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KVL autopsy, rise and fall of a contrarian strategies portfolio

First of all I will disclose the rules of the strategy underlying KVL.

Sell if RSI(5) is above 75 and ADX(14) is below 35
Buy if RSI(5) is below 25 and ADX(14) is below 35
SL = 6ATR(100)
TP = 4ATR(100)

Timeframe is H1 and it enters new trades only during the day.

These are the precise parameters for every market:

This is the last backtest for EURAUD , the last part can be considered out of sample.

This is the myfxbook trackrecord
https://www.myfxbook.com/members/CavaliereVerde/knightreversal/2293293

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Thank you for sharing.

How big was the in sample you optimized on? How many trades did each in sample roughly produce?

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As you can see from the backtest, between 400 and 600 depending on the asset.

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I agree and as you can see there is no JPY and a lot of AUD in the portfolio.

EURAUD was the main engine of the portfolio, also in live trading if you look to myfxbook and exclude the final collapse.

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I guess when there’s a crash it just keeps re-entering against the trend. Did you consider a second RSI reading with a longer or higher time frame period?Like this?

Buy if RSI(5) is below 25 and ADX(14) is below 35 and RSI(50) is above 40

Something like that?

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Clearly you can desing a fiter to exclude the last losing trades but it would be a kind of overfitting, adding more rules and parameters, and it would be a completely different strategy.
I don’t think that a strategy with 7 parameters would be more robust than a strategy with 5.

At the moment I think that reversal trading is more subject to overfitting because it needs to be accurate, while with trendfollowing you ride a movement and you need less precision so the strategy is more flexible.

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How did you arrive at your sample size selected? Did you try many different sample sizes in many different walk forwards? I ask because doing so has a risk of over-fitting the walk forward criteria.

Yeah for sure fitting to some degree, especially if you add it in as a parameter that you optimize (which I probably wouldn’t)… I’m paranoid of fitting but I’d think about a filter of some kind though because it kind of needs to be turned off in super trends either manually or with a filter.

Did you try an many other markets and time-frames? Were any giving warning signs about the “constant re-enter against trend” danger?

I would say, 2 years of profit wiped in one year.
Even wothout the final bad series it was bleeding from many months.

You’ve got some big sample sizes with lots of trades but why did you choose only these pairs?

Theorethically the ADX condition had to prevent entering trending market.

If you read the main topic or analyze myfxbook you will discover that there were other markets.
These 4 are the survivors.
GBPUSD and USDJPY were running on m15.

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Thanks for sharing.
I wonder what will happen if the SL and the TP will be parametrized but with a maximum … I would expect a better results mainly in this period… can you try? (In the BSL topic I’m asking myself right this problem…)

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indeed!

Yeah I guess it’s hard not to have hindsight here, just spit-balling.

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Did you mention the period used for the SL and TP ATR? Was it h1 ATR?

I think in this recent market a non-ATR SL would be better but in general adapting to volatility is better and makes more sense, probably in this case the change in volatility was too fast.
To be honest I am not so willing to do other tests with this strategy :slight_smile:
I think that even without this perfect storm the strategy was doomed, even if simple is too easy to overfit, probably I was lucky and fitted for the market of 2018.

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What do you mean? They were optimized as you can see in the first sheet and what do you mean by maximum? There’s always a minimum and a maximum.

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He means something like: 5ATR but max 200 pips.

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SL = 6ATR with ATR = 20 pip = 120pip… with ATR= 100 pip = 600 pip… I ask to set a maximum like 300 pip

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Oh right but maybe it would just keep re-entering anyways…

If trying to reduce risk during larger SL times, I’d suggest lowering the lot size instead of shortening the SL in times of high volatility. The SL strategy is to adapt to volatility so I think it makes sense to allow it to do so.

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Do you mean if the price stays above/below the line or cuts the line?

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