I want to think out loud about my strategy and if anyone has any ideas about it please let me know. Also I want to clarify it to myself.
This strategy, more or less, intermittently, makes money, but that is not the point. Let's think about why it should make money, and if it's likely to make money in the future.
It trades futures. Forex, Indexes, Bund.
It monitors these markets all day long, recording highs and lows, and then starts trading at 9.30 EST.
Whatever high and low were recorded until 9.30 are considered support and resistance levels, and my system tries to catch bounces off support and resistance and near those levels (within a distance equivalent to 25% of the daily range).
That's not it though. We have 2 moving averages (6 minute and 15 minute price averages) that have to cross each other, to trigger a trade and signal at the same time that price has reverted its trend and there is a bounce (it doesn't guarantee anything of course). Also, a certain amount of time (40 minutes) has to pass after a new low/high is recorded before a trade can start off that support/resistance level.
These two features (moving averages and time to wait after a new high/low) are meant to avoid catching a high that is not a high, but that soon will be followed by a higher high. How do we know that price has stopped rising for good?
Well, to begin with, if we just reached the day's high, we should wait a little (40 minutes) to see if it keeps on rising. As soon as 40 minutes have passed from the latest high, we can say that the rising has stopped for the moment. The time of the day will also help a little bit, because usually the markets are running wild in the first hour of trading, and then bounce off. So if we allow it 40 minutes after a high, that will probably be it (a higher high would follow before the end of the 40 minutes).
The other good feature of the system - the moving averages - prevent a trade to start when price is going in the wrong direction. Say we reached a high over 40 minutes ago, but price is heading toward that same high, and may cause a higher high. As long as price is going in that direction, the 2 moving averages will not cross each other, and that will prevent trading even if the 40 minutes have passed.
Look at the picture below.
The green circle shows how the trade could be triggered - it's after 9.30 EST, 40 minutes have passed after the new HIGH, and there is a bearish crossover.
The red circle shows that the trade cannot be taken and gladly because it would have failed - it's after 9.30, 40 minutes have passed after the new HIGH, and there is NOT a bearish crossover, but price keeps going higher, and we will have to wait 40 more minutes after that new HIGH.
This strategy, more or less, intermittently, makes money, but that is not the point. Let's think about why it should make money, and if it's likely to make money in the future.
It trades futures. Forex, Indexes, Bund.
It monitors these markets all day long, recording highs and lows, and then starts trading at 9.30 EST.
Whatever high and low were recorded until 9.30 are considered support and resistance levels, and my system tries to catch bounces off support and resistance and near those levels (within a distance equivalent to 25% of the daily range).
That's not it though. We have 2 moving averages (6 minute and 15 minute price averages) that have to cross each other, to trigger a trade and signal at the same time that price has reverted its trend and there is a bounce (it doesn't guarantee anything of course). Also, a certain amount of time (40 minutes) has to pass after a new low/high is recorded before a trade can start off that support/resistance level.
These two features (moving averages and time to wait after a new high/low) are meant to avoid catching a high that is not a high, but that soon will be followed by a higher high. How do we know that price has stopped rising for good?
Well, to begin with, if we just reached the day's high, we should wait a little (40 minutes) to see if it keeps on rising. As soon as 40 minutes have passed from the latest high, we can say that the rising has stopped for the moment. The time of the day will also help a little bit, because usually the markets are running wild in the first hour of trading, and then bounce off. So if we allow it 40 minutes after a high, that will probably be it (a higher high would follow before the end of the 40 minutes).
The other good feature of the system - the moving averages - prevent a trade to start when price is going in the wrong direction. Say we reached a high over 40 minutes ago, but price is heading toward that same high, and may cause a higher high. As long as price is going in that direction, the 2 moving averages will not cross each other, and that will prevent trading even if the 40 minutes have passed.
Look at the picture below.
The green circle shows how the trade could be triggered - it's after 9.30 EST, 40 minutes have passed after the new HIGH, and there is a bearish crossover.
The red circle shows that the trade cannot be taken and gladly because it would have failed - it's after 9.30, 40 minutes have passed after the new HIGH, and there is NOT a bearish crossover, but price keeps going higher, and we will have to wait 40 more minutes after that new HIGH.
. 