Bullish Engulfing Candlestick – Type A | Trading Strategy (Filter & Exit)

I. Trading Strategy

Concept: Trading strategy based on candlesticks. Research Goal: Performance verification of the bullish engulfing candlestick with a counter-trend bias (Type “A”: The pattern definition is different to the base case).  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 B: New setup and filter. 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: MA_Length & 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:	MA(Close, MA_Length): The simple moving average of the close price over a period of MA_Length. Bullish mode: (Close at Setup) > MA(Close, MA_Length). Bearish mode: (Close at Setup) < MA(Close, MA_Length). Trade Filter: Accept patterns in a bearish mode.	MA_Length = [5, 140], Step = 5;
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. 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; ATR_Length = 20; ATR_Stop = 6;
Sensitivity Test:	Time_Index = [1, 40], Step = 1 MA_Length = [5, 140], Step = 5
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: MA_Length & Time_Index (Definitions: Table 1):

Figure 3 | 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 (Exits)
Related Topics: (Public) Trading 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-b/