Recently, I’ve developed several trading strategies and found that creating a profitable one is quite challenging.
One of the strategies involves numerous conditions, but I’ve noticed that these conditions affect the trading volume.
However, relaxing these conditions results in losses instead.
Below are the entry conditions and backtesting results.
I would greatly appreciate any advice from experts in this field. Thank you very much.
Entry conditions:losing price is above the upper Bollinger Band.
1.The second upper Bollinger Band is greater than the first upper Bollinger Band.
2.The closing price is above the 200-period weekly moving average (200MA).
3.The 50-period daily moving average (50MA) is greater than the 200-period moving average (200MA).
4.Matches the defined candlestick pattern.
Just by seeing the highlighted stats, I think I already know where the problem is. As soon as you have a little bit of profit, you snatch it immediately and not letting it run long enough. But, if it’s running into your stop loss you hold it until it reaches your stop (are you hoping it to turn back into a profit by any chance?).
This is my take based on the stats given. Take note that I am ignoring all the strategy’s criteria as I think that is irrelevant (But, I might be wrong though). And, if you want to make any strategy, just make sure its purpose is to capture trend. Capturing trends is the only sensible strategy in my opinion (Long or short term is fine for as long as you know where to exit).
Thank you for your response. Regarding your point about the average profit being lower than the average loss possibly causing poor returns, I’d like to ask further: if the win rate is only 2X%, but the average profit exceeds the average loss, would such a strategy be viable?
In my opinion, yes. Provided that your exit is solid, it would cover all the losses. By me saying exit, meaning you able to hold your win long enough and you cut your loss fast. It should have a positive expectancy. You need to practice and experience this yourself.
Most people focusing too much on entries but they forgot about exits. It’s like you are now still in high school preparing your exam to go to the university. You’re doing anything and everything to pass it so that you can get in. Now, you have passed and got in it, you still need to study hard and do lots of assignment otherwise you won’t get your degree. To me, managing your trades once you got in is far superior than the entry itself.
The conditions for taking a trade all suggest that the position will be trend-following. If all those conditions still apply when your trade reaches the profit target, what are the reasons for closing the position? Bear in mind, you could alternatively advance the stop-loss and add to the position.
Just curious of how you actually back testing it? Is it automated by software? If yes, then you’re going to do automated trading in case you go live with this?
high volatility
medium volatility
normal volatility
I made simple years comparison on D1 chart
red line is start your backtest which end in purple rectangle.
orange rectangle is a down trend + med/normal volatility
yellow rectangle is a covid crisis high vol + up/down directions
green rectangle is up trend + normal volatility
blue rectangle is down trend + normal + medium volatility
purple rectangle current market condition, medium / normal volatility + sideways direction
conclusions
your strategy “doesn’t saw” medium / normal volatility + sideways direction, that is why you have results which you have
Thank you for the detailed response. I wanted to ask, do we typically consider both volatility and trend direction within one trading strategy, or do we write multiple strategies to define which type of market rhythm and direction we want to capture?
