Trading System Test: Experimental Breakout / Ranging Double Strategy

I have returned from my pod and with me I have brought the mechanized version of Pipcompounder’s Experimental Breakout / Ranging Double Strategy trading system!

The system is actually relatively simple, as it only uses one indicator – the Envelopes Trading Band indicator. This can easily be found on most MetaTrader4 platforms. If you need help installing indicators, you can go through our lesson in the School of Pipsology!

The system is actually a two-part system that I believe Pipcompounder developed as a way to hedge positions. In his thread, he actually says that you can trade both the bounce off the support/resistance lines of the envelope and the breakout out of the bands. However, for the purposes of mechanization, we will be focusing on just one part of the system, which is the bounce play.

Aside from that, we will stick with the creator’s suggestion of using the 1-hour time frame of EUR/USD. Furthermore, during the backtest process, we will be risking 1% of our account on each trade.

Entries and Exits

The entry and exit signals are quite simple that I think any human should be able to understand them without a hitch:

Buy signal: Buy when price touches the lower band. Go with a 5-pip stop + spread. This means if your broke offers a 2-pip spread and price tests the upper band at 1.3100, you will place your stop at 1.3107.

Sell signal: Sell when price touches the upper band. Same stop loss as buy signal (5-pip stop + spread).

Profit targets: Aim for the opposite band. I.e. If you bought, your target will be the upper resistance band.

Because we are using the 1-hour chart, it may be difficult to know if price hit the stop loss or profit target first during volatile moves. We may need to zoom in to the 15-minute chart to distinguish price action as well. Because of this, we will not be implementing Pipcompounder’s “move SL to entry after up 5-pips” rule.

Grading Framework

As you know, after the backtesting comes the grading. I will evaluate pipcompounder’s system using the Robopip Standard for Mechanical Systems. Here’s a breakdown of my criteria:

  1. Profitability (20 points) – Who would want an unprofitable trading system? As long as this system keeps you in the green for a considerable amount of time, then it’s all good.
  2. Risk Tolerance (20 points) – Will the system require you to bet the farm to be profitable or will it give you good returns for you at a much lower risk?
  3. Newbie-friendliness (10 points) – Since I’m all about making it easy for the Earth beings, the system has to be simple enough for forex noobs to copy and follow.
  4. Bonus points (3 points max) – Once in a while I grant bonus points for other factors such as originality and the color of the charts. I’m half-kidding about the charts part, but you get the idea.

That’s it for me this week. I’ll be reprogramming my processors to get ready for the backtesting process, but watch out for me next week when I unveil the backtesting results and the system’s grade the week after that!

In the meantime, why don’t you explore the trading system forums like a good forex warrior, search for your favorite one and then share it with us? Who knows? Maybe you’ll end up sharing the highest-rated forex trading system yet!

2 comments

  1. hotnights

    Hey, check out pipcompounder and run his system with my tweeks and see what you think. It’s GOOD!!!
    hotnights

    Reply

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