale in case when the order on purchase does not trigger.

Testing the strategy

We have been testing the strategy since 2007.06.01. The last sell order was set at the level of 1.3208, after which it remained there, and the system continued to work only on buying. And as we can see in Figure 2, it did it correctly. Note how the strategy bypasses the deep correction areas from 2007.11.28 to 2008.02.01.

The external parameters of the system are the levels of StopLoss and TakeProfit. The system selects the entry point adaptively depending on the current volatility.

Optimizing your trading strategy

We have optimized the StopLoss and TakeProfit parameters for the period 2007.06.01 to 2008.01.01 and got the following result.

Checking the strategy for future periods

Для EURUSD H1 наилучшими параметры для стратегии стали уровень TakeProfit -70 пунктов и StopLoss – 65 пунктов. Проверим, как эти параметру будут работать на будущем в период с 2007.06.01 по настоящее время.

Results

In general, as can be seen from the results, the system is worthy of attention. The advantages of the tactic are are a small number of optimizable parameters, adaptability to the current market movement, filtering transactions to buy or sell through the effect of "order freeze".