Daybreak revisited

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41

Hi, interesting thread. I must confess upfront that I haven’t fully read and digested the system so I apologise up front.

My question is regarding performance. In the The three month pdf you have created, I am guessing that the p/l column is in pips?

If that is the case then is there any chance you can indicate what the SL (in pips) was for each trade. As you can appreciate r:r is the key to success in FX and as such should be shown on any set of results.

Not meaning to be pedantic, I trade a similar system with an average ROI of 10% per month so I was just curious as to the ‘true’ performance of this system.

Other parameters to consider when posting performance results.

Max DD (Draw Down) This is very important especially if you are simultaneous trades across different pairs. The best way to last any results is not in pips but as a percentage of the main account.

Average Strike Rate - good to know how many bad trades it should take before hitting a good one.

42

Erinsunc, thanks for the post. This is from Page 1, Post 1:
“According to Daybreak, the original recommended portfolio was GBP/JPY, EUR/USD, AUD/USD, and USD/JPY. Stop losses suggested were (200), (150), (125), and (100), respectively. At some point, I got disappointed with the performance of EUR/USD and USD/JPY and suggested dropping them from the portfolio and adding EUR/JPY with a stop loss of (200).”
The three months you looked at in pdf would have been for gbp/jpy, so would have had an “emergency” stop loss of 200. The original idea of Daybreak was based on the observation that breakouts of prior day extremes often ended up to be in our favor if we held until the close. The notion, then, was to take the breakout and hold on until close, stopping out only with a severe reversal of fortune. A good example of this gross, broad-brush approach would be this past Tuesday, the 11[SUP]th[/SUP], when eur/jpy broke out long at 139.64. It then proceeded to drop to a low of 139.26, which would have necessitated a stop-loss of at least 40 to hold the trade before it closed at 139.80 for a modest profit. Gbp/jpy did something similar next day on the 12[SUP]th[/SUP]. Breaking long at 169.07, it then retraced to 168.77 before ending the day at 170.16.

Can these arbitrary emergency stops be improved on? Can effective trade management enhance results? Are there entry filters that would be effective? Should we consider a tp instead of just going to close? Answers await us. In fact, I have recently introduced some new parameters that may improve the approach significantly. Take a look at Post #10.
I don’t think we can apply any kind of statistical analysis to what little we have to work with at this point. The spreadsheet studies are faulted because of their inherent limitations and the sample size of what I have been able to do by hand is way too small and error-prone. I have some other thoughts about stat analysis that I will share here later, but for now I suggest we approach this as a work in progress with promising preliminary outcomes. I often work in successive approximations, approaching an idea from an initial impression that it might work and progressing through demo and into live trading.
Just to give you a heads up, I have a heavy background in stat analysis, formerly as applied to human behavior since my degrees are in psychology. But, enough to have serious doubts about the validity of virtually any analysis applied to trading, especially over longer time periods. I’ve been wrong sometimes…

43

pipwolf, thanks for getting so soon to my query regarding the performance of the system.

I do disagree with you about there not being enough data in the 3 month pdf to support analysis. If I understand correctly the following is correct.

  1. For each trade we know the P/L of pips
  2. The ‘emergency’ SL for each trade is 200 pips

That’s all we need and I’ll explain why.

For every trade you take in FX you MUST consider the risk. It’s well documented that this should be no more than 2% of your account. Well to make things easier for analysis I would say each trace should be no more than 1% of your account.

You say that the SL is for an emergency but either way, this SL is the maximum amount you are prepared to risk in the trade. You have set it to 200 pips, ok it’s clear now that 200 pips represents 1% of your account as we will not risk any more than 1%.

So let’s translate this to dollars. If we have an imaginary account with $10,000, then 1% of this is $100.

So for each trade we risk $100. We can now calculate how much a pip we should trade as we have a 200 pip SL.

Price per pip calculation : $100/200 pips = $0.50 per pip. 50 cents.

It has took me a while but I have taken your performance results (3 month pdf) and analysed each trade. The attached pdf is MY analysis turning the pip in actual dollars and percentages.

Summarizing, this is what I found.

Jan 2014
Final Percentage Return At Month End : 2.98 % up

Final Month Balance based on $100 per trade : $ 297.50 Profit

Maximum Draw Down of Running Monthly Balance : 38%

August 2013
Final Percentage Return At Month End : % 1.07 Down

Final Month Balance based on $100 per trade : $ 106.50 Loss

Maximum Draw Down of Running Monthly Balance : Account never went into positive territory.

September 2013
Final Percentage Return At Month End : % 1.14 Up

Final Month Balance based on $100 per trade : $ 114.00 Profit

Maximum Draw Down of Running Monthly Balance : 63.16%

3 Months Trade Analysis.pdf (172 KB)

44

[B]CONCLUSION[/B]

As with any system, it’s success can only be judged on the return on investment (ROI). I look for a return of around 10% a month. On average this means 2.5% a week. In dollars at $100 a trade, I would want to be earning $1000 a month ($250 a week).

I’m really not meaning to score ‘brownie points’ nor am I meaning to offend. I think the figures speak for themselves and, well this system is not for me.

45

My advice in looking for anyone looking for an edge would be this.

In the beginning, I didn’t really place much emphasis on the importance of money management as I thought mastering the prediction of price movement was the first challenge. I took it for granted that the application of money management would be a fore gone conclusion as I have a degree in maths.

My ‘light bulb’ moment came for me when I realised that you cannot predict price movement. All you can do is to have faith and believe that when your criteria has been met for entry into a trade. The chances are that if you where to make the same trade 100 times expect 50 of them will fail. But understand that with the correct money management you can make money from this scenario.

I also started making money when I stopped being influenced by the opinions of others of when and when not to trade along with what and what not to trade. As a famous trader once said “A man must believe in himself and his judgement if he expects to make a living at this game.”

It’s well documented that you shouldn’t trade news or trade on a Friday or a Monday or scaling in/scaling out. Why? Again, many will talk about closing positions because of whipsaws and lack of volatility but some of my most successful days in a week have been a Friday or a Monday and some of my bigger trade successes have been on a news event. To find your own edge you need to free your mind of others opinions.

There are so many threads on here on trading systems that chase pips. I NEVER chase pips. I couldn’t even tell you how many pips I make in a week because it is completely irrelevant. Why? you may ask.
It’s very, very simple. I chase a percentage of my main account. I enter a trade and whether the SL be 10 pips or 70 pips, it makes no difference because it will still be the same %age of my account. I never trade more that 1% and this leads onto the next important thing. R:R (Risk Reward) is more important to me than the success of a trade. I never take a trade less than 1:1.

The last and most important aspect to become successful is to manage expectation. I am happy if I hit 10% return on my account at the end of a month. Or lets break it down. 2.5% a week !!! Doing the maths on this means that I only need 3 good trades a week at 1% of your main account and at an R:R of 1:1 to be making a healthy profit.

46

Hi Erinsunc. This is how I see it as well. As pipwoof said, it’s a work in progress, not a ready to trade, polished system.

Which is why we’re trying to refine it. The results you were looking at was the raw system. Pipwoof pointed you to a modification to the system on post #10, we don’t as yet have a spreadsheet for this one, but the results seem to have improved with better money management and a smaller ROI.

47

Erinsunc, several preliminaries.
First, the time you have/are putting into this is greatly appreciated. I know, firsthand, how tedious this can be. Especially if you already have the feeling this may not be something to help your trading, it is hard to arouse passion for an idea we aren’t attracted to. Draw the line at your contributions at any point and we will understand. Help further if you are willing.
Second, I will readily concede the math ability. As you might imagine, my statistical background is mostly in correlational studies and I won’t be able to keep up with degrees in math.
Third, I think I agree with 90% of what you are saying and just don’t understand the other 10%.
Preliminaries addressed, I completely agree with your discovery of the need to go your own way and steer clear, or at least be cautious, about the advice/opinions of others. I’m the guy who stood up in the middle of a graduate class, informed the professor I thought he was managing the class unprofessionally, and went straight to the dean. Obviously, I’m kinda proud of that because I believe several in the class should have done that, but didn’t.
I am pretty sure I agree with your judgment that we can’t predict price. I go back and forth on this one because there must be some variable in this matrix that we are trying to predict. If it isn’t price, then is it statistical outcome? Help me here if you can. I can say anything I want to about r/r. I can say I am risking 25 and my tp is 100, meaning my proposed r/r is 1:4. The issue is not that I propose it, but how I achieve it. Do my numbers come from backtesting and do I take them on a trade by trade basis or look at an average over my data set? Well, something like that would make sense since we are looking at my derived results for three months of eye/hand studies. The initial system lost in August, so any numbers are going to look bad. But, January looks good, at least on the surface. Wouldn’t we want to combine those results with as many others as we can come up with to increase our sample size and gain confidence in our study?
Now, having looked briefly into changes in the method, I also have begun to collect a new data set. What happens to the way you view a trading system when the loss/win ratio for one month is 600/1,200 and for another month 375/2,560? These are pips, of course, and would you want to look at each trade individually and come up with an average r/r? When evaluating any proposed trading method on any forum or other source, would you want to look at a series of trades and calculate the roi, looking for outcomes that meet your criteria?
Well, I hope I haven’t exposed too much ignorance here, but it is clear that you have a way of looking at results. If that has been successful for you, it is in our interest to try and understand it. Best wishes.

48

It’s late here in the UK but there is only so much ‘Bridget jones’ I can take before picking up the iPad. I’m glad that we are not locking the horns of the alpha male on this. I do have some suggestions and I wil detail them when I’m next in front of the pc.

It’s not all doom and gloom because there is one massive plus about what you have observed with this system. Although the gains are not so great, the major plus is that neither are the losses.

To find a system that that returns a constant BE is just as difficult as it is to find a system that returns consistent profits…

Have a great weekend!!

49

pipwoof,

The conceivable permutations of Daybreak are virtually infinite…I believe we have just scratched the surface. Blood, sweat and tears will pay off in the long run! Let me encourage you to continue on with your quest!

My 16 pair basket did not fare as well, today. I had a net loss of -117 pips( EJ + GJ were -114 pips by themselves). After 2 days of basket trading I am [B]+166 pips overall[/B]. This bodes well for the basket, because EJ and GJ have added absolutely nothing to the profits, and in fact were negative. Wait until they start to perform! I plan to pare back my basket to about 10 pairs, once I can gather some data to make that determination.

The best performing pairs so far are GU, GA, EA, AU (in that order).

I plan to check up on the daily progress and close the trades early if the basket is +300 pips at any given point.

50

Hi there :wink:

I really like daily BOs and so I will try to make an EA (or at least half-ea)

I also have some modifications to the general strategy (adding SARs) that I’d like to try. Will let you know about results :wink:
If anybody want to discuss the EA in terms of what rules to use etc - let me know.

I’m not advanced programmer, but I made few EAs already.

51

Hi Yorkdaro,

Thanks for taking the time on this one, Other’s may have other ideas for rules, but I feel like the ones Pipwoof put forth on post #29 seem like the best place to start. they are:

[I]As usual, enter on the break of prior day high or low. Enter three positions, each with an initial stop-loss of (25). Activate a break-even stop on each position at +25. Activate trailing stops for each position. Position 1 trails at 35, position 2 at 45, and position 3 at 55.
[/I]

As you can see below, this is a marked improvement on the standard rules.

Studies by hand/eye are subject to error, but it is an open-book test. We should be able to spot mistakes quickly. What I got was (600) pips in losses, 1,188 pips in wins, and about (228) in transaction costs. Net +360. If taking three at a time causes you to wince, we could have traded just one with (200) losses, 442 wins and (80) transactions, net +162.
As the commercials say, “But, wait, there’s more!” We are pretty sure this past January was a good month for methods like this, so I applied the new rules and did another look. I got 2,560 wins, (375) losses, (240) transaction costs, net +1,945. Trading just one resulted in (125) losses, 927 wins, (125) transactions, net +677.

I feel like this is the best starting point to begin testing/trading

52

Yorkdaro and nib, thanks for the efforts to help. For reasons unknown to me, I have trouble attaching files on both computers. But, a google of “breakout” strategies or “daily breakout” will yield a handful of ea’s that do at least part of what we are looking for. Also, a link to rpotor’s site he created for the daybreak/triple threat strategies. At one time, this ea was entering three positions correctly. We had some other problems with it, but at least part of the idea was there.

http://www.rpotor.com/forex/TTE/index.html

53

Update today. We broke out on e/j long at 139.95. After a high of 140.85, it retraced enough to trigger all trailing stops. If we had three positions, they would have closed at +55, +45, and +35. g/j followed a similar pattern, breaking long at 171.06, retracing after a high of 171.86. Three positions yielded +45, +35, and +25.

54

With about 3 hours left to close the ibfx day, it doesn’t look likely that eur/jpy will overcome yesterday’s spread and give us a signal. That should make for an inside bar today and create a strong possibility for a trade tomorrow, i.e, 6:00 pm today, central time. The gbp/jpy was only slightly more cooperative, going short at 170.19 and looking for all the world like it might stop out as it retraced to 170.43 over the next 20 minutes. But, it held and went on to a low of 169.59 before retracing again and activating all trailing stops. Results: +25, +15, +5.

55

Glad to see you’re still hanging around pip. Your thread was the first real fx system thread I read on BP. It was a great starting point for me and a stepping stone for me to learn what else is out there.

56

G/J broke short at 169.58, fell to a low of 169.24, then retraced. BE stops were activated.
E/J broke short at 139.97, reached a low of 139.18, then retraced. All trailing stops hit. Results: +44, +34, +24.

57

hi pipwoof,
I can develop ea for you for your day break method.

58

Not my thread and not really my business but from what I have seen on other threads, as soon as there is any EA is added to the thread/discussion, it just totally derails the thread and any focus on system it’s self.

The thread will just become an arena for the discussion for the support of the EA and will become cluttered with irrelevant posts.

Just my two-penneth’s worth.

59

[QUOTE=“LiquidGenius;604541”]Glad to see you’re still hanging around pip. Your thread was the first real fx system thread I read on BP. It was a great starting point for me and a stepping stone for me to learn what else is out there.[/QUOTE]

Great name by the way (Liquid Genius) - do you still trade breakouts?

60

Many thanks to those of you who continue to follow and contribute. I have spent the past week searching the mt4 codebase, google, assorted forums, etc., and I have been testing with what I found. I don’t know if I can comfortably say I have some conclusions, but I do have some observations to share with you. Forgive the limitations I am working with. I am unable to post indicators, pictures, or screenshots. I actually have to type my posts in Word and paste them into the forum thread. Though I can’t post the actual links, I will be able to tell you where to find the things I’m talking about. It seems I have to buy one new computer every year. PC’s, can’t live with ‘em, can’t live without ‘em.

I am currently researching this Daybreak idea on 7 platforms. I have 2 ibfx live accounts, 1 live oanda and 1 demo, 1 live tallinex and 1 demo, and 1 live forex broker, inc. I just wanted an ea to get gross performance estimates over periods of time without having to do it all by hand. I tried numerous breakout programs from the codebase and other sources with increasing frustration. Is it just me, or does it seem that most of those won’t work at all, there is little or no documentation, and more than a few eat my cpu like a hungry wolverine with a rabbit.

For the most part, this resembles what went on with my original two threads. It did seem that there were some sincere programmers trying to capture the ideas, but nothing ever came that we could place any confidence in. I am currently doing what I want with my trading, but it does take some time. I just don’t want to invest the additional time to learn mt4 code. I don’t know… Is it so complex that closing open orders and placing new ones at the beginning of a day can’t be managed? Is it hard to put in a magic number so the ea doesn’t interfere with other trading? Is it really difficult to allow some optimization on just a few variables, like entry point, sl, ts, and tp? Trading it manually is, of course, no problem. Enter a few keystrokes a day and there you have it. Like I say, just wanted to look at some broad database over time.
In any case. Having certainly irritated myself trying to use those breakout programs from the codebase, I went back to the original daybreak thread and dug up one of the first efforts to make an ea with this simple system. You can find it in the thread, look for Daybreak, the ea by Spirit,v1.3. As much as I can determine, this program sets entries correctly. It does not, however, close open trades eod, and it does leave any unfilled orders open indefinitely. Hold on to those last two thoughts because they may prove to be serendipitously beneficial.

It’s been a while, but I seem to remember that we gave up on the ea because it just wasn’t following the original daybreak rules with regard to exits. But, desperate to look at a bigger database than I can muddle through by hand, I started by running this program on ibfx daily data, gbp/jpy, two live accounts, using date range 1-2-13/2-27-14 (a little over a year of very recent data), with some reruns the past day or two to verify. I set the spread at 5. At the end of many hours and an open question of whether optimization even works on this tester, here is what presently looks most promising: trade the daily breakout with a tight sl, no ts, and a fixed tp. No kiddin’! Anyone who knows me would know that is the last thing I ever thought I would suggest, but my initial findings are hard to argue with, even for me.

Before I zeroed in on this, I noted that the average daily range for this pair during the test period was just over 150 pips. Judging visually, it seemed that a lot of that was frequently made on one side or the other of the breakout. That, of course, is the whole attraction to breakout trading. Controlling losses and preserving capital led me to tight initial stops of 20 pips and the daily range led me to a 70 pip take profit. That makes for a nice 1:3.5 risk/reward. Since the ea doesn’t delete unfilled entry stop orders, those may be hit days or weeks later and are included in the results. The interesting thing is, they seem to work. Here’s my thinking on that. What’s another name for previous day’s lows and highs? That’s right, support and resistance. When prices start moving, they often seem to blow right through those areas and frequently get to profit.

So, testing on my two ibfx live accounts, GMT 0, starting $10,000, trade 1 lot, daybreak entries, no ts, sl 20 and tp 70:

Account 1: Net profit $8,825, quality 69%, total trades 520, profitable 42%, losing 58%.

Account 2: Net profit $9,279, quality 82%, total trades 554, profitable 41%, losing 59%.

I have no idea why there is a difference. Same broker, both live accounts. I see trades made by the simulator in each account that I really don’t understand, some winners, some losers, and can’t reconcile with a 5m chart. I have gone so far as to plaster the results side-by-side in a spreadsheet and still can’t figure it out. I will say that one platform is still build 509, but I have updated the other to 600. I have wondered for years how those metaquotes folks ever got ahead of tradestation and became the broker’s platform of choice, just like I wonder how pc’s ever got ahead of apple. Sigh. I can only say that if mt4 strategy testing has any validity at all, this seems worth looking into.

Next, supposing we may have oundfay the ailgray, I wanted to see what my other favorite pair yielded. Eur/jpy, nothing changed except the pair:

Account 1, Net profit $7,204, quality 63%, total trades 532, profitable 38%, losing 62%.

Account 2, Net profit $7,179, quality 82%, total trades 545, profitable 37%, losing 63%.

At this point, if you are interested in breakout trading, I encourage you to plug up this ea. Take some runs at it to see what you get. Put it on visual and watch it trade for a while. I will also say a few words about a simulator. If you are new to this business or just haven’t found your trading groove yet, get your hands on a simulator. I like to use the one from the codebase, i.e., mt4i Trading Simulator. Free is the right price and I can fire it up, put any indicator, template, strategy, I want to, execute the trades absolutely without being able to see the next bar, and see what kind of trader I really am.

One last thought that I will discuss later. The inadvertent leaving unfilled stop orders by the Spirit ea was, in effect, trading a kind of grid. That prompted a few questions in my mind and I will go into that business on my next post. Happy trading!