Sugoi - Reversal

Sugoi - Reversal is the most sophisticated strategy to date on the Tradeworks platform. In essence it is a mean reversion template, that bets against the current trend when the market is in a buyers high or sellers low.  It is set to trade on GBP/JPY with 4 different technical indicators working on multiple time frames.

 

Indicators Used
The core indicators used are the two MACD’s on two timescales being M15 and H4. The remaining 3 indicators, Moving Average, Williams Percent Range (WPR) and Bollinger Bands (BB), which works as filters, again on different timescales. 

 

Strategy Description

The GBP/JPY is a fairly volatile currency pair as of now, with prices fluctuating rapidly and with little correlation to major pairs like the EUR/USD. This strategy therefore tries to open positions when a reversal in the trend takes place based on how much the market is overbought or oversold. This is done by opening a position, when the MACD is about to go from a negative -0 to a positive +0. Due to a high lag in the MACD indicator, multiple other indicators are used. 

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Figure 1.  Shows an ideal entry before a reversal in trend.

 

This is done by opening a position, when the MACD is about to go from a negative -0 to a positive +0. Due to a high lag in the MACD indicator, multiple other indicators are used. 


Sugoi_2.jpg

Figure 2.  Shows how multiple indicators all signal the end of a long downtrend.

 

Entry Rules:
Long: when MACD 4Hour signal is greater than its main, indicating selling is still ongoing, while the MACD 15 is still below 0.  WPR is below -70 indicating oversold conditions and the price is below Bollinger lower band. All indicating that we have a sell-side panic.  

Short: when MACD 4Hour signal is less than its main, indicating buying is still ongoing, while the MACD 15 is still above 0.  WPR is greater than -20 indicating overbought conditions and the price is above Bollinger upper band. All indicating that we have a buy-side rush.

 

Advanced Settings:
Throttling has been set to limit the strategy to only generate 1 signal per hour. 

 

Custom Exit Rules Logic and Money Management.
Due to the high volatility in the market, making prices hard to forecast, the Sugoi! strategy uses multiple exit signals to filter false flags away and retain profits. Tested over 1 year, this strategy provides a risk-adjusted return, where the exit signals have proven to be the best way to reduce risk. In short, there is a long trend exit, a current trend exit on a small top (BB) and a current trend exit ‘’dead-man’s seat’’ on the MACD.

There are 3 different Custome Exit Rules for each side (long and short). To keep it short, we will only describe the long exit rules here. (Short exit rules are typically the inverse on long exit rules). 

Long Exit on MACD Top: MACD H4 is positive-above 0 and is decreasing. Where the WPR indicates an overbought condition and M15 bar is bigger than BB middle. M15 bar gives the exit 16 possible exits on the H4 indicator. With only one entry signal per hour and 16 possible exits, there is ample opportunity to leave the position with profits.

Long Exit on Small Bollinger Top: the entry signal might be true even in a strong downward sloping trend, therefore to protect against that, the strategy employs this exit signal to create an opportunity for profitable exit. The entry rule dictates that the price needed to be lower than Bolling Lower. Therefore, when MACD is negative, below 0, and prices is above BB upper, then the strategy exits. The exit is important, as we are able to exit at an profit if we bought on a false signal.

Long MACD Exit on False Signal Reversal: If MACD M15 is greater than 0 and MACD H4 continues to go down, together with a Moving Average 4H, then the entry was made on a false reversal signal and the strategy exits the position. The MACD M15 is important, as it indicates a better price, than what might have been a severe loss.

 

Ideal Market Conditions:
The Ideal market for Supoi! to perform is where we are seeing an oscillation between middle-sized trends, where a MACD reversal is very likely to happen before the momentum in the market, pushes the price too far away. Long trends are directly harmful to Sugoi!, so we advise to only test the strategy on other similar oscillating markets like the USD/JPY. However, the strategy is highly tuned for risk-adjusted returns, therefore one should carefully convert / adapt the indicators before applying it to other markets. The current trend of high volatility in the market is a breadwinner.

 

Backtest results:
We have backtested Sugoi! on data ranging as far as August 2016 and found the following trading statistics:

Annualized Return on Equity        38%
Max Drawdown                          2.4%
Percentage winning trades           72%

 

 

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