Monday, December 10, 2012

Entry signal on NZDUSD, full-bodied candles

A low volatility candle appeared on the NZDUSD over the weekend. The NZDUSD is running into some resistance, so it will be interesting to see how this plays out.

Full-bodied candles
I'm currently backtesting a new system based on full-bodied candles. Essentially, the open and close of a full-bodied candle should occur within the top and bottom quarters of the candle. I'm building a database on the USDCHF which will also contain RSI(14), ATR(14) and ADX(14) values to see if there is any relationship between these variables and profitability.
I have noticed that full-bodied candles can be profitable when their range is between 100% and 150% of ATR(14), trading with the trend. The sample size was 100, from the USDCHF between 2001 and 2006. Our entry would be the break of the candle's high or low, and our stop loss would be the opposite end of the candle. With a 1.5-to-1 reward-to-risk, profit factor was 1.36, which is okay. The profit factor for all R:R ratios above 1 are also positive, so thus far this is looking promising. 

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