1 (edited by Minev 2008-06-10 14:16:21)

Topic: Round numbers tests

Round numbers (1.5500 for EUR/USD or 107.00 for USD/JPY) are natural support and resistance levels. many traders are placing their buy or sell orders above or below round numbers. These orders can stop or accelerate a move and are tempting tartet for the large speculators. A simple and efficient strategy could be based on the testing of the round numbers. The rules are simple. We buy if the round number is below the market and sell if it is above the market. A few additional conditions could be used:
- Trade the first or the second test of the round number. The third test usually is a break of the level.
- The test should be preceded by a larger move - 15-20+ pips.
- Especially for buy it is better to wait for small break of the level. If the level is 1.5500 for EUR/USD we can buy @ 1.5495 for example.
- For better results we can trade this strategy only if the daily range is wider than normal. For exampel today's raneg for EUR/USD was 155 pips before the test of the 1.5500 level.

This is example form today. The first test of 1.5500 provided an ebtry between 1.5500 and 1.5496, with stop and limit of 10 pips. The second test is more interesting. It could be traded by direct entry between 1.5490 and 1.5500 with 10 pips stop and limit or buy buying above the congestion @ 1.5502/03 with stop @ 1.5487 and limit 1.5520/25.

Re: Round numbers tests

Interesting support/resistance faulty test entry strategy.

Here you are an idea how to test it with FSB:

[Opening point of the position]
Round Number
     Enter long at the lower round number
     Price shift  -  5

[Opening logic condition]
Steady Bands
     The position opens below the Down Band
     Smoothing method  -  Simple
     Base price  -  Open
     MA period  -  1
     Margin in pips  -  25
     Use previous bar value  -  No

The long entry point is at 5 pips below the lower round price.
It is active when the price move during the testing bar is more than 25 pips from the bar opening price to the entry price. For this condition I use the"Steady Bands" indicator.

This two indicator slots describe the entry signals. It is easy to adapt the strategy to the chosen market with the help of the"Strategy Generator". To do this select the desired instrument and time frame and set these two slots in FSB. Start the "Strategy Generator". Left-click on these slots. You will see a padlock image on the left upper corner of the slots. It means that the slots are locked. Start the Generator. It will try to add more entry filters and to adjust the exit indicators in order to achieve a profitable strategy.

3 (edited by rnl16616 2008-06-15 21:55:11)

Re: Round numbers tests

How do you construct an entry based on the the logical condition of a price move downwards of AT LEAST 30 points over some arbitrary time period that may encompass more than one bar? In short, there does not seem to be an indicator that allows you to combine this round number with an entry condition that requires a favourable price move of at least N points. The Steady Bands does not seem to satisfy that ability...

Re: Round numbers tests

Where the entry is? At a round number or 30 points away.

In the shown strategy the entry is at a round number, but the move has to be minimum 25 pips from the beginning of the breakout bar.
Maybe you can use Momentum or Bar Range.

[Opening logic condition]
Bar Range
     The Bar Range is higher than the Level line
     Number of bars  -  6
     Level  -  220
     Use previous bar value  -  Yes

Means the total bar range of the last 6 bars is minimum 220 pips.

Re: Round numbers tests

Thanks for that and the suggestions, I tried with momentum and bar ranges but it didn't seem to work. So, let me try and clarify my question:
1) I wish to buy at the higher round number say 15400 in EUR/USD
2) As a condition of buying at 15400 I want a minumum price movement upwards of at least N pips - say 30, i.e. price must rise from below 15370 after the price has broken through 15400 initially
3) That upwards move may happen over any arbitrary number of bars, dependent on how long price ranges between 15300-15400

I added a Bar Range condition as suggested but it does not seem to give the desired behaviour. This is the published strategy:
A same direction signal - Does nothing
An opposite direction signal - Does nothing
Permanent Stop Loss - None

[Opening point of the position]
Round Number
     Enter long at the higher round number
     Price shift  -  0

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

[Opening logic condition]
Bar Range
     The Bar Range rises
     Number of bars  -  20
     Level  -  30
     Use previous bar value  -  Yes

Re: Round numbers tests

rnl16616, what you want is probably exhaustion of the market move before the test of the round number. I also require move of at least N pips (usually 20) before the test and daily range of at least ATR100 pips. Slow Stochastics could and ROC be used. This is a very simple but powerful strategy and it will be great if we tetst it properly to find the right parameters and filters.

Re: Round numbers tests

"The Bar Range rises" means exactly that. The current bar range is higher than the previous bar ramge.  It has nothing with the "Level" you have specified.

Apply the "The Bar Range is higher than the Level line" logic instead.

20 bars are too much for that logic. Even in very low volatility the total range of 20 bars should be higher than 30 pips.

At that moment there is no easy way to represent the scenario in which the price was at the round number, after that it was dropped 30 pips downward and return back to the upper round number.

Maybe we can make something like a swing filter:
For a long entry:
The price has been ?n? pips higher and ?m? pips lower than the entry price.
For a short entry:
The price has been ?n? pips lower and ?m? pips higher than the entry price.

For your logic it should look like:

[Opening logic condition]
Swing Filter
     The price has been higher and lower than the entry price
     Higher price  -  0
     Lower price  -  30
     Number of bars - 5

It should mean that the price was at least equal to the upper higher number ( Higher price  -  0) and after that it was 30pips lower during the last 5 bars.

All ideas about such an indicator are welcome smile

Re: Round numbers tests

Thanks, I had appreciated that, the value of 20 was simply the last value in there before I published it - it had started at 1. [I noticed that changing that or the level had no impact on the equity curve.]

I like the swing idea as a potential solution. As another idea, could you add that logic to the round number indicator itself? Alternatively, you have other indicators that seem to track high/low or tops/bottoms - is it possible to add some logic to one of these to use the descending bar that crosses a round number as an anchor for the low and then to trigger the entry when price over the following [unknown number of] price bars rises by N points to cross the higher round number?

Re: Round numbers tests

The Round Number indicator specifies an "Entry" point.

The "Swing" idea is an "entry filter" and it has to be a different indicator in order to work with all the "entry pint indicators".

We can think over filters that are able to differentiate an repeated test. They should work in both directions. For break out or for revers at a support/resistance level.