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 Reversi: a dynamically calculated x-candle reversal EA by Steve Hopwood

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mary



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Posts : 576
Join date : 2011-04-12

PostSubject: Reversi: a dynamically calculated x-candle reversal EA by Steve Hopwood   Sat May 28, 2011 2:25 pm

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Reversi: a dynamically calculated x-candle reversal EA by Steve Hopwood

SERIOUS WARNING


  • Most Forex traders lose all their money.
  • Using the robot posted here in trading Forex does not guarantee success.
  • Trading this robot could lead to serious financial loss.
  • Trading this robot without understanding its underlying trading strategy guarantees traders will lose their money.
Reversi arises from ideas presented by a poster in The Captain's thread and in a pm from another contributor. In his post at http://www.forexfactory.com/showthre...83#post4601883, mobthehope wrote this:
"As macman brought this up, I like to add my 2 cents....

I normally trade H1 and H4 tf and used the probability distribution of
said candle sequences with some success in the past.... The attached
indicator visualizes this and allows anybody to play with different
candle counts on their preferred tf.

I found that 5 same colour candles on H1 gives a fairly high probability of reversal on most currencies...
"

I coded something along these lines soon after reading this, but left it
to stew in what passes for my mind; it was a failure in Strategy
Tester.

A couple of days ago, Ludo Willems sent me this pm:
"I had a bath and had an idea: to continue on The
Captain #58. The guy says that mostly after 5 identical coloured
candles, a change in trend occurs. I remember to have seen (and couldn't
find it again)an indicator that prints the probability of a series of
candles: of the last xxx candles, there are: 25 series of 3 candles, 18
series of 4 candles ,etc.., and 1 occurence of 7 candles. So, if you
scan for a series of 7 identical coloured candles, the probability is
1/1000 that the next candle will be of the same colour. So, an EA with
user imput selector "look for xxx last candles" and "select probability
%" would do the job?
"


Stunningly useful thingy's, baths. I gave Ludo's pm some thought and
managed to get my head around an algorithm that will allow Reversi to:

  • calculate and display the number of x-candle series of moves in the same direction, over a users-selected period of x candles.
  • respond to either the user or an auto-calculated input that will
    tell it how many candles must move in the same direction, before
    triggering a trade in the opposite direction to take advantage of the
    impending reversal.
  • offer trade exits at take profit, stop loss, or any of the usual mptm features.
  • use Recovery instead of stop loss. In ST, 1.2.6 is fantastically successful.
Some of the inputs will need a brief explanation:

  • TakeProfit and StopLoss: these allow you to use Reversi as an 'I am right or I am out' trader. Do not set a stop loss and use Recovery both at the same time - chaos will result.
  • CriminalIsECN: set this to 'true' if your crim enforces 2-stage order sending i.e. first the trade then
    modifying it with a sl/tp. Note that IBFX are Ecn even though they try
    to hide the fact, for reasons best known only to those privy to their
    darkest dreams.
  • Candle stats inputs have the greatest potential for confusion:

    • CandlesInSeries:
      this is the number of candles you want the market to move in any one
      direction before R sends an exhaustion trade in the opposite direction.
    • AutoCalculateStats: leaving this set to 'true' tells R to do all the
      calculations for you. Setting this to false and customising the
      CandlesInSeries input allows you complete control over the number of
      same-direction candles required to trigger a trade.
    • CalculationCandlesCount: this is the number of candles to include in
      the series calculation. Leaving this set to zero counts all the bars in
      your chart. Adjust this input in light of your chosen time-frame and
      personal preferences.
    • UseLongestSequence tells R to use the longest sequence of
      same-direction candles as its trade trigger. Using this setting will
      generate rare trades, but they should be ridiculously profitable -
      theoretically. The default is 'false'.
    • UseMostFrequentSequence and SequenceMinimuCandles work together.
      UseMostFrequentSequence tells R to look for repetition of the
      same-direction candle movement that is most frequent over the period
      defined by CalculationCandlesCount. Typically, this is 1, so a further
      filter is needed. SequenceMinimuCandlesis is the lowest number of
      candles that must move in the same direction to be considered a series.
      The default of 6 tells R to consider series with a minimum of 6 candles
      same-direction movement as worthy of consideration for trading.
    • MinimumCandleBodySize: TB calculates the size of the body of the
      candle, and rejects it from the calculations if the body is smaller than
      this figure. The 'body' of the candle is that solid block in between
      the open and close price; the 'wicks' are ignored.
    • ShowStats tells R to show all the statistics. Turning this to 'false' hides some of the display detail.
    </li>
  • Recovery inputs: for details go the The Beast's thread at http://www.forexfactory.com/showthre...=1#post4135863
    and download the user guide. This has a reasonable description of
    Recovery. In truth, you need to follow the links in the guide to the
    thread that first introduced the rest of us to Recovery, but that is up
    to you. Newbies have so much work to do before even contemplating
    becoming profitable traders that it is frightening to consider. The
    good news is that The Beast is up an running profitably on our live
    accounts, and has been for some time.
  • Trade management module: the functions here are the guts of mptm. Those of you unfamiliar with mptm, go to http://www.forexfactory.com/showthread.php?t=89371
    and download the user guide for details. Candlestick trailing stop is
    not part of mptm, although it will be when I get around to adding it; I
    leave readers to work out for themselves what it does.
A note about series calculation

  • Reversi calculates whether a candle is an up or down literally.
    Even if a candle only closes 1 pip higher than it opened, it is a rising
    candle and interrupts a falling series.
  • Candles that open and close at the same price are ignored.
  • CalculationCandlesCount will probably result in the first series in
    the calculation being incorrectly calculated. I am ignoring this.
A note about Recovery
I am not sure if UseRecoveryTrailingStop is working properly. When
enabled, it appears never to close a group of Recovery trades. In ST,
the result is fantastically profitable. This may be good luck. I am not
sure yet.

CPU usage
Trading decisions are made at the start of each new candle, as are the
candle series calculations. This makes cpu usage light and makes
backtesting easy using the Open prices only option in ST. Once a trade
is open, cpu usage is heavier as the management features are called at
every tick.

Future development
A few things to consider:

  • does this strategy have a future?
  • does it have any flaws?
  • what are the optimum CandlesInSeries and CalculationCandlesCount values?
  • do we need the balance/max pairs/margin filters from TB et al?
  • how to find the best trade exit?

In conclusion
Given what we havelearned about counter-trend/reversal trading over
recent months, I am optimistic that Reversi has a future. Only time will
tell, so give it a run and see what happens.



-------------------------------------------------------------------------

Posting restrictions
I have restricted the ability to post in this thread to: traders with at
least 1 voucher; and traders on my 'buddy' list. I have done this
because I do not want the thread cluttered with 'newbie' questions about
the basics. New/inexperienced traders, this is not intended as a direct
insult. What I want here is discussion with traders who fully
understand what it is they are doing; when you newbs have been around a
while, you will come to understand what a difference experience makes to
the posts a member writes and shudder at the recollection of some of
the questions you asked. I do. Go to your profile page; there is a link to the FF page that describes the voucher process.

Do not attempt to get around this by sending me pm's asking for
help with your basic problems. Doing so will earn you an automatic ban
from all of my threads.

I have set up a partner thread to this and other threads at http://www.forexfactory.com/showthre...66#post3948666
There, you can post the questions that you cannot post here, about anything
you need to know. Someone with the knowledge and experience you need
will answer. I opened it for Nanningbob traders, but feel free to ask
about this robot as well.
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Traders/coders with experience who have not yet been vouched for, can
get around this restriction be being added to my 'buddy' list; all you
have to do is pm me to ask me to do this.

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mary



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Posts : 576
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PostSubject: Re: Reversi: a dynamically calculated x-candle reversal EA by Steve Hopwood   Sat May 28, 2011 2:25 pm

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I've just been having a play in
backtesting, i have dukascopy data for jan-april, and it looks
promising. Initial runs show that candlestick trailing stop is required
to increase profits. Using all other defaults but using cts and
sequenceminimucandles=5 over defaults ofr a $500 account the profit
increases from $47 to $200 for 16th Jan to 16th Apr.

Results posted below:

Bars in test 1526
Ticks modelled 4012642
Modelling quality 99.00%
Mismatched charts errors 0
Initial deposit 500.00
Total net profit 201.14
Gross profit 236.42
Gross loss -35.28
Profit factor 6.70
Expected payoff 3.30
Absolute drawdown 0.83
Maximal drawdown 153.33 (23.44%)
Relative drawdown 23.44% (153.33)
Total trades 61
Short positions (won %) 42 (47.62%)
Long positions (won %) 19 (42.11%)
Profit trades (% of total) 28 (45.90%)
Loss trades (% of total) 33 (54.10%)
Largest
profit trade 72.51
loss trade -3.64
Average
profit trade 8.44
loss trade -1.07
Maximum
consecutive wins (profit in money) 6 (67.45)
consecutive losses (loss in money) 8 (-10.73)
Maximal
consecutive profit (count of wins) 81.84 (3)
consecutive loss (count of losses) -10.73 (8)
Average
consecutive wins 2
consecutive losses 3

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