Ross Hook Entry and Fractal Exit Trading Strategy

Discussion in 'Trading Strategies' started by Customer Questions, Nov 21, 2014.

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  1. Customer Questions

    Customer Questions John @ timetotrade

    Last edited by a moderator: Nov 24, 2014

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  2. Customer Care

    Customer Care John @ timetotrade

    Strategy Overview

    The Ross Hook entry strategy would appear to be based on the Elliott Waves. The entry strategy is based on an impulse wave, followed by a corrective wave, with the entry on the price setting a new high (or low) as illustrated:

    upload_2014-11-21_11-16-50.png

    The characteristics of the long entry strategy are:
    • Price sets a new high
    • Short Bearish Correction Wave e.g. within 20 candles
    • Price sets a new high
    whereas the short entry strategy is based on:
    • Price sets a new low
    • Short Bullish Correction Wave e.g. within 20 candles
    • Price sets a new low
    Strategy Execution

    The Parabolic SAR can be used to identify waves of price action and the Price Channel indicator can be used to identify high and low price ranges within a selected time frame period. In this example the requirement is for the correction wave followed by a new high or low to be formed within 20 candles, therefore the period used in the Price Channel indicator will be set to 20 i.e. get the highest high and lowest low over the last 20 candles.


    The alert triggers required to set up the long entry strategy are therefore:
    • High price crosses over the Upper Price Channel
    • Close price crosses under the Parabolic SAR
    • High price crosses over the Upper Price Channel, with the price checked on each tick

    The short entry strategy alert triggers:
    • Low price crosses under the Lower Price Channel
    • Close price crosses over the Parabolic SAR
    • Low price crosses under the Lower Price Channel, with the price checked on each tick


    The triggers should be in a strict sequence with a maximum time of 20 minutes allowed between the first and last alert trigger conditions being met. The maximum time of 20 minutes is based on the requirement that the maximum correction wave should be less than 20 candles and the chart interval in this example being 1 minute candles; if for example hourly candles where used, then the maximum time frame would be set to 20 hours.

    To learn more about Grouping and Sequencing alert triggers: http://wiki.timetotrade.eu/Triggers_and_Groups

    For help on adding Price Channel and Parabolic SAR alert triggers see:

    http://wiki.timetotrade.eu/Price_Channel_Alerts
    http://wiki.timetotrade.eu/Parabolic_SAR_Alerts

    The long entry strategy alert trigger configuration will look like the following example:

    upload_2014-11-21_11-40-11.png



    The short entry strategy will have the following alert trigger configuration:

    upload_2014-11-21_11-41-36.png


    The alerts can now be modified to execute opening buy:

    upload_2014-11-21_14-5-20.png


    or sell trades:

    upload_2014-11-21_15-26-48.png

    In this example no stop loss or take profit orders have been added to the opening trades. The exit strategy will be based on the use of Fractals, however it could be benefical to add stop losses. The Ross Hook strategy used a multiple of the Average True Range. Add the Average True Range indicator to the chart to work out what the value is and then enter a multiple of that value into the stop loss trade ticket e.g. if the ATR is typically under 0.04 and the multiple applied to that is 6, the stop loss value for the Ross Hook strategy would be 0.04 x 6 = 0.32 i.e. 32 pips / points on the USD/JPY on a 1 minute interval chart. To add a 32 point change stop loss modify the deal ticket as illustrated:

    upload_2014-11-21_15-35-21.png


    Exit Strategy

    The exit strategy is based on Fractals. The long exit Fractal is formed when candles form consecutive higher Highs, followed by lower Highs as illustrated:

    upload_2014-11-21_15-44-57.png


    The short exit Fractal strategy is based on consecutive lower Lows followed by higher Lows as illustrated:

    upload_2014-11-21_15-49-10.png


    The alert triggers required to identify the long exit Fractal patterns are:
    • High Price increases by 0.01 (e.g. 1 pip on the USDJPY)
    • High Price increases by 0.01
    • High Price decreases by 0.01
    • High Price decreases by 0.01

    The short exit Fractal pattern alert triggers are:
    • Low Price decreases by 0.01
    • Low Price decreases by 0.01
    • Low Price increases by 0.01
    • Low Price increases by 0.01

    The alert triggers should be in a strict sequence with 3 minutes allowed to elapse between the first and the last alert trigger condition being true i.e. 3 x 1 minute interval candles as each alert trigger must be evaluated as true immediately after the previous as illustrated. In the following screen shot a closing trade has been added:

    upload_2014-11-21_15-54-47.png


    The short exit Fractal alert triggers:

    upload_2014-11-21_15-55-42.png



    Strategy Analysis

    To backtest the trading strategy, use the 'Backtest' tab and select alerts that the should be used in the backtest. In the following example that Long entry and exit strategy will be tested:

    upload_2014-11-21_16-0-0.png


    Given that the USDJPY has just gone through a bullish move the results where positive:

    upload_2014-11-21_16-1-16.png


    From analysis of the long strategy the draw down was minimal:

    upload_2014-11-21_16-1-44.png


    When the short strategy was tested over the same bullish market data, unsurprisingly it generated a loss, however what is interesting to note is that the overall loss was relatively low as the fractal exit point was typically at point of weakness:

    upload_2014-11-21_16-6-15.png


    upload_2014-11-21_16-6-34.png


    Running both sets of rules concurrently was profitable although it did generate a lot of trades:

    upload_2014-11-21_16-8-22.png

    upload_2014-11-21_16-8-34.png


    Strategy Conclusions

    The initial analysis of the strategy would suggest that the Long rules work best during bull markets, with the short rules performing best during bearish markets.

    Possible refinements to the strategy to be explored:
    • Reduce the value that the Fractal high and low prices must increase or decrease by e.g. from 0.01 to 0.001
    • Consider adding a rule to opening alerts such as the price being above / below a long Moving Average to filter out selling during Bull market runs and vice verse
    • Using Fractals for entry and exit trading rules

    To learn more about back testing: http://forum.timetotrade.eu/threads/how-does-the-back-testing-work.80/


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    Last edited by a moderator: Nov 24, 2014

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  3. Lib123

    Lib123 New Member

    A higher time frame like H4 can give better results?
     

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  4. KHyuga

    KHyuga New Member

    Very comprehensive info there, but I can't seem to replicate the alert on my account as the settings seem to have changed somewhat.
    Possible to upload the file here for import please?
     
    Last edited by a moderator: Feb 2, 2015

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  5. Dary

    Dary Dary McGovern Staff Member

    Hi KHyuga - the settings referenced above are available in the tearaway charts. From the navigation, select CHARTS > TEARAWAY

    We are currently working on new cross platform charts, that are currently in use with the Grid Charts. Those charts have different settings at the moment.
     

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