What is WFE's logic ?

Of course, it is extremely difficult to trade something you don't understand and trust and be profitable with it. My aim is for the WFE expert advisor to be a long term profitable EA you trade because you TRUST and UNDERSTAND, not a black box system you use to make money in the forex trading market. The key to being able to trade long term profitable systems profitably is of course the true understanding of how the logic works, its faults and its capabilities.

The WFE expert advisor is based on a simple, counter intuitive use of the 20 period RSI indicator on the EUR/USD instrument one hour charts. The EA enters short or long trades as the EA crosses from below the 28 line or from above the 72 line, however, contrary to the traditional use of this indicator the WFE EA enters short trades when the RSI crosses from below 28 to above and enters longs when the RSI crosses from above 72 to below. The EA also has an exit criteria which closes trades upon a second cross over and reentry to the below 32 or above 68 zones. This counter-intuitive approach works because the RSI maintains itself above the 72 and below the 28 zone on trends and "attempts" to exit on retracements so we actually get good entries almost at the end of retracements when the market is trending smoothly.
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The market exposure we pay for this approach is of course when we enter trades on ranging markets when the RSI is signaling overbought and oversold times and we are entering in the direction opposite to market movement. This is the cost of getting into the trend following trades. Bear in mind that most approaches that try to "filter" these ranging periods out will inevitably filter also the profitable periods to a great extent, the losing trades we get are the price for the profitability we get when the market works, such as the false breakouts on the turtle system or the trend reversals on the God's gift ATR.
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This is the best RSI only system I could come up with after deep analysis of the RSI and the EUR/USD trading patterns. Lot sizes, SL and TP are adjusted against the 14 day period ATR with the SL being 50% of the ATR value and the TP being 50% of the ATR.
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I also want to stress that most modifications that people would most likely try on this system decrease its profitability. For example, introducing trending filters such as an ADX indicator, a higher time frame confirmation, being above or below a high period MA in order to trade, etc. It is important to realize that the cost the system demands for the profit is the draw downs we suffer on unideal markets, there is no way around this market exposure. Probably there are still things to be done that could increase the system's profitability, I would be happy to hear your ideas on the subject. Please leave a comment :-). Note that all the indicator values, %ATR for the TP and SL, etc have all been optimized.

8 comentarios:

  1. I've observed your ea is giving back too many pips.
    Many times the trades do not reach tp, but they travel more than half way to tp before giving back all those pips and eventually hitting sl.

    Maybe a breakeven function, or trailing stop which kick in as soon as n% of the journey to tp has been completed would help

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  2. In fact, the approach you suggest does increase the number of profitable trades but reduces the risk to reward ratio to a point where the system loses profitability in comparison with the use of a fixed TP value. This is by trying large number of trailing stop and breakeven values. The EA does not benefit from cutting loses short using a TL or BE approach. Maybe there are more interesting approaches to the closing logic ? anybody would like to give an opinion ?

    Thanks a lot for the interest !

    Best Regards,

    Daniel

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  3. Have you tried reducing risked pips?
    If price has traveled 50% to take profit, reduce risked pips by 50%.

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  4. Yes, it has globally the same effect as using a 50% TL, you will make many trades profitable but the overall reduction in the risk to reward ratio will make the system more unprofitable than using the fixed TP. In the long term, the trades that generate the most profit are those that hit the TP, introducing a TL, BE or partial take profit approach hinders those trades significantly. As I say, improvements probably lay in enhancing the closing logic, not in trying to cut loses short by using the before mentioned approaches. Thanks again you for your interest!

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  5. Interesting. Daniel, maybe I'm wrong but didn't you promote this EA on the basis that it mainly used price as an input (three black crows, three soldiers, or similar)? And you downplayed the role of indicators such as RSI, CCI, etc. And now after tweaking you are praising the role that RSI plays in the improvements. Seems a little at odds with your intitial approach, no?

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  6. Hi Redford,

    Indeed, you are wrong :o). You are confusing this EA with Watukushay No.2 which is an EA based exclusively on price action. This EA, Watukushay FE, is entirely based on the RSI. The experts have very similar names but they are TOTALLY different. As I say, Watukushay No.2 uses no indicators, Watukushay FE uses exclusively the RSI. Thank you for your comment and interest !

    Best Regards,

    Daniel

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  7. Hi Daniel,

    Matt Edmonds here. Have you considered using an exit like Gods Gift has, using a combination of Keltner Channels and Bollinger Bands to determine if the market is trending or ranging. When the bollinger band is inside the Keltner Channel, it is ranging and the exit can be triggered at the profitable end of the range.

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  8. Hi Matt,

    Thanks a lot for the comment :o) Glad to hear from you again ! I am sorry it took me so long to answer but I hadn't noticed your comment here.

    I tried similar approaches but the fact is that the Watukushay FE expert seldom trades under tight ranging markets due to the fact that reaching extreme RSI levels under these conditions is very rare. I will try to implement your suggestion and see if we can improve the system's results through the addition of such an exit :o)

    Thanks again for your comment !

    Best Regards,

    Daniel Fernandez

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