The Waddah Attar Explosion Trading Strategy

In this postI an going to do something different, and that is to try and simulate an interesting Trading strategy that I watched recently on Youtube. The original video is from the TraderDNA channel and the video is claimes a 98 percent win rate. 

[98% WIN] "VOLUME EXPLOSION" Trading with WADDAH ATTAR - Identifying the Most Profitable Trends on https://www.youtube.com/watch?v=VcpD-t3SCJI

I tried to code this strategy into an algorithm for automatic backtesting to see if it really can attain this claimed winrate. Or that we have to be a little bit more critical to what that video claims.  

Let’s test that out next…

The strategy

In my journey for trading algorithms I came across the Waddah Attar Explosion a long time ago in this video: https://www.youtube.com/watch?v=_RODYoAEDCU

From that moment on I always wanted to investigate the WAE indicator for it’s probability because I found it very interesting and hoped to find a trustworthy signalling indicator here. 

There are also a lot of other video’s that explain and test this indicator too: https://www.youtube.com/results?search_query=waddah+attar+explosion+indicator

And I thought it would be time to do a test myself to see if it performs as good as all the other video’s you see in the list.

I also came across this video: [98% WIN] "VOLUME EXPLOSION" Trading with WADDAH ATTAR - Identifying the Most Profitable Trends on https://www.youtube.com/watch?v=VcpD-t3SCJI

And it explained quite well what this indicator does and how it should be used. I could have picked any of these other videos in the list, but I chose to do this one.

So after watching that video – that has a great explanation on the usage the indicator by the way - I really wanted to create an algorithm with which I could test that indicator and the proposed strategy that was explained there.

Unfortunately I have to immediately put myself a little bit on the defense here because the original video presents quite a few of different approaches to the Waddah Attar trading strategy. But is not specific on the settings of the WAE, If a Tradingview indicator is used, timeframe tested or any other information why the video states an 98% win rate and the testing methodology to claim this result. Only that it can be used on a multitude of asset classes.

Not to mention the fact that no actual trading results were shown. So it could well be that with 98% of wins you’d still have an empty trading account. And you can watch my earlier strategy testing video’s on what I mean by this.

Anyway, I had to be a little bit more creative in some aspects, especially with the exit signals. This has also has something to do with the backtesting engine and the limitations of the trading bot that I use by the way. 

Nonetheless I think I came close enough to have a somewhat reasonable Idea of the real performance of that strategy. 

So let me explain how my algorithm looks like.

The most simplistic version of the proposed strategy in the original video is to buy when the volume bar turns bullish and rises above the explosion line. 

The sell signal is the moment where the first bearish bar appears – indicating that the trend ends. And it does not have to be above the explosion line here.

However, If is show you recent price action on the Bitcoin daily timeframe. you can immediately see that there is a difference in the clean and clear Waddah Attar Explosion image of the video and the one on TradingView. That one looks a bit more messy and has grean and red bars in between these bullish and bearish moves all the time. And may cause premature endings of the trade in these cases.

According to the original video I also have to add some more indicators here to filter out the noise.

The narrator suggests to use two moving averages to determine trending markets. The 20 EMA and the 50 EMA to be precise. 

Besides the WAE and the two EMA’s there is also proposed to use the 25 CCI indicator.

So in total this algorithm will have the following rules:

For bullish trades:

Waddah Attar Explosion indicator should be green and move above the explosion line

The 20 EMA is above the 50 EMA and the price is above both lines

And the 25 length CCI should above the center line. 

The bearish trades have the following rules:

Waddah Attar Explosion indicator should be red and move above the explosion line

The 20 EMA is below the 50 EMA and the price is below both lines

And the 25 length CCI is below the center line. 

In that video the following exit signals are proposed. The exit signal for long trades happens when a bearish volume candle appears after the entry and for shorts when a bullish volume candle appears after the entry of a short trade.

And there is also a risk:reward type of profit taking mentioned. But for me it was unclear which risk:reward setting was used because it is not explained further. 

And also most of the time the reward was drawn at the exact top of the bullish or bearish move. Which in actual trading is not always the case.

But I gave it the benefit of the doubt and I decided to use the earlier shown opposite candle methodology for exiting the trade. I cannot say if this was the way for the 98 percent win rate and I am also a bit limited in the possibilities for Risk reward trading with my backtesting engine. But still I think I come pretty close to the original proposed trading strategy.

The Code

DON"T WORRY ALL THE CODE FILES ARE ARE IN THE ATTACHMENTS OF THIS POST BELOW!

I coded this all into a Python algorithm to do a fully automatic backtest with my backtesting engine. And as you might already know, this helps me doing backtesting large amounts of data in a reasonable amount of time, and also preventing the human factor of subjective alternate decision making per entry or exit. Making the test clinical and objective.

So I made code for long and short futures trading.

And one file for doing only spot trading. Trying to find out which of these two has the best overall probability to make money in the market.

So let’s turn to the results of these backtests and see if we really can get close to 98% win rate with a decent profit here.

Backtest results

The results I show here are attained on my specific setup, with my preferred cryptocurrency pairs to test with and over the longest possible dataset I could manage to get. So I did not expect to get the exact numbers as stated in the video. And if you are testing this on your setup, then I expect you will see a difference too.

But I also expected to see at least some similarities or some close proximities to the numbers of the original video.

However these are the results of the backtests I got and you can check and verify all the stuff I do here because I upload all my work, including the code files, the output of the results and my complete setup to Patreon. You can replicate my work on your own computer if you like. This way I hope to be fully transparent in what I do. You may even point me to the possible mistakes I made in the comments section because that helps the community to prevent the same errors and we can all learn from each other. So please click like, subscribe and comment to this channel to learn and find the best trading algorithm for your situation.

Spot trading

In spot trading, we only do long trades and wil not short the market. So we potentially miss 50% of the trading opportunities in the market. Some countries prohibit shorting the market so it is always a good exercise to see what Spot trading can potentially bring us.

In the case of the Waddah Attar Explosion strategy, the 4 hour timeframe seems to have the best cards in hand.

 But we all can immediately see that a 98% winrate is out of the question here. It can barely attain a winrate of 34.6 percent. And to be honest that is pretty much in line with most trend trading strategies I tested so far. It still manages to have a win percentage of 1410. And also the drawdown is reasonable here. 61 of my trading pairs respond well to this trading algorithm. 

Let’s see what the equity curve looks like.

The curve here has not a steady incline but looks to respond to quick market movements. Which is obvious of course since the indicator literally has the term explosion in the name. 

However, slower, more sideways markets tend to make this algo bleed your profits and the proposed filtering EMA and CCI filtering indicators do not do a great job here. So this would be my first point of improvement. Finding out better indicators that filter out bad trades.

This is also confirmed in this drawdown chart. Between the first and second bull market top and during the start of the bear market, the drawdown of the account goes up.

Another mentionable chart here is the win loss ratio. Overall this strategy shows you a lot of losses over time and only some wins. These wins have a higher percentage gain then all these losses. But still the psychological factor of seeing your bot make loss after loss should also taken into account here. How long would you leave your bot running if showed you the maximum 38 losses streak is the real question here.

So overall it is not the best scoring trading algorithm and it’s drawdown is certainly eye catching in comparison with the best scoring algorithms at the time of making this video.

So how would the Futures version of this trading strategy perform. Would it get a winning score of 98 percent here?

Futures results

Let’s start with the positive side. The Futures version, where the algorithm takes long and short trades, does perform better then the spot only version in terms of end balance, win percentage, win streak and eventually the total score over all parameters. 

But on the negative side it still does come close to the promised 98 percent win rate. Barely 36 percent of the trades end up positive. The profit factor stays over 1 so eventually the winning trades make this still a profitable trading strategy.

The equity curve experiences much higher and sharper peaks than spot only and trading futures looks more of a rollercoaster ride then a boring steady incline of funds. And I like boring by the way…

This also is reflected in the drawdown curve that has many high peaks and troughs and an average drawdown of around 15 percent.

The win rate and profit distribution plots tell me the following stories:

The boxplot shows that the median win rate is quite low, around 20-25%. The middle 50% of the data (interquartile range) falls between approximately 0.2 and 0.6. So despite the claim of a high win rate (98%), this chart suggests significant variability, with some instances having win rates below 20%, while a few cases approach 100%.

The profit distribution boxplot shows that most of the profits are clustered around the center, with a median profit slightly above zero. There are significant outliers both in the positive and negative directions, with extreme profits going above 3000 and extreme losses going below -2000. This suggests that most trades result in small profits or losses, and there are occasional large wins and losses.

Finally, the comparison of this strategies performance indicators with that of the current best strategies show that the profit factor and the sortino ratio aren’t actually that bad at all. But the drawdown, profit percentage and eventually Sharpe do need to be fixed to make it come close to the best current performing strategies.

Overall conclusion and ending

So after seeing these results, it is hard to believe the original video’s claim of 98 percent win rate. Especially if some crucial facts like time frame, actual trading results, Risk and Reward settings, pairs or markets tested or any of that is not even mentioned. My results aren’t even getting close to that.

Now do my backtest results disqualify that video? 

I would argue not since I also did not code each exact step in my algorithm too. Like the proposed Risk reward settings for example. But I also like to be not too critical on myself here, since no additional information on that was given anyway.

Nonetheless I did what I always wanted to do and that is to test out the Waddah Attar Explosion indicator in a trading strategy to discover its added benefits. 

In the mean time I am also working on another trading strategy that uses this indicator. And it seems to have better results than the strategy presented in this video. 

Please remember to always do your own research and forward test any trading strategy before putting your real money on the line. 

In the mean time I will keep on searching for the best trading strategy, maybe I’ll do more of these Youtube examples, and will see you in the next post.

Goodbye!

The Waddah Attar Explosion Trading strategy 

Source Youtube Channel: https://www.youtube.com/watch?v=VcpD-t3SCJI