We have chosen the SF Continuous Futures contract for this example because it is well known that currency futures are best traded using trending type strategies. In this example we have built a very simple trading system based upon the channel breakout concept.  Two trading channels are created.  The top channel consists of the highest high over the last “N” bars.  The bottom channel consists of the lowest low over the last “M” bars.  If the current high crosses above the top channel, this is a signal to buy the trend.  If the current low crosses below the bottom channel, this is a signal to sell the trend.  The top channel must be lagged by at least one bar in case the high of the current bar is also the highest high over the last “N” bars.  Similarly, the bottom channel must also be lagged.  The amount of lag is used as an optimizable parameter in the trading strategy.

The major difference of this example trading strategy and conventional channel breakout systems is that the lookback period is a fraction times the MESA8-measured dominant cycle.  Using the dominant cycle to determine the lookback period allows the lookback to expand and contract like an accordion during different market conditions.  When the dominant cycle is relatively long, the lookback period will be correspondingly longer to preclude whipsaw trades.  When the dominant cycle is relatively short, the lookback period is also shorter to enable the trading signal to be more responsive to current market conditions.

The results of the backtest of this trading strategy are shown on the chart. The buy signals are blue upward triangles, and the sell signals are the red downward triangles. If you zoom in on one of these signals, you will see an X on the open of the next trading day. This is the date and price of the simulated fill. The NeuroShell Trader assumes you are looking at your chart at the end of the day after downloading another day of data. Any orders you place will be filled near tomorrow's open price.

To enter the Trading Strategy Wizard and examine the rules, right-click on the label at the top named "Trading Strategy". When the pop up menu appears, select "Modify Selected Trading Strategy." You will be placed into the end of Trading Strategy Wizard.

When you first enter the Wizard you will see that the backtesting produced a 7.9% annual return on account with 25 winning trades on a total of 41 trades during the optimal backtest period and a 3.0% annualized return during the out-of-sample test, with almost 50% winners out of 54 trades. If you press the button labeled "Detailed Analysis" you will see a number of statistics for the out-of-sample backtest for the right half of the chart.  During this period the trading system produced $54,600 profit (with no allowance for slippage, margin and commission).  We traded 1 contract with a point value of $125,000.  There were only 48.1% winning trades, and the Ratio of Gross Profit/Loss was 1.87.  These two performance results mean that the trading strategy is statistically robust (John Ehlers, “Cybernetic Analysis for Stocks and Futures”, Chapter 15, John Wiley & Sons, New York).