Hi,
I'm in the process of putting a few strategies together in a single EA and have got stuck on one important issue. My system is quite vulnerable to tight trading ranges, that is it produces quite a few false signals in such conditions. Do not confuse this with a ranging market, it may range as long as it ranges in a slightly more interesting pattern than up, down, up, down, up, down...
Instead of tweaking the logic of the system which is already quite complicated, I thought I'd come up with an external guard that would monitor the price behaviour and prevent the system from trading when conditions are unfavourable. I have tried two approaches so far, none of which seems to please me. First off, I tried a simple threshold - if the highest high minus the lowest low over the last N periods falls below it - no trading. This obviously doesn't work if the price goes up or down slowly but continuously - you may miss a decent trend.
The I moved on to trying - as I called it - a relative trading range. This is the ratio of the trading ranges over the last N periods and M periods where M > N.
There's no trading when this ratio goes below - say - 0.2 (20%). This method has one drawback - it's got a poor performance when a relatively tight range gets even tighter. In this case you may have a range of 10 pips which gives you 35% relatively.
As I'm getting a feeling that I'm trying to reinvent the wheel, can you share your thoughts on this please? Note - I'm not interested in any ATR-like indis based on moving averages. I need something that quickly reacts to sudden events like breaking out of a range (just like the approaches I've just described). It doesn't have to work in general. I'm targeting GBPUSD on M5 so I'm thinking about exploiting some of its characteristics. Any ideas/suggestions more than welcome.
Cheers
I'm in the process of putting a few strategies together in a single EA and have got stuck on one important issue. My system is quite vulnerable to tight trading ranges, that is it produces quite a few false signals in such conditions. Do not confuse this with a ranging market, it may range as long as it ranges in a slightly more interesting pattern than up, down, up, down, up, down...
Instead of tweaking the logic of the system which is already quite complicated, I thought I'd come up with an external guard that would monitor the price behaviour and prevent the system from trading when conditions are unfavourable. I have tried two approaches so far, none of which seems to please me. First off, I tried a simple threshold - if the highest high minus the lowest low over the last N periods falls below it - no trading. This obviously doesn't work if the price goes up or down slowly but continuously - you may miss a decent trend.
The I moved on to trying - as I called it - a relative trading range. This is the ratio of the trading ranges over the last N periods and M periods where M > N.
There's no trading when this ratio goes below - say - 0.2 (20%). This method has one drawback - it's got a poor performance when a relatively tight range gets even tighter. In this case you may have a range of 10 pips which gives you 35% relatively.
As I'm getting a feeling that I'm trying to reinvent the wheel, can you share your thoughts on this please? Note - I'm not interested in any ATR-like indis based on moving averages. I need something that quickly reacts to sudden events like breaking out of a range (just like the approaches I've just described). It doesn't have to work in general. I'm targeting GBPUSD on M5 so I'm thinking about exploiting some of its characteristics. Any ideas/suggestions more than welcome.
Cheers