Trading strategy for MA, stochastic and fractals
In this issue we will look at trading strategy to work on based on fractals, suggested by the forum trader Iho de Puta. The author did not describe how successful this tactic is in manual trading. However, the fact that it uses popular among traders Moving Averages indicators, Stochastic and Fractals, has aroused interest. Let's see how successful this trading strategy is.
Rules of work according to the trading strategy
Used indicators (standard for MetaTrader4 terminal):
Simple Moving Averages (8, 16, 32);
Slow Stochastic (32, 16, 8);
3. Fractals / Fractals.
Currency pairsRecommended by the author for work: EUR/USD, USD/CHF, GBP/USD, USD/JPY.
The rules for opening a buy deal:
1. Stochastic indicator dropped below the level of 20;
2. The moving averages are close to each other;
Find the closest fractal to the current bar, which is directed towards the buy signal;
4. The peak of the fractal must necessarily be outside the MA(16);
5. The trend is upward. The direction is determined as follows: on a larger time frame (if we work on an hourly scale, we look at the four-hour time frame) set MA(32). If the price is higher than this MA32, then the trend is upward;
6. Two points above the price level of the fractal, serves as a point at which a buy order is set;
7. If price continues to fall and our order is not triggered, we move the order to the next fractal level.
Fig. 1. Buy signal processing.
Rules for opening a deal to sell:
1. Stochastic indicator rose above the 80 level;
2. Moving averages with periods of 8 and 16 are close to each other;
Find the closest fractal to the current bar, which is directed towards the sell signal;
4. The peak of the fractal must necessarily be outside the MA(16);
5. The trend is descending. The direction is determined as follows: we find MA(32) on a larger time scale. If the price is lower than MA(32), we fix downtrend;
6. Two points below the price level of the fractal serves as a point at which a sell order is set.
7. If price continues to rise and our order is not triggered, we move the trade to the next fractal level.
Fig. 2. Working out of the signal to sell.
Setting a StopLoss protective order:
1. Find fractalThe price level of this fractal will be the level outside of which we will put the fractal 2 points higher/lower. The price level of the peak of this fractal will be the level, outside of which 2 points above/below we put StopLoss. At the same time it should not be more than 150 points.
2. After the first losing trade we stop trading. We enter the market again only after the first profitable trade, thus we miss one profitable trade, but at the same time we bypass a series of unprofitable trades.
Exit a buy deal:
Exit from the market is carried out when at least one of the following conditions appears:
1. Stochastic indicator rose above the 80 level;
2. The parameter of the Close bar was below the MA(16);
3. The MA(8) and MA(16) crossed or touched;
4. StopLoss is triggered.
Out of Sale:
Exit from the market is carried out when at least one of the following conditions appears:
1. Stochastic indicator dropped below the level of 20;
2. The parameter of the bar Close turned out to be higher than MA(16);
3. The MA(16) and MA(8) crossed or touched;
4. StopLoss is triggered.
Testing a trading strategy
So, the rules of the trading strategy have been announced, it's time to test them in practice. We will test the author's algorithm on the EURUSD currency pair, as it is included in the list of recommended ones. The time period will be H1. Testing has been conducted since 2009. Let's see what we get.
Fig. 3. Testing of the trading advisor by fractals. Download the report
And it turned out quite well. Even though it is uneven, but a growing balance graph is a great rarity for the strategies we study. This gives reason to hope that the results will improve after optimization. We have also analyzed the results and found that the most effective ways of closing trades are the 3 and 4, i.e. by moving averages crossover and by stop order. Therefore, in the course of optimization we will use only them.
Optimizing a trading Expert Advisor
Working on something that is already good in itself is always a pleasure. The expectation of getting great results makes the process optimization even more fascinating. So let's get right to the point and show you what we've got. Optimizing trade expert was also held on the EURUSD hourly chart from 01.01.2006 to 01.01.2009. A forward test until mid-November should confirm the effectiveness of the parameters found.
Fig. 4. Testing of the Expert Advisor after optimization.
Чутье нас не подвело – результаты отличные. Депозит в 500$ за 4 года увеличился 760% — очень солидно. Уверены, дальнейшая разработка тактики покажет еще более высокие результаты.
Conclusion
To summarize, from the very beginning strategy was trustworthy, the run of the author's rules confirmed the positive aspects of the Expert Advisor. Besides, the optimization process makes it quite easy to find the parameters working for the future period, which means that the strategy itself is self-sufficient. We recommend you to pay attention to this strategy as only parameters of indicators and closing methods were optimized during the research. At full optimizationWe hope to see your research in the Trader's Forum, as well as testing on other recommended currency pairs, you can probably find even more effective sets of parameters. We hope to see your research on the traders forum.
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