Mean Reversion USDJPY (Long only)

This strategy is a swing-trading strategy that uses a volatility filter, a price action pattern and two moving averages to define the trade setup. It is a mean reversion strategy that buys on dips in an uptrend.

 

Features 

This is a short-term, long-only, strategy that trades on 1-hour bars. It does not trade very frequently, typically around once a week.

 

Indicator description

This strategy uses two indicators, a time-window and a price action pattern to trigger a buy order. It uses two moving averages - a fast one and a slow one – to define the trend and ADX as a volatility filter. ADX is used to quantify trend strength and it is based on a moving average of price range expansion over a given period of time. The strategy only trades when the ADX is above 20, indicating that there is a trend in the market.
Furthermore a time-window is implemented to ensure that the strategy only trades during the most profitable session.

 

Strategy description

The USDJPY has a good tendency to mean revert when the specified entry conditions are met. The characteristics of this strategy is that it has a relatively high rate of winners, but the winning trades are a bit smaller than the losing trades. We exit a long position either by our stop-loss of 60 pips, or if the previous bar closes above the bar 6 periods ago. The profits are therefore uncapped, and this makes the strategy anti-fragile.

 

Performance

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Backtest is from 2016 to February 2018. A spread of 1.5 pip is utilized and starting equity is 10.000.

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