Trading Strategy Testing
This video discusses backtesting a Zigzag breakout trading strategy using a buy and sell stop order and a 30 pip fixed stop loss and take profit. The strategy is tested on a one-year timeframe for the EUR/USD currency pair with an initial balance of $1000 and a risk to reward ratio of 1:1. The results show promise with a return on investment of 34% and only two consecutive losing trades out of 183 trades. Further optimization can be done to increase the risk to reward ratio.
Is Forex Trading Without News Profitable? Backtesting a Zigzag Breakout Strategy
Introduction:
Welcome to the Trading Strategy Testing channel, where we backtest trading strategies and share tips to help you become a successful trader. In this video, we received a request from one of our subscribers, Arjun, to backtest a Zigzag trading strategy. In today’s video, we will test the strategy from the technical side alone to see how profitable it is when it’s not supported by fundamental factors. We will describe the strategy, provide examples, backtest it, and share tips to optimize the setup. Finally, we will reveal our findings on whether Forex trading without news can be profitable.
Describing the Zigzag Breakout Strategy:
The Zigzag Breakout strategy is simple and involves drawing the latest swing high and low on a chart. We then place two pending orders, a sell and a buy stop order, that will only trigger when the price reaches those levels. It’s recommended to use the strategy on high time frames to reduce the impact of false breakouts. The take profit and stop loss levels are set at 30 pips from the entry.
Examples of the Zigzag Breakout Strategy:
To illustrate the Zigzag Breakout strategy, we provided two examples. In the first example, we placed a buy stop order at the latest swing high and a sell stop order at the most recent swing low. The buy stop order was triggered, and the price continued its uptrend and hit the take profit level. In the second hand-picked example, both the buy stop and sell stop orders were added to the chart during a significant bearish spike. The sell stop order was triggered, and the price continued its bearish trend before hitting the take profit level.
Backtesting the Zigzag Breakout Strategy:
To backtest the Zigzag Breakout strategy, we chose the EUR/USD one-hour chart from March 2020 onwards, a one-year time interval, and used the Every Tick model to ensure accuracy. We entered the market with one mini-lot, risking a maximum of 3% of our account at all times. The take profit and stop loss levels were set at 30 pips, and we used a risk to reward ratio of 1:1, no trailing stop loss, and avoided placing pending orders if the spread is above five pips.
We used an expert Advisor that was designed according to the Zigzag Breakout strategy. We performed an optimization process to evaluate the strategy’s profitability potential when aiming for a higher risk to reward ratio. The results revealed that the Zigzag Breakout strategy is a promising trade system with a return on investment of 34%, a modeling quality rate of 90, and a maximum drawdown of 24.3%.
Tips to Optimize the Zigzag Breakout Strategy:
To optimize the Zigzag Breakout strategy, we recommend:
– Using an expert advisor to manage the orders.
– Downloading the database before starting the backtest to increase the modeling quality to avoid adjusting the take profit and stop loss levels.
– Using a forex broker that offers low spread accounts.
– Avoiding trading during major events.
– Choosing a time interval with less instability.
– Using a low number of trades, especially on high time frames.
Conclusion:
The Zigzag Breakout strategy is a profitable trading system that can deliver a reasonable return on investment. When optimized, the strategy can be profitable, even without considering fundamental analysis. However, we highly recommend considering the news when trading, especially during volatile market conditions. We hope this video was insightful, and if you have any questions or comments, please leave them in the comments section below. Thank you for watching, and we hope to see you in our next video. Don’t forget to subscribe to the channel and hit the bell icon to stay updated on new videos.
