Technical Report

  
 
Effect of Max_Position Parameter
01 December, 2012

We have received some queries seeking clarification regarding the EA's strategy of adding additional positions. This report is aimed at providing information to supplement what is already available on our web site's trading strategy page (http://phibase.com/strategy.html)

Adding positions is an inherent part of the trading strategy. The EA is not a pure pattern trader - It does not wait for a complete pattern formation to enter a trade. Synergy v3.2 trades patterns as they are formed - usually the first position is entered during the formation of the final leg of the pattern. Additional positions are then added after the pattern is confirmed or the subsequent break out/fall out occurs (or consolidation after this event).

The number of positions is controlled by the parameter Max_Positions (default and recommended is 4). This parameter also works as part of the money/risk management system along with the Max_Allocation parameter. The trade size is controlled by the combination of both Max_Allocation and Max_Positions parameters. When the Max_Allocation is set to 10 and Max_Position is set 4, the EA allocates 2.5% of free margin to calculate the trading lot size per position (Max_Allocation/Max_Position). If the Max_Position is changed to 2 the allocation to calculate the trading lot size per position doubles to 5.

Synergy v3.2 adds additional position when the hidden trailing stop loss or hidden stop loss is closer to the current price (relative to the first position) - This reduces the risk of carrying a large basket. Every trade signal/entry is made at significant Fibonacci levels or at the support/resistance trend lines interpreted by the EA.  Some times it is possible for additional positions being taken at the same level - this would be due to trade triggers on multiple time frames or different system of levels in the same range triggering signals. There is nothing wrong in adding positions at the same price range - it is as per the strategy to allow for all signals to be executed (controlled only by the Max number of positions allowed).

The following study demonstrates the effect of max_positions parameter on backtest conducted over a period of 12 years (2000- mid, 2012). An important factor in the test is that the Max Allocation was varied depending on the Max Position chosen to keep the size of the positions equal among all the tests - This was done to enable proper comparison of the test results by keeping risk per position equal among all the tests.

The strategy tests have been conducted with open price only - These tests are valid and in good agreement with M1 tests since Synergy EA operates on H1 Bar Open only. Mild differences if any would be due to the protective SL/TP which may have triggered in some very rare cases (on M1 but not on Open Price test).

Test #1 :  Max Allocation : 10,  Max_Position : 4  (Default - Recommended)

A10_P4 

The above test can be used as a standard for comparing the results of the other tests conducted by varying the Max_Position parameter (and adjusting Allocation to keep lot size per position same)

Test #2 :  Max Allocation : 2.5 ,  Max_Position : 1 

A2.5_P1
 
The above test is equivalent to testing only the result of the first trade entry made by the EA. The strategy is incomplete when additional positions are not allowed.

Test #3 :  Max Allocation : 5,  Max_Position : 2  (Allowing only one additional position)
 
A5_P2

The above test allows only one additional trade after the first initial position. The one additional position improves upon the result obtained by the one position trade, but it would not be productive enough to bring in long term gains. Reducing number of positions decreases the effect of price averaging as well as adding to gainers.

Test #1 :  Max Allocation : 20,  Max_Position : 8  (High Risk - NOT Recommended)

A20_P8

The above test enables more positions to be added. The EA is able to execute more trade signals and the effect can be seen as better gains for a reasonable increase in drawdown. It would be considered high risk to have a 20% allocation for a single EA. If the price action makes an unexpected/ violent move to close out all the positions at its protective SL, the total loss of the basket may be in the range of 2000 pips (Worst case loss of 20% of the equity). However in the normal circumstances, operating loss on the basket would be about 10% when all 8 positions are in place.   

Click Here to download the Strategy reports of all the above tests - Download Test Results

 
Recommendation based on above study

The default Max_Position provides a good balance between performance and risk for Synergy v3.2 strategy.

Reducing Max_Positions is not recommended and will make the strategy ineffective.

Increasing Max_position will increase gains but will also increase the risk correspondingly.

 
 Disclaimer
U.S. Government Required Disclaimer – Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Clearly understand this: Information contained within this course is not an invitation to trade any specific investments. Trading requires risking money in pursuit of future gain. That is your decision. Do not risk any money you cannot afford to lose. This document does not take into account your own individual financial and personal circumstances. It is intended for educational purposes only and NOT as individual investment advice. Do not act on this without advice from your investment professional, who will verify what is suitable for your particular needs & circumstances. Failure to seek detailed professional personally tailored advice prior to acting could lead to you acting contrary to your own best interests & could lead to losses of capital.

*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.

By using PhiBase Synergy, you acknowledge that you are familiar with these risks and that you are solely responsible for the outcomes of your decisions. We accept no liability whatsoever for any direct or consequential loss arising from the use of this product. It's to be noted carefully in this respect, that past results are not necessarily indicative of future performance.
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