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Old 01-09-2018,
AhmadClutt AhmadClutt is offline
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Join Date: Jun 2017
Posts: 0
Default Trend following not working on my 7,000 backtests !

I have lost all confidence on trend following.

I back-tested the below system over 9 major FX pairs using 4 hour charts over 13 years which consisted of exactly 7,004 trades.

Plot 3 EMAS on chart: 5,21,55
Use a Stop loss od 2ATR(14)

Enter long/short when 5 EMA crosses above/below the 55 EMA
Exit when 5EMA crosses back over ANY of the 21 or 55 EMA (whichever comes first)

And that's it !

As you can see it adheres to all the fundamental rules of a good trading system:
- IT knows what instruments it trades
- Knows entry signal
- Knows exit signal before entering which facilitates both cutting losses and maximising profits
- cuts losses
- lets profits run
- knows risk in advance

It barely broke even before costs (It had an expectancy of 0.01R per trade). Since costs were about 0.02 R it had an expectancy of -0.01R per trade.

I then tweaked it slightly whereby I closed any trades that were not in profit after 24 hours. And for those that were in profit I moved the SL to breakeven.
Again- the overall results were very similar.

I'm not saying trend-following cant assist in trading. But based on my back tests - (which was a significant sample size in anyone's language) it definitely isn't a simple case of cut your losses and let your profits run and you are guaranteed profits in the long run like many sites lead you to believe.

It really needs to be fine tuned a bit better than that. I really don't know where to go from here to be honest.

Ya - you can tweak the parameters - but that should now make any difference in the long run.

Id be curious to get other peoples thoughts on it.
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Old 01-10-2018,
AhmadZhang AhmadZhang is offline
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Join Date: Oct 2017
Posts: 0

My only suggestion which is off the back of fundamental analysis is to look for catalysts as a trade indicator instead of indicators. All trends are driven by fundamentals and there is always one or more catalysts at the start (a news event) that starts traders piling in. Taking the 4h chart as your base, derive your signals off candles that exhibit a large enough move that would signify something has happened. This would filter out the stuff that eats away at your account.
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Old 01-11-2018,
AimeeFug AimeeFug is offline
Join Date: May 2017
Posts: 0

Sounds like you're testing oscillations, not trend. Try drawing a "trendline" underneath your swing lows. At the very least, this enables you to take back control of your trading instead of leaving it up to indicators.
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Old 01-13-2018,
admin admin is offline
Join Date: Dec 2010
Posts: 1,010

Oscillations? Not sure what you mean?

And you mean drawing trend lines beneath swing lows for Stop-loss placement?

I appreciate the suggestion but I fail to see how logically that could be better than using 2ATR.

The fact is that in my backtests that most of the time I was stopped out from the EMAs crossing over anyway.
And a 2ATR placement still lets me assume large positions sizes in quiet times and vice verse. Effectively it should be no better or worse than using swing lows as stop -placement over a large sample size
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