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Posts: 14

Topic: 4 x 1 strategy

I received a strategy called 4 x 1 strategy, that can be used in the forex market

1. Trade one currency pair only
2. Trade in one direction only(long or short depending on which currency is doing well, eg trade against the dollar today as it is having a downward trand today against the euro, chf, etc. Use fundamental analysis for picking the currency trend)
3. Trade one lot only at a time
4. 1% of your account in a transaction(this could go upto 10% if you want to take additional risk)

This strategy generates profits every time, in every currency pair
Leverage should never be more than 10:1 although fx allows upto 400:1, leverage can kill any trader mighty quick

More has been mentioned in the book " Bird watching in Lion country"

The entry strategy can be decided by the trader(I prefer donchian break outs), this system gives the rules for trading discipline

Happy trading and testing

Re: 4 x 1 strategy

The 1% refers to take profit (usually 35 pips) at a gearing of not more than 3:1! 100:1 is absurd, a sure way to go bankrupt.
Another aspect of the 4 x 1 strategy is that you win 90% of your trades. I have not seen any other system with this win ratio.

Re: 4 x 1 strategy

90% ?

Where does Forex Strategy Builder tell you this %? Is it possible to convert the Profits and Losses it gives to this %?

Also, the Expected Return is more important than the win %.  If you only win 10% of the trades and your wins pay over  10 times your losses, then you are more profitable than winning 90 % of the time, but having wins pay only 10% that of losses.

I have played with the 4X1 strategy using FSB, but haven't found any combination of indicators that gave me near 90% wins, unless I only use 'Take Profits', which is risky because of possible large losses if that currency is suddenly devalued  and will take forever to regain its previous price.

I realize you probably already know these things and have more Forex experience than I do. I am only pointing out these things for the benefit of other newbies.

Thank You for your suggestions.

Cogito Ergo Sum

Re: 4 x 1 strategy

Think of it another way. If you have only 10% losses, then the you can allow for larger drawdowns in those losses. Only take profit will do because you make max profits at around two levels 35 pips and 230 pips(use optimiser)

Also we use a very low leverage of 3:1 max. Meaning if you allow for three lots, and have an account of $10,000, you trade $ 10,000 lots only and that too only upto $ 30,000 ohnly. So even if you lose 300 pips on a bad trade your account is down only by 10% and thats not bad at all.

Re: 4 x 1 strategy

Thank you for your reply Viswaddata.

What is wrong with only Taking Profits at, say 85 pips each time, and using maximum leverage of $500 down per trade (=1:200 or .5%) and pyramiding by buying more conracts at $500 down each time you Take Profit and waiting for another promising entry trade. If you are patient and can wait for months to have a trade made and the Pair doesn't Whipsaw sideways at less than 85 pips it should prove highly profitable in the long run and with no drawdown (except for spreads & carryover pips)? If you only day trade and only take inter day profits of 85 pips, then you wouldn't even have any carrover pip charges.

What is wrong with this Strategy?

Cogito Ergo Sum

Re: 4 x 1 strategy

I tested out the 4 x 1 strategy over a few months with 1 hour data.
The results are here
Statistic Information
Market Account
Symbol EURUSD
Period 1 Hour
Number of bars 2525
Date of updating 06/29/07
Time of updating 22:00
Date of beginning 02/01/07
Time of beginning 00:00
Data refining Switched off
Minimum price 1.2911
Maximum price 1.3677
Average Gap 1 pips
Maximum Gap 38 pips
Average High-Low 12 pips
Maximum High-Low 92 pips
Average Close-Open 5 pips
Maximum Close-Open 82 pips
Maximum days off 3
Maximum data bars 20000
No data older than 2/1/2007
No data newer than 7/2/2007
Intrabar scanning Not accomplished
Interpolation method Pessimistic scenario
Abiguous bars 1
Tested bars 2513
Account balance 1223 pips
Minimum account 0 pips
Maximum account 1223 pips
Maximum drawdown 49 pips
Gross profit 1283 pips
Gross loss 60 pips
Sent orders 7082
Executed orders 102
Dealt lots 143
Time in position 83 %
Charged spread 292 pips
Charged roll-over 339 pips
Charged fees 631 pips
Balance without fees 1854 pips

Strategy
Strategy Logic
A same direction signal - Adds to the position
An opposite direction signal - Does nothing


Opening point of the position
Donchian Channel
Enter long at the Down Band
Base price - High & Low
Period - 10
Shift - 0
Use previous bar value - Yes
Opening logic condition
Long or Short
Open long positions only
Opening logic condition
Lot Limiter
Limit the number of position's lots
Maximum lots - 3
Closing point of the position
Take Profit
Exit at the Take Profit level
Take Profit - 35

Re: 4 x 1 strategy

Sorry all, the strategy in proper format is as follows
Forex Strategy Builder v2.5.3.1
Strategy name: 4 x 1 strategy
Exported on: 10/26/2007 10:30:36 AM

Market: EURUSD 1 Hour
Spread: 4 pips
Swap Number: 1 pip

Intrabar scanning: Not accomplished
Interpolation method: Pessimistic scenario
Ambiguous bars: 1
Tested bars: 2513
Balance: 1223 pips
Minimum account: 0 pips
Maximum drawdown: 49 pips
Time in position: 83 %

A same direction signal - Adds to the position
An opposite direction signal - Does nothing

[Opening point of the position]
Donchian Channel
     Enter long at the Down Band
     Base price  -  High & Low
     Period  -  10
     Shift  -  0
     Use previous bar value  -  Yes

[Opening logic condition]
Long or Short
     Open long positions only

[Opening logic condition]
Lot Limiter
     Limit the number of position's lots
     Maximum lots  -  3

[Closing point of the position]
Take Profit
     Exit at the Take Profit level
     Take Profit  -  35

Re: 4 x 1 strategy

Your Strategy looks good for EURUSD 1 Hour. I find that most strategies that work good on one pair during one time period usually are very poor at other pairs or time periods. I have played starting with a minimal 5 minute pair opening at day start and closing at day close and noted its balance and then proceeded to add indicators and limiters to maximize the improvement. I have yet to find any strategy combination that is consistantly profitable on all pairs and time periods. This makes me suspect that most indicators are useless and only chance at a particular pair & time period are at work. I find only some benefit from money management using stops, limits, and lots. In fact, the most important profit factor appers to be Money Management, like Kelly or Optimal-F, techniques to keep you solvent when the inevitable large > 5 Standard Deviation Drawdown eventually happens.

I value your experience & knowledge and welcome your and other forum contributors opinions on this.

Thank You,
Dan

Cogito Ergo Sum

Re: 4 x 1 strategy

I have played starting with a minimal 5 minute pair opening at day start and closing at day close and noted its balance and then proceeded to add indicators and limiters to maximize the improvement.

The technical indicators use the price as basis and increase some of its aspects. I've noticed years ago that adding additional indicators to a strategy do not improve it. More precisely said: we cannot use an indicator to take a decision for a trade and to confirm its signal with other similar indicator. If you play with the parameters you can receive exactly same curve shape for different indicators. I remember I've did this with RSI, Stochastic  and Accelerator Oscillator. The indicator shape was same for the three indicators.  So I thing is not necessary to include in a strategy more than 1 - 2 indicators from a given type. The opposite leads to overoptimization.

I did the test with this indicators:

[Opening logic condition]
Accelerator Oscillator
     The AC rises
     Smoothing method  -  Simple
     Base price  -  Close
     Slow MA period  -  34
     Fast MA period  -  5
     Forming MA period  -  5
     Level  -  0
     Use previous bar value  -  Yes

[Opening logic condition]
MACD Histogram
     The MACD histogram rises
     Smoothing method  -  Exponential
     Base price  -  Close
     Signal line method  -  Simple
     Slow MA period  -  34
     Fast MA period  -  5
     Signal line period  -  5
     Level  -  0
     Use previous bar value  -  Yes

http://forexsb.com/img1/AC_MACD_Correlation.png

I exported the indicator values: Menu [Export] -> [Indicators] to an Excel spreadsheet and set the correlation function for the AC column and MACD Histogram column: =CORREL(K1:K4729,O1:O4729)

The result is correlation of 0.89 and this was my first try. I'm pretty sure if I adjust the parameters I can achieve greater correlation.
My conclusion is that we cannot use one of this indicators to confirm the other's signal. The adding of additional indicators may not improve the strategy.

Re: 4 x 1 strategy

Thank you Popov for your insight and confirmation.

I wonder why your FSB doesn't include the ability to use the same indicators to both open and close trades, such as MACD, ADX, Momentum, etc. ?

I am currently playing with your FSB and the free MetaTrader download program for automatic trading a demo account. There are several free "Expert Advisors" (EAs) and Indicators available for trading the MT4 platform (and many more for sale) compiled to the MQL format. I am still having frustration trying to get it to trade correctly, lol.

Cogito Ergo Sum

Re: 4 x 1 strategy

dan9mar wrote:

I wonder why your FSB doesn't include the ability to use the same indicators to both open and close trades, such as MACD, ADX, Momentum, etc. ?

I'm sorry I cannot understand the question. Can you explain again?

Re: 4 x 1 strategy

Why are Opening Point of Position and Closing Point of Position menu choices not the same Indicators?
That is, why does it not allow the use of MACD conditions to Open and the opposite MACD conditions to Close the trades?

Cogito Ergo Sum

Re: 4 x 1 strategy

There is no problem to do this.

Here  when MACD line crosses above the zero line there is a long signal (when it crosses below the zero there is a short signal) and the opposite logic is applied for closing the position.

A same direction signal - Does nothing
An opposite direction signal - Does nothing

[Opening point of the position]
Bar Opening
     Enter the market at the beginning of the bar
     Base price  -  Open

[Opening logic condition]
MACD
     The MACD line crosses the zero line upward
     Smoothing method  -  Exponential
     Base price  -  Close
     Signal line method  -  Simple
     Slow MA period  -  26
     Fast MA period  -  12
     Signal line period  -  9
     Use previous bar value  -  Yes

[Closing point of the position]
Bar Closing
     Exit the market at the end of the bar
     Base price  -  Close

[Closing logic condition]
MACD
     The MACD line crosses the zero line downward
     Smoothing method  -  Exponential
     Base price  -  Close
     Signal line method  -  Simple
     Slow MA period  -  26
     Fast MA period  -  12
     Signal line period  -  9
     Use previous bar value  -  No

http://forexsb.com/img1/MACD_crossover_1.png

Here when MACD crosses the zero line we have actually 2 signals one close signal and an open one. The first signal closes the current open position and after that (at the begining of the next bar) the second signal opens a new position but in the opposite direction.

----------------------------------------------------

You can do the same using "Close and Reverse" logic:

A same direction signal - Does nothing
An opposite direction signal - Reverses the position

[Opening point of the position]
Bar Opening
     Enter the market at the beginning of the bar
     Base price  -  Open

[Opening logic condition]
MACD
     The MACD line crosses the zero line upward
     Smoothing method  -  Exponential
     Base price  -  Close
     Signal line method  -  Simple
     Slow MA period  -  26
     Fast MA period  -  12
     Signal line period  -  9
     Use previous bar value  -  Yes

[Closing point of the position]
Close and Reverse
     Close all positions and open a new one in the opposite direction

http://forexsb.com/img1/MACD_crossover_2.png

The difference here is that in each MACD signal directly reverses the position.

---------------------------------

One more example with a "Stop Loss" level. Here the "Reversal" logic comes from
the "Reverse" logic of the opposite signal: An opposite direction signal - Reverses the position


Forex Strategy Builder v2.5.3.3
Strategy name: New
Exported on: 11/24/2007 11:52:18 PM

Market: EURUSD 1 Day
Spread: 4 pips
Swap Number: 1 pip

Intrabar scanning: Not accomplished
Interpolation method: Pessimistic scenario
Ambiguous bars: 0
Tested bars: 4723
Balance: 3044 pips
Minimum account: 0 pips
Maximum drawdown: 1591 pips
Time in position: 91 %

A same direction signal - Does nothing
An opposite direction signal - Reverses the position

[Opening point of the position]
Bar Opening
     Enter the market at the beginning of the bar
     Base price  -  Open

[Opening logic condition]
MACD
     The MACD line crosses the zero line upward
     Smoothing method  -  Exponential
     Base price  -  Close
     Signal line method  -  Simple
     Slow MA period  -  26
     Fast MA period  -  12
     Signal line period  -  9
     Use previous bar value  -  Yes

[Closing point of the position]
Stop Loss
     Exit at the Stop Loss level
     Stop Loss  -  -200

http://forexsb.com/img1/MACD_crossover_3.png


When you want to use one and the same condition to open and close a position every time when there is a signal it shows actually two things - a closing signal and an opening signal in the opposite direction. The result is a reversal strategy.

You can experiment by setting an additional "Open long positions only" filter:

A same direction signal - Does nothing
An opposite direction signal - Reverses the position

[Opening point of the position]
Bar Opening
     Enter the market at the beginning of the bar
     Base price  -  Open

[Opening logic condition]
MACD
     The MACD line crosses the zero line upward
     Smoothing method  -  Exponential
     Base price  -  Close
     Signal line method  -  Simple
     Slow MA period  -  26
     Fast MA period  -  12
     Signal line period  -  9
     Use previous bar value  -  Yes

[Opening logic condition]
Long or Short
     Open long positions only

[Closing point of the position]
Stop Loss
     Exit at the Stop Loss level
     Stop Loss  -  -200

As a matter of fact almost there is no difference between the Entry and Exit slots. The logics are same. If you want a mirror logic of opening and closing the easiest way is to use "Close and Reverse" logic.

As you wrote:

That is, why does it not allow the use of MACD conditions to Open and the opposite MACD conditions to Close the trades?

This is exactly a reversal system. The second MACD conditions will close the position but in the same time it is an opposite opening signal.

Re: 4 x 1 strategy

Ok. Thank you Popov. I was confused about how the Close and Reverse worked.
I am a self taught (non degreed) 64 year old retired electronics technician/computer hardware test engineer/ Amateur Radio Station K9JXE Operator and previously taught myself Basic and Z80 Microprocessor Assembly Languages so I could write Diagnostic Tests for Computer system Terminal and Disk Controllers. I am trying to understand the Indicators and "Expert Advisors" written for use by MetaTrader and how to modify/customize other's free downloaded Excel math formula spreadsheets. I previously learned programming languages by reading the annotated comments given by the author in his source code line comments. I know it shouldn't be that difficult in light of my previous programming experience. I guess it has something to do with age, lol.

Cogito Ergo Sum

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