Optimization And Empirical Analysis Of Automated Trading Strategies In The Foreign Exchange Market

With the continuous advancement of computer technology,automated trading has gradually replaced manual trading and has become the mainstream of various financial markets around the world.In Western countries,individual and institutional investors are widely involved in foreign exchange market transactions;in China,with the deepening of financial reform and the continuous expansion and opening of financial markets,the foreign exchange market is receiving more and more attention.The foreign exchange market,with its characteristics of all-weather trading,high liquidity,high market transparency,and not easy to be manipulated,has left a broad research and application space for automated trading.Butterfly Theory is an image analysis method in technical analysis that consists of several harmonious patterns,which are price structures formed by a series of consecutive Fibonacci retracements or extensions.By calculating specific price structures through Fibonacci ratios,harmonious patterns can indicate a clear potential reversal zone,which can be used to analyze potential reversal points in market price action.The RSI indicator used in this paper in conjunction with the Butterfly Theory is a technical indicator for judging the internal nature of the market price and predicting the future direction of price changes by calculating the strength of the bulls and bears in the market through the changes in market prices within a specific period.If the RSI value reaches a position very close to the upper limit,it indicates that the market is overheated and seriously overbought,and if the RSI value reaches a position very close to the lower limit,it indicates that the market is seriously oversold.Therefore,using the sensitive indicator function of the RSI indicator can give full play to the technical advantages of the butterfly theory.This article selects MT4,the mainstream automated foreign exchange trading software in the market,as the backtesting platform.The trading strategy is written in C language and inserted into the language editor of MT4 to perform backtesting operations.Under the single butterfly theory harmonious pattern strategy,the three foreign exchange varieties of EURUSD,GBPUSD and USDJPY are firstly back-tested on the four time periods of M15,H1,H4 and D1.If the transaction cost is not considered,the backtest results show that when H4 is used as the time period,the total net profit rate of foreign exchange varieties reaches the highest while the total maximum drawdown is the lowest.Therefore,H4 is the optimal trading time period that best fits the Butterfly Theory strategy.In order to further improve profitability,consider using the RSI indicator to constrain the entry and exit conditions on the basis of the butterfly theory strategy,construct a compound strategy of Butterfly Theory + RSI,and conduct the three foreign exchange varieties of EURUSD,GBPUSD,and USDJPY in the H4 cycle(the previous conclusion).Backtest,continuously adjust the RSI parameters,and observe the backtest results.Without considering the transaction cost,the performance of EURUSD and USDJPY in the composite strategy far exceeds that of the single strategy;although the GBPUSD variety has a very high total net profit rate compared with the single strategy under the composite strategy slightly lower,but conservative trading conditions reduce possible future losses.Overall,after introducing the RSI indicator to optimize the entry and exit conditions,the backtest performance is better.