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Specification
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Step 1: Universe
Trade in indices, commodities, and Fx using daily closing prices.
Step 2: Trigger
Enter the market when there is a breakout from -20day MA long/short or -55day MY long/short.
Use ATR(14) as a required value.
Step 3: Check
Before entering the market, ensure that the current price is within 10 x ATR.
If it is a bull signal, set the stop loss below the low; if it is a bear signal, set the stop loss above the high.
Also, make sure that the current ATR(14) is greater than 2 x the historical ATR(3Y).
Step 4: Determine position size
Input 1% of the total investment volume (E), which is the sum of cash and current positions.
Calculate the basic trade unit using ATR, with the standard unit being 2 ATR.
Convert ATR to options/futures and choose the maturity of the next month or the volume-strongest strike or +3 months.
Set the standard stop loss to 2 ATR (input) or below the 10-day MA at a signal 20-day MA or the 20-day MA at a signal 55-day MA.
Step 5: Position pyramid
Maximize up to 4 times and determine the following:
Total capital (E)
Current ATR(14)
Stop loss
New unit
Change stop unit 1 to the new stop.
Step 6: For information
Determine the position size using ATR(14), with DAX ATR(14) = 190 points and DAX-future = 25 € per point.
If E = €1,000,000 and the risk per position is 1% of E, the unit is 2 ATR. Therefore, 2 x 190 x 25 = €9,500, and the risk is €10,000, making the unit 1 future.
Step 7: Portfolio exposure
To maintain a market-neutral position, calculate the portfolio exposure for each trade by measuring the ratio of long positions to short positions.
Calculate the net delta of all positions, which is the sum of the delta of each long position minus the sum of the delta of each short position.
Divide the net delta by the total investment capital to get the percentage of the portfolio exposure.
If the percentage is positive, it means the portfolio is long biased, and if it's negative, it's short biased.
If the percentage is too high in either direction, it may be necessary to adjust the positions to maintain a neutral position.
Step 8: Correlations
In addition to the trigger and check criteria, consider the correlation between existing positions and potential trades.
Use MetaTrader 5's built-in tools or plugins to calculate the correlation between pairs of securities.
Set a maximum correlation threshold, such as 0.7, and only enter trades that fall below this threshold.
Periodically re-evaluate the correlations between positions and adjust the portfolio accordingly to ensure a balanced and diversified portfolio.
Additional features:
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News filter: Stop trading before upcoming events
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Virtual loss filter