Trading system Yen Trader
Fast is slow, but without interruptions.
Hello friends forex traders! Today we’ll talk about the trading system under the talking name Yen trader.
I like trading systems, which are based on a very simple idea that is difficult to “break” - it is so simple. Strategy Yen trader just refers to such. Using the logical inefficiency of the market, we get a statistical advantage, and thanks to automation, we can put the time itself at our service.
- Platform: MetaTrader 4;
- Currency pairs: GBPJPY is recommended, but AUDJPY, CHFJPY and EURJPY are also suitable;
- Timeframe: H1-D1;
- Trading time: around the clock;
- Recommended brokers: Alpari, Exness
What is correlation?
This strategy was first published on the foreign ForexFactory forum. The strategy is based on the principle of correlation, therefore, for a complete understanding of the concept, you need to have an idea that such a correlation is. In the forex context, the most common example is the correlation of EURUSD and USDCHF.
As you can see, most of the time couples live their own lives, but from time to time there is a fairly strong negative correlation. A negative correlation means that given the fall of EURUSD, USDCHF will increase, and vice versa. A positive correlation means that the price of both instruments is moving in the same direction. An example of a positive correlation is the AUDCHF and AUDCAD pairs.
You can find the correlation table of various currency pairs on the myfxbook website. Here you can highlight (1) pairs with a correlation greater than a given value and specify (2) the time frame for calculating the correlation. The closer the value is to zero, the weaker the dependence. We are interested in strongly correlating pairs, with values approaching 100% (positive correlation) and -100% (negative correlation).
The idea behind the strategy
Now we pass directly to the very idea of strategy. The author’s idea is to compare the movement of major currency pairs with USDJPY. Roughly speaking, when the movements of the majors coincide, we will enter at their cross-country. For example, if GBPUSD and USDJPY are growing, we buy GBPJPY as a derivative of these two pairs.
If you try to compare the charts of GBPUSD and USDJPY, you will see that they go most of the time in a mess, and there is no visually explicit dependence. Therefore, it is important for us to catch the moment when a strong positive correlation appears between the pairs. When this happens, and GBPUSD shows growth, so does the pound. In turn, if USDJPY rises, the yen falls. When at the same time the value of the pound rises and the price of the yen falls, we can expect a move up GBPJPY.
Look at the chart. As you can see, the most active growth in GBPJPY is observed when both majors grow. Actually, here is the principle of strategy in a nutshell: as soon as we notice that both pairs begin to grow, we buy GBPJPY. The same is true for the opposite situation, when both currency pairs fall - we sell GBPJPY.
The same principle works with other pairs. For example, analyzing the EURUSD and USDJPY pairs, you need to enter by their cross - EURJPY. The same goes for the Australian dollar and the AUDJPY cross. Also, according to the system, you can trade cross CHFJPY, but I would not advise, as the franc has not been the most stable currency lately. Given direct quotes, entry rules will be slightly different. When USDCHF falls and USDJPY grows, we buy cross, when the dollar franc rises and the dollar yen falls, we sell CHFJPY.
The logical question is: how will we determine when the price rises and when not? In fact, the simplest moving average filter is suitable for this task. Before entering the sale, we check that the price for both currencies is below the average, and the previous candle was a bearish type. For the purchase, the opposite is true. If you wish, you can take into account not one previous candle, but two, three or even more (indicated in the advisor settings).
Stop loss is calculated based on the ATR volatility indicator. You can also use a trailing stop. The ATR value in the strategy is not used directly, but normalized with respect to the timeframe. Consider the calculation of the normalized ATR value by example.
Let's say you choose the M30 timeframe. The current ATR value on D1 is 332 points, on the M30 - 26 points. Instead of using a value of 26 points, the normalized ATR is calculated using the following formula:
332 / square root of (1440/30) = 47 points
That is, the daily ATR value is divided by the square root of the result of dividing D1 by M30. Roughly speaking, this formula makes the ATR slightly larger when the current value is too small and vice versa, makes it slightly smaller when the ATR is too high.
Consider the option with the time frame H4. Suppose the ATR value on H4 is 102 points, and on the monthly chart 1070 points. Accordingly, the calculation will be as follows:
1070 / square root of (43200/240) = 80 points
We will use the same ATR value with the multiplier (optional). It is not necessary to calculate this manually; the adviser takes on this task.
Advisor installation is performed similarly to any other advisor for MT4 platform. Our site has detailed instructions on this process.
The adviser needs to be installed on the cross, that is, on the pair that we will be trading. For the test we will use GBPJPY, as the most optimal currency pair for this system. So, open the GBPJPY chart with the desired time frame (I do not advise you to go below H1) and attach the adviser to the chart.
- Magic number - a unique number of the adviser, which allows him to distinguish his orders from the rest (manual and opened by other advisers);
- Fixed lots - value of a fixed lot, if you do not want to trade a dynamically changing lot;
- Variable lot - lot calculation as a percentage of the account balance. Here you need to be very careful. If you specify 1% in the parameter, this does not mean that in case of failure you will lose one percent of the balance. This means that 1% of the balance will be used as collateral, and in the event of a stop loss triggering, you can lose much more. If you do not fully understand how lot calculation works, it is best to check this in advance in the strategy tester;
Signal Filtration - settings block responsible for filtering signals
- Signal TimeFrame - timeframe on which the adviser will look for a signal to enter. It may be different from the one on which you installed the bot;
- Loop back bars - how many candles to take to the current to determine the growth or fall. Less than two cannot be set, since 1 is the current candle. And, for example, if you put 3, then the adviser will look at 2 previous bars;
- Price Type of Loop Back Bars - based on what boundaries take into account the above parameter: High / Low candles or at a closing price;
- Moving Average Period - period of the moving average;
- Moving Average Method - type of moving average;
Signal Multiple Indicators - block the possible inclusion of additional. indicators on signal pairs (not on the cross)
- RSI - on / off indicator RSI;
- RVI - on / off indicator RVI;
- CCI - on / off indicator CCI;
Pip Levels Setup - unit for setting fixed stops, take, etc. If you do not want to use, put zeros, then the values based on ATP will be used
- Stop loss - stop value in points;
- Take profit - the value of the take in points;
- Break even - the level of transfer to breakeven;
- Profit lock - by how many points in plus to transfer the stop when moving to breakeven;
- Trailing stop - size of the trailing stop;
- Trail stop shift - level of possible trailing bias;
- Min Distance between orders - minimum distance between orders;
ATR Level Settings
- Enable ATR based levels - on / off calculation of levels based on ATP. When turned on, the fixed values from the block above are completely disabled;
- ATR timeframe - timeframe for calculating ATP. It can be anything, current is current;
- ATR Period - ATR period;
- Stop Loss ATR Multiplier - ATP multiplier for stop loss;
- Take Profit ATR Multiplier - ATP multiplier for take profit;
- Trailing Stop ATR Multiplier - ATP multiplier for a trailing stop;
- Break Even ATR Multiplier - ATP multiplier for transfer to breakeven;
- Profit Lock ATR Multiplier - ATP multiplier for transferring the stop to the profitable zone;
- Max ATR multiples to MA - ATP multiplier for the maximum distance from the moving average at which it is allowed to enter the transaction. As you know, when the price ran far enough away from the moving one, it is too late to enter;
- Min Distance (ATR multiplies) between orders - minimum distance between orders, multiplier for ATR;
ATR Normalization - parameters limiting ATR size
- Min ATR Pips - the minimum allowable ATR value in points;
- Max ATR Pips - the maximum allowable value of ATR in points;
Trade conditions - block for setting trading conditions
- Max open trades - the maximum allowable number of simultaneous positions;
- Close on opposite signal - close the position when an opposite signal appears;
- Hedge on opposite signal - whether to open the opposite position when the opposite signal appears;
- Entry Type when Entry TF <Signal TF - how to enter into transactions when the Signal Timeframe (signal timeframe) is larger than the timeframe on which the adviser is installed: pyramiding, averaging, or both;
- Max spread - maximum spread;
- Max slippage - maximum slippage;
- ECN Account - set to true if the EA is used on an ECN account;
- Reverse mode - flip logic (replacing buy by sell and vice versa);
Distance to moving average - block of settings for the distance to the moving average
- Cross Pair MA period - period of the moving average on the cross (traded pair), set 0 if we do not want to use;
- Cross Pair MA method - type of moving average;
- Max Pips to MA - the maximum distance from the sliding to enter;
Cross Pair Higher TF Filters - filter settings block on higher time frames of traded cross
- Higher TimeFrame - which higher timeframe to use for filtering;
- MA Period - period of the moving average at a higher TF, 0 - to disable;
- MA Method - the type of this moving average;
- Enable Heiken Ashi on Higher TF - on / off Heiken Ashi candles at a higher tf.
The GBPJPY test for the current year with standard settings showed the following result:
In the default settings, the multiplier for take profit is five times the stop loss, which is why the take profit is more than 500 points. In principle, this value can be reduced to get more deals and, possibly, more profit. You can also use a trailing stop.
A positive side effect is that one take profit covers 5 stops at once. In the example below, 2 trades were closed in stop, and one in take profit.
Going to the timeframe above makes the inputs more accurate, but both the frequency of the signals and the profit are significantly reduced.
Actually, in 2016 only 5 transactions were completed.
GBPJPY is preferred for the system, but you can experiment with the parameters and try to choose the optimal settings for other pairs. The EA is designed to work with any crosses, for example, AUDCHF or EURCHF. The source currencies in the first case will be AUDUSD and USDCHF, and in the second EURUSD and USDCHF. Well, of course, when choosing settings, focus on common sense and visual testing. In the beginning, we test everything on a demo, and only then try on real life.
The principle of strategy is very simple, one might say, “old school”. That is, we find very simple market inefficiencies, in the spirit of classic trading books, and use them. This approach works, and it is based on a simple and logical principle - the movement of the cross rate due to the trend in majors. In order for this dependence to disappear, you need some incredible event, so you can be sure of the system, and this is necessary in order to continue trading even during periods of drawdowns.