fx-quant/results/STRATEGY_LEARNINGS.md

Strategy Learnings — Phase 1 Complete

Captures what we've learned from backtesting, filter analysis, and strategy iteration. Updated: 2026-02-19.

Data period: 2021-01-01 to 2023-08-31 (OANDA practice account, H1 candles). Backtester: Event-driven, no lookahead, spread + slippage modeled per pair. Train/Test: 70/30 chronological split. Generalization ratio = OOS PF / IS PF.

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Phase 1 Final Scorecard

Strategies Advancing to Phase 2

Strategy	Pair	Trades (Full)	Trades (OOS)	WR%	PF (Full)	PF (OOS)	Gen Ratio	Edge Type
S7 Tight	GBP_JPY	107	43	59.8%	0.96	1.39	1.81	Liquidity sweep reversal
S9	GBP_USD	296	42	53.7%	0.75	1.45	2.10	London session breakout
S9 Filtered	GBP_AUD	66	14	60.6%	1.14	1.94	2.04	London session breakout
S4-F	EUR_AUD	95	—	45.3%	1.06	—	—	EMA Ribbon trend context
S3	GBP_JPY	155	—	52.3%	0.99	—	—	Key level momentum

Note on S7 and S9 full-dataset PF: Both show PF < 1.0 over the full 2021-2023 period but strong OOS profit factors (1.39-1.94) with high generalization ratios. This indicates the strategies perform better in recent market conditions. Phase 2 will validate whether this represents a genuine emerging edge or a recency fluke.

Strategies on Watchlist (Marginal / Needs Work)

Strategy	Pair	Trades (Full)	Trades (OOS)	WR%	PF	Notes
S3	GBP_USD	179	—	53.1%	1.02	Near breakeven. Needs SL tightening.
S8	GBP_JPY	32	9	43.8%	0.93	Full PF 0.93, OOS PF 1.55. Low trade count.

Strategies Rejected

Strategy	Concept	Trades Tested	Best PF	Why It Failed
S1	MA Breakout	~500	0.88	No edge. 35-47% WR across all pairs.
S2	VWAP Reversal	~400	0.78	20-25% WR. 26 consecutive losses at worst.
S4 (all except F)	EMA Ribbon variants	0-248	0.78	7+ filters = 0 trades. Paradigm conflict.
S5	Momentum Exhaustion	~2,500	0.77	High trade count but picks up too much noise.
S6	EMA Bounce	~440	0.84	Good WR (59%) but terrible R:R — avg loss >> avg win.
S7 (1.5 ATR SL)	Liquidity Sweep wide SL	46	0.71	Too-wide stops (1.5 ATR). Tight SL (1.0 ATR) fixed it.
S9	EUR_GBP	448	0.65	Tiny ranges — 2.0 pip spread eats 17% of avg win.
S9	GBP_NZD	191	0.67	Wide spreads + choppy price action.
S9	USD_JPY	~30	—	31% WR. Asian range breakout doesn't work on USD_JPY.

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Strategy Details

S7 — Liquidity Sweep Reversal (Phase 2: GBP_JPY)

Concept: Price sweeps past a significant swing high/low (triggering clustered stop-loss orders), then reverses. Based on institutional stop-hunting behavior documented by Osler (2005, NY Fed).

Final Parameters (tight variant):

• Swing detection: 5-bar fractal, 100-bar lookback
• Sweep range: 0.7-1.5 ATR penetration past swing level
• Reversal confirmation: close back inside range, in upper/lower 40% of candle
• SL: 1.0 ATR beyond sweep extreme (tightened from 1.5 — the key improvement)
• TP1: 1.5 ATR (close 50%), TP2: 3.0 ATR (close 50%), trail at 1.5 ATR
• HTF: 200 EMA trend alignment (hard gate)
• Session: 08:00-17:00 UTC
• Confluence: OBV divergence (+1), RSI extreme (+1), volume spike (+1)
• Max hold: 40 bars

GBP_JPY Full Dataset Results (2021-2023):

Split	Trades	WR%	PF	PnL (pips)	Max DD	Expectancy
FULL	107	59.8%	0.96	-22p	-11.9%	-0.2p
TRAIN	61	54.1%	0.77	-337p	-11.8%	-5.5p
TEST	43	67.4%	1.39	+331p	-3.8%	+7.7p

6-Month Results (Mar-Aug 2023): 25 trades, 76% WR, PF 2.01, +445p

Exit profile (full dataset): 40% hit TP3, 36% partial (TP1+SL), 24% full SL.

Pair suitability tested: GBP_JPY is the only viable pair. GBP_USD (PF 0.92), EUR_USD (PF 0.75), EUR_AUD (PF 0.29), GBP_AUD (PF 0.83), GBP_NZD (PF 0.39) all fail. Crosses suffer from wide spreads killing the tight SL approach (R:R stays ~0.63).

Why GBP_JPY works: High volatility (avg ATR ~80-100 pips) gives enough room for the 1.0 ATR SL to absorb noise while the 1.5/3.0 ATR TP targets capture meaningful moves. JPY pairs have cleaner swing structure due to institutional flow patterns around Tokyo/London handoff.

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S9 — London Session Breakout (Phase 2: GBP_USD + GBP_AUD filtered)

Concept: Asian session (00:00-07:00 UTC) establishes a range; London open breaks it with institutional order flow. Among the most well-documented FX phenomena (Andersen & Bollerslev 1997, BIS triennial survey data).

Base Parameters:

• Asian range: 00:00-07:00 UTC high/low
• Entry window: 07:00-10:00 UTC (London kill zone)
• Volume: > 1.5x Asian session average (relaxed from 3.0 for H1 bars)
• SL: Opposite side of Asian range, capped at 2.5 ATR
• TP1: 1.0x Asian range width (measured move), TP2: 2.0x range
• Time exit: 17:00 UTC
• HTF trend: 200 EMA (soft confluence, not hard gate)
• ADX > 20 (soft confluence)
• Max hold: 40 bars

GBP_AUD Filtered Overrides (the key improvement):

• Skip Friday trades (44% WR, -17.6p avg — position squaring kills breakouts)
• ADX hard gate > 25 (low-ADX entries at 43% WR are pure noise)
• Require EMA50 distance > 40 pips (close-to-EMA trades are 50% WR)

GBP_USD Full Dataset Results (2021-2023):

Split	Trades	WR%	PF	PnL (pips)	Max DD
FULL	296	53.7%	0.75	-1,238p	-35.5%
TRAIN	253	50.6%	0.69	-1,608p	-35.5%
TEST	42	71.4%	1.45	+291p	-4.5%

GBP_AUD Filtered Full Dataset Results (2021-2023):

Split	Trades	WR%	PF	PnL (pips)	Max DD
FULL	66	60.6%	1.14	+474p	-9.5%
TRAIN	51	56.9%	0.95	+111p	-9.5%
TEST	14	71.4%	1.94	+295p	-2.7%

Pair suitability tested across 8 pairs:

Pair	Full PF	OOS PF	Verdict
GBP_USD	0.75	1.45	Primary — strong OOS, regime-dependent
GBP_AUD (filtered)	1.14	1.94	Secondary — excellent generalization
EUR_USD	0.93	1.05	Marginal — breakeven OOS, filter overfits
GBP_AUD (baseline)	0.91	1.09	Marginal without filters
GBP_NZD	0.67	0.79	Rejected — wide spreads
EUR_GBP	0.65	0.55	Rejected — tiny ranges, spread eats profit
USD_JPY	—	—	Rejected — 31% WR
EUR_AUD	—	—	Rejected — poor results in initial test

EUR_USD filter experiments (documented for reference):

• RSI 40-60 skip + ADX > 30 + entry Hour 8 + TP1 1.5x: In-sample PF 1.26, OOS PF 0.89 (overfit)
• RSI 40-60 skip + TP1 1.5x only: In-sample PF 1.09, OOS PF 0.90 (overfit)
• TP1 1.5x only: In-sample PF 1.04, OOS PF 1.00 (structural R:R improvement but no profit)
• Conclusion: EUR_USD S9 is fundamentally breakeven. No filter combo produces OOS profit.

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S8 — Order Block Retest (Watchlist)

Concept: Institutional order blocks (last opposing candle before a displacement move) act as support/resistance on retest. Requires 1.5 ATR displacement, rejection candle on retest, and 2-of-3 confluence (FVG, broken S/R, declining pullback volume).

GBP_JPY Full Dataset Results (2021-2023):

Split	Trades	WR%	PF	PnL (pips)
FULL	32	43.8%	0.93	-40p
TRAIN	23	39.1%	0.72	-155p
TEST	9	55.6%	1.55	+115p

6-Month Results: 15 trades, 40% WR, PF 1.47, RR 2.21, +106p

Status: Promising R:R profile (avg win 55p, avg loss 25p) but too few trades. The 1.5 ATR displacement threshold may be too strict for the full dataset. On watchlist for Phase 2 with potential to relax displacement to 1.2 ATR and test on more pairs.

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S3 — Key Level Momentum Breakout (Phase 2: GBP_JPY)

Concept: H1 breakouts above/below significant S/R levels (3+ touch clusters) with volume confirmation, strong candle close, MACD alignment, and ADX > 20.

Results (Full Dataset):

Pair	Trades	WR%	PF	PnL (pips)	Max DD
GBP_JPY	155	52.3%	0.99	+408p	-13.5%
GBP_USD	179	53.1%	1.02	+97p	-10.2%
USD_JPY	138	52.9%	1.00	+66p	-9.8%

Status: The only Phase 1 strategy near breakeven across multiple pairs. Minimal filters (4 hard gates), single paradigm. Advancing to Phase 2 on GBP_JPY with suggested SL tightening and retest confirmation experiments.

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S4 EMA Ribbon — Detailed Filter Analysis

What We Tested

• S4-D (Volume + ADX Gating): 0 trades across 3 pairs
• S4-E (Compression Quality + Stochastic): 1 trade across 3 pairs
• S4-F (Trend Context Filter): 248 trades, 39.1% WR, PF 0.78
• S4-F-v2 (Quick Tune with 3 TFs): 0-2 trades depending on threshold adjustments
• S4-G (Pullback-first): 12 trades, 16.7% WR, PF 0.17
• S4-G-Minimal (Pullback, no M5 EMA): 12 trades, same result

S4 Variant Summary Table

Variant	Trades	WR	PF	Verdict
S4-D (Vol+ADX)	0	—	—	Dead: filters too strict
S4-E (Compression)	1	—	—	Dead: filters too strict
S4-F (Trend Context)	248	39.1%	0.78	Best S4, but losing money
S4-F EUR_AUD only	95	45.3%	1.06	Only profitable pair
S4-F-v2 (3TF tune)	0	—	—	Dead: contradictory filters
S4-G (Pullback-first)	12	16.7%	0.17	Dead: pullbacks don't resume
S4-G-Minimal	12	16.7%	0.17	Same — M5 EMA wasn't the issue

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Key Design Principles (Derived from All Phase 1 Testing)

1. Single Paradigm Per Strategy

Momentum + mean-reversion filters are contradictory. When momentum is strong (ADX rising, ribbon expanding), RSI is NOT at extremes and price is far from the 50 EMA. When stochastic is oversold near the EMA, momentum hasn't fired yet. S4-D/E proved this with 0-1 trades.

2. Maximum 3-4 Hard Filters

Each additional hard filter compounds multiplicatively. S4-D/E/F-v2 had 7-9 simultaneous hard gates, resulting in near-zero trades. Additional conditions should be confluence scores (+1 to signal quality) not hard gates.

3. Validate Thresholds Against Data

S4 required 0.8% EMA expansion — data shows the maximum expansion within 10 bars was 0.70%. The threshold was literally impossible. A 5-minute diagnostic of data distributions saves hours of debugging 0-trade results.

4. Volume as Soft Filter

Volume > 2.0x 20-period average: only 4% of signals qualify. Volume > 1.5x: only 21% qualify. Volume > 1.2x: 40% qualify. Use 1.2x as hard gate max; higher thresholds as confluence bonus only.

5. H1 Timeframe Has Natural Edge

S3 works on H1. Most M15 strategies struggle with noise. H1 bars naturally filter whipsaws while capturing meaningful session moves.

6. Simple Strategies Outperform Complex Ones

S3 (4 filters) beats S4 (7+ filters) and S5 (complex exhaustion logic). The right complexity level is the minimum needed for the concept to work.

7. Win Rate Isn't Everything

S6 has 59% WR but PF < 1.0 because avg loss >> avg win. R:R (risk-reward ratio) matters as much as WR. A strategy needs WR × avg_win > (1-WR) × avg_loss to be profitable.

8. Pair Specificity Is Real

S7 works on GBP_JPY but fails on 5 other pairs. S9 works on GBP_USD and GBP_AUD but fails on EUR_GBP and GBP_NZD. Don't assume cross-pair generalization — always validate.

9. Tighter Stops Often Win

S7: PF jumped from 0.71 → 2.01 when SL tightened from 1.5 → 1.0 ATR. Wider stops don't give "more room" — they give back more profit on reversals. The optimal SL is the minimum that avoids noise-triggered exits.

10. Filter Optimization Overfits Easily

S9 EUR_USD: Every filter combination improved in-sample but degraded OOS. RSI filter, ADX filter, entry hour delay — all overfit the training period. Only structural changes (TP1 multiplier adjustment) held across splits. Per-pair signal filters (RSI zones, ADX thresholds) are high overfitting risk.

11. Regime Dependence Is Common

S7 GBP_JPY and S9 GBP_USD both show: losing in 2021-2022, profitable in 2022-2023. This could mean the edge is strengthening (market structure evolution) or that the test period was lucky. Phase 2 must validate with forward testing.

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Phase 2 Plan

Strategies to Forward-Test

Strategy	Pair	Config
S7 Tight	GBP_JPY	SL 1.0 ATR, TP1 1.5 ATR, TP2 3.0 ATR
S9	GBP_USD	Base parameters, entry 07:00-10:00 UTC
S9 Filtered	GBP_AUD	No Friday, ADX > 25, EMA50 dist > 40 pips
S4-F	EUR_AUD	EMA Ribbon trend context, 2.0 ATR SL, 3.0 ATR TP
S3	GBP_JPY	Base parameters (pending SL tightening test)

Phase 2 Objectives

1. Forward validation: Run strategies on live data (paper account) for 3+ months
2. Regime analysis: Monitor whether OOS edge persists or was period-specific
3. Portfolio construction: Test correlation between S7/S9/S3 signals — do they diversify or cluster?
4. Position sizing: Implement Kelly criterion or fixed fractional based on actual win rate / R:R distributions
5. S8 exploration: Relax displacement threshold (1.2 ATR) and test on additional pairs
6. S3 optimization: Test tighter SL and retest confirmation entry
7. Drawdown management: Define maximum portfolio drawdown limits and auto-pause rules

Infrastructure Needed

• Live OANDA data feed for paper trading
• Trade logger with real-time metrics dashboard
• Automated signal generation (currently backtester-only)
• Alert system for human review of signals before execution