Heiken-Ashi System

Greetings,

I, like many others, have been searching for the perfect trading system, and I believe I have found it. I'm writing to ask you to examine this system and provide any constructive feedback that you might have.

When I say "perfect" trading system, I do not mean to imply that it has no losses, but what I mean is that it is "perfect" for my trading style and my 3 requirements.

Here is a list of the requirements that I had set out for the system, followed by the system itself, and then I will attach the only indicator I use:

Requirements:
1. Must be "set it and forget it" system, as I am in the air 3-4 days a week and cannot monitor the markets intraday.

2. Must catch all major trends.

3. Must handle ranging markets acceptably.

Indicator: Heiken-Ashi Smoothed set to 2-3-6-2.

Trading System:

Entry: 0000 GMT (7:00 PM Eastern time).

Enter in direction of previous Heiken-Ashi candle (blue=long, red=short)

Stop Loss: 50 pips

Take Profit: 55 Pips

Money management:

Start with .10/pip (1000 units at Oanda) or micro lot for every $3,000.00.
double up on every loss, maximum 5 losses

Backtesting:

I have backtested this system for the months of June through October 2006, and am continuing to backtest for Novemer and December. I will post the results in a spreadsheet on the next post down.

Summary: Out of the 5 months backtested this system produced the equivalent of 3414 pips. I say the "equivalent of" because when I would "double up" on a loss I had to put twice the number of pips actually one, so the spreadsheet would equal the dollar amount won correctly.

Concern: Many people say that doubling after a loss is dangerous and risky. To alleviate some of the risk I start with very minimal lot sizes. Obviously this has the adverse affect of not growing the account very rapidly when you get a string of all winners. But this adverse affect seems to be offset by the reality that you really never have a losing trade because all losses are more than offset by the doubling up of the winners.

Any feedback you have would be appreciated, or if anyone is able to test this system back several years with backtesting software, please let me know.

Thank you.

Mike

Here is the only indicator I use for this system. Set properties to 2-6-3-2.

I cannot find a way to upload an Excel spreadsheet here. If anyone knows how please let me know, or I can email the spreadsheet to you and you can upload it if that would be better.

Meanwhile, here are some stats from Market System Analyzer:

================================================== ===========================================
PERFORMANCE STATISTICS
================================================== ===========================================

TRADING PARAMETERS........................................ ...................................
Initial Account Equity: $2,500.00
Trading Vehicle: Futures
Initial Margin: $500.00
Round-turn slippage per contract: $0.00
Round-turn commissions and fees per contract: $0.00
Position Sizing Method: None
No. Contracts: From input data

PROFIT SUMMARY........................................... ....................................
Total Net Profit: $16,173.40
Gross Profit: $22,262.00
Gross Loss: -$6,088.60
Profit Factor: 3.6563
Highest Closed Trade Equity: $18,673.40
Lowest Closed Trade Equity: $1,966.00
Final Account Equity: $18,673.40
Return on Starting Equity: 646.94%

TRADE RESULTS........................................... .....................................
Number of Trades: 96
Number of Winning Trades: 49
Number of Losing Trades: 47
Percent Profitable: 51.04%
Max Number of Contracts: 1
Minimum Number of Contracts: 1
Average Number of Contracts: 1
Largest Winning Trade ($): $7,040.00 (92.47%)
Largest Winnning Trade (%): 121.11% ($3,520.00)
Average Winning Trade ($): $454.33
Average Winning Trade (%): 8.20%
Max Number Consecutive Wins: 5
Largest Losing Trade ($): -$800.00 (-9.51%)
Largest Losing Trade (%): -14.00% (-$320.00)
Average Losing Trade ($): -$129.54
Average Losing Trade (%): -2.49%
Max Number Consecutive Losses: 5
Average Trade ($): $168.47
Average Trade (%): 2.96%
Trade Standard Deviation ($): $865.22
Trade Standard Deviation (%): 16.43%
Win/Loss Ratio ($/$): 3.5071
Win/Loss Ratio (%/%): 3.2910
Return/Drawdown Ratio: 26.8520
Modified Sharpe Ratio: 0.1804

DRAWDOWNS......................................... ...........................................
Number of Closed Trade Drawdowns: 20
Average Drawdown ($): -$299.89
Average Drawdown (%): 5.49%
Average Number of Trades in Drawdowns: 2
Worst Case Drawdown ($): -$1,325.00 (14.82%)
Trade Number at Trough: 76
Number of Trades in Drawdown: 3
Worst Case Drawdown (%): 24.09% (-$624.00)
Trade Number at Trough: 10
Number of Trades in Drawdown: 5

What time frame are you using?

I only learnt this the other day but you need to save your excel file as a zip file and upload it that way.

What pairs is this on?

Looks nice on eur/usd, but gbp/usd looks crazy on 1hr

mike,
I too am interested in HA. Could you post a screen shot showing an example of how you do an entry and exit?
Thanks,
KudzuFX

best utilised on a 4hr chart.
one thing good is that this indicator does not redraw. Signals are not apprensive. bar closes, color changes, all you have to do is act on it.

I'm surprised to how your largest winning trade could be over $7000. Do you close your trade everyday at 0:00 GMT? Or did your trading size get much much larger for that trade?

Can you post a screen shot? I can't seem to get the indicator to plot with the indicated settings in post #1

Is it 2632 or 2362 you have it different in your first 2 post

Thanks

should be an easy EA for one of you clever coders out there.

It looks to me like it's 2632

Micheal,

I do not have access to it now (at work). Set ur indicator to 2-6-3-2. Should be fine. I reckon that you use the 4hr. 1hr is fine too. Pip harvest.

Thanks I put the settings in first as 2362, I need more sleep before putting on indicators. LOL

when i enter these settings the indicator shows nothing on chart....anybody else has same pb?

The same here. I have to set back the default (0, 1, 3, 2) and it showed.

The correct settings are 2632

ok exactly same here....so must be something wrong in the indicator...

For anybody interested, here is what the Heiken_Ashi_Smoothed.mq4 indicator does.

The parameters are:
MA Method & Period (period=number of bars) for moving average #1
MA Method & Period for moving average #2

Valid MA methods are:
0 = SMA (simple)
1 = EMA (exponential)
2 = SMMA (smoothed)
3 = LWMA (linear weighted)
Thus valid values for MAMetod and MAMetod2 are 0, 1, 2 or 3.

1. Using MA method/period #1, the formula calculates separate moving averages for the Open, High, Low and Close of the current bar.

2. Heiken-Ashi values are then calculated for the values returned in step 1. Formula for H-A is:

1. haClose = (Open + High + Low + Close) / 4
2. haOpen = (haOpen(previous bar) + haClose(previous bar))/2
3. haHigh = Maximum(High, haOpen)
4. haLow = Minimum(Low, haOpen)

3. Using MA method/period #2, the formula calculates separate moving averages for the O, H, L and C of the values returned in step 2. These values are plotted on the chart.

Given that Heiken-Ashi is a form of averaging, there are three levels of smoothing taking place, effectively creating a “triple lag”.

The parameters recommended by the author are:
MAMetod = 2
MAPeriod = 6
MAMetod2 = 3
MAPeriod2 = 2

(Note: these can’t be 2, 3, 6, 2 because 6 is an invalid MA method)

So step 1 is a SMMA(6) of OHLC; step 2 is taking the HA values; step 3 is further applying a LWMA(2).

Incidentally, if the parameters were entered as 0, 1, 0, 1 this would mean taking an SMA(1) at both steps 1 & 3, hence effectively removing them from the calculation (since a 1 period MA of any value = the value itself). Thus we would be left with standard H-A candles (academic interest only, I'm not suggesting that this is a profitable method).


David