Simple ADX Strategy

Simple ADX Strategy

I have called this strategy: Simple ADX. It is my intention to provide the code for a basic trading strategy with the intention to learn from the input from other traders using this forum.

The basics of the strategy are as follows:

When the 14 period ADA rises from below 15 to above 15 with a change in the ADX of 0.5 or more, a big trend might be underway.
A simple Parabolic Stop is used.

Let's look at the code as I use it in Genesis Trade Navigator:

For a Long Entry:
IF DMI plus (14 , 0) > DMI minus (14 , 0) And ADX (14 , 0) <= 15 And ADX (14 , 0) > ADX (14 , 0).1 And Next Bar DayOfWeek <> 3 And Next Bar WeekOfMonth <> 4

For Long Exit:
IF Crosses Below (Low , Parabolic (0 , 0.02 , 0.2))
Then Sell Market

For Short Entry:
IF DMI minus (14 , 0) > DMI plus (14 , 0) And ADX (14 , 0) <= 15 And ADX (14 , 0) > (ADX (14 , 0)).1 And Next Bar DayOfWeek <> 2

For Short Exit:
IF Crosses Above (High , Parabolic (0 , 0.02 , 0.2))
Then Sell Market

The Long Entry looks at a DMI Plus > DMI Minus and the ADX must be rising ADX > ADX.1 (= one bar ago)
The last two conditions were added after back testing: it should not be the 3rd day of the week; it should not be the 4th week of the month.

I tested it on the Japanese Yen (in Genesis G6J-067).
Looking at the results over a long period of time (1977 – 2009):

Total Net profit: $102.538
Profit Factor: 3.05
Winning Percentage: 51.8%
Return %: 966.7%
Average trade: $932
Max Closed-out drawdown: -$6400
Max IntraDay Drawdown: -$7908
Percent in the market: 18.9%
Total trades: 110

Looking at a time when electronic trading was more common (2001 – 2009):
Total Net profit: $24.903
Profit Factor: 3.43
Winning Percentage: 57.1%
Return %: 290.7%
Average trade: $889
Max Closed-out drawdown: -$ 5145
Max IntraDay Drawdown: -$ 5865
Percent in the market: 14.6 %
Total trades: 28

What I like about this system is the low drawdown. It does not trade often but it has been a consistent winner with an average profit per trade around $ 900.

Looking at the DAX with the same strategy but a slightly different exit gives the following results - see thumbnails.
The table showing the trades indicate the principle of cutting your losses and letting your profits run
I used $ 45 for slippage and commission. No Money Management technique was used. This is for 1 contract.
No forward testing or Monte Carlo simulation was done.

Looks pretty interesting.

Using money managment should make it v. promising, but will make the drawdowns bigger, although hopefully you can offset the effect by simultaneously trading several more markets.

Obviously you have to have the cash for the margins, but you want to get the results for other markets like Crude, Gold, Treasuries, Wheat or Coffee (or another Ag.) - i.e. put together a basket of less correlated markets. Then combine the returns and see what the collated results look like. Might well be quite tradeable.