Using NeuroShell DayTrader Power User, I built a prediction for EUR/USD June 14 futures contract using 10 minute bars. The model optimized on only a few days worth of data but held up on several days of out-of-sample data. The signals looked pretty good, hitting peaks and valleys in both the in and out-of-sample data.
Chart displays the trading signals from a neural network prediction for EUR/USD
Trading rules from the prediction may be used in a trading strategy
Next I wanted to see if the Position Sizing feature in the Power User would improve the profits. I inserted the trading rules from the prediction into the Trading Strategy wizard by selecting them from the Prediction outputs folder.
Long Entry: Prediction > Long Entry Threshold 4 bar %Change in Open
Long Exit: Prediction < Long Exit Threshold 4 bar %Change in Open
Short Entry: Prediction < Short Entry Threshold 4 bar %Change in Open
Short Exit: Prediction > Short Exit Threshold 4 bar %Change in Open
By inserting the prediction rules from the list, the predictions will not be optimized even if the Trading Strategy is optimized. In order to match the results from the prediction, you need to insert all four of the prediction rules.
On the dates tab in the Trading Strategy wizard, check the box to match date ranges for out-of-sample data from the prediction to the dates used in the Trading Strategy. Also be sure to match the time frame from the prediction, which in this example only allows trades between the hours of 5:30 am to 11:30 am.
Position Sizing
To learn if position sizing increased profits, I chose three different methods on the position sizing tab in the Trading Strategy wizard: fixed units, Fixed Dollar Amount per Unit, and Fixed Dollar Risk per Trade. The optimizer chose a position sizing method of Fixed Dollar Risk per Trade of $10,000.
Results
The Trading Strategy using a Fixed Dollar Risk per Trade of $10,000 showed returns as follows:
Trading Strategy in-sample: $58,274.30
Trading Strategy out-of-sample: $10,708.45
This trading system is meant to be used as a guideline for improving profits from predictions by using position sizing in a Trading Strategy. Of course you have to work within your account balance and the amount you're willing to risk per trade to match your trading style.
If you're not taking advantage of NeuroShell Trader Power User or NeuroShell DayTrader Power User, check out the 20% off sale at the bottom of this newsletter.
