What’s the best strategy to use when you have a signal provider generating a up or down signal every hour?

(Last Updated On: September 9, 2011)

What’s the best strategy to use when you have a signal provider generating a up or down signal every hour?

I have an indicator that provides a signal every hour which indicates if the near future (next few hours) price would move higher or lower than the current price. I am achieving a 75%-80% accuracy on this, however I don’t have strategy to place around this. Are there any basic or more complex strategies out there that can be used with this type of indicator. To put this into context, I am current running training and testing on hourly fx data from meta trader which has HLOCV data for each bar/hour. Any help would be greatly appreciated.

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Currently if you traded on every signal, the return is very low – breaking even. If I do this with the training data, which for this system is the perfect possible signal output, the return is progressively positive over time. I guess this would suggest possibly two things: 1) there are rogue/negative/false trade reversal signals in the middle of a certain direction. 2) the model has some lag in the switching signal.

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are the price movements you’re trying to predict skewed towards one side (i.e. much more likely to go up vs down)?

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No there is no bias of either direction

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1. Try to calculate the expected return over your data set.
2. Try to calculate the expected return of doing the opposite of your signal. i.e. following your rules for taking profit sell when it says buy and buy when it says sell.
3. Compare. With 75-80% accuracy you have to see a big difference in return.

Additionally you could try to compare the equity curves produced by step 1 and step 2.

Your 75-80% number sounds suspiciously close to 75% rule for the random walk.

 

 

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