Trend reversal trading strategy “Two Stochastics” is designed mainly for Forex and can be used on all currency pairs on M30 – H4 time frames. Its rules state that:
A trader should use 3 indicators: Stochastic(21,9,9), Stochastic(9,3,3) and RSI(14). A trader should open a long trade when both of Stochastics are in oversold zone (< 20) and the RSI shows oversold (< 30) as well. A short position should be opened when both of Stochastics are in overbought zone (> 80) and RSI shows overbought (> 70) as well. The take profit and stop loss should be set at 30 pips both making risk-reward ration equals to 1.
For our test, we have modified exit rules to use a Trailing Stop of 30 pips which is launched after a trade has started and is modified each new 1 pip of profit. From our point of view, such approach allows to maximize profit and minimize drawdown.
We have run the test for 2010.01.01-2018.12.28 using Each Tick modelling on EURUSD-H1, with no leverage, without reinvestment, assuming spread equals 10 ticks. These are the main parameters of financial performance, that may allow you to evaluate whether this strategy worth your attention or not:
|ROI||# of trades||Winning ratio||Max. drawdown|
The following charts may give some possible insights on which filters to apply (time sessions, day of week limitation, trend strength threshold, overbought/oversold conditions, volatility range) to turn this strategy profitable should you decide to use this strategy in your investment portfolio:
1 The orders that were opened at 0:00 and 22:00 brought the most profit while trading the “Two Stochastics” during 2010 – 2018.
2 The most profitable trades were opened at a lower level of ADX. The “Two Stochastics” is a reversal trend strategy and so, since ADX shows the strength of a trend, it is more reasonable for a trader to take trades when the possibility of a pullback increases (the market is in oversold or in overbought zone).
3 The “Two Stochastics” strategy did not show any profit during 2010 – 2018 and the wining ratio was very low – 33.45% with max drawdown 23.67%.
If you decide to buy an EA, coded in accordance with the strategy and used for the test, or to make any amendments to the original strategy rules – please, feel free to contact us.