RESEARCH: Monday morning breakouts on the USDJPY and AUDJPY

I just finished backtesting Monday morning breakouts on the USDJPY and AUDJPY. This is based on my findings that 12.5% of the weekly highs and lows of the AUDNZD were found in the first 4 hours of Monday, which is very significant. While the USDJPY and AUDJPY aren't eactly the same as the AUDNZD, they are cheaper Asian pairs to trade, so I chose to backtest them first.

My strategy rules were pretty simple: enter on the first break of the high or low of the first 4H candle on Monday, with a stop loss on the opposite end of the candle. I used RSI(6) to measure the trend, and ATR(6) to measure average candle size. An example setup is below:

I backtested the USDJPY and AUDJPY from January 2013 to September 2015, and gathered 287 trades.

Initial Results

These are the raw results, at various reward-to-risk ratios:

Nothing remarkable, although there seems to be a hint of profitability with smaller reward.

Optimisation

I did a rough optimisation, looking at whether the size of the first 4H candle made a difference. I divided the candles into three groups:

1. Small candles have a range less than 0.75 ATR(6)

2. Average candles have a range between 0.75 ATR(6) and 1.25 ATR(6)

3. Large candles have a range greater than 1.25 ATR(6)

For small candles (94 sample trades):

For average-sized candles (140 sample trades):

For large candles (53 sample trades):

Thoughts

Average-sized candles performed very well, with profitability greatest with smaller reward-to-risk ratios. Large and small candles performed poorly. 

Since I've found that average-sized candles do well, the next step is to test other pairs and see if this pattern repeats itself.