Beyon Technical Analysis | Forex Trading Siminar

Robust trading rules can handle a variety of market conditions. The performance of such systems is not sensitive to small changes in parameter values. Usually, these rules are profitable over multiperiod testing, as well as over many different markets. Robust rules avoid curve fitting, and are likely to work in the future.

An example of a system with delayed long entries illustrates the use of non robust parameters. The entry rule is as follows: if the crossover between 3- and 12-day simple moving averages (SMAs) occurred x days ago, and the low is greater than the parabolic, then buy tomorrow at the today's high + 1 point on a buy stop. A $1,500 initial stop was used and $100 was charged for slippage and commissions.

The results above are for an IMM (International Monetary Market) Japanese yen futures continuous contract, from August 2, 1976 through June 30, 1995. The dollar profits are sensitive to the number of days of delay, and can vary widely due to small changes in parameter val¬ues. It also does not seem reasonable to wait 12 days after a crossover for such short-term moving averages. Hence, the flattening out of the curve after a 9-day delay is of little practical relevance. The delay parameter is not robust because a small change in the value of this parameter can make system performance vary widely with markets and time frames.

The market was in a narrow trading range during February and March, and then broke out above the $18.00 per barrel price level. The market moved up quickly, reaching the $20 level by May. A volatile consolidation period ensued through June, before prices broke down to¬ward the $17 per barrel level by July.

The following trading rules were derived simply by visual inspection of the price chart in an attempt to develop a curve fitted system that picked up specific patterns in this contract.

1. Rule 1: Buy tomorrow at highest 50-day high + 5 points on a buy stop (breakout rule).
2. Rule 2: Sell tomorrow at low -2 x (h-1) - 5 points on a sell stop (downside range-expansion rule).
3. Rule 3: If this is the twenty-first day in the trade, then exit short trades on the close (time-based exit rule).
4. Rule 4: If Rule 3 is triggered, then buy two contracts on the close (countertrend entry rule).
5. Rule 5: If short, then sell tomorrow at the highest high of last 3 days +1 point limit (sell rallies rule).