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"Lin, Just want to say that I really appreciate what you are doing with EA's.
You once again have proven that your EA works! I have tried numerous other EA's over the last
few months (partly because of the long period of ranging market which wasn't great for Point
Break), but to be honest, every time I end up coming back to Point Break!!
It is so far the only EA that has proven to work long term in live account!
Others do great for a while, but then they crash! Keep up the good work!
Again, thanks for all the great work!"
~ Tobias
Two years ago I invented the PointBreak trading system and conducted lots of seminars introducing my unique trading strategies in many cities. Until now PointBreak 5.0 (PB5) has been downloaded more than a thousand times from our website itself, not including our affiliates and partner websites.
Since then I also conducted countless hours of researching, reprogramming, recalculating, back testing and forward testing PointBreak trading system to find new ways to improve the performance. Investigating and analyzing many ways of using different methods has been a very long and thorough process.
It took me two years before I finally came to this new system. The main challenge has been that of filtering out sideways price movement without also filtering out optimal entry when the market is trending, and optimal exits and closing profit when the trend has finished. I will be revealing the major points of this journey in this report, along with providing my conclusions.
After spending several months in forward testing of these new techniques, I'm ready to launch the advanced version which is now part of our complete trading strategy (Dreambuilder-FX).
Basic Concept:
I found many trading systems or expert advisors in the market that produce profit in a short time period but eventually fail in the long term. They always need new optimization settings when the market changes (sometimes after several big losses or after the account has blown up). Many of us have tired of trying to find a profitable trading system that can be used for the long term and have decided that "No EA can work all the time".
My purpose behind PB5 and Dreambuilder-FX is to make a consistent and profitable trading system for the long term. The system needs no periodic optimization, but it will produce consistent profit.
This report explains the first system of the DTS complete trading system: DTS-1 (for EURUSD).
The main strategy behind DTS-1 is Pyramiding (used by PointBreak5 which has produced very good returns in trending markets, but produces temporary drawdown in sideways/choppy markets), combined with several new techniques that make some adjustments when the market changes (from trending market to choppy/sideways market).
In PB5 strategies, drawdowns are simply a necessary evil in order to put the long-term probabilities in our favor. What this means is that the long-term probabilities are supporting us if we have proper exits or preventative measures in place to keep the risks lower. In the short term it will cause temporary drawdown.
Note:
· I will try to explain the logic behind DTS-1 as simply as possible.
· If you are not familiar with our PointBreak trading system and our unique way of using
the pyramiding technique I suggest reading our PB5 manual first. To download PB5 manual:
I meet with hundreds of people every week through our forex seminars and managed funds program. There are additional videos on our website about our forex seminars. Every week I open my personal trading account in front of them, and we have more than a hundred clients in our managed account program (and until today no one has lost money).
Download example of one of our client's live reports:
On the example account, we traded using PB5 for more than a year (Conservative Setting). Note: The account made profit from $25K into $36K (after we charged 0.5 pips commission and 35% profit sharing).
The logic behind DTS-1 solves the drawdown problem of PB5 in choppy/sideways and reversal markets. It also reduces the maximum drawdown period of PB5 from 5 months into 2 months (based on Jun 2004 - Aug 2008 data history):
DTS - System 1
Point Break EA
Trading Technique
Pyramiding Technique
Moving Starting Point (MSP) Technique
Inverted Technique
Contrarian Technique
Breakout/Breakthrough Technique
Pyramiding Technique
Moving Starting Point (MSP) Technique
Best Performance
Trending Market
Trending Market
Worst Market
DTS-1 works in every market condition
Choppy Market
Sideways Market
Reversal Market
Drawdown Period
2 months maximum
3-5 months depending how long the choppy/sideways market continues
For simplicity, I categorize the forex market into 3 kinds of market conditions:
·
Trending Market (Uptrend and Downtrend).
·
Sideways/Choppy Market.
·
Trend Reversal.
Usually markets move from one condition to the next: from sideways market to trending market, from trending market to trend reversal, then back to sideways market before continuing to trend again.
The main problem for most traders or trading systems is how to detect correctly:
1) - Is the market changing? (e.g. from sideways to trending, or from uptrend to reversal)
OR
2) - Is the market still continuing the current condition? (e.g. continuing an uptrend or still
moving sideways)
3) - How long will the current market condition continue?
How do I detect a Trending Market, Sideways Market and Reversal Market on DTS-1?
I use 3 main indicators in PB5 and DTS-1: Simple Moving Average, Keltner Channel and MACD on the Daily chart:
If you have PB5, you can set up your chart like below using the following indicators:
Fast Moving Average (Period=9) - Yellow Color Slow Moving Average (Period=50) - Aqua color Keltner Channel (EMA=50, ATR=50) - Grey color. MACD (12,26,9) - I modify the MT4 original MACD.
You can download all indicators and the template I use below at:
PB5 produces very good performance on trending markets, but produces drawdown when the market is changing from trending market to trend-reversal or enters a sideways market.
The PB5 user needs to be patient when the market is in a sideways direction (e.g. period Apr - Aug 2008, see chart below). The drawdown started on the June cycle and stayed with us until the market started to trend in first week of August when PB5 finally returned to profit.
The important keys to using PB5 are:
·
Do you have enough margin to cover you when PB5 is in the process of solving the drawdown problem ?
·
Do you have enough patience to wait the process out? Sometimes the sideways market can continue for several months.
From my experience, not all PB5 clients have the patience to wait, especially if one uses the risk setting too high.
How can DTS-1 solve the drawdown problem better than PB5 ?
As you know PB5 uses C-cycles for trending markets and uses MSP techniques to solve the drawdown in sideways/choppy markets.
DTS-1 adds 3 cycles (B-cycle, I-cycle and R cycle) in addition to the C-cycle and MSP techniques on PB5.
Sideways market condition:
When DTS-1 detects there is a sideways market, DTS-1 starts 2 additional new cycles:
·
Breakthrough Cycle (B-Cycle); and
·
Inverted Cycle (I-Cycle).
Reversal market condition:
When DTS-1 detects there is a trend reversal, DTS-1 starts a new additional cycle:
·
Reversal Cycle (R-Cycle).
What do those 3 cycles actually do ?
Contrary to the M-cycle on PB5 which works separately from the C-cycle; B-cycle, I-cycle and R-cycle work together to support the C-Cycle.
C-Cycle:
Initially when a C-cycle opens, it will open the trade as below:
BUY BUY BUY these positions are correct for a trending market, BUY but they will cause a drawdown in a choppy market SELL because the C-cycle will continue to add more BUY and SELL positions. SELL SELL SELL
In normal conditions the C-cycle will work most of the time. The C-cycle is enough to give us consistent profit, especially in a high volatility market.
What will happen when choppy and sideways markets come ?
B-Cycle, I-Cycle and R-Cycle:
When a sideways/choppy/reversal market comes, B-cycle , I-cycle or R-cycle will be activated.
·
B-Cycle will be activated when DTS-1 detects a Breakthrough market is happening.
·
I-Cycle will be activated when DTS-1 detects a Choppy market happening.
·
R-Cycle will be activated when DTS-1 detects a Reversal market is happening.
Note: Some define 'breakthrough' the same as a breakout market; I define 'breakthrough' as a breakout within a sideways area, but not a breakout outside a sideways area.
What they do is replace C-cycle positions, from:
BUY BUY BUY BUY BUY which are the wrong positions for choppy/sideways/reversal market. SELL SELL SELL SELL SELL
into:
SELL SELL SELL SELL SELL which are the correct positions for choppy/sideways/reversal market. BUY BUY BUY BUY BUY
The B-cycle, I-cycle and R-cycle will add and close some positions on the C-cycle, and continue to correct those C-cycle positions until the cycle makes profit.
During Very Choppy market conditions in which the trend is not clear:
In a very choppy market, in which DTS-1 detects several market conditions (e.g. the market is changing all the time from trending into reversal, from reversal into sideways), DTS-1 will open simultaneously combined cycles from C-Cycle and B-Cycle, C-Cycle and I-Cycle, or C- Cycle and R-Cycle, and so on.
It will continue to run on two or more cycles until a clear market trend is established, then DTS-1 will stop unnecessary cycles from running and continue with the rest until the EA closes the cycle with profit.
Sounds easy?
YES...
Didn't I mention above that I will explain as simply as possible ?
But the programming was not so easy!
For every step, the system must maintain and recalculate all positions, calculating every possibility that will happen if market conditions suddenly change.
As you may know, trading systems that are based on averaging, martingale or progressive strategies will cause big drawdowns in trending markets that move against your starting positions. In very strong markets those EAs will blow up the account.
For your information I wrote two thousand lines of code in the PB5 EA; DTS-1 is five times as complex as PB5. It needs several days to complete a back test for DTS-1 on EUR/USD (4 years data, test on every tick using 90% data modeling).
Now, for those who are confused with all those cycles and don't understand what I am talking
Take a look at the latest sideways market in EURUSD 2008 below:
In 2008: EURUSD went sideways in Jan and Feb, started trending from March to April, then the sideways market began again around April 24 until Aug 05 before continuing to trend in August and September. I know many EAs on the market produced losses in August 2008. Some EAs even blew up when the market suddenly went back to trending again, while PB5 and DTS-1 made profit and took big gains on this trending market.
When you use PB5 (Apr 1-Sep 19, 2008):
The drawdown started on a cycle in May and stayed in drawdown between June and July until the market reverted to trending (when PB5 finally resolved the drawdown) on the first week of Aug 2008.
I ran PB5 using Risk=3 with 2 cycles and 100 pips between the cycles.
PB5 produced $2,789 PROFIT from $10,000 (+27,89%). The drawdown in that period was -48%. This is considered the biggest drawdown for the past four years. That's why I recommend Risk=1 or Risk=2 for initial capital.
As you see from the charts above, PB5 needed 3 months to resolve the drawdown by taking profit in up and down markets, little by little, bit by bit.
Now we run DTS-1 on the same period (Apr 1-Sep 19, 2008):
I ran DTS-1 using Risk=3 with 4 cycles, 50 pips between cycles and I disabled the watermark calculation.
DTS-1 produced $4,721 PROFIT from $10,000 (+47,21%).
From the equity chart above, you can see that there is no serious drawdown during the sideways market, even if I run Risk=3. There are only 3 short term drawdown periods with a maximum drawdown of -15.04%.
From Aug 18 - Sep 4, 2008: DTS-1 resolved the drawdown in 3 weeks.
As you see from the charts above, DTS-1 needed a maximum of three weeks to resolve the drawdown in that period, compared to PB5 that needed 3 months.
Note:
Next time I will make additional back testing video available at our website.
DTS System 1 - 4 years Back Testing Results:
It's time to test DTS-1 using 4 years data (Jul 2004 - Sep 2008). I use historical data from Alpari website which it can produce 90% data modeling.
Using DTS-1, we can finally activate all C-cycles (C1 through C4) working together to produce more profit without the worry of causing very large drawdowns.
Using Risk Setting=3; All cycles (C1-C4) Enable; with SP Distance = 50 pips between the cycles; no watermark calculation.
Notice that DTS-1 produces a very consistent profit return (the equity grows smoothly over time).
The Equity grows from $10,000 to $108,000 in 4 years (+980% profit return).
Maximum drawdown:-37.47% (happened 1 time in 2005) ~ compare to PB5: -55% (Risk=3).
Maximum open positions (in 1 cycle): 172 positions.
Maximum total open positions at once (from 4 cycles): 351 positions.
Next Setting:
To reduce the drawdown and the open positions, I ran the EA with several settings below:
Note: Not every broker allows you to open 350 positions at the same time. I checked with FXDD, they allow up to 200 positions (which we can run on 1 or 2 cycles). Interbank-FX and Alpari allows up to 1,000 open positions; so IBFX and Alpari would be my 1st choice for DTS-1.
For our live account, I use a new risk management (Risk 88), the purpose of which is to limit the drawdown to less than 30% of your initial capital. The EA starts with the Minimum Risk Setting first, then increases the risk setting as your capital grows.
Example: DTS starts with Risk Setting=1. After DTS makes a profit of 20% from your initial capital it increases the Risk Setting to 2. After you make a profit of 30% from your initial capital it increases the Risk Setting to 3.
Download statement report from LIVE account that use DTS-1:
Although DTS-1 is better than PB5 in performance and risk factor, I will continue to develop PB5 using C-Cycle / M-Cycle and re-release PB5 with some improvements every 2-3 months.
The main difference is that PB5 (SE Edition) will not use B-cycle, I-cycle and R- Cycle.
On our new membership area, on a weekly basis, I will post comments on what DTS-1 is doing compared to the basic C-cycle used in PB5, and give my special analysis on the EURUSD market.
By subscribing to the DTS-1 program and running PB5 on your computer, you will learn more about how to run your PB5 efficiently.
You can run your own version of PB5, compare it with DTS-1 and learn how DTS-1 solves drawdowns faster with its strategies.
