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Basic Ehlers Cycle Strategy

Basic Ehlers Cycle Strategy
By JohnLast 1070 days ago Comments (10)
image
От 24 септември 2011
This is the expert I used to test the basic Ehlers basic Cycle Strategy. More details about this EA you can find here

Installation:
You need to install the Cycle period indicator unless you already have it in your indicators folder.

Critical appreciation:
Unfortunately it is not for the category what is working now. I made this custom mod of the Universal Moving average EA specially to test the trading strategy of Ehlers from the book. MESA and Trading market Cycles. by Ehlers p. 39.

 

You know when you read books you have always to check the ideas against the reality. And the reality breaks the most idealistic and beautiful mathematical representations.
So globally it is not working.

 

On the other hand this has to work only if the market is in cycle mode, and we cannot blame Ehlers that the market is not in cycle mode :). And the poor results can be explained by the fact that the market was in trend mode. 

 

So the question is if it is working well when the market is in cycle mode.
On 4 h and the daily time frame it was able to trade very well some recent cycles.

 

Look at the screen shot with the test on the daily period. No optimization here. It fails when a trend develops and works nicely on cycles detecting well the reversal points. I think that after all it may be useful. 
 

Comments

  • isuborsky 1058 days ago

    very interesting with control of main trend, thanks.

  • JohnLast 1058 days ago

    I used this to test if the cycle theory works or not, and at what time frames we could expect tradable cycles. 

  • Hubert 1048 days ago

    and what's your opinion?

  • JohnLast 1048 days ago

    Do not trade cycles below 4 h time frames based on ehler's type of cycle analysis on EUR/USD. On this sample it worked on daily because we had cycle activity. However when those cycles are present they are calculated very well.

    I did that because I wanted to test the pure cycle analysis versus reality.

    Not a grail.

     

     

     

     

  • JohnLast 864 days ago

    Some 206 days later I made again some tests. 

    The daily frame was a mess, but as the market was in trend mode that is not surprising

    The 4 h time frame had some very strong points but finishes with 292 losson a 10000 account with 0.1 lots

    The 1 h time frame: A complete and surprising success:

    635 profit and 58 % of winners with 1.16 profit/loss ratio

    The 30 m time frame 

    350 profit 57 % winners  with 1.06 profit/loss ratio

     

    Do not forget that there is no optimization here. We identify cycles according to the cycle period indicator.

  • JohnLast 864 days ago

    Just while I was talking about cycles I realized that there is a parameter within the cycle period indicator that is affecting the output greatly.

    And making some quick simulations I see that under some parameters of alpha the expert turns out to be a beast.

    This is really interesting. The averaging and smoothing inside the cycle period calculation in fact is critical.

    If you change the smoothing a little bit and you will have completely different cycle period readings.

     

  • jaguar1637 864 days ago

    Question : Why a different period regarding both MAs ?

       double FastMAPeriod= iCustom(Symbol(),Period(),"CyclePeriod",Alpha,0,0);
       double SlowMAPeriod= iCustom(Symbol(),Period(),"CyclePeriod",Alpha,0,0)/2;

    I would have got same values or the opposite , means

    FastMAPeriod = iCustome(....) /2

    and SlowMAPeriod = iCustom(...)

    ... there is something I don't understand ?.... ;)

  • JohnLast 864 days ago

    Hi, this is explained here. This is a pure cycle system (supposing that there are cycles in the prices and exploiting them).

    When doing tests I see regularly more than 55 % of winners. That means to me without going any longer that there is something.

    Some market frequencies (time frames) do not offer trading cycles: the very long (daily) and the very short (15m and below).

    The medium market frequencies of 30m and 1 h represent a certain interest for trading cycles

    That of course are results of tests on EURUSD on the recent market data from the last 6 - 8 months.

     

  • JohnLast 864 days ago

    So the next logic question was about the alpha.

    First we see that modifying the values of the alpha affects greatly the cycle period evaluations and that affects irectly the results of the expert.

    Second and that was the second idea why not to use a neural network, or a basic kernel in order to use the the maximum the genetic algorythm of mt4. 

    That is what I did, as the stock values is 0.07 I used the chaotic kernel (you can use others too) to calculate the best value of smoothing giving the most optimal results in back-tests.

    For the moment I can't make any objective evaluations because the results are hard to believe and also because when I see the actual trades they are counter-intuitive and some of them very stupid to me. And despite that the equity curve is nice. 

    But that can be explained easily by the fact that the market according to Ehlers has two basic modes cycle mode and trend mode. 

    In this expert ea we use only the cycle mode, and that is logic that it would counter the trend. But despite that it is able to generate a positive equity curve. Hmm.

    So it is possible to make two things. 

    1. We can implement the Ehlers filter. He uses the Instanetious trend line combined with cycle period evaluation in order to classify between trend mode and cycle mode. 

    2. We can see easily that the expert is performing greatly within choppy periods and high volatility swings but fails to perform into hard unidirectional movements.

    2.1 So a manual intervention would be needed. 

    2.2 Or this expert may be used to hedge the risks of another expert that performs greatly in hard unilateral movements.

    So that is all for the moment. I will release the expert pretty soon so you can test it.

    It will be available for logged users for free (as usual).

     

  • JohnLast 864 days ago

    Ok here is the new EA, you need to log in in order to open the link