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Thread: BREAKOUT METHOD - EURJPY Rate of Success Test

      
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    Administrator Mike's Avatar
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    Default BREAKOUT METHOD - EURJPY Rate of Success Test

    Hello members and guests,

    DESPITE THE TITLE, I TEST EURUSD, GBPUSD, AND EURJPY IN THIS ONE DISCUSSION - SCROLL DOWN FOR MORE-

    To edify myself I wanted to test out how successful the very very basic breakout method was in the past month or so.

    For those that are unfamiliar with this method, it entails drawing lines above and below the range which price was moving between starting roughly around the Sydney (Australian) open and ending 4 hours later. I refer to this area as the pretrade range box; you can see an example of this below. To each his own on where you draw or place your pretrade range, you could start it before the Sydney session and end it much later. What this does is change where the pretrade range box will be drawn affecting your entry later.

    Once price passes beyond the pretrade range box, you either buy when price passes above the top line, or sell when it passes below the bottom line.

    Click image for larger version. 

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    Now this is a very basic method I learned many years ago, but as with everything in trading, handling the trade is not as basic as it may first seem.

    It would be wonderful if we can simply state, this method either resulted in a win or a loss, but obviously there are extenuating circumstances that affect my own statistical analysis on the effectiveness of the strategy.

    I outline the possible outcomes (as I see them) below.
    1. Winner (without Pullback) (10+ pips)I consider a pure win when price passes beyond the range (up/down) and goes 10 pips without retracing at all.
    2. Winner (With 1 pullback)
      I consider a winner with 1 pullback when price goes beyond the range but pulls back to the entry then goes the way we want.
    3. Winner (With 2 or more pullbacks)
      Same as above except it pulls back multiple times before taking off the way we want.
    4. Sideways (No Trade)
      Price travels through the range all day and there is no trade either way.
    5. Sideways (Loss)
      Price triggers a trade but goes sideways for a loss.
    6. Break Even
      Price triggers a trade but travels back to our entry then fizzles out and there are no further trades either way. What's important about a break even trade is that it moves far enough to cover our spread so there is no loss, obviously this is not the same as a slight or complete loss.
    7. Loser 1 way, Winner the other
      Price triggers a trade to the upside or downside, then it goes back to our entry for a break even or loss, but then goes far enough against us to trigger a trade the other way.



    My results are as follows in the pie chart below.



    Basically, together, out of 43 previous sessions, 60% of the time a trade will result in a win, either with 1 pullback, 2+ pullbacks, or no pullbacks at all. What's even better is 19% of the time it results in a break even trade; I am always interested in the break even figure because it means we can risk our capital and suffer no significant loss when it goes against us. Together, 79% of the time, the breakout method results in a break even or winning trade. This method is unique because we can experience a loss one way, then enter for a gain the other way; personally I just consider this a loss, but in actuality it is both, so you can even bump that 79% up to 86% success rate, or rather, a 14% failure rate.

    Losses incurred with my test is very uplifting, because a mere 14-21% of trades result in a loss.

    There are very few things on this earth that result in a 1/5 loss ratio when risking a good amount of capital to gain more.

    The breakout method clearly offers a 60% win ratio, but with strict money management and rules for yourself which most importantly includes exiting a trade break even when it goes against you, can really result in great profits.

    The one caveat is these sideways trades that are triggered by price going above or below the range but then really doing nothing; this is the gray area of this method that I tried to represent in a few options on the pie chart but nothing in the past can be applied to be a truth in the future.

    I also tested out when the "big moves" or the "triggers" are pulled, which sessions we should concentrate on. And honestly, in my opinion it can happen at any time, but twice as likely to happen either the Asia or London Sessions. I should have added a 4th option to show when the moves occurred during the overlap between the NY and London sessions; maybe next time.

    Click image for larger version. 

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    40+ Examples of this method.




    View More Examples Here

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    Administrator Mike's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    I just finished testing the last 41 sessions on EURUSD as well, the results are as follows.



    The big statistic that pops out at me is the fact that nearly 1/3 of all breakouts in actuality will pass above the range for a time then bounce all the way back and result in a winning trade in the opposite direction. An example of this is below:



    In the example above I classify it as loser 1 way, winner the other in my pie chart. But in reality, strictly speaking, it could be a winner if you take small profits 10 pips or so, or even a break even, it all depends on your trading style.

    So 29% of these breakouts headfake us in one direction and produce a good amount of pips in the other, which is still a viable direction to trade in once you close out the first trade at a loss, break even, or small gain.

    To see more of these examples click one of the thumbnails below:

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    Administrator Mike's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    Click image for larger version. 

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    Of course I also made note of when the significant moved occurred during the days' sessions.

    As opposed to EURJPY, we see EURUSD make significant moves either in the London session or in the London/NY overlap. Together 68% of the time a sizable move will occur during those hours.

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    Administrator Mike's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    I just finished analyzing the last 40 sessions on GBPUSD as well. Here we see nearly 1/3 of all breakouts resulting in some sort of loss, and just at a quick glance through all of these examples we see tremendous whipsaw action that can clear your stops very easily before going your way.









    ------------------------------------------------------------------

    I like to look at the loss frequency to see which pair is best suited for the breakout method. And thus far, over the past month or so, the results are:




    In the end, I believe EURJPY to be the smoothest pair to trade with the breakout method (and many other methods); this has long been my favorite pair to trade due to the amount of pips it moves every day and its "trending ability" with not so much whipsaw action.

    If you have any comments, questions, or additions to this discussion please add them below.
    Attached Thumbnails Attached Thumbnails Click image for larger version. 

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    Administrator Mike's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    EURJPY BREAKOUT METHOD 4/10/2012



    Today was a very good day for the breakout method, offering us a brief trade that resulted in a small loss or break even trade, but then in the opposite direction offered an avalanche of pips, entry at or around 106.80 and reaching 106.00.

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    Pips Are My Game Dannyfx's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test





    All due respect for the time you put into this analysis of the strategy, but the red pieces of the pie seem too large for a good strategy. There has to be something more successful out there. No? All these years you been trading there's nothing better than this?

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    Administrator Mike's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    Hello Danny,

    Honestly, no offense taken and I welcome the challenge to the theory. There is no simpler strategy in my opinion than the breakout method; the supreme simplicity in my view, warrants us to take the inevitable losses in stride when seeing how often it does produce a win.


    Unintentionally the pie chart can be misleading with respect to counting "losses" which I too think is of utmost importance when determining a strategy to follow.


    A very large amount of trades were LOSER ONE WAY/WINNER THE OTHER; and of those, a portion of these trades were actually break even the first way and a winner the other, but I still count them as losses just to be strictly fair to the analysis. In the pie chart, these trades are represented by a RED SLICE, I guess if we were simply using a PLUS/MINUS way of analyzing the method, it would be a ZERO, the loss would negate the win. But we're not doing an up/down, plus/minus, analysis. It's a percentage of the total type of analysis that needs to count and label each trade taken, with the added exception of needing to expect a win later in the day after a loss earlier in the day.

    What I'm getting at is, for instance on the EURUSD, which had the highest rate of Loser one way/Winner the other, 29% nearly 1/3 of all trades would get us into a trade that lost, in my way of trading with a 10 pip stop loss (you may have a different stop loss). But within a few hours got us into a trade that made 10 or more, not only negating the loss but gaining us pips. Not to tout the method more than it should be, but strictly speaking the slice of the pie that should be most troublesome, spelling absolute loss with no gains is the SIDEWAYS/LOSS slice.

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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    Hey Mike, there was a classic breakout and retest on Eur/usd daily last night, which i sold.
    Price broke the ascending trendline, and then came back slowly to retest.I find on the daily, it's better for price to take a few days to come back and retest, shows the mkt is comfortable with price being below the trendline.
    I sold when price couldn't close above resistance, trendline and ma's. currently up about +110 pips.

    Regards
    Attached Images Attached Images  

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    My Pip Hand Is Weak Junii's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    interesting results. i never seen someone test out any method and show us pie charts with results before hehehehe

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    Show Me The Money! ZODIAC's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    Quote Originally Posted by yogibear View Post
    Hey Mike, there was a classic breakout and retest on Eur/usd daily last night, which i sold.
    Price broke the ascending trendline, and then came back slowly to retest.I find on the daily, it's better for price to take a few days to come back and retest, shows the mkt is comfortable with price being below the trendline.
    I sold when price couldn't close above resistance, trendline and ma's. currently up about +110 pips.

    Regards
    I wait for a bar of confirmation and i would have lost here huh?

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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    Very interesting strategy indeed. Thanks for the share. Looks like this strategy can be programmed into an automated trading system and you won't need to trade it manually each day. It saves a lot of time and emotions. 60% of winning trades is a great result, congratulations.

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    My Pip Hand Is Weak Niccollo's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    Quote Originally Posted by tradingmarket View Post
    Very interesting strategy indeed. Thanks for the share. Looks like this strategy can be programmed into an automated trading system and you won't need to trade it manually each day. It saves a lot of time and emotions. 60% of winning trades is a great result, congratulations.
    I'd want to try out that range breakout EA if someone can share plz.

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    AK47 PIPS DarkManFX's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

    Do you have a reliable breakout method EA ?

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    Soy el Maestro de FX FxMassa's Avatar
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    Default Re: BREAKOUT METHOD - EURJPY Rate of Success Test

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