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I TESTED a 92% Win Rate ADX Trading Strategy with an Expert Advisor - SURPRISING RESULTS 馃槻 - YouTube
Channel: Trading Strategy Testing
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last week i came across a video on
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youtube where an adx trading strategy
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was discussed i was surprised as the
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author of the video claimed that this
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strategy works 92 of the time
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that's probably a very profitable
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strategy but what if we back test it
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using an expert advisor
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are we looking at a holy grail strategy
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continue watching to know and don't
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forget the usual thumbs up if you enjoy
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this kind of video
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[Music]
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all forex traders strive to build their
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profitable strategies but this day is
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your lucky day we're going over a simple
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adx strategy with some examples for you
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to practice this trading method
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this strategy seems to have a success
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rate of 92
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so basically if you place 100 trades 92
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of them will end up hitting the take
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profit let me first share with you this
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strategy before we back test it using an
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expert advisor
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no worries i'll share with you the
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expert advisor for absolutely free
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especially if it does work
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without any further ado let's get into
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it
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the principles of the average
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directional index or adx can apply to
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almost all tradable assets including
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forex pairs stocks mutual funds and even
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futures contracts adx has become an
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exceptionally useful indicator for
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traders as it helps determine when the
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price is trending strongly
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in many cases it's the ultimate trend
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indicator
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after all the trend may be your friend
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but it sure helps to know who your
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friends are
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before we go any further
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let's add the indicator to our chart
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if you're on trading view you can simply
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hit on indicators and search for the
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directional movement index
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once you find it simply double click it
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and you'll notice that it's been added
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to your chart
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the directional movement index dmi is a
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technical indicator that measures both
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the strength and direction of a price
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movement and is intended to reduce false
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signals
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dmi helps in determining the price
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direction and the strength of the
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movement it does so by comparing the
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current price with previous lows and
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highs drawing lines of positive
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directional movement plus d i
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and negative directional movement
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negative d i
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in general the larger the spread between
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the two primary lines plus d i and
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negative d i the stronger the price
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trend
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if plus d i is way above negative d i
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the price is on an uptrend
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on the other hand if negative di is way
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above plus di then the price trend is
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strongly down
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the adx measures the strength of the
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trend either up or down
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a reading above 25 indicates a strong
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trend
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many traders will use adx ratings above
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25 to suggest that the trend is strong
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enough for trend trading strategies
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conversely when adx is below 25 many
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will avoid trend trading strategies and
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will probably wait for a breakout or
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simply use a sideways trading strategy
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if you're using a momentum trading
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strategy and the adx rating is above 50
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you might avoid exiting the market as
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there are high chances that the trend
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will continue
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the adx trading indicator is a dynamic
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way to look at the price action
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as you can see here low adx is usually a
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sign of accumulation or distribution
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when adx is below 25 for more than 30
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bars price enters range conditions and
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the price patterns are often easier to
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identify especially on high time frames
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price then moves up and down between
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resistance and support to find selling
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and buying interest respectively
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from low adx conditions the price will
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eventually break out into a trend
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that's the usual phrase that follows any
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price consolidation
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for example we can see here that the adx
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rating moved above 25 and the price
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breaks out into a clear uptrend
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before we begin back testing this
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strategy let's look at the buy and sell
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conditions
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let's begin with a buy scenario
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first we need to look for a strong trend
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confirmed with the adx value greater
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than 25
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once a strong trend is confirmed we'll
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go long when plus di crosses above
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negative di which is the condition for
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an upcoming uptrend we exit the trade
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once negative di crosses below plus di
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let's look at an example here i'm going
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to increase the thickness of the adx
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line to help us distinguish it from the
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other two lines
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the adx line is in red and plus di and
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negative di are in blue and orange
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respectively
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we can see here the plus di line crossed
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above the negative di1 and the adx is
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above 25
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we go long immediately we can see that
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the price continues its upward momentum
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the two directional lines cross over
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here which is the moment to exit our
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position
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this was a successful trade
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now let's look at a short setup this is
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the pound usd daily chart we can see
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that the negative di crossed above the
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plus di line and the adx indicator is
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above 25
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we go short immediately and exit the
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market when the two lines cross over
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again
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let's see what happens next
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well that's another successful trade
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now it's time to test this strategy
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using an expert advisor
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according to the author of this strategy
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the setup works best with the euro usd
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pair on high time frames
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this is the indicator made according to
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this strategy i'll share with you the
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link to download it at the end of the
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video after revealing the final results
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so let's adjust the settings we'll use a
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1 000 virtual balance and allow the ea
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to place a buy and sell position other
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than that i want you to choose 14
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periods value for the adx and 25 as our
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entry filter
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finally let's place trades with a fixed
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volume of 3 micro lots
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that way we can remain longer in the
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market and get an accurate drawdown
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value
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once done simply click ok
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now we'll adjust the time range we're
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back testing on the daily chart so let's
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go for a three years time interval
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once done simply hit on start
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i'm going to speed up the process as
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usual while waiting don't forget to hit
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the thumbs up and leave a comment with
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the strategy you want us to review in
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our coming videos
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we've just completed back testing this
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strategy let's look at the results
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we can see that we had 33 trades and the
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success rate is only 39.39
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which is extremely different from the 92
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percent claimed by the author of the
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strategy
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the drawdown is 65.5 percent which is
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incredibly high
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we've lost more than 446 dollars
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i think we can all agree that the dmi
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crossover strategy doesn't seem to work
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with the rules mentioned earlier
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but i noticed something
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if we check the trades list we'll notice
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that the profit made out of the
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successful trades is extremely low as
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compared to the amount of money we lost
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in the losing one
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maybe if we go for a fixed take profit
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and stop loss this strategy will work
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better
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let's do some changes and run the back
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testing process again
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we'll go for a 1 to 2 risk to reward
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ratio this time so we'll choose 30 pips
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as our stop loss and 60 pips as a take
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profit
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we'll leave the other settings as they
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are
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let's run the back testing process again
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and see the difference
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these are the final results
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we can notice that the strategy is
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profitable now
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again we had 33 trades in total
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15 of them ended up hitting the take
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profit which gives us a success rate of
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45.45
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the drawdown recorded is fantastic
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six point one seven percent is a healthy
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rate and we managed to make a profit of
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101.29
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this isn't enough to say that this
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strategy is profitable at the moment
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plus the low number of trade
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opportunities is a big challenge
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now we need to analyze the losing trade
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and adjust the strategy accordingly
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let me know in the comments section if
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you want me to make a second part where
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we try to optimize the strategy and come
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up with a solid one that we can all use
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to trade forex or other financial
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markets
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make sure to subscribe to the channel so
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you'll be notified whenever we release a
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new video
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happy trading
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you
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