Daytrading 2.1 for small traders (the complete method)

That computer technology looks really cool. I didn’t realize that there were so many price disparities and things in the market that could be found with Google style questions. It’s like the Ask Jeeves of finance…
 
Slope Trader said:
Hi Ironfist,

I have a couple of thoughts. I do manual backtesting from charts and this seems like a nice puzzle that you’ve presented. The question is: without being rigorously quantitative yet, can suggestions be made that will improve the performance of trades in the 4 charts shown in the first post?

The current system for long trades as I understand it is shown below. Rules are reversed for short trades.

An initial stop-loss wasn’t given, but to judge the system properly one would need to set a rule for this.
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There is no initial stop loss because you have to stay with the open position until the MA reverses. Since price can go anywhere, this was the only way I was able to have it be consistent in my testing.

My initial suggested changes for long trades, shown as System 1b, are to
(a) enter using a buy stop order 1 or 2 ticks above the high of the signal bar (this will eliminate some losing trades),
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THat is interesting. It woul dkeep you out of a trade if it were to keep going down. It would also reduce the total increase if the trade does go in your favor. These may negate each other if you apply this rule.


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(b) only place the order if the signal bar has a close that is in the top half of the bar (meaning it has a “strong forward close”; requiring the close to be in the top third of the bar could also be considered), and
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So that is suggesting that it might keep going up?
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(c) place the initial stop-loss below the low of the signal bar or the bar that precedes it, whichever is lower.
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There are some trades where this would work against you. The price gives you the signal, then goes down, and then goes up. That's why I only had the exit criteria mentioned.

System 1
Go long when:
- slow MA (240 WMA) is sloping up
- fast MA (21 HMA) is sloping up
- price has made at least one HH and HL (a DB will also be an entry signal, basically you are looking for price to not make a LL)
- entry is on the open of the bar after the signal bar (check this)
- initial stop-loss is located at _____ (not clear)
- exit when the fast MA reverses its slope

System 1b
Go long when:
- slow MA (240 WMA) is sloping up
- fast MA (21 HMA) is sloping up
- price has made at least one HH and HL (a DB will also be an entry signal, basically you are looking for price to not make a LL)
- the close of the signal bar is in the top half of the bar (wait for a bar like this before entering)
- enter with a buy stop order 1 or 2 ticks above the high of the signal bar
- initial stop-loss is located below the low of the signal bar or the bar that precedes it, whichever is lower.
- exit when the fast MA reverses its slope


Focusing on the trades pointed out in the 4 charts that meet the entry requirements, and using only qualitative assessments at this stage, the results are shown below.

System 1b -
Chart 1: win, scratch, small loss, win, win (4 longs and then a short trade that met the rules)
Chart 2: small loss, win, small loss, win, win, win, small loss (all trades are long)
Chart 3: scratch, win, no trade (the sell stop order wasn’t hit), small loss, small loss, win, win, no trade (sell stop order not hit), loss
Chart 4: loss, scratch, win, win, small loss, win, small loss,

Net: 13 wins, 10 losses, 3 scratch trades

I really like this type of system because all of the losses are small and the wins are a mixture of small, medium and large gains. The number of wins was over 50% and the average win was bigger than the average loss.

One would need to backtest many more trades and be more quantitative about exact entries and exits to evaluate it properly, but this looks like a promising approach.

An example of 2 losing trades that were avoided using the new rules is shown below:

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I think it's awesome that you are contributing to this thread. That is ehat I wanted tfrom this and I am glad you are making additons to the system that may cause it to be more efficient.
 
dbphoenix said:
A higher low leads to a reversal. That's pretty much the point. It can, however, fail and lead to a lower low, but that depends largely on the context.

If you're interested in trading without indicators, you may want to look at this.
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A HL doesn't lead to a refersal. Price makes higher lows all the time in uptraends. What I was saying was that if price is going up and then starts going down, I do not know if it is going to become a higher low and therefore a good point to trade, or if it is going to keep going down such that it doesn't een make a higher low and there it would have not been a good point to order, which is why I have to use the moving averages.

I had a look through that thread when it was first posted and didn't really seem to see any rules that I would be able to apply to my trading.
 
What about using a hard stop and averaging down? Imagine you have a hard stop of 20 points and you add more every 5. So if price goes against you the full way, you'll have a $400 loss instead of $100. But, if price goes against you 5 and then goes in your direction 20 above original entry, you'd make $225 instead of $100. If price goes against you 10 and then goes in your direction 20 from median entry, you'd make $300 instead of $75.

So there are seven conditions:

- a beginning small loss would still be a small loss
- a beginning medium loss would be a bigger loss
- a beginning large loss would be a quite larger loss
- a beginning small win would still be a small win
- a beginning small win if price goes against you and then goes in your direction would be even bigger
- a beginning win for price go go against you a bit and then go in your direction would be a large win
- a beginning loss where price goes against you and then goes back up to a level that would have been a loss before becomes a small win

This only works if you don't lose to your entire loss often. But since the average changes at different points there's no guarantee that all losing trades will be full losing trades.

Your perfect situation is where price goes against you and then goes largely in your favor, tripling or more your win. So if price goes against you 10 and then in your direction 80, instead of making $750 you would make $2,250.
 
Schaefer said:
IronFist, welcome back! I've always enjoyed your posts, when you used to be around. And all these years, I thought you had found your edge, and made your millions...lol

The MAs have always been my favorite, and even now, I still keep one MA on my fast, and primary charts. I've traded multiple MA systems in the past, but now, I just trade price using the single MA as the guide line.

The major downfall of all MA based systems are the "chop", or "range bound" price action. I too, use the price swings to stay in sync with the long term MA. You're right, sometimes it's hard to see the swings in real time, except on the trendiest of the days. I use candlestick analysis to gauge supply/demand, momentum, and micro trend lines to identify the swing points.

The entries/exits are based on candlestick analysis around horizontal lines of interest, and supply/demand lines. You don't hear much about candlestick analysis these days anymore, but I'm old school, so....

Hope to read some more of your findings.

Schaefer
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Which single MA do you use and how do you use it as a guide, thanks.
 
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