Asking for Feedback on AI-Generated Trading Strategy

[HB123]

I was wondering if people could give me their opinions/feedback on the AI generated strategy that I created. If you have suggestions on how to improve it that would be great.

Strategy overview

Trade the trend and reversals around validated support/resistance levels, only when volume and MACD confirm momentum. Use ATR for stop sizing and fixed risk-per-trade position sizing.

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Parameters (recommended starting values)​

• Timeframe: 1H or 4H for swing/intraday, Daily for swing/position trading. (Pick one and be consistent.)
• Support / Resistance detection: recent swing highs/lows (lookback 20 bars) or pivot highs/lows (3-bar pivot).
• MACD: Fast EMA = 12, Slow EMA = 26, Signal SMA = 9 (standard). Optionally try 8,17,9 for faster signals.
• Volume filter: Volume > 1.2 × 20-period average volume at time of signal (adjust multiplier).
• ATR: 14-period ATR for stop placement.
• Risk per trade: 1% of account equity (conservative). Max simultaneous risk: 3% (adjust).
• Reward:Risk target: initial target 2× ATR (or fixed reward:risk 2:1). Consider partial profit-taking.
• Max trades per day/week: 1–2 (avoid overtrading).

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Entry logic (long)​

Enter a long when all conditions occur at the same time:

1. Price at / near support
   
   • Price tests a clearly defined support level (previous swing low / pivot within last 20 bars). "Near" = within 0.5–1.5 ATR of the support.
2. Price action confirmation
   
   • A bullish price pattern on that test: bullish engulfing, hammer, or a clean rejection candle (long lower wick) closing above the low of the test candle.
3. Volume confirmation
   
   • The candle that shows the rejection or the breakout off support has volume ≥ 1.2 × 20-period average volume.
4. MACD confirming bullish momentum (one of):
   
   • MACD histogram turning up from negative toward zero (momentum increasing), OR
   • MACD line crossing above signal line within the last 3 bars, OR
   • MACD is positive and rising (for trend-confirmation).
5. Trend filter (optional but recommended)
   
   • 50-period EMA below price (for longs) — i.e., trade with the higher time-frame trend. For larger timeframes you can use 200 EMA.

Enter on the close of the confirmation candle (or on a small follow-up pullback if you prefer a better price).

Entry logic (short)​

Same but inverted:

1. Price at/near resistance (within 0.5–1.5 ATR).
2. Bearish rejection candle: shooting star, bearish engulfing, long upper wick.
3. Volume ≥ 1.2 × 20-period avg on rejection.
4. MACD: histogram turning down from positive, or MACD line crossing below signal within last 3 bars, or MACD negative and falling.
5. Trend filter: 50 EMA above price (for shorts).

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Stop-loss and position sizing​

• Stop-loss:
  
  • Place stop beyond the swing high/low used as S/R plus a buffer = 0.5 × ATR (i.e., Stop = S/R ± 0.5 ATR).
  • Alternatively use 1.0 × ATR beyond the candle high/low for extra safety.
• Position sizing:
  
  • Risk per trade = Account Equity × Risk% (e.g., 1%).
  • Position size (units) = (Risk per trade in currency) / (Stop distance in price × contract multiplier if futures).
  • Example: $100k account, 1% risk = $1,000. Stop distance = $0.50 -> size = 2000 shares.

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Take-profit and trade management​

• Primary target: 2 × ATR from entry OR next proximate resistance (for longs) as an exit; for shorts target next support.
• Partial take-profit: take 50% at 1× ATR, move stop to breakeven, let remainder run to 2–3× ATR or trailing using ATR.
• Trail stop: move stop to entry +0.5 ATR (after 1× ATR achieved) and then trail by 0.75 × ATR behind price.
• Time stop: if trade not reached 1× ATR in X bars (e.g., 10 bars on 1H), consider reducing size or exiting — avoids capital tie-up.

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Filters / avoidance rules​

• Do NOT take trades during high-impact news (e.g., central bank, CPI) unless you have explicit event strategy.
• Avoid trading within 15–30 minutes of session open for high-volatility markets unless backtested for that.
• Avoid trades where S/R level is ambiguous (clustered levels) — require clear high/low pivot.
• If MACD and price/volume conflict (e.g., bullish price/volume rejection but MACD strongly bearish), skip trade unless MACD shows divergence or turning histogram.

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Example trade (step-by-step)​

1. Instrument: EURUSD 4H. Account $50,000, risk 1% = $500.
2. ATR(14) = 0.0020 (20 pips). Support at 1.0800 (swing low).
3. Price drops to 1.0804 (within 0.5 ATR = 10 pips). Candle shows long lower wick and closes 1.0810.
4. Volume on that candle = 1.5 × 20-period avg -> passes filter.
5. MACD histogram turns up and MACD line crossed signal within last bar.
6. Entry: market on close 1.0810. Stop = 1.0800 - 0.5×ATR = 1.0790 (stop distance 20 pips -> $500 risk → position size defined accordingly).
7. Target: 2×ATR = 40 pips → target 1.0850. Partial 50% at +20 pips, trail rest.

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Backtesting & evaluation checklist​

• Dataset: at least 3 years of historical high-quality data (same timeframe).
• Execute rules exactly (don’t eyeball). Include bar-by-bar logic: entry on close, stop placement, size calc.
• Metrics to record: CAGR, Sharpe, Max drawdown, Win rate, Avg win/loss, Profit factor, Expectancy (E = Win% × avgWin − Loss% × avgLoss).
• Sensitivity tests: vary MACD params (12,26,9 vs 8,17,9), volume multiplier (1.0–1.5), ATR multiplier (0.5–1.5).
• Walk-forward test and out-of-sample test (e.g., 70/30 split).
• Transaction costs & slippage: include commissions and realistic slippage per instrument.

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Pseudocode / logical flow​

1. Compute S/R levels (last 20 bars swing highs/lows).
2. Compute ATR(14), MACD(12,26,9), volume avg(20).
3. For each new bar:
   
   • If price within proximity of S or R (<= 1.5 ATR):
     
     • Check rejection candle (pattern or wick) at that level.
     • Check volume >= 1.2 × vol_avg.
     • Check MACD condition.
     • If all true -> calculate stop, position size -> enter.
   • Manage existing trades: partial take, move stop to breakeven, trail by ATR multiples, exit on stop or target.

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Edge cases & FAQs​

• Q: What if S/R breaks with high volume?
  A: That’s a breakout, not a rejection. You can trade breakouts only if volume > 1.5× avg and MACD confirms momentum in breakout direction; place stop below breakout retest or below breakout candle low/high.
• Q: When MACD lags?
  A: MACD is a momentum confirmation — if price+volume show strong setup but MACD is slightly lagging (histogram rising from extreme), you may wait one bar for MACD cross OR accept the trade with reduced size.
• Q: Do I use horizontal S/R or zones?
  A: Use zones (±0.5–1.5 ATR) instead of single price points for robustness.

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How to improve the edge (advanced ideas)​

• Add volume profile or VWAP to refine intraday support/resistance.
• Combine MACD with RSI divergence for stronger momentum confirmation.
• Use multi-timeframe confirmation: look for support on higher timeframe (e.g., daily) while executing on 4H.
• Machine-optimize parameters (grid search) but avoid overfitting: prefer broad robust ranges.

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Quick checklist before taking a trade​

• Clear S/R level identified (with zone).
• Rejection candle or breakout confirmed.
• Volume ≥ 1.2 × 20-period avg.
• MACD condition satisfied.
• Stop and position size calculated (≤ 1% risk).
• No high-impact news in the immediate window.
• Trade fits the higher time-frame trend (if using trend filter).

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