Ciao a tutti,
in this post I’m going to reveal a powerful and incredibly simple strategy that can be implemented using the PotenzaFX Groups Indicator. Andrea already explained in detail in this article the basic strategy that we can implement using PotenzaFX Groups. But of course we can implement many other strategies when the basic concept behind this indicator is clearly understood.
This morning I just wanted to come up with a simple strategy with the following requirements:
- can be traded on a single currency
- fixed stop loss and fixed take profit (for the maximum peace of mind)
- can be used on the 4H timeframe (so it can be easily implemented even without a robot)
- the strategy must have few rules, and all of them must be easy and mechanical
- it should use only one indicator: PotenzaFX Groups
I wrote down some rules and then spent some time doing a manual backtest of my novel strategy on EURUSD over the last 4 months (from September 2011 to December 2011). This picture shows the result of my efforts (click on the picture for a more detailed view):
The strategy executed the following 12 transactions on EURUSD:
- 2011/09/05 00:00 SELL @1.4161, close @1.3961, 2011/09/08 12:00, profit +200, cum_profit +200
- 2011/09/09 16:00 SELL @1.3704, close @1.3504, 2011/09/12 04:00, profit +200, cum_profit +400
- 2011/09/16 16:00 BUY @1.3828, close @1.3628, 2011/09/19 12:00, profit -200, cum_profit +200
- 2011/09/19 16:00 SELL @1.3601, close @1.3401, 2011/09/22 12:00, profit +200, cum_profit +400
- 2011/09/30 12:00 SELL @1.3520, close @1.3320, 2011/10/03 04:00, profit +200, cum_profit +600
- 2011/10/06 00:00 BUY @1.3428, close @1.3628, 2011/10/10 12:00, profit +200, cum_profit +800
- 2011/10/20 08:00 SELL @1.3701, close @1.3901, 2011/10/24 04:00, profit -200, cum_profit +600
- 2011/10/24 08:00 BUY @1.3930, close @1.4130, 2011/10/27 12:00, profit +200, cum_profit +800
- 2011/11/01 12:00 SELL @1.3697, close @1.3497, 2011/11/10 08:00, profit +200, cum_profit +1000
- 2011/11/15 08:00 SELL @1.3588, close @1.3388, 2011/11/23 08:00, profit +200, cum_profit +1200
- 2011/11/28 04:00 BUY@1.3326, close @1.3526, 2011/11/30 12:00, profit +200, cum_profit +1400
- 2011/12/08 16:00 SELL @1.3328, close @1.3128, 2011/12/13 16:00, profit +200, cum_profit +1600
The strategy was able to gain 1600 pips during 4 months (400 pips per month on average) with a remarkable profit factor of 5 = 2000/400.
Drum rolls…. and here are the rules 😀
- buy EURUSD when the spread of PotenzaFX Groups is above 50
- sell EURUSD when the spread of PotenzaFX Groups is below -50
- fixed stop loss = 200 pips
- fixed take profit = 200 pips
This strategy is in reality one the most common ways to evaluate the effectiveness of an indicator. You can consider it as a lesson of my “Ideas for Winning Strategies” series 😉 If an indicator is not able to pass a test like this one (i.e. the final profit factor is below 1) then it is clear that it is not able to predict in any significative way the future price movement, so you’d better stop wasting your time using it
The logic behind this strategy is quite simple: EUR is the leader currency of “Group 1″ and USD is the leader currency of “Group 2″. Therefore we can use the spread of PotenzaFX Groups (that’s the yellow line in the picture above) as a reliable proxy for trading EURUSD. That’s why the strategy can also work effectively on a single pair. This can be useful if you want to focus your trading on a single currency pair and/or if you prefer a specific pair for its liquidity and bid/ask spreads.
The beauty of this strategy is that you have plenty of time to trade it manually in a very relaxed way. Most of the times when you miss the entry signal you still have plenty of time to enter the trade at a later time, and often also at a better price. Therefore even without a robot this strategy has a great potential. As always my suggestion is to make your due diligence, perform your backtests, and build the confidence that is needed for trading a new strategy. I believe it can be a very good addition in your trading arsenal for next year.