# Intelligent Dynamic Backlash Agent: A Trading Strategy Based on the Directional Change Framework
## 1 Introduction  
Directional Change (DC) is an approach to summarizing market price movements [1]. Under the DC framework, the market is cast into alternating upward trends, which we call uptrend, and downward trends, which we call downtrend [2]. A trend is identified as a change in market price larger than, or equal to, a given threshold. This threshold, named _theta_, is set by the observer and usually expressed as percentage. A trend ends whenever a price change of the same threshold, _theta_, is observed in the opposite direction. For example, a market downtrend ends when we observe a price rise of magnitude _theta_; in this case, we say that the market changes its direction to an uptrend. Similarly, a market's uptrend ends when we observe a price decline of magnitude _theta_, in which case we say that the market changes its direction to a downtrend. Before we continue, we cite other studies that show the DC framework has helped in analyzing financial markets. For example, [PERSON] et al. [3] discovered twelve scaling laws which unveil new characteristics in the Forex (FX) market. These scaling laws are based on the DC concept. They aimed to establish mathematical relationships among price moves, duration and frequency. In addition, [PERSON] et al. [4] presented the so-called Scale of Market Quakes (SMQ) based on the DC concept. SMQ aims to quantify FX market activity during significant economic and political events declarations. Furthermore, [PERSON] [5] reported a study that deciphers FX market activity based on the DC concept. She introduced an approach that lays \"the foundations for understanding how FX marketactivity changes as the price movement progresses\" and explains how minor differences in market activities can change the price trend, under definite conditions, during the overshoot (OS) event [5]. [PERSON] et al. [6] presented a model to forecast market trend's direction under the DC framework. They tried to forecast whether a DC trend would continue for a specific threshold before the market's trend reverses. [PERSON] and [PERSON] [7] proposed a DC-based approach with a dynamic threshold definition method to analyze the reaction of financial market to the published news (e.g., political, economic). They claimed that their approach can be used by investors to detect movements in the market so that they can, potentially, react to and take advantage of. [PERSON] et al. [8] introduced an approach to profiling companies and financial markets. Their methodology embraces a set of innovative indicators that are based on the DC framework. These indicators aim to analyze and classify financial markets. They concluded that information obtained through DC-based analysis and from time series complement each other. [PERSON] and [PERSON] [9] suggested an approach to profile a particular market over a rolling time window, and track the change of market positions over time. They employed some of the DC indicators previously introduced in [8] observed under different price events. They applied their approach to identify regime change during the Brexit period (more particularly between May and July 2016). In addition, some studies have tried to develop trading strategies based on the DC framework (e.g., [10; 11; 12; 13]). In this paper, we are particularly interested in the DC-based trading strategy named Dynamic Backlash Agent (DBA) by [PERSON] et al. [14]. The preliminary results suggest that DBA can generate positive returns in many cases. However, DBA has two critical weaknesses: (a) it does not have any order size management; and (b) it does not have any risk management module. In this paper we introduce an improved version of DBA called Intelligent DBA (IDBA). IDBA is designed to overcome these two weaknesses of DBA. This paper continues as follows: Section 2 describes the concept of Directional Changes. Section 3 provides a brief review of the existing trading strategies that are based on the DC framework. Section 4 provides a summary of the trading strategy named DBA.