We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Bearish
Wall Street
Bearish
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bullish
USD/JPY
Bullish
More View more
Real Time News
  • Indices Update: As of 18:00, these are your best and worst performers based on the London trading schedule: Wall Street: 1.48% US 500: 0.58% FTSE 100: 0.16% Germany 30: -0.05% France 40: -0.07% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/qJvZxDmmST
  • Dow Jones Index strength continues in afternoon trading, as recovery hopes spur risk appetite $DJI https://t.co/4M6CoMdyGn
  • $USDCAD dives to lowest level since March 15 on USD weakness https://t.co/8abAuksdMo
  • #Equities: US futures on the front-foot with market participants returning from their elongated break, which in turn sees the S&P 500 pierce the psychological 3000. Get your #equities market update from @JMcQueenFX here: https://t.co/7O447VkToZ https://t.co/TyXEaPVnbb
  • LIVE NOW: Join @JStanleyFX as he runs through price action set-ups for the FX and CFDs market. https://www.dailyfx.com/webinars/1338844901231735299
  • it's time for the webinar, starting right now https://www.dailyfx.com/webinars/1338844901231735299 https://t.co/gLQFjotDmG
  • Senate Majority Leader McConnell says drop in revenue for States a concern, but national debt is also concerning- BBG
  • LIVE IN 5 MINUTES: Join @JStanleyFX as he runs through price action set-ups for the FX and CFDs market. https://www.dailyfx.com/webinars/1338844901231735299
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.52%, while traders in US 500 are at opposite extremes with 75.73%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/tkFbZhU9DE
  • Heads Up:🇺🇸 Fed Kashkari Speech due at 17:00 GMT (15min) https://www.dailyfx.com/economic-calendar#2020-05-26
Can SSI Increase Our Forex Trading Edge, Part 2: Basic Sampling

Can SSI Increase Our Forex Trading Edge, Part 2: Basic Sampling

2014-04-03 03:00:00
Rob Pasche, Forex Trading Instructor
Share:

Talking Points:

  • Marketscope includes an easy way to backtest a technical strategy on historical data.
  • SSI as a direction filter improves performance in most cases tested.
  • Use SSI for your own personal strategy every day.

(Hypothetical Performance is not indicative of future results.)

In my previous article about SSI, I described how the Speculative Sentiment Index works and how it changed my trading career. I also showed how to download SSI data in order to test your own personal trading histories to see what effect this filter could have. During today’s article, using the Trading Station Backtester and SSI data, we will be able to see its true effect on a basic strategy.

Picking a Testable Strategy

When it comes to backtesting a strategy, the most difficult part for me is programming the actual strategy onto a trading platform. I can come up with strategy ideas all day long, but since I can barely code, I tend to get stuck at this point. So I thought it would be important to pick a simple strategy that is already coded into Trading Station Desktop. This means anyone that has access to a windows computer and the internet can duplicate my results and expand upon them.

We will test a Simple Moving Average Crossover strategy set to 50 and 20 MVAs on an Hourly chart. I will set a 40 pip stop and 80 pip limit to follow what I believe is a sound choice as far as risk management goes. This will be my baseline strategy before I start referring to SSI as a filter.

Learn Forex: Creating a Backtest on Marketscope

Can SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic Sampling

(Created Using the Trading Station Desktop)

Picking a Testable Data Set

Once we select our strategy's parameters, we then need to pick the pricing data we will be testing on. We want to pick price data for several pairs where there was a long stretch of positive or negative SSI values, that way we can test two different scenarios on the same piece of data.

  1. First, we test the strategy on the set of price data where it's allowed to place trades in either direction.
  2. Then we test the strategy where we only allow it to Buy (if SSI was mostly negative during that stretch) or only allow it to Sell (if SSI was mostly positive during that stretch). This setting to Buy or Sell only can be found under "Strategy Parameters" when setting up the backtest.

Once this is complete, we compare the results of the two backtests and see what yields better results.

To find stretches of time where a currency pair held a positive or a negative SSI, we should use the SSI data we acquired during our last article. We should look for periods of 2+ months where most days show either a positive or negative on the EURUSD, GBPUSD, USDCHF and USDJPY. Now that we have our price data selected, we can begin backtesting.

(The following results were created from randomly selected time periods and I had no prior knowledge of their results before posting them in this article. I did not omit any tested data either. Everything is shown below as I tested in real time.)

Learn Forex: SSI Effectiveness Backtested Data

Can SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic SamplingCan SSI Increase Our Forex Trading Edge, Part 2: Basic Sampling

What Were the Results?

I believe the results speak for themselves. It's incredible how an idea so simple can have such a huge impact on a trading strategy's performance. I tried to include a good mix of positive and negative SSI and tried to spread the test over as many years as possible amongst the 4 pairs. These are the highlights from the results.

  1. 7 out of the 8 data sets tested showed the SSI filter improved the strategy by either making the strategy more profitable or by decreasing the loss sustained.
  2. All 8 data sets had a higher win rate when using the SSI than without.
  3. The Traditional Strategy overall netted a loss of ($145.75) while the SSI Filtered Strategy overall netted a profit of $87.18.
  4. The Traditional Strategy placed 450 trades total while the SSI Filtered Strategy placed 224 trades. This means the SSI saved us money by trading less volume and meant we had less risk due to reduced time spent in the market.

What is the Next Step?

While this test was carried out on several pairs and periods of time, it does not 100% guarantee that any strategy can be improved by the SSI. The only way to know if the SSI will work for you as a filter is to test it out yourself using an approach similar to mine, or by finding a more efficient way of testing your strategies. For me however, the data above confirms what I already believed to be true. The SSI is the greatest tool that I have ever used for Forex trading.

Good trading!

---Written by Rob Pasche

Want to learn about trading automation using the Mirror Trader platform? Join us for a live Mirror Trader Platform Walkthrough Tuesdays at 11m ET and Wednesdays at 3pm ET.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.