Scalping strategy “Bali” is a popular trading strategy, mainly for Forex and is optimized for usage on EURUSD currency pair, on 1 hour time frame. Its rules state that:
How to trade Scalping Bali
A trader should open a buy trade when a bar closes above Trend Envelopes indicator and at the same time the close price of the bar is above Linear Weighted Moving Average. In addition, DSS of Momentum indicator should head up and be above its signal line. Sell trades are taken upon opposite market conditions. After a trade is placed, a stop loss of 25 pips and a take profit of 50 pips should be set.
To run a back-test we have coded a complete Scalping Bali trading strategy as a MetaTrader 4 Expert Advisor. During preliminary analysis we have identified that the best time frame for Scalping Bali trading strategy is 1 hour (H1).
We have run a back-test of Scalping Bali strategy. For our test as a trade exit rule we have used a Trailing Stop of 25 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 2009.01.01-2019.10.30 using Every Tick modelling on EURUSD-H1, using 1:27 leverage, without reinvestment, assuming spread equals 10 ticks. These are the main parameters of Scalping Bali trading strategy performance at its non-optimized state:
|ROI||# of trades||Winning ratio||Max. drawdown|
Trading data analysis
After running the initial test of a simple non-filtered strategy we perform a trading data analysis that allows to identify possible filters to use to make the strategy more profitable reducing the drawdown simultaneously.
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:
Scalping Bali can be used with other indicators to filter out losing trades and make entry signals more accurate. After analysing trading data we have found the following insights which have helped us to increase the profitability of Scalping Bali trading strategy in 2.5 times reducing it’s drawdown in 3 times:
- Buy trades that were opened at a too low value of RVI brought more losses when trading “Scalping Bali” trading strategy during 2009 – 2019. RVI measures the strength of a trend. (ROI increase 34% -> 72)
- Trades that were opened at a too high distance to SAR brought more losses when trading “Scalping Bali” trading strategy during 2009 – 2019. While Parabolic SAR can display the trend direction, it is unreasonable to take trades when the trend is exhausted.(ROI increase 34% -> 79%, Drawdown reduction 37% ->15%)
- Buy trades that were opened at a lower value of RSI and Sell trades that were opened at a higher value of RSI brought more losses when trading “Scalping Bali” trading strategy during 2009 – 2019. Such statistics contradict to classic technical analysis theory: to buy at a lower value and to sell at a higher value of RSI. (ROI increase 34% -> 74%, Drawdown reduction 37% ->10%)
We have analysed data received from a test of Scalping Bali trading strategy during 2009 — 2019 years and applied some filters such as RVI, RSI, SAR and Stochastic. As a result, the profitability of the strategy has increased from 33.61% up to 85.04% and it’s drawdown has reduced from 37.96% to 13.16% using leverage 1:27.
Reducing the drawdown more than 3 times has allowed us to use risk based lot calculation. Below you can see the back-test results using $10,000 initial balance and 5% risk per trade:
|ROI||# of trades||Winning ratio||Max. drawdown|
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Disclaimer: Hypothetical or Simulated performance results have certain limitations, unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity.
Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
Past performance is not necessarily indicative of future results. The customer is responsible for using the product at his or her own risk and “Nordman Algorithms” is not responsible for any possible losses caused by use of the product, including but not limited to losses.