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SOME CURIOSITY
This strategy have won a prize as 2nd position in 31/10/2020 but it is not the first prize obtained with this trading system : ) The strategy is the same that took second place in 31/12/2019, 8th place in September 2019 and 3rd place in September 2018. This can be an indication of the strategy profitability in different market dynamics. With a statistical analysis of the historical test, it can be notice that when the strategy obtain no Loss in Contest period it is quite obvious that it have great opportunity to get the prize.
THE TRADING LOGIC IN DETAIL
The strategy is not so elaborated and uses only two indicators to open positions, the Heikin Ashi Lines (or HA) and the Variance. The Heikin Ashi utilizes the average between Open-High-Low-Close to elaborate its close price (or current price if candle is not closed) while to build the open price for its candle it utilizes the average price between Open and Close of Prev. Candle (from the HA Chart itself). This kind of chart can takes an average of the movement, so it seems to show a smoother look than the typical chart. There is in this way a tendency with Heikin-Ashi for the candles to maintain the trend with less influences of the small price movements. The second indicator is the variance. This indicator in statistics give an indication of the spread measurement between numbers in the historical dataset (for example historical closing price) , so it measures how far each number of the closing price is from the mean and therefore from every other number in the set. It is elaborated by taking the differences between each number and the mean (of the closing price), then squaring the differences to make them positive, and after dividing the sum of the squares by the number of values.
To have an opportunity to open a buy position the logic is that the Heikin-Ashi lines open (of the price shifted of one and two values) are greater than the close. The setting of this indicator is the standard setting (bid, closing price calculation) with 5 Min and USD/JPY. The entry is bounded to the Variance, the second indicator. The Variance is set on a 5 Min chart and to trigger the open position its value on a 3 period should be greater than its value on a 10 period. The objective of using this statistical indicator is to extrapolate only that dynamics with great spread from the average, this can be in view as a measure of a notable starting trend. To open a sell positions similarly the Heikin-Ashi lines close are greater than the open (of the price shifted of one and two values) while the variance logic is the same.
In this way Variance is a sort of statistical filter, excluding orders to be placed and the Heikin Ashi is the indication to open a trade.
Fig 1. Bearish position placed after the Heikin-Ashi lines close are greater than the open (of the price shifted of one and two values) with the Variance 3 period at 0.000148 greater than Variance 10 at 0.00011. The figures shows that pending position could be not so efficient, because the candle made something similar to a bearish marubozu and the trade arrived in just one candle to the profit.
Fig. 2. A buy order is placed 16/12/2019 at 14:05 with Variance 3 at 0.000017 and Variance 10 at 0.000012, in this trade the similar difference between the two kind of variance could indicate a less grade of trend. As it can be seen the Take profit is obtained with around 10 candles, that is very slow related to the Bearish reported.
ADVANTAGES AND DISADVANTAGES OF VARIANCE
Mathematicians typically utilize variance to analyze how individual numbers relate to each other within a set, rather than using broader mathematical techniques such as arranging numbers into quartiles.
One drawback to this kind of indicator is that it gives added weight to outliers, the prices that are far from the mean. Squaring these numbers can skew the set.
Variance can be negative and zero value means that all of the values within a period of test are identical. Fig. 3 rapresent an example with Variance similar to zero, where the trendless can have the leader of the trend and obtain the take profit can be not so easy.
Fig 3. In this trade the Variance is very low and the difference is around 0.000001, so the trade has been profitable but with period of 151 candles. The drawdown of the strategy in this specific trade has not been adeguate for the contest prize, but it can be evaluated the logic of the trading system. POSSIBLE IMPROVEMENTS
An improvement in the strategy can be a new setting of Variance or the introduction of a trailing stop, with a small step. The new setting can include a filter in the trade similar to which in Fig 3, for example it can be tested a margin value of 0.000015 has difference between Variance 3 and Variance 10.
Another implementation made in the strategy was to make it less dynamic. Sometimes, pending positions can have a better efficiency in stay-on-the-market, optimizing in consideration of the rollover. A possible logic can be that the pending orders is valid only x candle before the candle close. The strategy could be improved also changing the ratio TP/SL and indicating also other pair, but probably is a good suggestion to prefere that pair with a low spread (considering the small TP value).
I did not study all this kind of trading set but it could be profitable to take a some backtest : )
EXIT FROM THE TRADE
The 5 pips take profit and the exit to 300 is just to put the strategy in the contest framework, where it is probably convinient to try a no trade loss strategy with great trade amount.
This strategy have won a prize as 2nd position in 31/10/2020 but it is not the first prize obtained with this trading system : ) The strategy is the same that took second place in 31/12/2019, 8th place in September 2019 and 3rd place in September 2018. This can be an indication of the strategy profitability in different market dynamics. With a statistical analysis of the historical test, it can be notice that when the strategy obtain no Loss in Contest period it is quite obvious that it have great opportunity to get the prize.
THE TRADING LOGIC IN DETAIL
The strategy is not so elaborated and uses only two indicators to open positions, the Heikin Ashi Lines (or HA) and the Variance. The Heikin Ashi utilizes the average between Open-High-Low-Close to elaborate its close price (or current price if candle is not closed) while to build the open price for its candle it utilizes the average price between Open and Close of Prev. Candle (from the HA Chart itself). This kind of chart can takes an average of the movement, so it seems to show a smoother look than the typical chart. There is in this way a tendency with Heikin-Ashi for the candles to maintain the trend with less influences of the small price movements. The second indicator is the variance. This indicator in statistics give an indication of the spread measurement between numbers in the historical dataset (for example historical closing price) , so it measures how far each number of the closing price is from the mean and therefore from every other number in the set. It is elaborated by taking the differences between each number and the mean (of the closing price), then squaring the differences to make them positive, and after dividing the sum of the squares by the number of values.
To have an opportunity to open a buy position the logic is that the Heikin-Ashi lines open (of the price shifted of one and two values) are greater than the close. The setting of this indicator is the standard setting (bid, closing price calculation) with 5 Min and USD/JPY. The entry is bounded to the Variance, the second indicator. The Variance is set on a 5 Min chart and to trigger the open position its value on a 3 period should be greater than its value on a 10 period. The objective of using this statistical indicator is to extrapolate only that dynamics with great spread from the average, this can be in view as a measure of a notable starting trend. To open a sell positions similarly the Heikin-Ashi lines close are greater than the open (of the price shifted of one and two values) while the variance logic is the same.
In this way Variance is a sort of statistical filter, excluding orders to be placed and the Heikin Ashi is the indication to open a trade.
Fig 1. Bearish position placed after the Heikin-Ashi lines close are greater than the open (of the price shifted of one and two values) with the Variance 3 period at 0.000148 greater than Variance 10 at 0.00011. The figures shows that pending position could be not so efficient, because the candle made something similar to a bearish marubozu and the trade arrived in just one candle to the profit.
Fig. 2. A buy order is placed 16/12/2019 at 14:05 with Variance 3 at 0.000017 and Variance 10 at 0.000012, in this trade the similar difference between the two kind of variance could indicate a less grade of trend. As it can be seen the Take profit is obtained with around 10 candles, that is very slow related to the Bearish reported.
ADVANTAGES AND DISADVANTAGES OF VARIANCE
Mathematicians typically utilize variance to analyze how individual numbers relate to each other within a set, rather than using broader mathematical techniques such as arranging numbers into quartiles.
One drawback to this kind of indicator is that it gives added weight to outliers, the prices that are far from the mean. Squaring these numbers can skew the set.
Variance can be negative and zero value means that all of the values within a period of test are identical. Fig. 3 rapresent an example with Variance similar to zero, where the trendless can have the leader of the trend and obtain the take profit can be not so easy.
Fig 3. In this trade the Variance is very low and the difference is around 0.000001, so the trade has been profitable but with period of 151 candles. The drawdown of the strategy in this specific trade has not been adeguate for the contest prize, but it can be evaluated the logic of the trading system. POSSIBLE IMPROVEMENTS
An improvement in the strategy can be a new setting of Variance or the introduction of a trailing stop, with a small step. The new setting can include a filter in the trade similar to which in Fig 3, for example it can be tested a margin value of 0.000015 has difference between Variance 3 and Variance 10.
Another implementation made in the strategy was to make it less dynamic. Sometimes, pending positions can have a better efficiency in stay-on-the-market, optimizing in consideration of the rollover. A possible logic can be that the pending orders is valid only x candle before the candle close. The strategy could be improved also changing the ratio TP/SL and indicating also other pair, but probably is a good suggestion to prefere that pair with a low spread (considering the small TP value).
I did not study all this kind of trading set but it could be profitable to take a some backtest : )
EXIT FROM THE TRADE
The 5 pips take profit and the exit to 300 is just to put the strategy in the contest framework, where it is probably convinient to try a no trade loss strategy with great trade amount.