HMAChian Strategy – At a Crossroads
I wish I could start this article with a clear head and a firm direction, but the past few weeks have caught me in something of a imbalance. HMAChian is a strategy of my own concoction that uses…
It works on a retrace in a trend theory, using an MTF approach and value charts to confirm the trend and the Donchian Channels to confirm the pullback. The value charts are supposed to be the secret sauce, measuring whether value had crossed the Kumo Cloud or not. If so and all other factors were in confluence, then a change in the HMA would signal an entry. If not, let it pass and look for the next opportunity.
Backtracking seemed good, with a whopping 19pts profit over December 2020 on a Risk/Reward of 1 to 1.6. That is on the high side of realistic expectations which brings about a sense of “too good to be true” but sometimes you get good periods, and sometimes you find a system that breaks the mold. I hear a lot of people say “If your system does more than 15% it’s unsustainable” or some arbitrary number, but why? Yes, the higher the profit the more caution should be applied, but that certainly doesn’t mean it’s not possible.
Anyway, I digress. For forward testing I would be using an IG test account with £10000, starting on February 2nd and…
Live testing in February to date has shown just 3 entries. Whilst they drove to initially positive floating profits, they also came nowhere near to target and one reversed for a total loss. The others are still in play but are sat around the even level and that’s some ten days after entry. This is very different to the original backtest where entry signals came at a steady average of 1.6 per day (personally, I would be happy with around an average of 1 per day), and this inevitably causes issues with any potential comparisons between the December dataset and this live one now. Also, the length of the trades in play is an issue – unless you are a pure scalper, no one should expect trades to be won and done within a few hours. However I am not the kind of trader who wants to be in a trade for an extended period of time stands to reason that your analysis and triggers will become less accurate the longer you are in a trade – on a higher time frame you have more flexibility on this, but on a lower time frame you can’t expect your trigger to remain relevant for more than a few days at best.
Another more curious point was the amount of lost triggers waiting for the pullback to happen – or rather, waiting for it to happen in accordance with the Donchian channel. At one point there were 7 clear entries in a row I could’ve taken and hooked a clear profit on every single one of them – but the retrace wasn’t made clear according to my rules. Although you should never fit a system to a specific set of circumstances, you should also take a good hard look and say to yourself, “How much money am I leaving on the table?”
The consequence of all of these points combined is I’m not sure this is the right strategy to proceed with going forward as-is. I do see merit in most of the indicators I’ve used and the way in which I’ve set out the table, so my move from here will be to put this system on ice and retool it. Just as the Kumo Value Chart made all the difference to the original test, I feel that introducing other elements of Ichomoku Kinko Hyo can only benefit me going forward. Researching and adapting the concepts of the Taichi indicator will likely be my next stop.
So, watch this space – HMAChian V1.1 or something completely different? Who knows? Well, you will, just as soon as I figure it out myself. Well, a little bit after that, give me time to write a coherent post and all that.