Reversi: a dynamically calculated x-candle reversal EA by Steve Hopwood

SERIOUS WARNING

1. Most Forex traders lose all their money.
2. Using the robot posted here in trading Forex does not guarantee success.
3. Trading this robot could lead to serious financial loss.
4. Trading this robot without understanding its underlying trading strategy guarantees traders will lose their money.

Reversi arises from ideas presented by a poster in The Captain's thread and in a pm from another contributor. In his post at http://www.forexfactory.com/showthre...83#post4601883, mobthehope wrote this:
"As macman brought this up, I like to add my 2 cents....

I normally trade H1 and H4 tf and used the probability distribution of said candle sequences with some success in the past.... The attached indicator visualizes this and allows anybody to play with different candle counts on their preferred tf.

I found that 5 same colour candles on H1 gives a fairly high probability of reversal on most currencies..."

I coded something along these lines soon after reading this, but left it to stew in what passes for my mind; it was a failure in Strategy Tester.

A couple of days ago, Ludo Willems sent me this pm:
"I had a bath and had an idea: to continue on The Captain #58. The guy says that mostly after 5 identical coloured candles, a change in trend occurs. I remember to have seen (and couldn't find it again)an indicator that prints the probability of a series of candles: of the last xxx candles, there are: 25 series of 3 candles, 18 series of 4 candles ,etc.., and 1 occurence of 7 candles. So, if you scan for a series of 7 identical coloured candles, the probability is 1/1000 that the next candle will be of the same colour. So, an EA with user imput selector "look for xxx last candles" and "select probability %" would do the job?"


Stunningly useful thingy's, baths. I gave Ludo's pm some thought and managed to get my head around an algorithm that will allow Reversi to:

 

1. calculate and display the number of x-candle series of moves in the same direction, over a users-selected period of x candles.
2. respond to either the user or an auto-calculated input that will tell it how many candles must move in the same direction, before triggering a trade in the opposite direction to take advantage of the impending reversal.
3. offer trade exits at take profit, stop loss, or any of the usual mptm features.
4. use Recovery instead of stop loss. In ST, 1.2.6 is fantastically successful.

Some of the inputs will need a brief explanation:

 

1. TakeProfit and StopLoss: these allow you to use Reversi as an 'I am right or I am out' trader. Do not set a stop loss and use Recovery both at the same time - chaos will result.
2. CriminalIsECN: set this to 'true' if your crim enforces 2-stage order sending i.e. first the trade then modifying it with a sl/tp. Note that IBFX are Ecn even though they try to hide the fact, for reasons best known only to those privy to their darkest dreams.
3. Candle stats inputs have the greatest potential for confusion:
   1. CandlesInSeries: this is the number of candles you want the market to move in any one direction before R sends an exhaustion trade in the opposite direction.
   2. AutoCalculateStats: leaving this set to 'true' tells R to do all the calculations for you. Setting this to false and customising the CandlesInSeries input allows you complete control over the number of same-direction candles required to trigger a trade.
   3. CalculationCandlesCount: this is the number of candles to include in the series calculation. Leaving this set to zero counts all the bars in your chart. Adjust this input in light of your chosen time-frame and personal preferences.
   4. UseLongestSequence tells R to use the longest sequence of same-direction candles as its trade trigger. Using this setting will generate rare trades, but they should be ridiculously profitable - theoretically. The default is 'false'.
   5. UseMostFrequentSequence and SequenceMinimuCandles work together. UseMostFrequentSequence tells R to look for repetition of the same-direction candle movement that is most frequent over the period defined by CalculationCandlesCount. Typically, this is 1, so a further filter is needed. SequenceMinimuCandlesis is the lowest number of candles that must move in the same direction to be considered a series. The default of 6 tells R to consider series with a minimum of 6 candles same-direction movement as worthy of consideration for trading.
   6. MinimumCandleBodySize: TB calculates the size of the body of the candle, and rejects it from the calculations if the body is smaller than this figure. The 'body' of the candle is that solid block in between the open and close price; the 'wicks' are ignored.
   7. ShowStats tells R to show all the statistics. Turning this to 'false' hides some of the display detail.

4. Recovery inputs: for details go the The Beast's thread at http://www.forexfactory.com/showthre...=1#post4135863 and download the user guide. This has a reasonable description of Recovery. In truth, you need to follow the links in the guide to the thread that first introduced the rest of us to Recovery, but that is up to you. Newbies have so much work to do before even contemplating becoming profitable traders that it is frightening to consider. The good news is that The Beast is up an running profitably on our live accounts, and has been for some time.
5. Trade management module: the functions here are the guts of mptm. Those of you unfamiliar with mptm, go to http://www.forexfactory.com/showthread.php?t=89371 and download the user guide for details. Candlestick trailing stop is not part of mptm, although it will be when I get around to adding it; I leave readers to work out for themselves what it does.

A note about series calculation

 

1. Reversi calculates whether a candle is an up or down literally. Even if a candle only closes 1 pip higher than it opened, it is a rising candle and interrupts a falling series.
2. Candles that open and close at the same price are ignored.
3. CalculationCandlesCount will probably result in the first series in the calculation being incorrectly calculated. I am ignoring this.

A note about Recovery
I am not sure if UseRecoveryTrailingStop is working properly. When enabled, it appears never to close a group of Recovery trades. In ST, the result is fantastically profitable. This may be good luck. I am not sure yet.

CPU usage
Trading decisions are made at the start of each new candle, as are the candle series calculations. This makes cpu usage light and makes backtesting easy using the Open prices only option in ST. Once a trade is open, cpu usage is heavier as the management features are called at every tick.

Trading with the trend - trend detection/setting
You can use R as a pure trend trader, entering the market after a substantial reversal. The inputs have a whole trend-detection module with these options:

 

1. Trading 'original' style i.e. after x candles have moved in one direction, trade in the opposite direction to the move regardless of the overall trend:
   1. set erything in the trend detection module to false - this is intended to be the default.

2. Manual trend setting: use this when you are happy in your own mind that you know the direction of the prevailing trend:
   1. set either RisingTrend or FallingTrend to true and UseTrendDetection to false.

3. You wish to let Reversi calculate the trend for you. Set UseTrendDetection to true, then choose the method you want to use. There are three:
   1. scooby-doo's D1 20 period Rsi. The market is trending up is this is > 55, down if < 45 and ranging if in between.
   2. slowkey's MA system from The Beast. If the 100 SMA is > 200 SMA, trend is up or vice-versa.
   3. the W1 10 period SMA "Single moving average". If this is clearly rising, then the trend is up. If it is clearly falling, then the trend is down. To decide on direction, R compares the MA now with that of CompareWithCandles candles ago. There has to be a minimum movement of MinimumAcceptableMovement pips to be considered significant. The default is pure guesswork. Remember, it is the rising or falling of the MA not the relationship of the market to the line that determines the trend. There is a 'confirmation' MA whose inputs begin with 'Con'. Typically, this should default to a 2-3 weeks period less than the main MA. This shorter MA 'confirms' the trend when it is moving in the same direction. When it is not, it shows that there is a possible trend change starting and R should not be trading.

All the automated trend-detection functions have their own inputs; you need to understand how to use the Rsi and moving average indicators in order to be able to play with the inputs confidently.

The third function, "Single moving average" comes from a book called "Trading Day by Day - Winning the Zero Sum Game of Futures " by FH Goslin. I do not think that I can post a link to the book here as it is copyright, so google it and see if you can find your own copy. Just looking at it on a W1 chart is highly convincing, so I is the one I am going to experiment with on demo.

A note about hedging
The time will come when R gets caught in a trend change. Trust me; it will happen.

When this happens, R will try to hedge its way out of trouble. I am bored with explaining myself and will leave you all to work out for yourself how this function works. Anyone who has not intervened long before automated hedging kicks in should not be trading Forex, so my lack of explanation will not cause difficulty.

Hanover
The Hanover module allows us to trade in the direction indicated by hanover's Recent Strength indi. I consider this to be the most significant development in my time at FF. Details in the Hanover thread at http://www.forexfactory.com/showthread.php?t=319709

In conclusion
I have traded this robot on my live account.





Our old friend scoobs has added some extra code to enforce a trade-one-pair-at-a-time safety. Read about it from

http://www.forexfactory.com/showthre...post4885957and download it for now from http://www.forexfactory.com/showthread.php?p=4887417#post4887417

Interesting developments
f451 has done a lot of work on the statistics of all this. Read his post at http://www.forexfactory.com/showthre...02#post4833702 then download the latest version at http://www.forexfactory.com/showthre...24#post4842824


EA coding
If I code your EA for free, then I will share it here at FF. If you want me to code your EA without sharing, then my fee is $100 payable into my paypal account.



Useful utilities/EA's/scripts

 

1. MaryJane has posted a fabulous utility to allow us to resize EA input windows: http://www.forexfactory.com/showthread.php?t=299017
2. Multi purpose trade manager: http://www.forexfactory.com/showthread.php?t=89371
3. Account equity analyser: http://www.forexfactory.com/showthre...16#post4693716

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Posting restrictions
I have restricted the ability to post in this thread to: traders with at least 1 voucher; and traders on my 'buddy' list. I have done this because I do not want the thread cluttered with 'newbie' questions about the basics. New/inexperienced traders, this is not intended as a direct insult. What I want here is discussion with traders who fully understand what it is they are doing; when you newbs have been around a while, you will come to understand what a difference experience makes to the posts a member writes and shudder at the recollection of some of the questions you asked. I do. http://cdn.forexfactory.com/images/s..._the_floor.gif Go to your profile page; there is a link to the FF page that describes the voucher process.

Do not attempt to get around this by sending me pm's asking for help with your basic problems. Doing so will earn you an automatic ban from all of my threads.

I have set up a partner thread to this and other threads at http://www.forexfactory.com/showthre...66#post3948666
There, you can post the questions that you cannot post here, about anything you need to know. Someone with the knowledge and experience you need will answer. I opened it for Nanningbob traders, but feel free to ask about this robot as well.

Traders/coders with experience who have not yet been vouched for, can get around this restriction be being added to my 'buddy' list; all you have to do is pm me to ask me to do this.

Hi Steve
One of these days I will commit harakiri!!! I just can not keep up with your speed. Just amazing.

The idea is great and it has great potential. Lets see where it takes us.

Kind regards

I've just been having a play in backtesting, i have dukascopy data for jan-april, and it looks promising. Initial runs show that candlestick trailing stop is required to increase profits. Using all other defaults but using cts and sequenceminimucandles=5 over defaults ofr a $500 account the profit increases from $47 to $200 for 16th Jan to 16th Apr.

Results posted below:

Bars in test1526
Ticks modelled4012642
Modelling quality99.00%
Mismatched charts errors0
Initial deposit500.00
Total net profit201.14
Gross profit236.42
Gross loss-35.28
Profit factor6.70
Expected payoff3.30
Absolute drawdown0.83
Maximal drawdown153.33 (23.44%)
Relative drawdown23.44% (153.33)
Total trades61
Short positions (won %)42 (47.62%)
Long positions (won %)19 (42.11%)
Profit trades (% of total)28 (45.90%)
Loss trades (% of total)33 (54.10%)
Largest
profit trade72.51
loss trade-3.64
Average
profit trade8.44
loss trade-1.07
Maximum
consecutive wins (profit in money)6 (67.45)
consecutive losses (loss in money)8 (-10.73)
Maximal
consecutive profit (count of wins)81.84 (3)
consecutive loss (count of losses)-10.73 (8)
Average
consecutive wins2
consecutive losses3

May trade infrequently, but the size of profitable trades is a lot larger than loss trades, so this does look like it has legs.... So many options to test.

Thanks for coding it Steve and cheers to Ludo for detailing my abreviated suggestion.... Will trial it Monday....

Excellent work Mr Hopwood and Co.!

I have the recovery candlestick trailing stop function working properly. This turned out to be to do with testing on the open prices st setting. Fix in post 1.

The quick way to back test is to use Open prices, but bear in mind that this affects the trailing stop results as the ts only checked once a candle rather than every tick.

Amazing......Two threads behind and the trading hasn't even started yet this week.....Thanks for the fun Steve...

Have a great week

whip

Hehe. You will be delighted to know I am away from my computer on Monday and Tuesday.

You have a profitable and happy week.

Hi Steve

This looks very interesting. I did take a look at that indicator on charts and it (often) did pick out some good reversal points.

I seem to remember you also talking about using the MA of the RSI in conjunction with this. Presumably the number of candles would be the first condition, and then the MA RSI cross would actually trigger the trade?

Great work!

Cheers

Invisible

In response to a pm, I coded this at http://www.forexfactory.com/showthre...96#post4618396. Read the post immediately before this first. You will see from the post that I have indeed coded a bot that I have yet to offer up here; I am going to let it run on demo for a week first to see if there is a possibility of legs.

Re Reversi, yours might indeed be a good idea. Let's give what we have a run for a week and see what happens. I have it set up on the H1 chart for any pair whose symbol I recognise and I am going to leave it alone to see what happens.

Hi
Just a quick question. I have seen some EAs where they have an input for the "angle of MA" (please see an example here: http://www.fxstreet.com/metatrader/a...b-49d1cf300d1e).

Is it possible to do the same for the MA of RSI?

Kind Regards

Possibly. I achieve the same effect with an thingy-must-be-x-higher/lower-than-x-candles-ago input.

I did not look at the thingy on the site - I would have to register and I do not want to do that.

Steve, great job!

Your time permitting, I have following question:
1. CalculationCandlesCount is set at 4320 - any special reason for this strange number?

2. I attached EA to NZDUSD H1 - total CandlesInSeries only add up to 2230. Given that 1 move candles are counted, shouldn't total CandlesInSeries be same as CalculationCandleCount?

3. As we are looking at a statistical distribution, I would like to second Ludo's suggestion to provide a user selected probability % input for reversal, ie. "I would like to have a 95% probability that the next candle is reversing (calculated over x CalculationCandlesCount) - while it still is only a probability, it makes the user choice "easier"....

4. In most of your superb programming, longer trade horizons with lower probability considerations have been established. As a simplified example - the beast looks at about 180 H1 bars, max goal is white line, so about 90 hours. We all know about the DD and suggestion of lot sizes which co-relates to the lower probabilities of entry.

Another approach is a statistically high probability trade, I do not mean to lecture !, with a 10-15 pip gain but very high lot size that only occurs once or twice a day per pair. Reversi is one of such approaches, the next one is the momo bar idea I suggested to you recently and another interesting approach is the distribution of wick length of daily candle as means of high probability reversal entry. None of these are mine but a combination of two or three of these in one EA, with proper MM(!) (probability does not equal certainty) should do wonders to one's balance....

Maybe others (MacMan comes to mind) with more experience in probability trading can add / refute / expand to this......

R has made a barnstorming start on my H1 chart, minimum candle movement is 6. There are 5 initial trades open with two of those in Recovery. The EC is into the L3 stage of 1.2.6 and is screaming ahead. At the last look, the entire basket was c. 2% into profitable upl.

First impression is that Recovery trades pile in too early. If the market continues against the initial trade but is starting to weaken, those Recovery trades kick in rather quickly. It looks as though we need a minimum distance between trades input, but I will leave things alone until Wednesday and see what happens.

I know.

Yes.

Have you noted this discrepancy on any other charts? If so, it is a bloop. If not, then it is something wrong at your end.

Sorry, but stuff like this makes my eyes glaze over. I didn't understand it then and still don't. Let's see how things go for a while before stretching my limited brain capacity and giving me a headache.

Sorry, I understand the individual words but the overall meaning escapes me here. If you want a whopping great lot size and tiny pip profit, then set them in the inputs.

I just realised that there will be a discrepancy between the CalculationCandlesCount input and the candles actually calculated if there are not enough candles on the chart.

By the by guys, the word in brackets should be 'times', not 'candles'.

Hi Steve
As you know in NB system we have five indicators confirming Oversold / overbought, before a recovery trade is taken. However with Reversi this is not the case since we may have 10 or 12 candles one way before we have a candle going the opposite way and even then it may not be large enough move to break even. IMHO one way of having a viable recovery is to place a hedge after a negative trade and wait for the next 6 candle move for L2.

Kind regards

Interesting, trying on a spare Demo account as from this am, no triggers yet, a little early with ranging markets. Going for a 50 pips stop option instead of recovery, look forward to the results.

Steve, thanks for your reply.... If you dont mind I will write a more detailed outline on the ideas of my earlier post....

Additional observation:
1. I admit I still do not amount to much reading code, but, using R ootb, is the present logic not such that any meaningful high number entered as SequenceMinimuCandles (eg 5) automatically becomes UseMostFrequentSequence as all higher SequenceMinimumCandles must have a lower count due to the bell curve of distribution? This would negate the necessity of the candle sequence calculation, provided that SequenceMinimumCandle is high enough .

2. To limit DD and recovery, might it make sense to have an automatic SL at previous candle high plus 3-5 pips (afterall we are looking for a reversal), put EA to sleep till close of present candle, auto re-enter on next candle? With each new candle the probability of reversal is getting higher?

Hope this makes sense to you