Algorithm/Expert Adviser strategies...

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farmerjohn1324

I'm starting simple on my first Expert Adviser strategy. If the price of a certain currency pair has gone up over the past 3 weeks, then I will buy. If down, I will sell. I will set the SL and TP at equal distances and based on the ATR. This will be a daily candle.

I intend to modify this strategy, hopefully with the educated input of people on this forum. I feel that this very simple logic-based strategy is a good starting point.

Thoughts?
 
https://www.researchgate.net/publication/222429602_The_Illusory_Nature_of_Momentum_Profits

Our paper re-examines the profitability of relative strength or momentum trading strategies (buying past strong performers and selling past weak performers). We find that standard relative strength strategies require frequent trading in disproportionately high cost securities such that trading costs prevent profitable strategy execution. In the cross-section, we find that those stocks that generate large momentum returns are precisely those stocks with high trading costs. We conclude that the magnitude of the abnormal returns associated with these trading strategies creates an illusion of profit opportunity when, in fact, none exists.
 
stochastix said:
https://www.researchgate.net/publication/222429602_The_Illusory_Nature_of_Momentum_Profits

Our paper re-examines the profitability of relative strength or momentum trading strategies (buying past strong performers and selling past weak performers). We find that standard relative strength strategies require frequent trading in disproportionately high cost securities such that trading costs prevent profitable strategy execution. In the cross-section, we find that those stocks that generate large momentum returns are precisely those stocks with high trading costs. We conclude that the magnitude of the abnormal returns associated with these trading strategies creates an illusion of profit opportunity when, in fact, none exists.
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That's constructive!

Am I able to read this for free? I'm about to take off on a flight and would love some reading material to pass the time.

I had already almost decided on mean reversion, and I'm looking mostly at currency pairs right now because I believe they are most appropriate for purely statistical analysis.

Why I started at this overly simple strategy as a starting point is to break everything down to the most simple level. The way I see it, all algorithms are broken down into two classes: trend following or mean reversion (correct me if I'm wrong). Which class I choose is my first major decision.

I have already purchased several EA's (algorithms), that show great results in backtesting. The only thing I'm not satisfied with is that the creators won't tell me exactly what the signals are. They give me a general idea, but won't tell me exactly because it would be giving away their work.

Things I THINK I know = I should use a mean reversion algorithm and avoid Martingale systems like the plague. Which leads to the question of why did I start with this example instead of a mean reversion example...

I'll get back soon with a simple mean reversion example to work from. If possible, I'd like to KISS (Keep It Simple Stupid), but I'm willing to get as complicated as possible.
 
farmerjohn1324 said:
That's constructive!

Am I able to read this for free? I'm about to take off on a flight and would love some reading material to pass the time.

I had already almost decided on mean reversion, and I'm looking mostly at currency pairs right now because I believe they are most appropriate for purely statistical analysis.

Why I started at this overly simple strategy as a starting point is to break everything down to the most simple level. The way I see it, all algorithms are broken down into two classes: trend following or mean reversion (correct me if I'm wrong). Which class I choose is my first major decision.

I have already purchased several EA's (algorithms), that show great results in backtesting. The only thing I'm not satisfied with is that the creators won't tell me exactly what the signals are. They give me a general idea, but won't tell me exactly because it would be giving away their work.

Things I THINK I know = I should use a mean reversion algorithm and avoid Martingale systems like the plague. Which leads to the question of why did I start with this example instead of a mean reversion example...

I'll get back soon with a simple mean reversion example to work from. If possible, I'd like to KISS (Keep It Simple Stupid), but I'm willing to get as complicated as possible.
More...

After some googling, you can usually find popular aged research papers floating around online: https://pdfs.semanticscholar.org/a204/7655ef23e37c91bfc063a977c558cc9ee903.pdf

As for "EAs that look great in back testing", there are a lot of caveats there:
A) They might not model transaction costs accurately.
B) They might be martingaling (the betting term, you need to check algos that).
C) Working in-sample and out-of-sample are very different things. You can almost always find some periods of past data where a particular algorithm looks awesome, but that don't imply anything about future results.

If authors refuse to give you any rationale for why the EA should work I would stay out of it. In fact, I would stay out of the "EA" ecosystem altogether. What I saw there is mostly gambling via martingaling and grid trading, or using godawful leverages to scale up returns of pitiful Sharpe ratios that easily are noise w/ massive drawdowns, or otherwise implicitly relying on scaling up equity beta (market returns) similarly with the algo just being noise on top.
 
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I don't think there is much juice in forex for the average small retail guy. Currencies are analyzed and arbed up the ying yang by the billions (trillions?) Much easier (but not easy! ;)) in my little mind to catch some loose dollars with equities. Just my 1c. Good luck. :)
 
Is there a way to buy/purchase more backtest Forex data? Through MT4, all the brokers I've seen only go back about 5 months on M5 data. I'd like decades if possible.
 
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