CabEX V4.0

CabEX V4 was applied during first week of April 2018. CabEX strategy as a whole is seen at its max drawdown level and trading it is becoming increasingly frustrating due to the extended drawdown phase. The trades of version 4 may need to be considered excluding the performance of the previous version to make a proper technical recommendation.

Firstly, the chart below is a comparison of live trades vs tick data strategy test for the period between April to Nov 2018 (~35 trades)

The live trades are seen to match the strategy test results very well and can be taken as a validation for the strategy test results over historical period.

The strategy tests of V2.0/3.7 and V4 shows that the longer look back period implemented in V4 has been an improvement. CabEX V2/3x could not have coped with the price action seen during the past few months. CabEX v4 has been doing relatively better and the current drawdown of -900 pips is at max drawdown (deep) and is still in the test DD ranges seen earlier (v4 Max ~900 pips).

The UK Parliament vote not taking place during second week of Dec 2018 has put GBPUSD price action in a further state of uncertainty with talk of second referendum, the next few weeks does not present an ideal environment for CabEX to recover. We do not expect to see any major development on Brexit and holiday sessions may see some price level based trading which will provide some trading opportunities for CabEX, some of which may be wins and some may end in loss - while this is normal part of trading, at this stage (after such a prolonged drawdown) trading the CabEX strategy needs to be suspended until the Brexit uncertainly reduces.

The drawdown is now at V4 strategy Max DD of -900 pips (from V4's equity high on 31st August). While we assure you that the CabEX v4 strategy is still valid for trading GBPUSD - the continued uncertainty and the equity's drawdown level is not ideal for continued trading over the near short term as any SL hits makes waiting for the large winning trades difficult.

Phibase team makes every attempt to keep emotions and gut feelings out of the trading strategy - we lay maximum emphasis on technical supported by research. In March 2018, prior to release of CabEX V4 - Phibase team had created several one year simulated pricing action to models of various possibilities that could be seen during Brexit ( This had enabled us to test beyond just normal strategy tests over past 12 years of tickdata.

This trading advisory recommendation is based on our simulated pricing model studies #3 as detailed below:

Our price action model #2 simulated price moving out of flag but trapped again in uncertainty. The model used simulations of false breakouts had represented the following :

Performance under the above simulated pricing had shown CabEX V4 gaining and then getting into a drawdowns period with depth of -1200 pips by March 2019. If uncertainty continued even after March 2019, the loss could accumulate further. The current situation is similar to the above where instead of the breakout, there was fallout from flag being followed by ranged choppiness (developing currently). V4 drawdown is currently at -900 pips in live trading.

Political factors in UK have extended the possibility of continued uncertainty and more headline related choppiness. Under normal circumstances this would not be a cause of concern but in order to prevent further adding up of losses to the already extended drawdown we are recommending to stop CabEX temporarily. There is possibility that by stopping it now we could miss out on a few winning trades, however, the equity is not in a state to absorb further losses under the current skewed trading conditions.

Our team has developed a portfolio management and risk control module which we will use to monitor current performance metrics with longer term averages. The risk controller will be used for all our strategies going forward and will be useful to provide trading advisory to enable members to stop trading strategies entering into deep drawdowns and restart them when recovery is confirmed. Our trading advisory on stopping CabEX and restarting again will be based on the performance metrics from this module which has been tested on both our live and historical data. We will continue running CabEX on our accounts to monitor performance metrics to ensure we are able to provide a good recommendation to start trading again.

Members with annual subscription will have an automatic extension of the subscription period for the duration trading suspension is in place.

Ideally, manual interference should not be done under any price action condition since the strategy has survived several high risk events like elections and even traded through financial melt down of 2008/2009 without any issues. Brexit price action has not been that bad and CabEX should be able to adjust and trade through the "exit/no exit/no progress" situations.

The current drawdown of -900 pips was already seen in backtests between 2007-2018 and does not by itself warrant suspension of trading. Simulated trading have shown depths of -1200 pips, hence the strategy cannot be termed as invalid.

We arrived at this decision after based on a technical portfolio management/risk control module which we have developed. Portfolio/Risk Management is briefly described below:

    Our Portfolio/Risk Management is designed to filter trade signals from strategies (EA+Sym combination) with current performance metrics below longer term performance averages. Trade signals are permitted only from strategies (EA+Sym combination) for which current performance metrics is above longer term performance averages.

    The algorithm tracks trades from all our strategies on a trade by trade basis and derives various parameters like sharpe ratio, risk:reward, win rate, sequences of win/loss and drawdown/gain levels. These parameters are analysed with respect our historical long term averages of varying periods (moving average if 1 year to 3 years periods). The algorithm is successful in filtering major deep drawdowns without compromising on missing out the recovery periods. Once the recovery starts and performance improves above average, trading is permitted again.

As per this module, CabEX v4 trading should be stopped this week since performance metrics has dropped sharply below average. We will be trading the EA without break and when performance metrics come above average we will recommend restart of trade.

Similarly, the algo would have filtered out trades of RayBOT+USDCAD which moved into a very deep drawdown of about -900 pip this year. Even though RayBOT gained over all, the risk control/management module would have stopped USDCAD at about -450 pips loss and protected the most gains from EURUSD and AUDUSD. As per the algo, USDCAD trading would be allowed 4th Dec since the metrics moved above average.

This extended CabEX drawdown is composed of several parts:

  • Relative under performance of V3.0's trade management method, the equity gained 400 pips less than what V2.0 would have by June 2017.
  • Drawdown of V3.7 was largely due to the weakness of CabEX V2x/3x strategy when dealing with flag patterns. This was a known weakness and was solved in V4 by implementing a longer look back period.
  • V4 was in gaining phase since 2016 and recent drawdown is its first drawdown in 3 years. It is a normal drawdown, but added to the already deep drawdown caused by CabEX 3.x

The current advisory is based on our risk management module and also taking into consideration the extended drawdown level of previous version.

V4 strategy by itself is good and should be able to trade through Brexit or any such event and recover normally.

We will not hesitate to make changes to the strategy if the market conditions or dynamics of GBPUSD become unfavorable - but we are confident that the current v4 strategy is very robust and capable of trading well in near future.