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TRADING SYSTEMS

A Simple Price Action Based System for a Basket of AUD Pairs

Simple, Price Action, Based System, Basket of AUD Pairs, AUD, Australian dollar, Trading Systems, fx trader, forex

It is relatively easy to find articles about trading systems that achieve positive long term historical results on highly liquid Forex pairs. However this becomes more difficult as we move to more exotic pairs since trading costs generally make the development of profitable trading systems for these symbols harder. However there are a significant number of highly liquid crosses that trade at low trading costs (spreads of 3-5 pips) and could generally be considered to be cheap enough for the development of useful trading strategies. On this article we will talk about a strategy for the trading of a basket of AUD containing symbols, in particular the AUD/JPY, EUR/AUD and AUD/GBP. As these are some of the least commonly used trading pairs.

 


This price action based strategy uses simple open/high/low/close comparisons on the daily charts. The entry and exit rules are shown below. Note that the number between brackets represents how many bars in the past to look back (Open[1] = open of last closed bar, Low[10] = low of the tenth past closed bar, etc).

Long entry rules:
• High[141] > Low[46] AND Close[146] > Open[156]

Short entry rules:
• Low[141] < High[46] AND Close[146] < Open[156]


 

Trades are entered with a stoploss of 2.75 times the ATR(20) indicator (Average True Range), where 20 represents the indicator’s period. Trades also start with a takeprofit of 2.5 times the ATR(20). If a trade is open and a signal in the opposite direction is received the trade is closed and a trade in the opposite direction is opened. If a trade is open and a signal in the same direction happens then the stoploss and takeprofit are reset as if the trade had just been opened from the current Bid/Ask. The exact same logic and stoploss/takeprofit values were used for all tested pairs. Lot sizes are always calculated when a new position is opened to lose 1% of the account’s balance if the stoploss value is hit.

Simulations for this strategy were carried out using 1986-2017 daily data. A constant spread of 3 pips was used for all traded symbols.  Note that the current average spread for these symbols on many retail brokers is now significantly below this point so the larger spread is used to account for larger historical spreads through the simulations. Since the trading frequency of these systems is rather low the influence of the spread is also limited.

This trading system achieves profitable results on all tested symbols through the back-testing period. Results are best for the EUR/AUD where the Sharpe ratio and CAGR are highest. In contrast to other symbols the reward to risk ratio is significantly higher than for the other symbols while the winning ratio is roughly the same, leading to a much higher expectancy per trade. Results are poorest for the GBP/AUD where the Sharpe ratio is much lower than for the AUD/JPY or for the EUR/AUD.

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