Build Your Own Trading Signals with MQL5 Wizard: Dark Cloud Cover and Piercing Line Patterns

If you're diving into algorithmic trading with MetaTrader 5, the MQL5 Wizard is an invaluable tool for creating Expert Advisors (EAs) tailored to your trading strategies. This guide will walk you through crafting EAs that utilize the 'Dark Cloud Cover' and 'Piercing Line' candlestick patterns, confirmed by the RSI indicator.

Creating a custom trading signal class is straightforward. For the details on structuring this class, check out the article MQL5 Wizard: How to Create a Module of Trading Signals. The gist is to derive your class from CExpertSignal and override the methods for signal conditions.

In this post, we’ll focus on the reversal candlestick patterns—specifically the 'Dark Cloud Cover' and 'Piercing Line'—along with their confirmation through the RSI indicator.

1. Understanding the Candlestick Patterns

1.1 Dark Cloud Cover

The 'Dark Cloud Cover' is a bearish reversal pattern often spotted at the end of an uptrend. It’s marked by a long white candlestick followed by a gap up, with the second day closing below the midpoint of the first day’s body.

Figure 1. Dark Cloud Cover candlestick pattern

To recognize this pattern, we can use the CheckPatternDarkCloudCover() method from the CCandlePattern class:

//+------------------------------------------------------------------+
//| Checks formation of "Dark Cloud Cover" candlestick pattern        |
//+------------------------------------------------------------------+
bool CCandlePattern::CheckPatternDarkCloudCover() {

  //--- Dark Cloud Cover 

  if((Close(2)-Open(2)>AvgBody(1)) && 

     (Close(1)2)) && 

     (Close(1)>Open(2)) && 

     (MidOpenClose(2)>CloseAvg(1)) && 

     (Open(1)>High(2))) 

    return (true);

  //---

  return (false);

}

1.2 Piercing Line

The 'Piercing Line' pattern is a bullish reversal that forms after a downtrend. Here, the second day's close is above the midpoint of the first day's body, signaling potential bullish momentum.

Figure 2. Piercing Line candlestick pattern

To identify this pattern, we utilize the CheckPatternPiercingLine() method of the CCandlePattern class:

//+------------------------------------------------------------------+
//| Checks formation of "Piercing Line" candlestick pattern            |
//+------------------------------------------------------------------+
bool CCandlePattern::CheckPatternPiercingLine() {

  //--- Piercing Line

  if((Close(1)-Open(1)>AvgBody(1)) && 

     (Open(2)-Close(2)>AvgBody(1) && 

     (Close(1)>Close(2) && 

     (Close(1)<Open(2)) && 

     (MidOpenClose(2)<CloseAvg(2)) && 

     (Open(1)<Low(2))) 

    return (true);

  //---

  return (false);

}

2. Confirming Trade Signals with RSI

Trade signals for opening long or short positions must be validated by the RSI indicator. For a long position, the RSI needs to be below 40, while for a short position, it should be above 60.

You can close an open position based on two scenarios:

• If the RSI reaches the opposite critical level (70 for long positions, 30 for short positions).
• If the reversal signal isn't confirmed (when the RSI hits 30 for long positions, and 70 for short positions).

Figure 3. Dark Cloud Cover pattern confirmed by RSI indicator

• int CDC_PL_RSI::LongCondition() - checks conditions to open a long position (returns 80) and closes the short position (returns 40);
• int CDC_PL_RSI::ShortCondition() - checks conditions to open a short position (returns 80) and closes the long position (returns 40).

2.1 Opening Long Positions and Closing Shorts

1. Confirm the 'Piercing Line' pattern with the RSI: RSI(1) must be less than 40.

2. Close the short position if the RSI crosses upward over the critical levels 70 or 30.

//+------------------------------------------------------------------+
//| Checks conditions for entry and exit from market                  |
//+------------------------------------------------------------------+
int CDC_PL_RSI::LongCondition() {

  int result=0;

  //--- Check conditions to open long position

  if(CheckCandlestickPattern(CANDLE_PATTERN_PIERCING_LINE) && (RSI(1)<40))

    result=80;

  //--- Check conditions to close short position

  if(((RSI(1)>30) && (RSI(2)<30)) || ((RSI(1)>70) && (RSI(2)<70)))

    result=40;

  //--- Return result

  return(result);

}

2.2 Opening Short Positions and Closing Longs

1. Confirm the 'Dark Cloud Cover' pattern with the RSI: RSI(1) must be greater than 60.

2. Close the long position if the RSI crosses downward over the critical levels 70 or 30.

//+------------------------------------------------------------------+
//| Checks conditions for entry and exit from market                  |
//+------------------------------------------------------------------+
int CDC_PL_RSI::ShortCondition() {

  int result=0;

  //--- Check conditions to open short position

  if(CheckCandlestickPattern(CANDLE_PATTERN_DARK_CLOUD_COVER) && (RSI(1)>60))

    result=80;

  //--- Check conditions to close long position

  if(((RSI(1)<70) && (RSI(2)>70)) || ((RSI(1)<30) && (RSI(2)>30)))

    result=40;

  //--- Return result

  return(result);

}

2.3 Creating the Expert Advisor with MQL5 Wizard

Now, let’s launch the MQL5 Wizard to create your Expert Advisor:

Figure 4. Creating Expert Advisor using MQL5 Wizard

First, specify the name of your Expert Advisor:

Figure 5. General properties of the Expert Advisor

Next, select the trading signal modules you want to use.

Figure 6. Signal properties of the Expert Advisor

In this case, we only need one module for our signals:

Add the Signals based on Dark Cloud Cover/Piercing Line confirmed by RSI module:

Figure 7. Signal properties of the Expert Advisor

You can select trailing properties, but we will go with the option of no trailing stop:

Figure 9. Trailing properties of the Expert Advisor

For money management, we will use a fixed trading volume:

Figure 10. Money management properties of the Expert Advisor

Once you hit the 'Finish' button, the code for your new Expert Advisor will be generated, saved as Expert_ADC_PL_RSI.mq5 in the terminal_data_folder\MQL5\Experts\.

The default input parameters for your generated EA will be:

//--- inputs for main signal
input int Signal_ThresholdOpen = 10; // Threshold to open position
input int Signal_ThresholdClose = 10; // Threshold to close position
input double Signal_PriceLevel = 0.0; // Price level to execute a deal
input double Signal_StopLevel = 50.0; // Stop Loss level
input double Signal_TakeLevel = 50.0; // Take Profit level

These parameters should be adjusted to:

//--- inputs for main signal
input int Signal_ThresholdOpen = 40; // Threshold to open position
input int Signal_ThresholdClose = 20; // Threshold to close position
input double Signal_PriceLevel = 0.0; // Price level to execute a deal
input double Signal_StopLevel = 0.0; // Stop Loss level
input double Signal_TakeLevel = 0.0; // Take Profit level

The Signal_ThresholdOpen and Signal_ThresholdClose parameters specify the threshold levels for opening and closing positions.

In the code for the LongCondition() and ShortCondition() methods, fixed values were initially set:

• Open position: 80;
• Close position: 40.

Set Signal_StopLevel and Signal_TakeLevel to 0, indicating that positions will only close under the specified conditions.

2.4 Backtesting the Expert Advisor

Now, let’s take a look at backtesting results for the Expert Advisor on historical data (EURUSD H1, testing period: 2010.01.01-2011.02.23, PeriodRSI=20, MA_period=14).

We used a fixed volume (Trading Fixed Lot, 0.1) and did not implement a Trailing Stop algorithm (Trailing not used).

Figure 11. Testing results of the Expert Advisor, based on Dark Cloud Cover/Piercing Line + RSI

The best set of input parameters can be determined using the Strategy Tester in the MetaTrader 5 client terminal.

The code for the Expert Advisor created by the MQL5 Wizard is attached as expert_ad_pl_rsi.mq5.