Hi trignal67, and thanks for your constructive questioning.
This algo was formed from an 'idea first' viewpoint observing the market. I'm usually a 'data first' guy, and all of my FX algos are derived from a 'data first' approach. Both these terms are very well presented by Robert Carver in his 'Systematic Trading' book, which is a great read.
So in this case, the idea was formed from looking at how price reacts around the blue line you see in the chart. It's an average of my own design, based on a Holts average, with some modifications. My observation was that in many cases, price reacted in a certain way around that line when it deviated by some amount of ticks, i.e. reverted to that mean.
Taking that observation, I coded the algo and tested it on a 5000 bar historical dataset in order to ascertain the reversion stats. Around 4000 bars were dedicated to back test, and after some small modifications, a forward test on the out of sample 1000 bars.
Now, there will be those that feel back testing needs way more data points, there are those that will say back testing is worthless. Everyone has their view. In my case, I need enough data, to see something that is statistically relevant and gives me a warm fuzzy feeling inside. I'm not a statistician by any means, but I know enough to know what I know works for me.
The testing results were positive. And good enough to make me put a grand into this adventure. In the scheme of things, it's not a lot of money. But, it's my money, I earned it and saved it, and so to me it is a serious endeavour.
I'm not going to divulge how profitable the testing was, because that is really meaningless. Going forward, the market will give what's it's going to give, I cannot force it to perform as it did historically. I think that's a really important point for me anyway, that my back test only tells me that the strategy has potential. The forward test only serves to add some confirmation to that potential, enough to bring me to a decision of whether to trade it or not.
The algo performs well over that sample dataset with 3 different Risk to Reward profiles: 1.5:1, 1:1 and 1:1.5. These are the three profiles I generally stick to. I like the 1.5:1 risk:reward, as it results in nice runs of wins, and that brings me psychological comfort. Over the coming weeks, I may run all 3 variations on this one account, and although entries will all be correlated, exits will be per the reward ratio. But that will need an additional deposit, or the risk across a single set of entries will be around 9%, which is even too much for me.
The rationale for the journal is simple. As a hobby trader, I'd like to expand my horizons a little (e.g. this is the first time I've traded futures) and engage in a some constructive discussion around the stuff I'm doing.
That may not provide all the detail you've asked about, but I hope it adds some context.
This algo was formed from an 'idea first' viewpoint observing the market. I'm usually a 'data first' guy, and all of my FX algos are derived from a 'data first' approach. Both these terms are very well presented by Robert Carver in his 'Systematic Trading' book, which is a great read.
So in this case, the idea was formed from looking at how price reacts around the blue line you see in the chart. It's an average of my own design, based on a Holts average, with some modifications. My observation was that in many cases, price reacted in a certain way around that line when it deviated by some amount of ticks, i.e. reverted to that mean.
Taking that observation, I coded the algo and tested it on a 5000 bar historical dataset in order to ascertain the reversion stats. Around 4000 bars were dedicated to back test, and after some small modifications, a forward test on the out of sample 1000 bars.
Now, there will be those that feel back testing needs way more data points, there are those that will say back testing is worthless. Everyone has their view. In my case, I need enough data, to see something that is statistically relevant and gives me a warm fuzzy feeling inside. I'm not a statistician by any means, but I know enough to know what I know works for me.
The testing results were positive. And good enough to make me put a grand into this adventure. In the scheme of things, it's not a lot of money. But, it's my money, I earned it and saved it, and so to me it is a serious endeavour.
I'm not going to divulge how profitable the testing was, because that is really meaningless. Going forward, the market will give what's it's going to give, I cannot force it to perform as it did historically. I think that's a really important point for me anyway, that my back test only tells me that the strategy has potential. The forward test only serves to add some confirmation to that potential, enough to bring me to a decision of whether to trade it or not.
The algo performs well over that sample dataset with 3 different Risk to Reward profiles: 1.5:1, 1:1 and 1:1.5. These are the three profiles I generally stick to. I like the 1.5:1 risk:reward, as it results in nice runs of wins, and that brings me psychological comfort. Over the coming weeks, I may run all 3 variations on this one account, and although entries will all be correlated, exits will be per the reward ratio. But that will need an additional deposit, or the risk across a single set of entries will be around 9%, which is even too much for me.
The rationale for the journal is simple. As a hobby trader, I'd like to expand my horizons a little (e.g. this is the first time I've traded futures) and engage in a some constructive discussion around the stuff I'm doing.
That may not provide all the detail you've asked about, but I hope it adds some context.
