Trend following trading strategy “Heiken Ashi & EMA” is designed mainly for Forex and can be used on all currency pairs on any time-frame. Its rules state that:
A trader should place a buy order when 9 exponential moving average cross 18 exponential moving average up, bearish heiken ashi candle must touch the ema line(s), next bullish candle should close above the fast ema. A sell order should be placed when 9 exponential moving average cross 18 exponential moving average down, bullish heiken ashi candle must touch the ema line(s), next bullish candle should close above the fast ema.
For more information please refer to https://forextradingstrategies4u.com/heiken-ashi-forex-trading-strategy/
For our test, we have used a Trailing Stop in 30 Pips which is launched after a trade has started and is modified each new 1 pip of profit. From our point of view, such approach allows to maximize profit and minimize drawdown. We have run the test for 2010.01.01-2018.12.31 using Control Points modelling on EURUSD-H1, with 1:5 leverage, without reinvestment, assuming spread equals 10 ticks, with starting balance $10,000. These are the main parameters of financial performance, that may allow you to evaluate whether this strategy worth your attention or not:
|ROI||# of trades||Winning ratio||Max. drawdown|
The following charts may give some possible insights on which filters to apply (time sessions, day of week limitation, trend strength threshold, overbought/oversold conditions, volatility range) to turn this strategy profitable should you decide to use this strategy in your investment portfolio:
1. “Heiken Ashi & EMA” trading strategy has produced 8.15% annualized ROI during 2010–2019 years using 1:5 leverage. Maximum drawdown was 79.61%.
2. Sell trades opened at a lower value of DeMarker and buy trades opened at a higher value brought more losses, when trading “Heiken Ashi & EMA” trading strategy during 2010–2019. DeMarker shows high-risk buying or selling areas in a given market: a value above 0.7 indicates that a downwards market turn is imminent, while a value below 0.3 indicates that market will turn upwards shortly. Using this filter allows to reduce the drawdown from 79.31% to 29.70% using leverage 1:5.
3. Trades that were opened at ADX value more than 40 have brought more losses, when trading “Heiken Ashi & EMA” trading strategy during 2010–2019. At a higher value of ADX the probability that a trend will reverse is higher. Using this filter allows to increase annualized ROI form 8.15% to 27%.
4. We have analyzed data received from a test of “Heiken Ashi & EMA” trading strategy during 2010–2019 years and applied some filters such as ADX and DeMarker. As a result, the profitability of the strategy has increased from 8.15% up to 34.8% and its drawdown has reduced from 79.61% to 19.87% using leverage 1:5. Reducing the drawdown has allowed us to increase the leverage up to 1:13, which in turn, has resulted in annualized ROI increase up to 93.62%!
If you decide to buy an EA, coded in accordance with the strategy and used for the test, or to make any amendments to the original strategy rules – please, feel free to contact us.