Breakout trading strategy “ZigZag Support & Resistance Breakout” 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 price breaks through a resistance level. A sell order should be placed when price breaks through a support level. A stop loss should be placed at the opposite support/resistance level with 1:2 Risk-to-Reward ratio. Support and Resistance levels are based on ZigZag indicator.
For our test, we have used a Trailing Stop 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 2010.01.01-2019.07.02 using Control Points modelling on GBPJPY-H1, with 1:2 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. “ZigZag Support & Resistance Breakout” trading strategy has produced 24.96% annualized ROI during 2010-2019 years using 1:2 leverage. Maximum drawdown comprised 37.54%.
2. Sell trades opened at positive MACD values brought more profit, while buy trades were more profitable at MACD values less than zero on D1 timeframe when trading “ZigZag Support & Resistance Breakout” trading strategy during 2010-2019. MACD shows trend direction and power, thus this pattern says that with an increasing (either up or down) long-term MACD value, the probability that a trend will reverse is higher and, therefore, the probability of a breakout of support and resistance lines is also higher.
3. We have analyzed data received from a test of “ZigZag Support & Resistance Breakout” trading strategy during 2010-2019 years and applied some filters such as Stochastic, SAR, Bollinger Bands, Accelerator Oscillator and Awesome Oscillator filters. As a result, the profitability of the strategy has increased from 24.96% up to 63.34% and its drawdown has reduced from 37.54% to 10.90% using leverage 1:2. Reducing the drawdown has allowed us to increase the leverage up to 1:5, which in turn, has resulted in annualized ROI increase up to 154.43%!
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.
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