Meta-Trader - FX-Regression 2012 - Part 2

Welcome back Meta-Traders.

This is the second in my 2 part post about my own Expert Advisor called FX-Regression.

We left off on yesterday’s post with a healthy degree of skepticism about this system. I made several attempts to improve the system, and let’s go through them here.

My first attempt (v1.2) was to increase the “Entry Window.” In the original system, the Expert would enter new positions only within the first hour of the daily close. For example, if the system took a profitable trade by 12:30 (one half hour after the close), the system would submit another set of limit orders. But if the system took closed a trade (win or loss) any time after 1PM, there would be no more trades that day.

I tried increasing the entry window up to as high as 8 hours. What happened is that profit increased, but so did drawdown. The system would take a winning trade or 2, then go into drawdown on the 3rd attempt, and wipe out profits from the other 2 trades.

So this improvement increased profit, but also increased draw down proportionally. So the improvement did not lead to a meaningful improvement it the systems edge. That was FX-Regression v1.2.

Next in v1.3, I tried adding a trend filter. It is clear that a trending market is the enemy of this system which benefits from back-and-forth trend less movement. We also know that with the EUR/USD instance, the system performed better when after a losing trade, we would take the rest of the week off. So there’s evidence that skipping trades can be a good thing. I tried logic that if the close was below last week’s low, or above last week’s high, avoid trading. That had some very positive effects on results particularly USD/CHF and USD/CAD. I eventually took out this improvement.

Next in v1.4, I modified the system such that the TP and SL values would be based on a percent of the daily ATR. After back testing, I found a sweet spot in the optimization with TP at 10% of the daily ATR, and SL at 40% of the ATR. After some investigation, I found that in many cases, the TP value of 10% of the ATR was less than 10 pips which made the problems with back testing simulations even worse or less reliable. Clearly systems with larger take profits (larger than 20 pips) are required to get any degree of reliability from the simulations.

After that, I completed another round of simulations using a 2x1 SL to TP ratio with higher percentage ATR values, 50x25 and 100x50 percent of the ATR. Except this time I used European based pairs EUR/GBP, GBP/CHF and EUR/CHF. Results at 100x50 were profitable, but profit was marginal and drawdown was high. Results at 50x25 were exponentially better, but clearly unrealistic due to issues with the backtester.

So my conclusion is that the system cannot be simulated with great enough accuracy to consider developing it further without a different set of logic. So clearly the system needs a major re-work in logic before it can be taken to the next level. This story didn't end with success, and its back to the drawing board.

I'm going to continue to trade it until I can find a better system or a better set of logic. I'm also going to monitor the system in demo mode on the new pairs EUR/GBP, GBP/CHF and EUR/CHF.

Have a great week.