Wednesday, August 13, 2014

Is Macd Worthwhile For a Strategy?

Watch how I develop a trading strategy using the Macd.

There are so many ways to use the Macd. I want to develop an automated trading system which will be based on the Macd.

I will set up Forex Strategy Builder Pro to generate a system, using the Macd as the 'seed'. The generator in FSB Pro is free to change many aspects of the Macd as it is creating strategies with other indicators or price conditions.

Here is a look at how I started this:









I am using 60 minute data of EURUSD for this purpose, 35 per cent 'out of sample' as I want to be able to see easily what I can expect from this system in future.

As I have been typing this article the generator has been working, done just over 1,800 iterations which resulted in 51 potential strategies.

Here is what the screen looks like now.




You can see that the generator has pulled in other indicators as it seeks better and better results




I want to have a look at the 'Repository', there may already be a strategy of interest appearing in there.





You can see that none of these look too impressive, no System Quality Number, appearing even thogh an excellent Win/Loss ratio and nice Net Balance in the selection shaded blue.



I will restart the generator and set the System Quality bar to ensure that new entries to the repository have a System Quality Number. Actually I have set minimums for each criteria so that some good ones will be what appears from now on.





I have set the values low so as to allow the repository to gather some results that may not be satisfactory but which may show some promising indicator combinations that can be tested on their own to see what they may produce.



It should be noted that the winner of the 2006 Trading Championship used the Macd to win first place. Indeed, the Macd as a starting point for developing an automated trading strategy may turn out to be a good idea.

By setting some parameters for the Repository collection, I have eliminated many generated results, however, it is time to get quality instead of quantity and I will have to be patient until some good results appear.  In the meantime all results are being stored in the 'Collections' so that I can peruse them when convenient.

I have some results now that I will share with you, they may not be the best in terms of a system to use but they are of interest. We can have a look at these two and I will give you quite a bit of information from the program.





You can see that each of these has a System Quality Number which is what I wanted to be sure to have.. The first result, the one shaded in blue is of very poor quality because there are no trades in the Out Of Sample Area.

The second result has an abundance of trades and while the ratios may not be pretty there are some things to learn from examining this result more closely.

I will open this result as a strategy and prepare for further examination.

First we will see which indicators make up the system.



.And then we have some statistics and an equity chart.




And then a breakdown between Long and Short trades that we can examine carefully



You can see that the software has generated a system that takes $100 to some great sum, close to $30,000, however, this may be unsatisfactory based on the poor ratios.

Here is an overview of that trading strategy which is quickly prepared by the software.

Strategy Overview

Strategy name: New Strategy
Forex Strategy Builder Professional RC 1
Date: 13/08/2014 6:53:37 PM

Table of Contents


Description

None.

Logic

Opening (Entry Signal)

Open a new long position at Lower Band of Bollinger Bands* (Smoothed, Typical, 4, 4.77) when the following logic condition is satisfied:
  • MACD* (Simple, Close, Exponential, 47, 18, 20); MACD line falls.
Open a new short position at Upper Band of Bollinger Bands* (Smoothed, Typical, 4, 4.77) when the following logic condition is satisfied:
  • MACD* (Simple, Close, Exponential, 47, 18, 20); MACD line rises.

Closing (Exit Signal)

Close an existing long position at the end of the week.
Close an existing short position at the end of the week.

Handling of Additional Entry Signals**

Entry signal in the direction of the present position:
  • No averaging is allowed. Cancel any additional orders which are in the same direction.
Entry signal in the opposite direction:
  • No modification of the present position is allowed. Cancel any additional orders which are in the opposite direction.

Trading Size

Trade percent of your account.
  • Opening of a new position - 8% of the account equity.

Protection

The strategy does not provide a permanent loss limitation.
The strategy does not use a Take Profit.
--------------
* Use the indicator value from the previous bar for all asterisk-marked indicators!
** The averaging rules apply to the entry signals only. Exit signals close a position. They cannot open, add or reduce one.

Strategy Properties

Handling of Additional Entry Signals

Next same direction signal behavior - Does nothing
Next opposite direction signal behavior - Does nothing

Trading Size

Trade percent of your account. The percentage values show the part of the account equity used to cover the required margin.
Maximum number of open lots - 5
Number of entry lots for a new position - 8% of the account equity

Protection

Stop Loss - None
Take Profit - None
Break Even - None

Indicator Slots

The slots show the logic for the long positions only. Forex Strategy Builder automatically computes the proper logic for the short positions.
Strategy Properties
Same direction signal Nothing
Opposite direction signal Nothing
Stop Loss None
Take Profit None
Break Even None
Bollinger Bands
Enter long at Lower Band
Smoothing method Smoothed
Base price Typical
MA period 4
Multiplier 4.77
Use previous bar value Yes
Signal shift 0
Indicator symbol Default
Indicator period Default
MACD
MACD line falls
Smoothing method Simple
Base price Close
Signal line method Exponential
Slow MA period 47
Fast MA period 18
Signal line period 20
Use previous bar value Yes
Logical group A
Signal shift 0
Signal repeat 0
Indicator symbol Default
Indicator period Default
Week Closing
Exit the market at the end of the week
Base price Close

Statistic Information

Input Parameters Account Statistics
Profile name Default profile Acceptance criteria Fulfilled
Data source name FSB Demo data Net balance 28674.80 USD
Strategy name New Strategy Intrabar scanning Accomplished
Chart EURUSD H1 Ambiguous bars 0
Data bars 30000 Profit per day 16.33 USD
Time of updating 2014-08-13 17:00 Max consecutive loses 4
Time of beginning 2009-10-26 08:00 System quality number 2.10
Spread 3.00 points Sharpe ratio 0.21
Swap long 2.00 points Average HPR 3.35 %
Swap short -2.00 points Profit factor 1.42
Commission 0.00 points Tested bars 29932
Slippage 0.00 points Minimum balance 79.35 USD
Interpolation method Pessimistic Maximum balance 33754.80 USD
Initial Account 100 USD Max balance drawdown 6645.00 USD
Leverage 500 Max equity drawdown 7390.00 USD
Account exchange rate Not used Max equity drawdown 76.61 %
Auto scan Switched on Average profit 1352.60 USD
Trade until Margin Call Switched off Average loss -1273.57 USD
Executed orders 501
Winning trades 143
Losing trades 107
Win/loss ratio 0.57
Time in position 91 %

Additional Statistics

Parameter Long + Short Long Short
Initial account [USD] 100.00 100.00 100.00
Account balance [USD] 28674.80 15320.20 13454.60
Net profit [USD] 28574.80 15220.20 13354.60
Net profit [%] 28574.80 15220.20 13354.60
Gross profit [USD] 96710.64 48799.85 47910.79
Gross loss [USD] -68135.84 -33579.65 -34556.19
Profit factor 1.42 1.45 1.39
Annualized profit [USD] 5953.08 3170.87 2782.21
Annualized profit [%] 5953.08 3170.87 2782.21
Minimum account [USD] 79.35 -1149.80 100.00
Minimum account date 11/12/2009 04/06/2010 26/10/2009
Maximum account 33754.80 17815.20 16944.60
Maximum account date 12/07/2013 25/10/2013 05/07/2013
Absolute drawdown [USD] 20.65 1249.80 0.00
Maximum drawdown [USD] 6645.00 3635.00 5075.00
Maximum drawdown [%] 0.00 32.30 29.95
Maximum drawdown date 26/10/2009 30/12/2011 02/05/2014
Historical bars 30000 30000 30000
Tested bars 29932 29932 29932
Bars with trades 27233 12836 14397
Bars with trades [%] 90.98 42.88 48.10
Number of trades 250 117 133
Winning trades 143 69 74
Losing trades 107 48 59
Win/loss ratio 0.57 0.59 0.56
Maximum profit [USD] 2920.00 2455.00 2920.00
Average profit [USD] 676.30 707.24 647.44
Maximum loss [USD] -2560.00 -2560.00 -1910.00
Average loss [USD] -636.78 -699.58 -585.70
Expected payoff [USD] 114.30 130.09 100.41
Average HPR [%] 3.35 -24.32 5.09
Geometric HPR [%] 2.29 4.39 3.75
Sharpe ratio 0.21 -0.11 0.27


You can see that there are many measurements recorded for evaluation.

The next step  that I will do is to take this result and place it in the generator to see if there can be an improvement in the ratios. Certainly the 'Week Closing' could be improved upon, I will see what the generator can do with it.

As you can see in this pic, the generator is compiling more strategies although it has not found a solution which will be acceptable so far.






As time passes it will keep generating strategies and as long as I let it run it will find more and more and perhaps will develop something that I can trade with.

In this article I wanted to display how a strategy can be generated by FSB Pro and some of the tools in the software for evaluation. There are several more tools that I did not include in this article.

The reader may want to have a look at other articles in the blog about FSB Pro, there is a lot to the program for strategy generation.








No comments:

Post a Comment