I’ve been working on a strategy for breakouts that looks promising in back testing. It works best on pairs that move a lot or pairs that are in a trend. Ranging markets don’t tend to break out properly, so they’re best avoided. The entry rule I used is simple and as follows:
- When the current candle closes above the high of the last 50 candles you buy, when the current candle closes below the low of the last 50 candles you sell. I’ve tested this with selling in an uptrend and vice versa, it still works as you catch retracements too.
Some other things that I think will improve results.
D1 time frame. It’s not a fast action strategy this way. My testing suggests about 20 trades per year on GBPJPY.
I’ve found best results on GBPJPY, it seems to work well for most JPY pairs. I’m sure it’ll work for anything that’s not usually in a range, probably avoid things like USDCHF although I haven’t tested that specific pair.
Follow the rules even if you already have trades open for that pair. You might make buys 3 days in a row if the breakout is strong, ride your winners.
And that’s about it. I’ll show some charts below of the backtest. The data is good and it’s long term trading, so the backtest will be accurate. Additional rules for the back test are:
- Starting balance £10 000
- £5 per pip on every trade
- SL = TP = 1.5% of pair. So at 100 the TP would be 101.5 and SL 98.5, at 200 the TP would be 203 and SL 197
I suppose a fixed lots system doesn’t take advantage of the ability to compound returns, I’ve got a more complex calculation to deal with position sizing that allows the backtest to run but assume some withdrawals as the profit has run.
For that test, you’d have ended with the account balance shown and withdrawn approximately £150k.
Please try this strategy on different time frames and pairs and share your results with me in here. I will try to add this strategy to my trading and post results on here. I may even set my EA loose on a VPS so it enters at the same time as the test would