Ciao a tutti,
today I’m showing the results of an analysis I performed on our latest indicator that Andrea introduced last week with these posts:
I remember the first time I met Andrea in person he was very excited about the potential of this indicator, and for a good reason I must say It will be released under the name of “DuettoFX” (in Italian “duetto” means “couple”), because it is based on the comparison of indicators computed on a couple of currency pairs. The best setup for DuettoFX is EURUSD vs USDCHF, which are two inversely correlated currency pairs. It can also work with directly correlated pairs, but the most easy and intuitive way of exploiting DuettoFX comes with inversed pairs. It is as simple as going long when a new green cloud appears on chart and short when a new red cloud is displayed. As an example the last signal on EURUSD was buy @ 1.2799 on the 18th of Janaury, and that trade (with a floating +480 pips right now) is still open.
I performed an edge ratio analysis much like I did for Groups (Analyzing the Edge of PotenzaFX Groups), but this time I also experimented a really simple yet complete trading strategy exclusively based on DuettoFX. We generally use DuettoFX on H1 charts, therefore I took 8 hourly charts relative to 4 DuettoFX “inverse” setups (EURUSD vs USDCHF, AUDUSD vs USDCHF, EURUSD vs USDCAD, and AUDUSD vs USDCAD) and then I measured how much price moves in favor of a trade (MFE = maximum favorable excursion) and how much it moves against the trade (MAE = maximum adverse excursion) when DuettoFX signals a new entry.
Since typical DuettoFX’s values go from -10 to +10, I’ve set -2 and +2 (a threshold that is 10% of the typical range) as values for deciding short and long entries. When a candle closes with DuettoFX’s spread <= -2 a short trade is opened at the beginning of the next candle. When a candle closes with DuettoFX’s spread >= +2 a long trade is opened at the beginning of the next candle. After a trade is opened we measure MFE and MAE (as number of pips) until the next trade in the opposite direction is signalled. Not only that, I also measured the exact number of pips won or lost by each trade. Generally this kind of trading strategy (that keeps the account “always in the market”) does not work well because the exit strategy is not good enough. However DuettoFX proved to perform very well with respect to both (MFE-MAE) analysis and to this trading strategy, as shown in the table below:
These results refer to the period from 1st Sep 2011 to 8th Feb 2012 (the last 5 months). You do the math: 9 thousands pips over 5 months are +90 pips on average per trading day 😉 The overall profit factor for the “EURUSD vs USDCHF” setup is especially good: a whopping 5.06 that – believe me – is pretty amazing for a strategy so simple. Of course we need to test DuettoFX over a more extended period of time, but these preliminary result are really encouraging. The nice thing is that (MFE-MAE) show an upward slope for all the 8 charts during the whole 5 months period, therefore without doubt there is a huge and consistent profit potential here (more than 4 thousands pips per month) to be exploited.
Tomorrow Andrea is going to describe DuettoFX even better and to announce its release date, so stay tuned if you found the analysis above interesting. Good luck with your trading 😉