Backtesting a Basic NNFX Strategy

An Intro to Algorithmic Trading The NNFX Way

Welcome to Algorithmic Trading With NNFX

Before starting this series, I have to give credit where credit is due. The No Nonsense Forex method have been created by Patrick or VP on Youtube. His website can be found here.

If you are new to algorithmic trading, you might feel like there is a nearly infinite amount of different offers with great promises of becoming rich fast using this or that algorithm. While their claims of profit are not necessarily true, they often come with unreasonable risks. Amongst the modern popular methods, the No Nonsense Forex method, created by Patrick or VP, stands out. While setting realistic expectations, it provides with a solid framework to trade with indicators.

This article kicks off a series exploring the results that can be expected by a NNFX method using a variety of different indicators. The goal here is not to build an algorithm more then showing how good this framework can be with an algorithm that is half descent.

Why Start With a “Naked” NNFX Strategy?

The goal is to demonstrate that different indicators almost always come out with a different outcome. Now these very tests are meant to show what this system does without it’s main component so there is a sample of data to compare it with. Some benchmark if you will. Consider that anything that does not outperform these results is straight up disastrous.

What’s Inside This Version Of The Algorithm?

Included Components:

• Baseline: 20-period Simple Moving Average (SMA)
  • Only trade when the slope aligns with the direction (up for buys, down for sells)
  • Must not enter trades if the price is more than 1.5x ATR away from the baseline
• Volume Indicator: ADX (Average Directional Index)
  • Default settings, with 25 as the minimum threshold for trade eligibility
• Exit Indicator: Heiken Ashi candles
  • Trades are closed when the Heiken Ashi Indicator reverses to the opposite direction
• Money Management:
  • Risk is 2% per trade
  • Each trade is split into two orders
  • Stop loss at 1.5x ATR for both parts
  • One-half of the position closes at 0.5x ATR take profit
  • The other half exits via trailing stop or Heiken Ashi reversal

What Was Left Out:

• Confirmation Indicators (C1 and C2)
• EVZ (Euro Volatility Index) filter
• News filter

The EVZ and the news filters are not something I personally use as components of my algorithms. My data samples with which I build my algorithms are always including these big news events and keeping the EVZ out and the performances are quite satisfying. You can feel free to use these components in if you want.

Testing Conditions

• Platform: MetaTrader 4 (MT4)
• Chart Timeframe: Daily
• Backtest Duration: 5 years from January 1st 2020 through December 31st 2024
• Deposit: 10000$
• Pairs Tested:
  • EURUSD
  • AUDNZD
  • EURGBP
  • AUDCAD
  • CHFJPY
  • GBPJPY
  • USDCAD
  • USDSGD
• Data Source: MT4 broker price feed used for all tests: Blueberry Markets
• Price Model: MT4 Strategy Tester using Every tick based on real ticks.
• Spread & Commissions: Fixed at 10 pips.
• Swap/Rollover: Not included.
• Slippage: Not simulated.

KPI Summary: Benchmarking the Strategy

Overall Metrics (Averaged)

Key Metrics (Average Across All Pairs):

• Average Win Rate: 47,46%
• Average Profit Factor: 0,67
• Average Drawdown: -927,05 $
• Overall Profit/Loss: -5480,28 $
• Total Of Trades: 467

What This Tells Us:

The average win percentage is above the minimum required for a viable NNFX algorithm, which is 45%. The profit factor and payoff ratios are sub par meaning that the losses were greater then the wins. This will be fixed by using confirmation indicators that gives signals at the right moments and/or swapping the current volume and exit indicators with better performing ones.

The drawdown is 55% which is better then most beginner traders around. The average first account of a trader has a drawdown that would be close to 95%. That system was still alive after 5 years! That alone is something to be noted. The profit is -$5480 meaning that the equity curve goes down slowly.

Another important metric is the number of trades. 467 trades tells me that the results we have are likely to be consistent over time. With experience, I like to have a sample over 100 for each system tested before evaluating what was wrong. That increases my trust of these results as a benchmark. These results do not guarantee any future performance. Results of any strategy will remain dependent on the market movement, regime and structure.

Individual Pair Results & Analysis

I tested each individual pairs and got the reports back. Now note that the main component was left out and this can not be considered a functional algorithm. What we can observe

EURUSD

EURUSD Result

• Win Rate: 52,27%
• Net Profit: -371,98$
• Drawdown: -982,04$

Analysis: A relatively stable pair that shows consistency. A flat line is a good benchmark to start improving on.

AUDNZD

AUDNZD Result

• Win Rate: 59,26%
• Net Profit: 4,01$
• Drawdown: -176,85

Analysis: A 4$ profit after 5 years! Not what I would aim to get but still this equity curve demonstrates that the system picked up some serious moves on the market.

EURGBP

EURGBP Result

• Win Rate: 50%
• Net Profit: -600,80$
• Drawdown: -754,41$

Analysis: Ranges A clear down sloper here. On this one again you can tell that it picked up some big moves. Still, too many losses and a disastrous slump on the second half. This shall be fixed using proper indicators.

AUDCAD

AUDCAD Result

• Win Rate: 38,89%
• Net Profit: -1 029,51 $
• Drawdown: -1 405,29 $

Analysis: Down slope on the first years followed by a flat line. I could consider this one a nearly perfect benchmark to beat. -1029$ of profit is difficult on the account tough.

CHFJPY

CHFJPY Result

• Win Rate: 43,42%
• Net Profit: -1 387,53 $
• Drawdown: -1 387,53 $

Analysis: The more volatile JPY pairs shows that the system is still incomplete. It does not pick up all the big moves and still gets to suffer the slump.

GBPJPY

GBPJPY Result

• Win Rate: 42,86%
• Net Profit: -1 346,14 $
• Drawdown: -1 346,14 $

Analysis: Big slope followed by a flat line again. We’re gonna see in the future that this can most likely be inverted with the proper tools.

USDCAD

USDCAD Result

• Win Rate: 52,63%
• Net Profit: -533,79 $
• Drawdown: -830,08 $

Analysis: Somehow one of the most stable ones. With 52,63% win rate it shows that it’s a steady pick and would most likely not have been the one that made you abandon the system.

USDSGD

USDSGD Result

• Win Rate: 40,38%
• Net Profit: -214,54 $
• Drawdown: -534,07 $

Analysis: That is a choppy curve here. You can however see that the big moves have been picked up but the number of losses, combined with a bad payoff ratio was just sub par.

What’s Next? Strategy Evolution

This is only the beginning of a series and has a sole function to demonstrate a system that someone would have build hastily with basic tools. It clearly demonstrates that it does not work yet. However, you WILL be surprised how 1 half descent indicator can make to an inferior system. Let alone talk about a solid well built system.

Final Thoughts for New Traders

The NNFX method is a solid base and teaches patience and a methodic way of thinking. I think it’s one of the most performant recent systems to have come out recently. My guess is that Patrick is going to be renown amongst the great ones just like Bill Williams or Goichi Hosoda

Now if you want to start with a solid foundation on trading, you can jump into my free educational series: Essentials Of Trading.

Reproducibility Note

Anyone attempting to reproduce these tests should use the same broker feed, spread/commission, tester model, timeframe and data range stated above. Deviations will produce materially different results.

General limitations of historical simulation and model risk are discussed in the CFA Institute’s guidance on investment analysis:
https://www.cfainstitute.org/en/research/foundation/2015/model-risk