Week in Review: 27th January to 2nd February 2014

It's been a quiet week. Two trades were only triggered. I won the first trade, while the second trade is still open. A snapshot of the winning trade is below.

NZDUSD - Weekly Chart

This is based on my Cernenus system. A pinbar formed on the NZDUSD weekly timeframe last week. I went short on the break of the low this week and took profit at 0.25:1 reward:risk. It's a low R:R ratio, but according to my backtest, this is very optimal over 10+ years.

I didn't like shorting the NZDUSD since the overnight carry cost is huge due to New Zealand having the highest interest rates in the developed world. 

SYSTEM DEVELOPMENT

Over the last week, I spent alot of time backtesting low volatility breakouts during the London and London / NY sessions but the results were too marginal for my liking. I just couldn't make it work to a satisfactory level. The only useful finding was that taking positions around the London open and during the London / NY overlap were more profitable than during any other hours I tested. 

I'm now testing pinbars on the EURUSD 5M chart during the Asian trading session. I gained this idea after reading some research from FXCM, which showed that range-friendly strategies work well during the Asian session, especially when using an oscillator like RSI. I intend to filter my pinbars with an RSI indicator so that I only short a pinbar when RSI is overbought, and go long when RSI is oversold. I also look for significant pinbars which have a range greater than ATR(12).

I only tested 106 sample trades from 2010, yielding the following equity curve (initial balance: $10,000, risk: 2% per trade, reward:risk 1.25:1)

106 trades is much too small to have a verdict, but on the back of FXCM's research, I'm very eager to continue my testing. Will post further details as my backtest progresses.