Technical Report : Q2 2018

There has not been any change in price action or performance since previous report sent in February 2018.

We had received the following questions from one of our member who has been running all Phibase EAs since 2012. We are including this information as you may find it relevant and useful in your decision making process.

1) “Why CabEX V2.0 and V3.7 results are being considered for analysis of Max DD at this stage and not actual DD seen on real account?”

We do not normally switch between versions for strategy analysis – We had to take into consideration deducting underperformance of the version used between October to April as V3.0 was an aberration with regard to strategy continuity between V2.0 to V3.7.

This is an exception since a strategy change was introduced in CabEX V3.0 to enter conservative trading with lower stoploss level of 60 pips – This had resulted in underperformance and differences among brokers. Other changes were faster reaction to to price action and lock in gains better – these were good changes. The logic changes which moved the strategy away from the original V2 was dropped and V3.6/3.7 was provided with improved trade management to enable faster reaction to price reversal (without waiting for full stoploss hit) + quicker identification of ranging price action (one week instead of two weeks). Strategy of V2.0 and V3.7 were same – with no strategy/trading logic level changes. About 20% improvement in overall result is seen with V3.7 due to improved trade management. So the strategy analysis for max drawdown is based on V2.0/V3.7 results.

Version 4.0 has improvements in strategy's ability to identify better trading conditions for making trade entries and avoid uncertain price actions. The look back period of upto 16 weeks enables the EA to take into considerations major patterns like butterfly and bat formations in addition to moving averages.

2) “On what basis is the future performance and price action range predicted?”

Future Price Action vs Performance

Movement inside the flag pattern has been providing small winning phases but not long enough to make up for the losing phase. This has kept CabEX strategy in drawdown in 2017. Yearly Pivot resistance 1.4100 is expected to serve as sentiment level. This is also 38% fib level of move down from 1.7540 to 1.1880 making this level very important. The first attempt to break above this level was a failed. If this level is broken, the price could break out of the flag to reach 1.47 to 1.50 levels (pre-brexit) (Inline image). If GBP fails at this level (as we are seeing now) - this could break the flag on the downside towards 1.30 - either way the price always breaks or falls out from the flag pattern and provides very good trading opportunity for CabEX strategy.

Flags (both up and down sloping) are seen very commonly. The flags forms on hourly or daily charts are not a major consideration for CabEX due to its wide stoploss range of 120 pips. Flags on weekly time frame having a slope range of 300 to 400 pips causes underperformance for CabEX. The strategy is caught between its ranging mode and trending mode in this pattern. These long term flag patterns are most difficult to identify and price action within looks very normal, however the number of consolidation/ranging/trending periods within them are more.

Duration of these long term flags vary between 2 months to 15 months (last seen in 2006/2007). This duration is very close to the current flag formed since Jan 2017/current.

Not all flags cause drawdowns. Some flags have enough range for the strategy to breakeven or remain positive. Some are very narrow in which the ranging trades of CabEX becomes profitable. Price action looks for a reason - We feel Brexit was a reason for the flag pattern to build up. Our expectation and based on historical study of duration/extent of patterns is that with time the potential move away from the range from 1x to 2x the total range of the pattern. In this case we are looking for a minimum trending price move of atleast 1500 pips. CabEX will only need about 5 good trades to totally move out of the drawdown and the break from the flag could easily provide for this as seen many times earlier.