Trading system by WATR indicator
Hello, dear readers. In this issue we will consider a trading system offered for free automation by the FXGeneral forum user - droba, which is interesting because it uses only one technical indicator - WATRwhich is a kind of channel.
Rules of the trading system
Let's take a brief look at the rules of the presented trading system. As an example, we use the opening of a buy trade. The sales are opened exactly the opposite.
1. If the bar closed above the top line of the WATR indicator, then at the opening of the next bar we make three buy orders on the market.
2. StopLoss for all orders is set to the level of the opposite line.
3. TakeProfit For the first order, we set the level "bottom line WATR + 1.618 * (distance between the lines of the indicator modulo) or the minimum allowed BC, for the second order - WATR + 2.618 * (distance between the lines of the indicator modulo), for the third, respectively, do not put TakeProfit.
4. At the opening of each bar we modify the StopLoss on the bottom line of the WATR, using the Trailing Stop.
5. If the first purchase closes at TakeProfitIf the indicator is set to the maximum value of the bottom line and the buy opening level, then the StopLoss for all buy positions is set to the maximum value of the bottom line of the indicator and the buy opening level.
6. If the second buy is closed at TakeProfit, we modify StopLoss to the maximum level of TakeProfit of the very first purchase of this series and the bottom line of WATR.
An example of trading system to buy (see Fig. 1), the inputs are shown with a green arrow.
Fig. 1. Signals of the trading system to buy.
An example of working with the trading system on sale (see Fig. 2), the inputs are shown with an arrow in red:
Fig. 2. Trading system signals for sale.
Testing
With the rules seem to be all clear, it is quite problematic to use the strategy manually, so the desire to automate it is quite reasonable. Bottom line, advisor on the system is written, and you can start testing.
First, let's test the MTS on the EURUSD pair, timeframe H1 (see Fig. 3). The risk for a series of three orders is set at 2% of the deposit, the test is carried out for the last 2.5 years.
Fig. 3. Testing the Expert Advisor on the EURUSD pair.
The balance graph is quite satisfactory. Despite significant drawdowns, the Expert Advisor has finished testing with 152% of profit, which is not bad at all for the default settings. Let's see what happens on other pairs.
Let's take GBPUSD next (see Fig. 4), we will use the same settings.
Fig. 4. Testing the Expert Advisor on GBPUSD.
What do we see? A profit of 300% for the first year and a half, and a smooth decrease in the balance for the following year, as a result the final balance was approximately equal to the initial one.
Let's carry out a test on AUDUSD (see Fig. 5), maybe carry trade pairs will be more suitable for such a strategy.
Fig. 5. Testing of the Expert Advisor on the AUDUSD pair.
Well, let's say, neither here nor there. The test ended with +109% profit, but the balance chart has very strong troughs and the maximum drawdown was 51%. Let's try a pair with the New Zealand dollar, maybe another commodity will be more successful (see Fig. 6).
Fig. 6. Testing the Expert Advisor on the NZDUSD pair.
График баланса выглядит примерно также как и в тестировании с AUDUSD. Однако прибыль за 2,5 года составила всего +78%, а максимальная просадка упала совсем немного — 46%.
Optimizing a trading Expert Advisor
The only parameter used in the Expert Advisor is the risk per series of trades. Accordingly, with its help, we will try to smooth the balance curve of the tested symbol. Since the most attractive result was obtained at EURUSD, we will use it to perform optimization for the last two years.
The risk of 0.5% turned out to be the most optimal in terms of profit/loss ratio. The chart in Figure 7 shows forward test over the last nine months. In our opinion, the expert is quite noteworthy.
Fig. 7. Optimized results of the Expert Advisor.
Conclusion
The system has proven itself in a good way. This is a vivid example of a breakout trend system, where a few trades bring the biggest profit. Despite the fact that the trading system is already automated, there are some points, which will probably allow to increase profitability and reduce drawdowns. In particular the risk/profit ratio for open positions, use of trend supplements, optimization of ratios for calculating TakeProfit levels and number of lots for each trade in a series.