This is the forex software simulator I am using; https://soft4fx.com/software/forex-simulator.php
Now that the algorithm, rules of entry, pullback and continuations are covered let’s get into the $EVZ.
The rules are simple.
$EVZ below 8 – take all profits at 1st ATR or don’t trade at all.
$EVZ above 8 – trade as normal
This is the first thing you check before you put on your trades each day. This determines if you are trading as normal or not.
The $EVZ is super important because without volatility in the market place the price doesn’t move up or down very far and trend.
We need people out there buying and selling lots of currency for the market to trend in any one direction for a period of time otherwise it doesn’t actually move very far one way or the other.
When you are backtesting you can actually change your strategies and observe different results. For instance, you can decide to take all profits at the 1st ATR on some of the years you are backtesting and probably get better results on some of the years considered ‘Dead Markets’.
Two years you most definitely would want to test your 1st ATR profits would be 2014 and 2019. These are considered Dead Market times.
Although you can see that many years look like they fall into some sort of dead territory in the past 3 years.
2009 – Good
2012 – OK
2013 – Half Good / Half Bad
2014 – Not Good
2015 – Good
2016 – OK
2017 – Half Good / Half Bad
2018 – Not Good
2019 – Not Good
2020 – Started Bad… Now volatility
I start my back testing data at 2008 so I have one year of bars so I know my indicators are all stocked up with data and are signaling correct when I start from 2009 forward.
You can observe your back testing results and compare them to the years that the $EVZ has good volatility. This is no coincidence that you profit returns are higher.
That means a system with average indicators can provide returns in a market with a lot of volatility and even the best indicators cannot help you during a time of no volatility. The market will not trend during this time.