Ninja Envelopes is a breakout strategy that seeks to profit from capturing large movements in the market. The strategy trades on USDJPY on the M15 timeframe but it can also work on other currency pairs.
Ninja Envelopes uses two indicators - Moving Averages (MA) and Envelopes. Most Tradeworks subscribers will be familiar with MA while Envelopes is less common. In fact, Envelopes are also a type of moving average with upper and lower bands indicating the distance from the mean, which can be used to identify oversold- or overbought market conditions. Please see here for more detailed information about Envelopes.
Ninja Envelopes is an oscillation-based strategy which uses envelopes and moving averages to open positions, in what could be a break-out. After opening a position, the strategy simply stays in position until the price action reverses and the moving average turns against the direction of the trade and thereby triggering an exit signal.
Figure 1. The strategy uses entry rules to buy into a break-out, followed by an exit when previous Moving Average is less than 2 bars before.
Long: When the current M15 bar open greater than lower envelope, while the current M15 low is below lower envelope AND MA is increasing.
Short: when the Current M15 bar open under upper envelope, while the current M15 high is greater than upper envelope AND MA is decreasing.
Trade throttling is set to limit the strategy to only initiate a new position every 15 minutes.
Money Management Settings
The strategy uses Custom Exit to close out its positions as follows:
Long, when the MA loses value.
Short, when the MA increases in value.
Other rules such as, multiple entry signal is set to Open Additional Positions and ignore opposite directional signals. Tradesize have been set to default.
Extra Money Management Tips
To make the strategy more secure, one could increase the period on the envelopes from 200 to 1000, thereby making it more rigid. However, increasing periods also decrease opportunities for opening positions, as the price can move far beyond the envelopes, therefore it is much about finding the right balance on the envelopes, as too low periods also decrease performance.
Ideal Market Conditions
The strategy works best in an oscillating market, where there are no particularly strong trends, as we have experienced in USDJLY over the last year. An ideal market condition can be recognized by large swings in price around the envelope whereas longer trends are negative as they may trigger false signals when the envelope slowly adjust to the new normal.
We have backtested Ninja Envelopes since the beginning of 2017 and found the following trading statistics:
Annualized Return on Equity 33.1%
Max Drawdown 1.27%
Percentage winning trades 58%