Hikkake Pattern | Trading Strategy (Filter & Exit)

I. Trading Strategy

Developer: Dan Chesler, CTM, CTA. Concept: Trading strategy based on false breakouts. Research Goal: Performance of the hikkake pattern. Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Trades: The bullish hikkake pattern (a.k.a. the bullish “inside day false breakout”) consists of two price bars. The first bar is an inside bar. The second bar has a lower high and a lower low than the first bar. Short Trades: The bearish hikkake pattern (a.k.a. the bearish “inside day false breakout”) consists of two price bars. The first bar is an inside bar. The second bar has a higher high and a higher low than the first bar. Trade Entry: Long Trades: A buy stop is placed one tick above the high of the inside bar in the bullish hikkake pattern. Short Trades: A sell stop is placed one tick below the low of the inside bar in the bearish hikkake pattern. The signals must be generated within three bars of the hikkake pattern. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 33 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

Hikkake Pattern: Trend Filter & Time Exit  (Definitions: Table 1):


Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY
SPECIFICATION PARAMETERS
Auxiliary Variables: N/A
Setup: Long Trades: The bullish hikkake pattern (a.k.a. the bullish “inside day false breakout”) consists of two price bars. The first bar is an inside bar (i.e. High[i − 1] < High[i − 2] and Low[i − 1] > Low[i − 2]; Index: i ~ Current Bar). The second bar has a lower high and a lower low than the first bar (i.e. High[i] < High[i − 1] and Low[i] < Low[i − 1]; Index: i ~ Current Bar).hikkake pattern
Short Trades: The bearish hikkake pattern (a.k.a. the bearish “inside day false breakout”) consists of two price bars. The first bar is an inside bar (i.e. High[i − 1] < High[i − 2] and Low[i − 1] > Low[i − 2]; Index: i ~ Current Bar). The second bar has a higher high and a higher low than the first bar (i.e. High[i] > High[i − 1] and Low[i] > Low[i − 1]; Index: i ~ Current Bar).hikkake pattern
Filter: Long Trades: Close[i] ≥ Close[i − Trend_Index].
Short Trades: Close[i] ≤ Close[i − Trend_Index].
Index: i ~ Current Bar.
Note: If Trend_Index = 0 then the trend filter is turned off.
Trend_Index = [0, 200], Step = 5;
Entry: Long Trades: A buy stop is placed one tick above the high of the inside bar in the bullish hikkake pattern. The signal must be generated within three bars of the hikkake pattern.hikkake pattern
Short Trades: A sell stop is placed one tick below the low of the inside bar in the bearish hikkake pattern. The signal must be generated within three bars of the hikkake pattern.hikkake pattern
Exit: Time Exit: nth day at the close, n = Time_Index.
Pattern Exit: Long Trades: A sell stop is placed one tick below the lowest low of the pattern (the period between the first bar of the hikkake pattern and the entry bar). Short Trades: A buy stop is placed one tick above the highest high of the pattern (the period between the first bar of the hikkake pattern and the entry bar).
Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop].
Time_Index = [1, 196], Step = 5;
ATR_Length = 20;
ATR_Stop = 6;
Sensitivity Test: Trend_Index = [0, 200], Step = 5
Time_Index = [1, 196], Step = 5
Position Sizing: Initial_Capital = $1,000,000
Fixed_Fractional = 1%
Portfolio = 42 US Futures
ATR_Stop = 6 (ATR ~ Average True Range)
ATR_Length = 20
Data: 42 futures markets; 33 years (1980/01/01−2014/01/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Hikkake Pattern: Trend Filter & Time Exit  (Definitions: Table 1):


Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $50 Round Turn).

IV. Hikkake Pattern | Trading Strategy

A/B/C/D

Related Entries: False Breakout (Setup & Exit 1) | False Breakout (Setup & Exit 2) | Turtle Soup Pattern (Setup & Exit 1) | Turtle Soup Pattern (Setup & Exit 2)
Proprietary Strategies: ALPHA20TM Trading System | Robust Short-Term PatternsTM
Related Topics: (Public) Trading Strategies

Codes: matlab/chesler/hikkake/

CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

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