Nadaraya-Watson Envelope EA: Comprehensive User Guide, Backtest Results, and Optimized Set Files

Features Overview

• Core Indicator-Based Strategy: Uses the Nadaraya-Watson Envelope indicator for identifying potential price reversals.
• Single-Currency Trading: Operates on the currency pair and timeframe of the chart it is applied to.
• Comprehensive Risk Management: Includes stop-loss, take-profit, and trailing stop options.
• Customizable Inputs: Flexible settings for the Nadaraya-Watson Envelope to adapt to different market conditions.
• Additional Features: Includes day and time filters, trading session controls, and notification alerts.

Core Indicator Settings

1. Length (default: 500): Defines the number of bars used in the calculation of the envelope.
2. Bandwidth (default: 8): Adjusts the width of the envelope bands.
3. Multiplier (default: 3): Sets the deviation multiplier for the bands.

Entry and Exit Strategies

1. Buy Entry:

   • The price reverses at the lower band of the Nadaraya-Watson Envelope.
   • A Buy trade is executed if the reversal conditions are met.

2. Sell Entry:

   • The price reverses at the upper band of the Nadaraya-Watson Envelope.
   • A Sell trade is executed if the reversal conditions are met.

3. Exit Conditions:

   • The EA closes trades based on predefined Take-Profit and Stop-Loss levels.
   • Trailing Stops can be enabled for dynamic profit locking.
   • Exit logic does not rely on the indicator; trades are managed using the EA’s risk settings.

2. Additional Features

Moving Average (MA) Filter on Higher Timeframe

The MA filter enables trades that align with the broader trend based on a higher timeframe moving average:

• Uptrend Condition – Allows buy trades when the close price is above the moving average.
• Downtrend Condition – Allows sell trades when the close price is below the moving average.

Loss Recovery Strategies

There are couple of loss recovery strategies popular in the market. Grid, Hedge and Martingale is most popular among them. In this EA, we have these strategies inbuilt. But only one loss recovery strategy can be active at a time. EA will not load, if we enable more than one loss recovery strategies. There is one important point regarding these strategies, we can not set stoploss if you enable Grid or Hedge strategy. It will close trades earlier and will compromise the purpose of these strategies. All of these strategies are by default disabled.

Grid Recovery Strategy
In a losing position, the EA places additional trades in a grid pattern, averaging down the entry price to capitalize on retracements.
Hedge Strategy
To balance exposure during a losing position, the EA opens opposing trades (hedges), allowing profit potential in countertrend movements.
Martingale Strategy
Increases lot size after a loss on each subsequent signal, aiming for overall profitability.

Position Sizing Based on Profit
This feature adjusts the position size dynamically based on cumulative profit, aiming to optimize gains in favourable conditions. As profit accumulates, the EA increases the position size, allowing for scaled growth and larger potential returns.

Day Filter
Specifies trading days to avoid trading during specific days of the week, aligning with your strategy’s optimal market conditions. You can disable the entire day filter.

Time Filter
Limits trading to specific times, preventing trades during low-liquidity periods or other non-ideal market conditions. You can disable entire time filter.

This ADX-based EA, with versatile entry and exit strategies and advanced risk management features, is a comprehensive tool designed to adapt to various market conditions while offering robust control over trading operations. Use each feature thoughtfully to align with your trading objectives and risk management strategy.

3 .Backtests and Optimized Set files

The EA can be back tested with various different strategies with the help of different combinations of these options

• Stop-Loss and Take-Profit
• Single or Multiple Entry (Multiple entries is not suitable for Grid)
• Entry Option
• Exit Option (Not suitable for Grid, Hedge and Martingale) (Enable/Disable)
• Time Filter (Enable/Disable)
• Day Filter (Enable/Disable)
• Breakeven (Enable/Disable)
• Trailing Stop-Loss (Enable/Disable)
• Daily, Weekly and Monthly Profit
• Grid (Enable/Disable) with no stoploss
• Hedge (Enable/Disable) with no stoploss
• Martingale (Enable/Disable) with no stoploss
• Higher timeframe Moving Average Trend Filter (Enable/Disable)

We have optimized our EA based on these different combinations in different timeframes (5Minute to 4 Hours). These optimizations are mainly performed on EURUSD, USDCHF, AUDUSD, GBPUSD, USDCAD, NZDUSD AND XAUUSD. We have run these optimizations on 4-10 years of data. You can find the optimized set files and results below.

Note: We have run the optimizations on every period calculation for faster results. In this approach calculation are perform on every candle loading. You can backtest on everytick mode, but backtest would be much slower. Optimization results may be different in different brokers. It depends on the mt5 data cache and specific broker data. Ideally mt5 has 99.99 tick quality data. For mt4 you need to purchase 99.99 quality data from specific providers. Each individual has their own preference of their settings and symbols. In case you need more optimized data you can always optimize yourself.

You can follow this video to learn how to optimize the EA.