PipBoxer V2 Strategy

PipBoxer is a breakout system with a twist. The strategy consists of five major steps to enter the trades correctly, manage them in the best way possible and exit them safely. Here are those strategies:

1. Recognizing the box size.
2. Filtering out the false breakouts.
3. Taking risk management into account.
4. Entering and exiting trades.
5. Adopting money management techniques.

Table of Contents:

1. Recognizing the Box Size
2. Filtering Out the False Breakouts
3. Taking Risk Management into Account
4. Entering and Exiting Trades
5. Adopting Money Management Techniques
6. Other Capabilities

The following figure gives you a better idea of how PipBoxer v2.0 works:

figure 1

Recognizing the Box Size

PipBoxer is a time sensitive system. It starts analyzing the market at a specific time of the day. The analysis time depends on the currency pair. At the time of analysis the system recognizes the highest high and the lowest low for a specified number of bars. The number of bars varies for different currency pairs. The following table shows the analysis time for the pairs that PipBoxer trades. We at PipBoxer lab may change these times without prior notice. You usually need to wait a few hours or even a few days to see the first trade takes place.

The difference between the highest high and the lowest low is called “box height”. This variable is very important. PipBoxer uses the “box height” to calculate TP (take profit) and SL (stop loss) values.

The “box height” also affects the calculation of trading stripes. Trading stripes (green stripes in figure 1) are price ranges that PipBoxer initiates a trade within them.

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Filtering Out the False Breakouts

PipBoxer uses a set of CCI (Commodity Channel Index) based calculations to filter out false breakouts. It calculates the weighted average of CCI for a few bars right before and including the analysis bar. In other words the calculations take place before entering the market. This helps the system to make its decisions almost regardless of the reaction of the market to the news. We found out that this combination works the best. Breakout depends on the news but the CCI calculations behave almost independent of the market action. One other benefit is that you can have a trading signal in place long before entering a trade. The “PipBoxer_Signal” EA is an expert advisor that generates trading signals with the help of PipBoxer strategy for those who do not use MetaTrader or prefer to trade manually.

The other usage of CCI calculations is to designate between “normal” and “counter” trades. If the price approaches the upper stripe but the CCI calculations fail to exceed a certain level the system does not enter a long trade. However, if counter trade is enabled the system enters a short trade. A similar situation may occur if the price approaches the lower stripe.

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Taking Risk Management into Account

According to Investopedia.com Risk Management is “the process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance.”

In other words a complete trading system is one that gives you the opportunity to mitigate your risk while you have the chance to gain profit. PipBoxer is such a system. It offers several features to increase your chance to make more money and lose less.

Value At Risk (VAR)

Every final version of PipBoxer v2.0 gives you the opportunity to trade the correct lot size according to “Value-At-Risk”.  VAR (or value-at-risk) is simply the maximum percentage of your account balance that you are willing to lose in a single trade.  It is very important to take VAR into account.

The difference between allocating fixed number of lots in a trade to using VAR is sometimes equivalent to staying in the market and making money or losing your investment.

Never a Margin Call

PipBoxer v2.0 follows the “Never a Margin Call” policy. It calculates the risk of losing money per trade and also the amount of money you need to invest to enter the trade. It then compares the total money that you might lose or engage with the trade to the minimum balance that you need to avoid the margin call. If there is a chance of receiving a margin call from your broker it doesn’t enter the trade, so you never receive a margin call. The system receives your broker’s margin call policy from the MetaTrader terminal and then makes calculations accordingly.

Currency Pair Diversification

The other risk management tool is “currency pair diversification”. For example the back-test of GBPUSD and USDCHF with PB2 from Dec 31, 2004 to Dec 31, 2006 with an initial deposit of $10,000 and a VAR set to 15% showed the following results.

While the results look very tempting there are two problems. The first one is that you cannot guarantee such good results in the future. The second one is that even in back-testing you see that at some point of time you had lost over 35% of your account balance. In general using such a huge VAR is not a very good idea. A good approach to mitigate the risk is to distribute VAR among the pairs. For example you may risk 7% on GBPUSD and 8% on USDCHF. With this approach the drawdown for each pair reduces to 19.32% and 19.00% respectively. Note that since the majority of trades for these pairs are winners and the average gain of winning trades is more than the average loss of losing trades you may gain the same amount of money while your drawdown is minimized

Our suggestion is to distribute VAR between 3 or more pairs and let them trade at the same time. The final release of the PipBoxer v2.0 package consists of several EAs that enable you to trade over 10 pairs. You may choose the ones that you feel more comfortable with, or your broker offers tighter spreads on.

Other Risk Management Tools

There are five variables in place that can help you mitigate your risk.

•         account_risk_control: If you set this variable to true – the default value – the EA does not allow you to assign a value greater than 10 to VAR. If you by mistake enter a large value for VAR the system reduces it to 10%.
   

•         no_risk_balance: This value is the part of your account balance that you don’t want to be risked on a trade. For example if your account balance is $25,000.00 and you set $10,000.00 to this variable, the system calculates the lot size based on the remainder of the balance that is $15,000.00 (or 25,000-10,000). So if your VAR is 10% the worst case scenario would be to lose $1,500.00 per trade not $2,500.00.
   

•         enter_high_risk: Suppose your broker doesn’t allow you to trade less than 0.1 of a standard lot. If the calculated lot size for a trade is less than 0.1 lots and “enter_high_risk” is “true” the system will trade the minimum lot size (i.e. 0.1 lots). However, if the trade hits the SL it may lose more than the value you have set to VAR. To eliminate the risk of losing more than what you can afford assign “false” to “enter_high_risk”. When “enter_high_risk” is “false” the system will only enter a trade if the calculated lot size is equal or more than the minimum lot size. The default value is “false” to stay on the safe side. This feature is especially very important if your account balance is low.
   

•         _max_open_trades: Defines the maximum number of open trades. The system enters a new trade only if the number of open trades – no matter how they are initiated – is less than this number. The variable is set to 10 by default. So if there are 10 or more trades open – whether manual or automatic – PipBoxer v2.0 does not enter a new trade.
   

•         _trades_allowed: If you assign “false” to this variable the EA does not enter new trades. However, it stays alert, analyzes the market, and manages open trades. This variable helps you to avoid entering trades when you are uncertain about the market condition in the near future (e.g. because of news releases). With the help of this variable you do not need to disable the EA. This helps to keep money management tools active to manage existing open trades.

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Entering and Exiting Trades

A complete EA is the one that can enter and exit trades automatically. PipBoxer v2.0 is no exception. It automatically enters a trade when it recognizes an opportunity and exits a trade by setting proper Take Profit and Stop Loss levels.  PipBoxer v2.0 uses the following external variables to keep entering and exiting trades under control.

•         counter_trade: If set to false the system will not enter counter trades. A counter trade is one that is in the opposite direction of the breakout. For example if the system breaks out from the top of the box the system will enter a short trade. For many of the pairs this variable is set to false. User does not have access to this variable.
   

•        normal_trade: This variable enables the system to enter trades in the direction of the breakout. By default “normal_trade” is always “true”. User does not have access to this variable.
   

•         _close_at_the_end_of_day: If you pay high interest (or rollover swap) on your open trades you may enable this variable to close your trades automatically at 4:00 PM EST. However, we do not recommend this action as it shows severe losses in back-testing. The nature of PipBoxer trades is that they stay open a few days. Some trades get closed in a few minutes but most of the trades stay open between 1 to 3 days or even more.
   

The Use of Trading Stripes

One of the features that we like a lot about PipBoxer v2.0 is the definition of trading stripes. With this concept in hand the system does not enter a trade if the price does not fall into the stripe. This means that you are secured against sudden uncontrolled breakouts. The value of this approach is demonstrated when you are trading live. For example if, because of a news release the price suddenly jumps to 30 pips above the box a trade does not take place. This is a fantastic shield against an unpredictable forex market.

Multiple Trades on the Same Pair

If PipBoxer v2.0 recognizes a chance to enter the market even if another trade from the same pair is open it enters the trade. Sometimes two trades in the opposite direction are open and build a hedge until one of the trades gets closed. When you see two or more trades open from the same pair do not panic. PipBoxer knows its job and manages all those trades individually and at the same time. Sometimes both trades that are open in an opposite direction make money.

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Adopting Money Management Techniques

Money management (MM) techniques are those that you use to get the best profit from each trade. With the help of these techniques you can maintain the win rate (i.e. the ratio of winning trades to losing trades) while you increase your pay rate (i.e. the average gain per winning trade to the average loss per losing trade). The following variables define the MM techniques. Note that some people consider the calculation of the number of lots an MM technique. I prefer to call it a risk management technique.

•         _move_to_break_even: With this variable set to “true” if the price moves in your favor (e.g. 30% of profit target) the system moves the Stop Loss to the purchase price of the currency or a value near to it. This reduces the chances to lose a trade or at least mitigates the loss size. For example if PipBoxer v2.0 buys USDCHF at 1.2400 and the TP (Take Profit) is set to 1.2500 (i.e. 100 pips) while SL (Stop Loss) is set to 1.2320 (i.e. -70 pips) you might lose up to 70 pips if the market moves in the opposite direction of the trade. That’s why if the price moves to 1.2430 PipBoxer moves the SL to 1.2387 (i.e. -13 pips). Now if the market moves against you the maximum loss will be 13 pips rather than 70 pips. The exact deviation from the BE (Break-Even) point depends on the back-test results and it might be positive or negative.
   

•         _trailing_stop_available: If the price moves in your trade’s favor to certain level (e.g. 60% of the profit target) the stop loss will jump to BE plus 1 pip  and then every pip the price moves toward TP the SL also moves one pip above BE. If the price moves in the opposite direction, the SL does not move and remains where it was. Therefore, if the direction of the market reverses you still make some money. For example in the previous example if the price moves to 1.2461 the SL moves to BE + 1 pip (i.e. 1.2401). If the price moves to 1.2467 the SL moves to BE + 7 pips (i.e. 1.2407). Now if the price moves in the opposite direction the SL stays where it is and if the price drops over 60 pips it hits the SL but instead of losing money you gain 7 pips.
   

•         _move_to_mid_TP: Suppose the price advances 90% in your favor and suddenly reverses. In this case the trailing stop will save a few pips for you but that probably is not even enough to pay for the rollover swap interest. To address this problem in such cases the system moves the SL to somewhere around 50% of the TP. In the previous example if the price moves to 1.2485 the SL moves to 1.2455 so if the price drops you make 55 pips. If the “mid TP” was not in place you would have only made 25 pips with the help of TS.
   

•         _compromise_TP: If the price moves in the opposite direction and there is a big chance that you’ll lose this trade the PipBoxer v2.0 moves the TP to somewhere near BE so if the price moves in your favor the system closes the trade with minimal loss or even a little bit of profit. This feature is one of our favorites because many of the trades that were supposed to end up in loss will make money just as a result of a short move of price in your favor. This feature is similar to “_move_to_break_even” but when the price moves against your trades.
   

•         _neg_TS_available: This variable enables a trailing profit in the opposite direction. It means that when the price moves in a negative direction it moves the TP to BE first and then follows the price in the negative direction. This feature in some cases minimizes the loss.
   

•         _move_to_mid_SL: With the help of this variable if the price approaches the original stop loss the system moves the TP midway to SL. This means that if by chance the price slightly moves in your favor the trade may get closed with half the loss instead of full loss.
   

With all these MM tools in place you are guarded against negative market movements to get the best results possible.

With a combination of market analysis techniques, entry and exit tools, risk management techniques, and money management tools PipBoxer v2.0 is beyond a simple EA. It is a powerful trading package.

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Other Capabilities

PipBoxer is capable to create hedge trades. Click here to see an example and more explanation about this feature.

Click here to purchase PipBoxer v2.0.

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About PipBoxer Forex Solutions

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