I have been looking at the effectiveness of modifications to my basic trading system. The basic system trades 10-day breakouts, where the close is beyond the high or low of the previous 10 days, on high volume and true range. Here are the returns over the past five years in fifteen futures markets, in risk units.

  • Basic system: 179
  • No volume condition: 235
  • No range condition: 221
  • No volume or range: 215
  • Use high/low not close: 234
  • Use high/low and no volume: 286
Conclusion: The best system trades breakouts on the high or low of the day, with a range condition but no volume condition.

Update: I have also run this test on 33 currency pairs.

  • Basic system: -38
  • Basic system with worst L and S results excluded: -7
  • Use high/low no close: -23
  • Use H/L with worst excluded: 24
Conclusion: As experience has taught me, breakouts have not worked as well in FX as in commodities. It is better to use the high/low rather than the close as the breakout indicator, as with commodities.
While these results look bad, this system is not the same as my trading process. I do not take every signal, but only trade when there is a trend, and if signals work in the market in question. Just excluding the worst market for going long and the worst market for going short, the system becomes profitable over five years, although not impressively so. The key thing in this analysis is the comparison between systems — and here, the high/low system is clearly better than the close system.
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