[Spoiler alert], it was a failure.
Technically, not a complete failure-- after 128 trades throughout all of 2020, it was up +1.6%. But after another 10 trades into 2021, it was -1.2%. Even if I had continued to test it into 2021 and it would have continued to give a 1.6% return, in the end, 128 trades is a lot of work for only slightly better than a bank can get me, and almost definitely worse than I could get parking my money in just about any mutual fund. If I could find a strategy that makes me 10-20% on the year, I’d be ecstatic. But at minimum I’d say I need to be able to beat the rising rate of inflation to consider using a strategy, otherwise, I’d just park it in blue chips and call it a day. So this one didn’t work, but I wasn’t bummed, because, with a time investment of about just 15hrs spread out over the course of a week, I ruled out a strategy that isn’t worth trading, saving me countless headaches, not to mention-- Losses.
[Full Disclosure], I’ve only been learning about Forex since the beginning of 2020 just before the pandemic hit and still only trading Demo because I don’t feel I’ve developed a consistently profitable set of rules for myself that I am confident enough in to trade live. I’m taking my time and playing a long game. But I’ve seen lots of posts on here asking about where to get started, and u/MrGhost8 asked the other day if anyone would share a strategy. As I consider myself a newcomer to Forex still, and have never posted to this sub, I feel a little silly for contributing information, but it was slow going in the beginning last year for myself, so if I can help another newcomer progress a little faster, then awesome. So here’s a strategy. But first, I repeat: Don't trade this particular one. But it may give you some ideas of how to create your own strategy or perhaps you can build off this to make this strategy profitable for you.
The rules were:

1. if the 20 EMA is above the 50EMA, I look for buy trades, and if the 20 is below the 50 I look for sell trades;
2. after an EMA crossover, I need a high (or low for sell trades) to be established, followed by a pullback that involves at minimum, a single wick touching the 20 EMA, without any candle closing below (or above for sell trades) the 50 EMA; so my pullback zone of support/resistance is between the 20 and 50 EMA; a close past the 50 invalidates the trade and I wait for a new, higher probability setup, ie a new high or low to be established depending on rule 1;
3. for entry, after a touch of the 20 EMA, I need a green candle to break and close above my previous high;
4. Stops: 1 ATR below the low of the close above candle, or in other words, 1ATR below the candle preceding my entry;
5. Targets: 1.4:1 Reward to Risk ratio.
6. Risk: 1% per trade.

I compiled all of this in a Google Sheet including for each trade: Entry date and time, stop loss in #pips, position close in #pips, $loss/gain, total pips earned, total account cash, %loss/gain; and from this calculated my max drawdown and Win% as well as average $win, avg$loss, avg RRR, and total pips earned.
I took this set of data that I’d compiled and looked at it as a rough draft to be revised, rather than a complete strategy. I looked for positives first:

1. The winning percentage was low (41%) but despite it being less than 50% win, the data still revealed a positive annual return. So if perhaps I can refine my rules so that they prevent me from entering some of those losing trades, then maybe I can end up with a workable strategy with a decent win rate-- ideally over 50%.
2. By the end of April 2020, the return was +16.6%. This shows the strategy in certain market conditions can give me that 10-20% return I am looking for. But of course during March and April 2020, the markets were trending like a MF after all the shutdowns occurred—first way, way down—and then way, way back up. When the markets calmed down—the win rate started to drop significantly.
3. The rules were generally simple to follow and objective. Simple is good. All I need in the real world, then is patience and discipline to wait for the set up to come. This a promising starting point.
4. I learned my max drawdown came from 7 losers in a row. Can I handle 7 losers in a row? Or will I freak out and abandon my strategy, denounce trading and throw away all of my books in a fit of rage? The answer for me is, if the seven losses come as a part of a strategy that yields a 10-20% Annual return, then it’s fine and the cost of doing business, imo. If not, then it’s a problem for me. Either way, I got to look at the max dollar loss that came from those 7 trades and then look at myself in the mirror and honestly ask, can you handle a swing in which you are up 17% and then give back almost half of it?
5. The backtest provided me with invaluable experience of looking at real market situations and showed me where my rules were not well enough defined and provoked thought about how I can clean them up.

For example, what if the wick that touches the 20 EMA ends up being on the candle that also closes above the previous high? Happened several times. Is the close of that candle a valid entry? Or do I need to wait for a new close above candle? [I chose Yes, it’s valid. Ultimately, I’m looking for the 20EMA to act as support/resistance, so if the market reacts to that touch and immediately jumps up and breaks and closes above the previous high, then that is excellent market feedback that I want to listen to.]
If the high is established on the first candle after an MA crossover, is that a valid high? Or do I need multiple candles to print first for a high to be established? [I chose NO. A high on the first candle after a crossover is not valid, because I’m looking for a market that knows what direction it wants to go. If it was just going down and now it’s shooting up, can I trust with some degree of certainty that it is going to continuing going up? I don’t think so. Not for me at least. The EMA is a lagging indicator so the crossover is always going to follow an impulsive move in the opposite direction. But who’s to say that it’s not going to make another impulsive move in the opposite direction immediately after I enter a trade? I don’t know if we are in consolidation, a deep retracement, or an uptrend yet. So for me, I decided I need for three candles whose bodies are all above the 20 EMA to print before I start looking for a valid high and a pullback.]
There were many more confusing circumstances that the market threw at me, and I’m not going to go into all of them, but the main point is, Backtesting naturally helps me to refine my strategy and figure out what works, what doesn’t, and why. A years worth of candles on any chart is a lot of candles. Patterns will start to emerge that you never noticed before. Things that seem like no big deal will suddenly start to stand out to you as giant red flags and warning signs. I learn from every strategy I backtest and every change I make, even if they don’t necessarily yield a winning strategy.
I began thinking in all sorts of new ways. What if I combine this strategy with a particular set of candlestick formations or particular support and resistance zones? What if take a larger or smaller R, does this increase the Win Rate or does the larger return make up for the lower win rate? Are there any commonalities between a significant percentage of the losers that I can create a rule for to avoid them? E.g., does a certain day of the week result in significantly more losses than wins? If so, I’ll consider avoiding trading on that day by retesting without it. [Sunday for this strategy had the lowest frequency of trading opportunities, but Mondays and Fridays had the lowest Win rates. I haven’t retested this yet, but will look at what happens if I avoid trading this strategy on the AUDUSD 1H on Mondays or Fridays.] So on and so on.
RETESTING
First, I broke down the data further into quarters on the year to see better where the wins and losses came from. While the Annual Win rate was 41%, the quarterly win rates were as follows:
1st Q: 56.76%
2nd Q: 42.86%
3rd Q: 38.6%
4th Q: 33.33%
So the first half of the year – it did pretty well. The second half, however, returned pretty much all of the gains.
Next, I checked every single trade and marked the total number of wins and losses should I have set targets at 1:1, 1.2:1, 1.6:1, 1.8:1, and 2:1. 2:1 RRR would have given me 55 wins. “55 wins!” I thought to myself. Look at all those wins, surely I must be able to earn more taking a 2:1 on fewer wins instead of 1.4:1 RRR!!! But the data says otherwise. Win rates for each were:
1:1 – 46%
1.2—42.94%
1.4—41%
1.6—38.2
1.8—34.3%
2:1—30.9%
After recalculating the % loss/gain for the 2:1 RRR, it returned only 1% more during the first quarter and would have resulted in a negative return on the year overall had I traded it. And that 1:1 risk reward at 46%, would have been a loser too, OBVI. But the higher win rate at the lower 1.2:1 RRR still yielded a lower return on the year than 1.4:1.
What if I took a larger stop loss like 1ATR+5 or 1ATR+10 or perhaps 2ATR? Would that prevent me from getting stopped out and, as a result, turn some of the losers into winners? The answer is No in my experience specifically on the 1H AUDUSD chart during 2020. 1ATR was enough wiggle room to let me get to a winner and increasing my stop didn’t matter. If I was gonna get stopped out at 1ATR, I was, for the most part, going to get stopped out at 1ATR+10 or 2ATR as well. This is awesome information to learn. No more need to question my stops. No more wondering, “If I had only…”. A wider stop loss did not have a significant impact on the strategy’s overall Win rate.
So—The RRR and the stop loss placement aren’t the issue or the solution. So that means that the rules don’t work as written. I need to dig further. So I zoomed back out and looked at the charts. I had marked each trade on the chart as I tested with a vertical red line for losers and vertical green line for winners so I could see where large swaths of red and green appeared in relation to how the AUDUSD moved. I noticed something interesting that stood out: there were large impulsive and sustained moves up or down that I missed because the pullbacks never reached the 20 EMA. I asked myself if it was possible that the 20 and 50 EMA were not acting as support? Was there something else that supported those trends? So I played around with EMAs throwing up a few at a time, mixing and matching fast and slower MAs. This taught me something in the process – Moving Averages are not one size fits all. Different pairs seem to react to different MAs. And different time frames require different MAs as well. When I first started demo trading, I used the same MAs for every pair on every timeframe and would have 1 winner on 1 pair followed by a series of losers on all the other pairs and then I’d throw my hands up declaring “Moving averages don’t work!” And I was right, in a way. Moving averages put in zero work. They are passive observers. They will never do the work of finding a trade for you. But they can be good clue givers if you use them right. I found in this particular case that it appeared like the 10 and 40 EMAs seemed to provide a better support zone. “Appears” and “seems” are dangerous, though. I don’t want guesswork. I want something concrete that I can rely on to give me an edge over the market.
So I started over from scratch with my new more specific rules determined from analyzing my first set of testing and went back through the 1H AUDUSD chart for all of 2020 using the 10/40 EMAs instead of 20/50. Tedious AF. But well worth it. The result was 4.5% annual gain risking 1% at a 1.4:1 RRR. An improvement… beating inflation… but still not great. I played around with what happens if I risked 2% instead of 1% per trade—the result is my return bumps up to 6.6% over the year. The downfall of course is my max drawdown bumps up from 8% of my starting capital to almost 19%! And that 7 trade losing streak can come at any time in the year. So I get to ask myself: if that drawdown were to come at the start of my trading year, rather than in the middle when I’m already up… could I stomach losing 19% of my starting capital?? I don’t think I could. And that’s fine. I’d rather figure that out now with fake money, than realize it with my own. I’m pretty sure I could weather losing 8% of my capital, but 19% could break me. So now I know, I’m better off sticking to risking 1% per trade.
I recompare the details at the same RRRs as above from 1:1 all the way up to 2:1 and compare results again. That 2:1 ratio ended up a big loser over the course of 2020: a 6% loss. The 1.6:1 R yielded only slightly better results than the 1.4:1 ratio: 4.82% gain on the year vs 4.5%. But the Win Rate drops to 38%. The extra 0.3% doesn’t result in a huge additional gain on the year. But the additional losses I would have to wrestle with in order to get that additional 3 tenths of a percent could take a mental toll on me. Would I be able to stick to my trading plan with only a 38% Win rate? I don’t think so. I definitely want a higher win rate even if it means sacrificing a tiny extra gain. If I can't stick to my trading plan then I'm going to end up with 0 gain or worse, a loss. So more great information for myself.
Initially, I allowed myself to take trades that fit the rules even if I had a position opened already. So I re-tested the strategy only taking 1 trade at a time. When that trade closed, I could look for a new trade. Would that prevent me from getting into some of the losers or taking two losing trades back to back at least? In this instance, it took that 2:1 RRR from a -6% loss over the year to +4.2%. So it does make a difference – but still not better than 1.4:1 ratio that I was already using. I’m not dead set on this because the sample size decreased from 128 trades over the year to just 90. So it’s possible it could do better or worse over 100 or 200 trades. It remains to be seen. I’ve got to go back into 2019 to see and just haven’t gotten around to it yet.
When I had zoomed out, I noticed lots of my trades, naturally, came from periods of consolidation. This is normal for MA strategies. So was there a rule I could integrate that would help me to avoid consolidation and rambling sideways markets? I re-tested the strategy checking to see what happens if after a losing trade, I stopped trading until either a new crossover occurred or until the previous high or low was broken.
I was curious what would happen if I retested the strategy requiring that a 1-2-3 move occurred after a crossover before looking for a trade. My brain hated this idea—it yelled at me that I was going to miss opportunities if I did that. Sometimes my brain is smart—sometimes it is a jerk that runs on fear and FOMO. I’ve learned not to trust my brain in some cases—I should trust the data. This was also great information that I’ve learned about my own psychology that I didn’t anticipate learning from backtesting. But you learn all sorts of great information about how you think when testing a strategy. So I’m currently retesting the strategy waiting for a crossover, then a push up, a pullback, and a break and close above ALL BEFORE I even start looking for a trade. I don’t know yet if this is better or not. I’m not finished. But by going through all of this, I’m gradually yielding better and better results… historically speaking of course. And gaining tons of knowledge in real market examples rather than these little tiny perfect cookie cutter examples that are often shown in books and videos. I’m so over seeing perfect examples of setups. I want to see the weird, janky, ugly, dirty examples of trends, and double tops, and head and shoulders patterns and candlestick formations. Those are the ones that really help me to get clear on my rules and definitions for conditions, entries, stops and targets.
So my plan, after I find a strategy that in theory has returned a positive gain of 10% or more, is to further backtest over more years amounting to 500-750 trades. If the annual returns hold, then I plan to forward test it for 6 months. If it still yields positive results, I might go live, but truthfully, I’d probably continue to forward test it for the year. We’ll see. After that, I get to test the strategy on other timeframes and on other FXpairs, repeating and refining the process over again. While 10/40 may work for AUDUSD, I’ve found that slower MAs like the 55 and 100 work better for some other pairs. I’m also getting to see what timeframes I like to trade best. I’ve discovered through testing and demotrading that I like the 1H and 4H timeframes best for my schedule. I can’t check the markets frequently with my job, so the mid to higher TFs don’t move so fast that I keep missing opportunities. Less chance for FOMO. But the Daily chart results in me staying in trades for so long, that I discovered I kept closing them early abandoning my rules because I got too impatient or struggled with watching the charts tease up and down repeatedly for a week to a week and a half… or longer.
I deliberately haven’t told you all the results of all of my testing, because you need to do the work yourself. And when people say on this sub, that they’re not going to hand you their strategy, I don’t think it’s because (entirely) they’re worried about you using their strategy or taking away their edge. When I taught high school Physics, I always gave my students the formulas on the test, because I didn’t want to test them on their ability to memorize—I wanted to test them on their understanding of when and how to use each formula. Just because you have the formula, doesn’t mean you’re gonna know how to use it. Backtesting is how you will learn how to use the formulas. Personally, I think it would do you a disservice to not have you go and test your own strategy yourself, whether it’s this one or another one. All the chart patterns under the sun are not strategies in and of themselves. All the candlestick patterns you’ve read about are not a strategy in and of themselves either, just like all the indicators, and support and resistance lines, and correlatives are not strategies. They are all just clues. Pieces of a very large, convoluted puzzle with an infinite number of solutions. I was resistant to backtesting when I first started learning, because I felt like I needed to know more before it was worth investing the time. But once I tested a strategy for the first time, it was revelatory. I wish I had started earlier. I wish that I had backtested anything and everything that I read. It doesn’t matter if you fully understand it when you start—the process of backtesting will automatically help you gain better understanding. And there’s so much more to learn. I still suck at Fundamental Analysis. I’m still learning how to read Central Bank speeches and Economists’ predictions on Economic releases. I’m still learning how to trade the news. How to take a view. How to determine which currency is best to pair with another currency when I have a view. It’s insane how much there is to learn about. Enjoy the process of finding your own solution. Hope this helped to start pointing anyone who felt like they were fumbling around in the dark in a new, less frustrating direction. Oh and if you haven’t done a deep dive into the Wiki on this sub yet. Then go do that now. It’s fantastic. There’s so much there. Seriously. Don’t wait. Go there now.