Quote from tommaso:
I was thinking to consider a new variant of some day-trading strategy class: if it turns out to be somehow meaningful according to your opinion, I may be implementing it (clearly sharing backtest results) to see whether it happens to make some possible sense.
(Itâs quite simple, and perhaps "justifiable" by the mere concepts of resistance/support.)
The aim (a ridiculously ambitious one!) is somehow to be able to capture both trending and sideways markets with a unified logic. The basic idea is that the price cannot run forever in one direction, but it has direction changes (where we can grasp a profit).
Let me know if understandable, and possible comments and thoughts or any ideas for improvementsâ¦
I enclose a really lousy picture, which may help to understand the following tentative description.
There may be errors (and grammar mistakes): feel free to point them out!
notes
-Uses 2 accounts simultaneously (say, a âlongâ account and a âshortâ account) to âtryâ both the 2 directions, I explain here a "long run", short wold be the same, just symmetric
-The strategy explained is symmetric (long/short) but, in case, different parameters can be used (k, G are parameters to be âtunedâ (or suggested by experts), d is automatically âdictatedâ by the market, but we clearly pose a constraint it be bigger than a given fixed percentage, such as .5 or 1, or whatever suggested by experts).
Strategy (algorithm)
1 Open 2 equal positions, both Long and Short on the 2 accounts. Let p be the price at that time.
2 Wait for the event when the price has exceeded either one p + d% p (on âlongâ account) or p - d% p (on âshortâ account) AND there is an inversion greater than a given fraction of d%, for instance: d% p / k
[Now letâs assume for instance that the event occurred is in the âLong directionâ ]
3 Close the Long position (realize) when the inversion exceeds d% p / k and let ârun downâ the short position until a given "combined" profit G is reached (the "combined" profit arises from the fact that the loss due to the open short position is decreasing with price, while on the long account the profit is already realized because the long trade is closed).
4 If the given combined profit is reached, take it. Restart from step 1.
5 If the profit is not reached and the price goes again above p + d% p reopen the Long position and goto step 2 (if the price continues to go up, a greater d will automatically result).
[ In case it reverts again to level p + d% p - d% p / k close the Long position again (and take the loss on the Long account due to price drop: p + d% p to p + d% p - d% p / k), goto step 4. ]
6 If the profit is not reached and the price remains flat within p and p + d% p do nothing, and wait the end of day trading session (that last trade may end up (randomly) positive or negative due to spread and commissions).
Tommaso
