I want to shed some more light on the stairs-pattern. To recapitulate; it is based on the Wilder's DMI histograms. A classic, text-book stairs-pattern looks like this highlighted in orange:
first.png
In order to capture it mathematically, we must first define
Diff as the difference in absolute terms between a current DMI histogram value and its preceding DMI histogram value. A nice set of stairs has occurred when we have:
1. 3 consecutive rising (falling) DMI histograms
2.
Diff between bar 1 and 2 greater than 0
3.
Diff between bar 2 and 3 greater than 0
If those 3 rules are met, go long (short).
Now the Riemann sums reminded me of the method whereby one systematically divides an area in different partitions and sums them up to get an approximation for that area. The more partitions you have, the better an approximation you'll end up with. Have too few and you'll end up grossly overestimating the area. Now analogously I applied this to waves. Break a wave down with the help of Wilder's DMI in 'meaningful' partitions and try to extract its properties in terms of patterns. The stairs represent the transition of a top to the bottom of a wave and vice versa, like so:
second.png
As you can see, in green I've highlighted a potential reversal pattern. I have yet to find out whether these reversal patterns are robust and can be trusted/used. Let's concentrate again on the stairs. Have a look at GBPJPY today. This time I use timeframe 15 minutes and Wilder's DMI also put on 15 minutes.
Screen Shot 2016-06-11 at 03.26.40.png
Lets keep it simple and make abstraction of momentum trades and safety mechanisms I described in an earlier post. Enter shorts and longs precisely using those 3 rules at the top. Every time a new 15 min bar permanently prints, review the previous preceding 2 bars and make a decision. The relation between the 2 diffs doesn't matter at the moment. Just make sure to go long on the open of the 4th bar after 3 rising histograms bars. Similarly go short on the open of the 4th bar after 3 falling bars. Finally, abandon the trade after 30 minutes in the case of not hitting your TP or SL. We set TP at 15 pips and SL at 45 for instance. I drew a line of 15 pips in the screenshot for scale referencing. This is one of the configurations I want to test.
On the few occasions a SL would get hit, we'd need 3 wins to make up for it. A break-even or small loss/win is more likely - due to merely staying in for 30 minutes per trade - when your TP doesn't get hit. The big profits come when we have a swing and thus a sequence of stairs.
That was the base case of the main mode of trading. The numbers and statistics of how this scenario in isolation plays out are yet to be seen and to be tested with various configurations. Using a minimum
Diff for example should enhance the performance by ensuring the EA to get in a trade when there's enough volatility going on.
Now we also enhance the probabilities of profitability by enabling momentum trading on top of the stairs-only trading. These are simply defined as 2 DMI histogram bars having a
Diff bigger than a certain threshold value. In casu I'm using 5. So when a
Diff > 5 is confirmed, momentum is taking place. You enter a long/short in the continuation direction immediately at the open of the next bar and hold the trade for 30 minute max. TP potential is between 20 to 30 pips. SL 40 to 60. I've highlighted the momentum trades with green.
Screen Shot 2016-06-11 at 03.24.13.png
Now unfortunately there are instances such as these w.r.t. momentum trades. They happened this week.
bad 1.png
bad 2.png
The first one contains 2 momentum trades; a SL hit and a break-even. The second picture contains 1 momentum trade which also has its SL hit. This is why it's important to have safety-mechanisms in place. The spread detection mechanism would've kept you out of these trades. You don't enter a trade when the spread went over e.g. 3 in the last 15 minutes. When it does, we suspend trading for another 15 - 30 minutes. Looking at these last 2 pictures also begs the question whether defining a super-range could be useful. That is, whether momentum trades with a
Diff higher than a certain maximum value should be foregone. Have to research this further. Btw please do appreciate the beautiful stairs in both pictures which would've resulted in profit-takings.
Also understand that whether BG is profitable and to be trusted will only be seen after many many trades and sufficient testing. It will take both wins and losses. The question is whether over the long run the numbers will play out.
Cheers,
Aram
EDIT:
It is also important to understand that you'll have to use feasible TP and SL combinations. A TP = 10 and SL = 50 will require BG to take make 5 winning trades (main mode only that is) in order to break even. Set TP = 25 and you only need 2. Fortunately we're using this on GBPJPY which does allow you to employ higher TP values. If the statistics allow for it, BG should be profitable over time.
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Now of course it would incur some losses too. That's inevitable. But with good calibration, modest lotsizes, strict pip targets, tight market exposure, etc. we would come out net on top I believe. I've PM'd Steve and he assured me he would work on it whenever is convenient. Greatly looking forward to it 
Cheers!
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