I'm beginning research into mechanical forex system development. Before I dive in does anyone have any experience is what typcially works and on what compression do strategies appear viable? I also build systematic options trading systems. Does anyone have any experience shorting premium in fx?
Over significant time periods volatility breakout systems have worked pretty well on various dollar parities or currency futures. They will work on 60 minute and daily compressions. Typically such systems establish a range and go in the direction of a breakout of the range. The range can be defined in various ways, from a simple channel break, eg 30 period high/low, to using a lookback period to derive a volatility factor that is added/subtracted from the clos or open to get stop entry levels. Such systems typically will have a win percentage of 30-40% and annual drawdowns of 50%. Obviously, it is essential to hold on to winners for as long as possible, as this type of system depends on catching the big move.
Thanks for the feedback AAA. That is exactly what I'm finding in my research. I have yet to explore range expansion using atr's on either session or both combined but that also should be interesting. There seem to be quite a few gaps and the overnight can be just as volatile as the day session.