Full Decay" trading strategy

In the 15th issue of the ForTrader.org traders' magazine, we will take a look at the "Full Fade" trading strategy, which is effective, as its authors claim, for both short-term and long-term periods. The strategy is based on working on Bollinger Bands and using the Relative Strength Indicator (RSI) as a signal filter.

Trading strategy algorithm

So, to work on the strategy we will need 3 copies of the Bollinger channels indicator with a period of 20 and deviations 1, 2 and 3, as well as the RSI indicator with a period of 14. To work, we will take hourly chart of the currency pair EURUSD.

Searching for a buy signal

1. the Relative Strength Index(RSI) should be below 30;

2. The price should reach the lowest Bollinger Bands;

3. Wait for the candle on the hourly chart to move above the second lower Bollinger Band;

4. As soon as the first candle closes above the second line it is necessary to buy;

5. A stop order is placed 10 pips below the last local low;

6. The first target for half of the position is equal to the size of the stop order, when reached, it is necessary to move the stop to the breakeven point;

7. The second target is the level of the second upper Bollinger band.

Searching for a sell signal

1. RSI must be greater than 70;

2. The price should reach the upper Bollinger Band;

3. Wait for the candlestick on the hourly chart to move from the upper line down behind the second line;

4. As soon as the first candle closes below the second line, sell at the market;

5. A stop order is placed 10 pips above the last local high;

6. The first target for half of the position is equal to the size of the stop order, when reached, the stop should be moved to breakeven point;

7. Вторая цель — уровень второй нижней полосы.

Testing the strategy

Having tested the above rules, we obtained the following following results:

Testing of the system was conducted with a constant transaction volume of 1 lot.

The results show that trading according to the standard parameters of the strategy is unprofitable. Let's try to choose the most optimal parameters in the period from 2007.01.11 to 2008.01.11 and then check them in the future period up to June 2008.

Strategy optimization

Having tested various combinations, we failed to get positive results for the future period, so we settled on the most optimized parameter:

Let's see what kind of results optimized strategy.

As we can see, positive result, за этот период прибыль составила — $5059. Проверим теперь, как данные параметры работают на будущем периоде с 08.01.11 по настоящее время.

Not an attractive prospect at all. Testing has shown that the standard parameters, as well as the prooptimized ones, do not produce positive results with this strategy - what the authors promise.

Bottom line

We do not recommend to work on this strategy with classical rulesThe entries are too late and often directed against the formed trends. Entries are too late and are often directed against the formed trends, because of which stop orders are often triggered.

ForTrader.org's verdict: strategy needs more research and refinement.