# Intelligent Dynamic Backlash Agent: A Trading Strategy Based on the Directional Change Framework
## 9 Conclusions  
The Directional Changes (DC) framework is an approach to summarize price movement in financial time series. Dynamic Backlash Agent (DBA) is a trading strategy which is based on the Directional Changes (DC) framework. The initial version of DBA [14] has two critical weaknesses: (a) it does not employ any approach to decide the size of a trade; and (b) it does not embrace any risk management module. In this paper, we present an improved version of DBA called Intelligent DBA (IDBA). IDBA has the same trading rules of DBA; however, IDBA is designed to overcome these two weaknesses of DBA.  
IDBA has an innovative module to calculate the order size. For this purpose, we develop a forecasting model which aims to predict whether a particular trade triggered by IDBA will be profitable. The development of this forecasting model embraces the choice of two independent variables and an appropriate machine learning algorithm. The order's size is then calculated based on two parameters, namely \(PPV\) and \(FNR\). These two parameters are computed based on the confusion matrix associated with the performance of the formed forecasting model. Moreover, IDBA encompasses a risk management module. This module consists of stop trading whenever the maximum drawdown reaches a particular threshold, which is computed autonomously. In such a case, IDBA re-starts its learning module all over (Section 5).  
To evaluate the performance of IDBA, we considered six currency pairs using a rolling window approach. The overall trading period lasts from 1 January 2017 to 31 December 2017. We considered the instantaneous bid and ask prices in our experiments but not the transaction costs. The results show that IDBA can produce an annualized rate of return of about 30% and an annualized Sharpe ratio of up to 4.6. We also provide an example as to how IDBA can adapt to economical or political events. Furthermore, the results of the Wilcoxon test suggest that IDBA can provide greater returns, while providing less risk, at the same time, than its predecessor DBA. The results also suggest that IDBA  
\begin{table}
\begin{tabular}{c c c} \hline \hline  & \(RR\) & _MDD_ \\ \hline \(p\)**-value** & 0.937 & 0.002 \\ \hline \hline \end{tabular}
\end{table}
Table 13: The \(p\)-value of the conducted Wilcoxon tests of comparing the \(RR\) and \(MDD\) of IDBA and TSFDC.  
\begin{table}
\begin{tabular}{c c c c c} \hline \hline \multirow{2}{*}{**Currency Pairs**} & \multicolumn{2}{c}{\(RR\)} & \multicolumn{2}{c}{_MDD_} \\ \cline{2-5}  & **IDBA** & **TSFDC** & **IDBA** & **TSFDC** \\ \hline
**AUD/USD** & 23.5 & 24.2 & 1.5 & 7.8 \\
**AUD/CAD** & 26.2 & 24.1 & 1.7 & 8.6 \\
**GBP/CAD** & 4.3 & 5.6 & 2.6 & 12.2 \\
**GBP/NZD** & 29.8 & 30.5 & 1.7 & 4.6 \\
**NZD/USD** & 18.8 & 19.7 & 3.4 & 7.4 \\
**EUR/NZD** & 16.1 & 17.2 & 2.2 & 10.5 \\ \hline \hline \end{tabular}
\end{table}
Table 12: Summary of \(RR\) and \(MDD\) of IDBA and TSFDC.  
can provide similar rate of returns, but is less risky, than another DC-based trading strategy named TSFDC [13].  
Conceptualization and methodology, A.B., V.L.R.C. and E.P.K.T.; software and validation, A.B. and AR.E.S.; investigation, A.B. and V.L.R.C.; writing--original draft preparation, A.B.; writing--review and editing, V.L.R.C. and E.P.K.T.; and supervision, A.B.  
This research received no external funding  
The authors declare no conflict of interest.