R&D Blog
Bullish Engulfing Candlestick – Type A | Trading Strategy (Exits)
I. Trading Strategy
Concept: Trading strategy based on candlesticks. Research Goal: Performance verification of the bullish engulfing candlestick (Type “A”: The pattern definition is different to the base case) with time/target exits. Specification: Table 1. Results: Figure 1-2. Trade Setup: Bullish Engulfing Candlestick: Long Trades: (Open[Yesterday] > Close[Yesterday]) & (Open[Today] < Close[Yesterday]) & (Close[Today] > Open[Yesterday]) & (High[Today] > High[Yesterday]) & (Low[Today] < Low[Yesterday]). Trade Entry: Opening Range Breakout (ORB): Long Trades: A trade is taken at a predetermined amount above the open. The predetermined amount is called the stretch. A buy stop is placed at [Open + Stretch]. Case A: New setup. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 32 years since 1980. Testing Platform: MATLAB®.
II. Sensitivity Test
All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, CAGR, and Maximum Drawdown. The final two pictures show sensitivity of Equity Curve in $ and risk multiples.
Tested Variables: Target_Index & Time_Index (Definitions: Table 1):
Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).
| STRATEGY | SPECIFICATION | PARAMETERS |
| Auxiliary Variables: | Noise: The difference between the open for each day and the closest extreme to the open on each day (Noise[i] = min(High[i] − Open[i], Open[i] − Low[i])). Average_Noise: The simple moving average of Noise over a period of Stretch_Length. Stretch[i] = Average_Noise[i] * Stretch_Multiple. Index: i ~ Current Bar. | Stretch_Length = 10; Stretch_Multiple = 2; |
| Setup: | Long Trades: (Open[Yesterday] > Close[Yesterday]) & (Open[Today] < Close[Yesterday]) & (Close[Today] > Open[Yesterday]) & (High[Today] > High[Yesterday]) & (Low[Today] < Low[Yesterday]). | |
| Filter: | N/A | |
| Entry: | Opening Range Breakout (ORB): Long Trades: A trade is taken at a predetermined amount above the open. The predetermined amount is called the stretch (defined above). A buy stop is placed at [Open + Stretch]. | |
| Exit: | Time Exit: nth day at the close, n = Time_Index. Stretch Exit: Long Trades: A sell stop is placed at [Open − Stretch]. The value is calculated at the day of entry. Target Exit: Long Trades: A sell at the close is placed if High ≥ [Entry + $Target]. $Target is the multiple of the initial risk per trade (defined by exits) and Target_Index. Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. | Time_Index = [1, 40], Step = 1; Target_Index = [1.0, 10.0], Step = 0.25; ATR_Length = 20; ATR_Stop = 6; |
| Sensitivity Test: | Target_Index = [1.0, 10.0], Step = 0.25 Time_Index = [1, 40], Step = 1 | |
| Position Sizing: | Initial_Capital = $1,000,000 Fixed_Fractional = 1% Portfolio = 42 US Futures ATR_Stop = 6 (ATR ~ Average True Range) ATR_Length = 20 | |
| Data: | 42 futures markets; 32 years (1980/01/01−2011/12/31) |
Table 1 | Specification: Trading Strategy.
III. Sensitivity Test with Commission & Slippage
Tested Variables: Target_Index & Time_Index (Definitions: Table 1):
Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $50 Round Turn).
IV. Rating: Bullish Engulfing Candlestick – Type A | Trading Strategy
A/B/C/D
Related Entries: Bullish Engulfing Candlestick – Type A (Filter and Exit)
Related Topics: (Public) Trading Strategies
Proprietary Strategies:
CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41
Codes: matlab/candlesticks/bullish-engulfing-a/