Trading Strategies Revealed – “ZigZag Support & Resistance Breakout” review
Breakout trading strategy “ZigZag Support & Resistance Breakout” is designed mainly for Forex and can be used on all currency pairs on any time frames.
What is the “Support and Resistance”
Support is a price level where a downtrend can be expected to pause due to a concentration of demand or buying interest. As the price of assets or securities drops, demand for the shares increases, thus forming the support line.1 Meanwhile, resistance zones arise due to selling interest when prices have increased.
How to trade “ZigZag Support & Resistance Breakout”
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. The strategy uses the ZigZag indicator to define the Support and Resistance levels
Initial back-test
To run a back-test we have coded a complete ZigZag Support & Resistance Breakout trading strategy as a MetaTrader 4 Expert Advisor. During preliminary analysis we have identified that the best time frame for ZigZag Support & Resistance Breakout trading strategy is 1 hour (H1). We have run a back-test of ZigZag Support & Resistance Breakout trading strategy. For our test as a trade exit rule we have used a Trailing Stop of 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 2009.01.01-2020.09.25 using Every Tick modelling on EURUSD-H1, using 1:1 leverage, without reinvestment, assuming spread equals 10 ticks. These are the main parameters of ZigZag Support & Resistance Breakout trading strategy performance at its non-optimized state:
| ROI | # of trades | Winning ratio | Max. drawdown |
| -7.9 | 5301 | 34.79% | 81.70% |
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:
Optimization
ZigZag Support & Resistance Breakout can be used with other indicators to filter out losing trades and make entry signals more accurate. After analyzing trading data, we have found the following insights which have helped us to make the ZigZag Support & Resistance Breakout trading strategy profitable reducing it’s drawdown in 25 times:
- Trades that were opened at a too low and at a too high values of ADX have appeared to bring more losses when trading “ZigZag Support & Resistance Breakout” trading strategy during 2009 – 2020. ADX shows the power of the current trend. It is more reasonable to take trades at the trend start.
(ROI increase -7.9% ->1.2%, Drawdown reduction 81.70% -> 10.39%) - The majority of trades that were opened at a too low value of Stochastic and the majority of trades that were opened at a too high value of Stochastic were losing when trading “ZigZag Support & Resistance Breakout” trading strategy during 2009 – 2020. It is risky to take trades in the overbought and oversold zones.
(ROI increase -7.9% ->0.09%, Drawdown reduction 81.70% -> 19.10%) - Most of the trades that were opened at a too high and at too low value of Williams Percent Range indicator were losing when trading “ZigZag Support & Resistance Breakout” trading strategy during 2009 – 2020. Williams Percent Range is a momentum-kind indicator and measures overbought and oversold levels.
(ROI increase -7.9% ->1.6 %, Drawdown reduction 81.70% -> 14.02%) - The most profitable trades were opened at the middle value of DeMarker when trading “ZigZag Support & Resistance Breakout” during 2009 – 2020. DeMarker aims to assess the directional bias of the market.
The most profitable trades were opened at the middle value of DeMarker when trading “ZigZag Support & Resistance Breakout” during 2009 – 2020. DeMarker aims to assess the directional bias of the market.
Optimization results
We have analysed data received from a test of ZigZag Support & Resistance Breakout trading strategy during 2009 — 2020 years and applied some filters such as ADX, Stochastic, WPR and DeMarker. As a result, the profitability of the strategy has increased from -7.9% up to 4.5% and it’s drawdown has reduced from 81.70% to 3.42% using leverage 1:1.
Post-optimization back-test
Reducing the drawdown has allowed us to increase the leverage that can be used while trading this strategy up to 1:50, which in turn, has resulted in annualized ROI increase up to 224.95%!
Reducing the drawdown has also allowed us to use risk based lot calculation. Below you can see the back-test results using $10,000 initial balance and 10% risk per trade:
| ROI | # of trades | Winning ratio | Max. drawdown |
| 7601.70% | 863 | 41.60% | 34.86% |
Analyze your trading strategy!
If you have a trading strategy that you want to analyze, optimize and increase its profitability (or even turn it from losing into a profitable Forex trading strategy) – feel free to contact us! Our trading data analysis team will respond to you within 24 hours clarifying all the details needed.
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