Trends

Trends are one of the most important parts of any technical analysis model, especially in charting. Measuring trends over different periods (we use 5) allows for the proper identification of chart patterns and candlesticks by detecting local and relative highs and lows.

The detection of chart patterns requires a correctly measured trend and a specific shape in prices. Here, we have selected the head and shoulders pattern, known for its complexity, although it is applicable to any pattern. Specifically, we detect both normal and inverted head and shoulders, double and triple bottoms and tops, and triangles.

HEAD AND SHOULDERS: LET'S USE TRENDS AND SHAPES TO FIND HEAD AND SHOULDERS PATTERNS

Model found a total of 32 Head and Shoulders patterns on USDCHF.FOREX.

NOW LET'S TAKE A LOOK AT ONE OF THE HS FOUND

We will randomly select one of the 32 patterns.

  • Date Shoulder 1: 2021-06-18
  • Date neckline 1: 2021-06-25
  • Date Head: 2021-07-02
  • Date neckline 2: 2021-07-15
  • Date Shoulder 2: 2021-07-20
  • Price Shoulder 1: 0.9239
  • Price Neckline 1: 0.914
  • Price Head: 0.9274
  • Price Neckline 2: 0.9116
  • Price Shoulder 2: 0.9233

NOT ALL THE HEAD AND SHOULDERS PATTERNS WHERE CONFIRMED. LET'S SEE HOW MANY OUT OF 32 WHERE CONFIRMED.

Confirmed Head and Shoulders:

  • 06/05/1998
  • 30/09/2002
  • 03/08/2005
  • 22/11/2006
  • 15/02/2007
  • ...

LET'S SELECT ONE OF THEM TO SEE THE CONFIRMATION SIGNAL

STOP LOSS AND PROFIT TAKING IS SET USING THE OPTIMIZED PARAMETERS

TRADES

Trade N: 1 | Entry Date: 1998-05-06 | Entry Price: 1.47 | Position: -1.0 | Exit: SL | Exit Date: 1998-06-26 | PriceExit: 1.53 | PnL: -0.06 | Acum PnL: -0.06
Trade N: 2 | Entry Date: 2002-09-30 | Entry Price: 1.48 | Position: -1.0 | Exit: TP | Exit Date: 2002-12-17 | PriceExit: 1.43 | PnL: 0.05 | Acum PnL: -0.01
Trade N: 3 | Entry Date: 2005-08-03 | Entry Price: 1.26 | Position: -1.0 | Exit: TP | Exit Date: 2005-09-01 | PriceExit: 1.23 | PnL: 0.03 | Acum PnL: 0.02
Trade N: 4 | Entry Date: 2006-11-22 | Entry Price: 1.23 | Position: -1.0 | Exit: TP | Exit Date: 2006-11-28 | PriceExit: 1.2 | PnL: 0.03 | Acum PnL: 0.05
Trade N: 5 | Entry Date: 2007-02-15 | Entry Price: 1.23 | Position: -1.0 | Exit: TP | Exit Date: 2007-02-27 | PriceExit: 1.22 | PnL: 0.01 | Acum PnL: 0.06
Trade N: 6 | Entry Date: 2007-09-07 | Entry Price: 1.19 | Position: -1.0 | Exit: TP | Exit Date: 2007-09-25 | PriceExit: 1.17 | PnL: 0.02 | Acum PnL: 0.08
Trade N: 7 | Entry Date: 2012-12-13 | Entry Price: 0.92 | Position: -1.0 | Exit: SL | Exit Date: 2013-03-06 | PriceExit: 0.95 | PnL: -0.03 | Acum PnL: 0.05
Trade N: 8 | Entry Date: 2013-09-18 | Entry Price: 0.91 | Position: -1.0 | Exit: TP | Exit Date: 2013-12-09 | PriceExit: 0.89 | PnL: 0.02 | Acum PnL: 0.07
Trade N: 9 | Entry Date: 2015-04-29 | Entry Price: 0.94 | Position: -1.0 | Exit: SL | Exit Date: 2015-08-07 | PriceExit: 0.98 | PnL: -0.04 | Acum PnL: 0.03
Trade N: 10 | Entry Date: 2016-02-08 | Entry Price: 0.98 | Position: -1.0 | Exit: TP | Exit Date: 2016-03-31 | PriceExit: 0.96 | PnL: 0.02 | Acum PnL: 0.05
Trade N: 11 | Entry Date: 2016-08-16 | Entry Price: 0.96 | Position: -1.0 | Exit: SL | Exit Date: 2016-10-20 | PriceExit: 1.0 | PnL: -0.04 | Acum PnL: 0.01
Trade N: 12 | Entry Date: 2017-12-28 | Entry Price: 0.98 | Position: -1.0 | Exit: TP | Exit Date: 2018-01-12 | PriceExit: 0.97 | PnL: 0.01 | Acum PnL: 0.02
Trade N: 13 | Entry Date: 2018-08-20 | Entry Price: 0.99 | Position: -1.0 | Exit: TP | Exit Date: 2018-08-27 | PriceExit: 0.98 | PnL: 0.01 | Acum PnL: 0.03
Trade N: 14 | Entry Date: 2018-12-07 | Entry Price: 0.99 | Position: -1.0 | Exit: SL | Exit Date: 2019-04-18 | PriceExit: 1.02 | PnL: -0.03 | Acum PnL: 0.0
Trade N: 15 | Entry Date: 2019-10-17 | Entry Price: 0.99 | Position: -1.0 | Exit: TP | Exit Date: 2019-12-27 | PriceExit: 0.97 | PnL: 0.02 | Acum PnL: 0.02
Trade N: 16 | Entry Date: 2020-06-04 | Entry Price: 0.96 | Position: -1.0 | Exit: TP | Exit Date: 2020-07-08 | PriceExit: 0.94 | PnL: 0.02 | Acum PnL: 0.04
Trade N: 17 | Entry Date: 2020-10-20 | Entry Price: 0.91 | Position: -1.0 | Exit: TP | Exit Date: 2020-12-10 | PriceExit: 0.89 | PnL: 0.02 | Acum PnL: 0.06
Trade N: 18 | Entry Date: 2021-07-28 | Entry Price: 0.91 | Position: -1.0 | Exit: SL | Exit Date: 2021-09-29 | PriceExit: 0.93 | PnL: -0.02 | Acum PnL: 0.04
Trade N: 19 | Entry Date: 2022-11-09 | Entry Price: 0.98 | Position: -1.0 | Exit: TP | Exit Date: 2022-11-11 | PriceExit: 0.94 | PnL: 0.04 | Acum PnL: 0.08
Trade N: 20 | Entry Date: 2023-01-18 | Entry Price: 0.92 | Position: -1.0 | Exit: TP | Exit Date: 2023-04-13 | PriceExit: 0.89 | PnL: 0.03 | Acum PnL: 0.11

PERFORMANCE METRICS

THIS IS ONE OF THE MOST IMPORTANT AREAS OF THE MODEL. WHY WOULD A TRADER FOLLOW A "BULLISH" SIGNAL IF THAT INDICATOR IN THAT ASSET IS NOT REALIABLE? ALL THE INDICATORS AND PATTERNS HAVE THEIR OWN REA

DRAWDOWN AND RISK MANAGEMENT

Drawdown refers to the reduction in value of an investment or portfolio from its peak value. It is a measure of the maximum loss experienced by an investment during a specific time period. Risk management, on the other hand, is the process of identifying, assessing, and controlling risks to minimize their negative impact on an investment or portfolio. The goal of risk management is to ensure that the potential losses from an investment are within an investor's tolerance level. Effective risk management can help prevent large drawdowns and protect an investor's capital.

DOUBLE TOPS

There are numerous chart patterns, some indicating continuation and others indicating a trend reversal. Here's how double tops are identified in the case of the US dollar against the Swiss franc.

In the historical daily USDCHF.FOREX data, 238 Double Tops have been found from 26 Apr 1990 to 27 Apr 2023

NOW LET'S TAKE A LOOK AT ONE OF THE DOUBLE TOPS

We randomly select number 119 out of 238: between 15 jun 2011 and 28 jun 2011

DOUBLE BOTTOMS

In the historical daily USDCHF.FOREX data, 212 Double Bottoms have been found from 26 Apr 1990 to 27 Apr 2023

NOW LET'S TAKE A LOOK AT ONE OF THE DOUBLE TOPS

We randomly select the double bottom between 07 jul 2010 y el 12 jul 2010