Article Highlights

  • System generated 8.62% in one month
  • Risk per trade is only 0.50%
  • Drawdown was only 1.77%
  • System ready for forward testing
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Greetings, ladies and gents!

Before anything else, do note that I actually have two variants of the system. This write-up is about the Fixed TP Variant, which is patterned after Version 2.1.

If you want to check out the Trailing Variant that’s patterned after Version 2.2, then click the link below.

The Happy Hunter Price Action System 3.0 (Trailing Variant)

Oh, do note that the two write-ups are basically the same. The only difference can be found in the trading rules and backtest results, so if you finished reading one write-up, you won’t miss anything if you go ahead and skip to those parts in the other write-up.

With that said, I did a lot of mind-numbing work this past week. However, all that sweat, (figurative) blood, and (literal) tears paid out in the end.

I hereby proudly present Version 3.0 of my prototype trading system. This is (very likely) the final version and any tweaks after this will likely only be very minor. In fact, I should ideally not make any tweaks at all.

Also, I’ll be referring to my prototype trading system from now on as The Happy Hunter Price Action System, primarily because of the “cool factor.” It sounds cool, right? Right?

Well, it’s better than calling it the “HHHL, LHLL, IB Trading System” that’s for sure. And it sounds cute to boot! Tee hee!

As for a quick rundown on how this version differs from Version 2.1, well, the main difference is that this one has entry rules based on the Inside Bar (IB) pattern that Robopip uses in his/her/its Inside Bar Momentum Strategy. Although I don’t use the IB pattern the same way Robopip does, as you’ll see in the trading rules later.

Other than that, I also included a rule that modified the 12-hour rule for canceling unfilled orders, so that some trades are closed after 2 hours instead of 12 hours.

Okay, time to get to the meat of the discussion. As usual, you’re free to jump to the topic you want to see first. However, it would make much more sense if you read everything. And you can’t really pick and choose from the trading rules. Well, you can, but that doesn’t mean that you should since you need to follow all the rules for the system to work.

Backtest Results

Here are the assumptions/parameters for my backtests.

  • Testing period is from June 1-30, 2017
  • Tested on GBP/NZD’s 1-hour chart
  • Fixed spread of 12 pips assumed
  • Starting account balance of $10,000.00
  • NZD/USD is at 0.7200, so value of 1 pip using 1 standard lot is around $7.20
  • Max risk per trade is 0.50% of starting account
  • Lot size varies; you’ll need to use the position size calculator
Equity Curve: Happy Hunter (Fixed TP Variant)
Equity Curve: Happy Hunter (Fixed TP Variant)

As you can see above, I used Version 2.1 as my performance benchmark because The Happy Hunter (Fixed TP Variant) is patterned heavily on that version. And as you can also see, The Happy Hunter (Fixed TP Variant) easily trumps Version 2.1 in every metric. And I do mean ALL metrics. There’s no contest!

Compared to Version 2.1, the Happy Hunter generated higher returns for the same testing period while having a shallower peak-to-trough drawdown to boot.

Not only that, the Happy Hunter’s win rate is higher but the lose rate is also lower.

And more importantly, the Happy Hunter’s expectancy and expectancy score are more than double the readings for Version 2.1.

Comparing The Variants

Equity Curve Comparison
Equity Curve Comparison

Not much to say really. The Trailing Variant beats the Fixed TP Variant in every metric except drawdown and win rate, but that’s the usual trade-off.

I still plan to forward test the Fixed TP Variant, though, since it does have an advantage when it comes to capital preservation.

This can be seen in the Fixed TP Variant’s relatively flat equity curve when the system went through choppy price action during the latter part of the testing period.

In contrast, the Trailing Variant’s equity curve had a noticeable tilt to the downside, which is par for the course for trading systems that rely on catching strong trends to rake in profits.

The Core Patterns

This trading system uses price patterns known as Higher Highs, Higher Lows (HHHL) and Lower Highs, Lower Lows (LHLL), as well as the Inside Bar (IB) pattern to enter trades.

The HHHL pattern has the following elements:

  • The high of the recently closed candle must be higher than the high of the previous candle
  • The low of the recently closed candle must be higher than the low of the previous candle
  • The recently closed candle is designated as the signal bar

Pretty simple, right? Here’s an example to help you out:

The LHLL pattern, meanwhile, is just the opposite of the HHHL pattern, and it has the following elements:

  • The high of the recently closed candle must be lower than the high of the previous candle
  • The low of the recently closed candle must be lower than the low of the previous candle
  • The recently closed candle is designated as the signal bar

And here’s an example:

As for the IB pattern, it has the following elements:

  • The high of the recently closed candle must be lower than the high of the previous candle
  • The low of the recently closed candle must be higher than the low of the previous candle
  • The recently closed candle is designated as the signal bar

Basically, we’re referring to these candlestick formations:

Inside Bar

Definitions

Take note of the following since I’ll be using them constantly when explaining the rules of the system.

  • HHHL – Higher Highs, Higher Lows candlestick pattern
  • LHLL – Lower Highs, Lower Lows candlestick pattern
  • IB – Inside Bar candlestick pattern
  • ATRH – 120-period average true range on 1H chart
  • SBar – Signal Bar or candle
  • Bar1 – the previous candlestick; the candle to the left of the signal bar
  • Bar2 – the candle previous to Bar1
  • Bar3 – the candle previous to Bar2; you get the idea…
  • SL – stop loss level
  • TP – target profit level
  • Break – price level the pair needs to reach before you can move your SL to breakeven
  • P1 – this is simply a 1-pip filter for our entries
  • RSL – reduced stop loss; basically just reduces risk by half
  • RSLT – price level when you can move your SL to RSL

Computing for TP, SL, Break, RSL, RSLT

Yes, this trading system requires you to calculate a lot. No worries, right? If you’re into forex trading, then you probably have an affinity for (or can at least tolerate) numbers.

And besides, we’re only doing basic algebra that little kids are expected to learn in school. It’s not like we’re using calculus or statistics, right? Although I know somebody who does.

Okay, here is how we compute for our TP, SL, Break, RSL, and RSLT.

If going long:

  • TP = Entry – spread – P1+ (ATRH x 1.9)
  • SL = Entry – spread – P1 – (ATRH x 1.3)
  • Break = TP – (ATRH x 0.2)
  • RSL = Entry – spread – P1 – ((ATRH x 1.3) x 0.5)
  • RSLT = Entry – spread – P1 + ATRH

If going short:

  • TP = Entry + spread + P1 – (ATRH x 1.9)
  • SL = Entry + spread + P1 + (ATRH x 1.3)
  • Break = TP + (ATRH x 0.2)
  • RSL = Entry + spread + P1 + ((ATRH x 1.3) x 0.5)
  • RSLT = Entry + spread + P1 – ATRH

Trading Rules For Long Positions

This trading system uses FIVE entry methods. And here’s a brief description of what these entries are all about:

  • Long Entry Type 1 – this is the standard entry for the LHLL pattern; we’re basically expecting an exhaustion and reversal in price movement and position ourselves accordingly
  • Long Entry Type 2 – if an LHLL pattern forms within an LHLL pattern, then these rules apply
  • Long Entry Type 3 – we use the IB pattern pretty much like we do the LHLL pattern – as a reversal pattern
  • Long Entry Type 4– if an IB pattern forms inside an IB pattern, then these rules apply
  • Long Entry Type 5 – these rules allow us to jump in if price continues moving higher; in some cases, you’ll find that Long Entry Type 5 and Short Entry Type 3 are both active at the same time

Long Entry Type 1 (LHLL)

  • If an LHLL pattern forms
  • And the lows of the four candles prior to the SBar are higher compared to the low of the SBar
  • Then set buy stop order at Bar1 High + P1
  • After that, compute for and place the SL and TP
  • Make sure to compute for Break and RSLT so that you know when to reduce risk
  • However, if the buy stop order is not triggered 12 hours after SBar formed, then cancel the order
  • But if (Bar1 High – Sbar Low) is greater than (2 x ATRH), then the buy stop order should be cancelled after 2 hours, not 12 hours
  • Moreover, if a new LHLL pattern forms after the previous one, and the existing buy stop order hasn’t been triggered yet, then reset everything based on the newer LHLL pattern

Long Entry Type 2 (LHLL Within LHLL)

  • If an LHLL pattern forms that complies with the rules for Entry Type 1
  • And another LHLL pattern later forms inside the LHLL pattern
  • Keep the old buy stop order
  • But also place a new buy stop order based on the newer LHLL pattern
  • However, if the new buy stop order is not triggered 12 hours after the SBar of the new LHLL pattern formed, then cancel the order
  • Place buy stop orders for all subsequent LHLL patterns, as long as price does not go higher than Bar1 High or lower than Sbar Low of the original LHLL pattern and as long as the newer LHLL pattern did not form consecutively

Long Entry Type 3 (Reversal IB)

  • If an IB pattern forms
  • And the lows of the four candles prior to Bar1 are higher compared to the low of Bar1
  • Then set buy stop order at the high of Bar1 + P1
  • After that, compute for and place the SL and TP
  • Make sure to compute for Break and RSLT so that you know when to reduce risk
  • However, if the buy stop order is not triggered 1 hour after SBar formed, then cancel the order

Long Entry Type 4 (IB Within IB)

  • If you find an IB pattern that complies with the rules for Entry Type 3 and/or Entry Type 5
  • But if a new IB pattern later forms inside the IB pattern
  • Then place a buy stop order based on the new IB pattern
  • However, if the buy stop order is not triggered 1 hour after the SBar of the new IB pattern formed, then cancel the order
  • If yet another IB pattern forms within the second IB pattern
  • Then place a buy stop order based on the newest IB pattern
  • The 1-hour time limit applies for each subsequent IB pattern

Long Entry Type 5 (Continuation IB)

  • If an IB pattern forms
  • And the highs of the 12 candles prior to Bar1 are lower compared to the high of Bar1
  • Then set buy stop order at the high of Bar1 + P1
  • After that, compute for and place the SL and TP
  • Make sure to compute for Break and RSLT so that you know when to reduce risk
  • However, if the buy stop order is not triggered 1 hour after SBar formed, then cancel the order

Trading Rules For Short Positions

As mentioned earlier, this trading system uses FIVE entry methods. They’re basically the opposite of the rules for entering long, but here’s a brief description of what these entries are all about:

  • Short Entry Type 1 – this is the standard entry for the HHHL pattern; we’re basically expecting an exhaustion and reversal in price movement and position ourselves accordingly
  • Short Entry Type 2 – if an HHHL pattern forms within an HHHL pattern, then these rules apply
  • Short Entry Type 3 – we use the IB pattern pretty much like we do the HHHL pattern – as a reversal pattern
  • Short Entry Type 4– if an IB pattern forms inside an IB pattern, then these rules apply
  • Short Entry Type 5 – these rules allow us to jump in if price continues moving lower; in some cases, you’ll find that Short Entry Type 5 and Long Entry Type 3 are both active at the same time

Short Entry Type 1 (HHHL)

  • If an HHHL pattern forms
  • And the highs of the four candles prior to the SBar are lower compared to the high of the SBar
  • Then set sell stop order at Bar1 Low – P1
  • After that, compute for and place the SL and TP
  • Make sure to compute for Break and RSLT so that you know when to reduce risk
  • However, if the sell stop order is not triggered 12 hours after SBar formed, then cancel the order
  • But if (SBar High – Bar1 Low) is greater than (2 x ATRH), then the sell stop order should be cancelled after 2 hours, not 12 hours
  • Moreover, if a new HHHL pattern forms after the previous one, and the existing sell stop order hasn’t been triggered yet, then reset everything based on the newer HHHL pattern

Short Entry Type 2 (HHHL Within HHHL)

  • If an HHHL pattern forms that complies with the rules for Entry Type 1
  • And another HHHL pattern later forms inside the HHHL pattern
  • Keep the old sell stop order
  • But also place a new sell stop order based on the newer HHHL pattern
  • However, if the new sell stop order is not triggered 12 hours after the SBar of the new HHHL pattern formed, then cancel the order
  • Place sell stop orders for all subsequent HHHL patterns, as long as price does not go lower than Bar1 Low or higher than Sbar High of the original HHHL pattern and as long as the newer HHHL pattern did not form consecutively

Short Entry Type 3 (Reversal IB)

  • If an IB pattern forms
  • And the highs of the four candles prior to Bar1 are lower compared to the high of Bar1
  • Then set sell stop order at the low of Bar1 – P1
  • After that, compute for and place the SL and TP
  • Make sure to compute for Break and RSLT so that you know when to reduce risk
  • However, if the sell stop order is not triggered 1 hour after SBar formed, then cancel the order

Short Entry Type 4 (IB Within IB)

  • If you find an IB pattern that complies with the rules for Entry Type 3 and/or Entry Type 5
  • But if a new IB pattern later forms inside the IB pattern
  • Then place a sell stop order based on the new IB pattern
  • However, if the sell stop order is not triggered 1 hour after the SBar of the new IB pattern formed, then cancel the order
  • If yet another IB pattern forms within the second IB pattern
  • Then place a sell stop order based on the newest IB pattern
  • The 1-hour time limit applies for each subsequent IB pattern

Short Entry Type 5 (Continuation IB)

  • If an IB pattern forms
  • And the lows of the 12 candles prior to Bar1 are higher compared to the low of Bar1
  • Then set sell stop order at the low of Bar1 – P1
  • After that, compute for and place the SL and TP
  • Make sure to compute for Break and RSLT so that you know when to reduce risk
  • However, if the sell stop order is not triggered 1 hour after SBar formed, then cancel the order

Going Forward

When I wrote My 2018 Trading Resolution to create a mechanical trading system from scratch, I was expecting to spend at least six months tinkering with the system before I can come up with a prototype that promises to be profitable.

But as it turns out, I only needed just over a month to do it. Hah! The things one can do if one is dedicated and focused (and had some help).

This is just the first phase, though. And sadly, many traders fail to even overcome this phase.

The next phase is to forward test the system for a few months up to a year (or more).  And I’ll start doing that on a daily basis, likely by next week. So look forward to that! This journey is not over yet, folks!

Hopefully, my own journey has inspired some of you. Perhaps some of you may even be planning to copy my system once you fully understand it.

I don’t have any problems with that. Just make sure to give me some credit. This took a lot of brainpower to make, just so you know.

Anyhow, I enjoy getting your feedback. So if you have any questions, or if you just want to say “hi” then don’t be shy and write a comment down below!

Cheers!

Happy