Thanks for the reply
what pairs do you use?
Hi i’m actually up by 7.91% when the week ended. I trade the same pairs as the creator does, eurusd, usdjpy, audusd & gbpjpy
Hi Pipwoof,
new for this thread, need your help to confirm something here.
Go long at yesterday’s high plus one pip. the meaning of the “high” is the previous day closed price or yesterday higher price(including wick)?
thanks for sharing this system.
Speaking for pipwoof… He would mean the high… As in the highest price that the pair reached in the previous day, so that would be the wick.
Hi Banker928,
thanks for fast reply, currently still on the demo account and wish i can success gain some profit on this.
thanks a lots
Just added this to post 1.
Update, August 28, 2012. My equity charts and related studies show the eur/usd and usd/jpy currently underperforming with this strategy. My recommendation would be that you drop both pairs from demo or live trading and begin trading the eur/jpy with a -200 emergency stop-loss. Performance on this pair for the test period approaches that of gpy/jpy. The three-pair portfolio will reduce risk and continue with the most promising pairs.
What about placing always an order with a Take Profit? Is it true that sometimes if TP is too narrow then you will loose a potential bigger profit, but in this way you transform many loosing trade in profit…if we work on the size of TP I believe the system could be an holy grail…
Did some backtesting. I’m a bit of an Excel and VBA buff, so I programmed some macros to simulate Daybreak.
What I did:
- Used backdata: 04-Jan-2011 ~ 31-Aug 2012 from fxhistoricaldata.com
- Ran 8 currencies for varying emergency stop losses: (50,100,150,200,250).
- Ran off hourly data to ensure position entry and stop loss occured in the correct order (this was the main drawback with trying to put stop losses in a Excel only model).
- All positions are closed at 23:59 and new positions openend after 0:00 (once the High/Low +1 pip is breached).
- Summarised the results for each emergency stop loss by selecting the optimal stop loss level for each currency pair (max total pips in period)
Conculsion:
Heck of a system. Simple and effective. I will be starting my demo account as of 23:59 this evening. Looks like a bad idea to include USDCAD and perhaps EURUSD and USDJPY. But they’re still positive overall, so I will leave them all in for now.
Extra:
I tried modelling the Triple Threat Exit Strategy but it quickly became very complex and I when I got something working it gave poor results - more likely to be my coding flaws. Can’t convince myself to have another go - I like Daybreak’s simplicity.
Can you run this for a longer period… Say from 2004-2012… If you need the data I can give it to you… A year is not enough in my opinion…
Also what time zone are you using to define a day in this test?
Yeah, more backdata is on my to-do list. It’ll take me a bit of time to punch the data through and re-run. I’ve got data from 2001, I’ll post back when I’m done.
Time-zone is GMT+2.
Might try and build in assumed spread costs too, seems to be a hot topic.
I have a hunch that the system won’t fare too well pre 2008… I’m hoping I’m wrong though… It is pretty dang unusual that a system is robust enough to be profitable from 2004-present, on multiple currencies.
Spread cost would be as easy as totaling the number of trades and multiplying it by the average spread for that pair.
interjon, thank you so much for this work! i must say, it is very impressive and appreciated by everyone looking at the thread.
i continue to evaluate any method i am using or considering and stay poised to make changes, including halting trading with a particular system. my mentor taught me that markets change and it is necessary to change our trading methods to keep up. with the evidence of your research, i want to point out two things to those who are considering using the daybreak approach.
- i have recently concluded that eur/usd and usd/jpy, two of the original pairs studied and included in the portfolio, have proven themselves lesser contributors. i am recommending that traders consider replacing both pairs with eur/jpy, which is showing better performance overall. your studies certainly helped confirm this.
- caution and preservation of capital are the watchwords of successful trading. please note that the results of this method since the first of the year are suspect. prior to january, we see virtually all months ending positive. that changed and what we see now appears to be a month of gains followed by a month of losses, last month being the worst, even with our new preferred three-pair portfolio.
suffice it to say, all trading caveats apply here. there is no grail, past performance, etc. trade carefully.
I’m back with some more results, if you haven’t already please read my previous main post first (#288)
What I did
- Data now runs from 01/01/2001 ~ 31/08/2012 (replaced some newly discovered poor data from my previous modelling too)
- Included a trade counter (for modelling net of spread position)
- Allowed for a few more stop losses (300, 400, 500 and 99999, with the last one effectively saying “no stop loss”)
Conclusion
Daybreak still works for this period. 2008 is obviously amazing. Stop losses now have different results. EURUSD has gone from needing 250 to 100 due to the earlier years needing it at that level. Not sure a fixed stop loss is the way to go, trader judgement is needed. As Pipwoof keeps saying, we need to be flexible with this system (and between systems themselves) to ensure “make substitutions” from the “currency bench” as we see fit.
Extra
-A stop loss of 50 was a BAD idea, but 100 and above would have been fine.
-Haven’t looked into what the trade count means for net positions, but I think it’s bad news… discuss
Annual results from the best selections of stop losses are below:
Please also remember that my backtesting and past performance in general is not a guide to the future, trading forex is very risky, so be careful. Nothing I write should be construed as advice.
Interjon - Great work - thanks. Now, can you run a similar study that would show profit or loss if we took a straight 10 or 20 or 30 pip profit vs. just letting it run for the whole day? The results would be different but I wonder how different. Would it decrease losses as well as cutting down on profits? Would it really decrease profits since we may have much fewer losses?
What do you think? All comments welcome.
Tom
Tom, I doubt my model will work too well for small stop losses and TPs like the 10, 20, 30 level because at this level stops and TPs could be hit in the same H1 candle and we wouldn’t know which way round it had occurred.
Nevertheless I built in the option for a TP and ran the model, the above effect didn’t seem too much of a problem and I tried it for a few of the pairs and experimented with 10s, 20s and 30s for TPs and tweaked the stop losses left right and centre. In short, the results are not good, I think I got -10,000 pips on average over my 11.67 year period. In one case the result was a consistent 2000 pip loss each year.
When I get a bit more time I’ll do a more thorough investigation, but it won’t be at the top of my list.
Top of my list at the moment is to try and build in an extra indicator (like price above/below EMA or something) that will give a signal to run the daybreak system or not on a currency pair… thoughts?
InterJon - Thanks for looking into my question. I appreciate it and you.
Now in answer to your question----- my thoughts are---- If price is above the 50 Simple Moving Average the Daybreak system would only look for Longs (ie. only place an entry order above the previous days high) and if below would only place opens below the previous days low. Obviously it would not trade every day but the trades it did take would be pretty accurate in my opinion. The 50 sma is used in some circles as a "Buy/Sell Line.
Tom
Without meaning to scare anyone, has anyone else thought this strategy might work better with daily straddles?
As far as I can see the only difference is with the straddle you’d always have a profit or loss, there’d never be a break-even day where neither high nor low orders are hit as you’d sometimes get with direct trading. But…you’d have limited downside risk, I wonder… any options backtesters out there…? Anyone who knows anything about live trading fx options?
InterJon - How specifically would a daily straddle work? I am not familiar with that term or how to set it up.
Tom
Hi InterJon,
Thanks for your analysis. In your backtest, instead of optimising the Stop Loss to get the most PIPS, would it not make more sense to optimise the Stop Loss, so that the ratio between Stop Loss and Total PIPS gained is the highest? What I am trying to say is that, assuming you risk 1% per trade, a Stop Loss of 200 resulting in 10,000 PIPS gained would have increased your money less than a Stop Loss of 100 resulting in 6,000 PIPS. Not sure if I am making sense, and if so, how easy it would be for you to do the analysis like that? 
Cheers,
Sascha