Opening Range Breakout, for Futures and Equities

After reading Fisher's book I decided to print some charts and sketched opening ranges and pivots, as suggested by Fisher.

After making some back-testing I found that the method is not suitable for most stocks, but I found a small group that seems to bounce magically against the points.

The first time I entered a trade using the method was with a stock that was falling like a rock, but approaching the first line of the Pivot Range which was only a few cents away from the second line. When the stock reached the first line a fight begun, huge prints were taking place and suddenly seemed that the buyers regained control, I bought 300 shares placing a mental stop one cent below the second line and suddenly the stock started moving higher. The stock moved 50 cents, and stopped against the lower line of the opening range, so I sold my shares. The stock remained chopping below the opening range and it started to go down again. It went down until it reached the first line of the pivot range and an ugly battle happened at that level, with the bulls regaining control, I bought another 300 shares and the stock moved higher again but with less intensity. It went down for a third time breaking the pivot range, I tried to short it but I didn't get fill so I let it go.

After witnessing this I decided that hardly the stock rebounded against these levels by chance, I made more research, found the ideal stocks (only 3), added features, filters, my churning is getting better but most importantly my P&L looks nicer.
 
Let's now discuss developing our Trend following system. We need to develop the trend detection component. The first one I will discuss is the triple moving average crossover. The triple moving average crossover works different than the dual moving average crossover. The dual moving average crossover has many problems. One example is if I use a short term moving average which is 1/2 the dominant cycle and a long term equal to the dominant cycle , the system is 180% out of phase with the market and I will be buying tops and selling bottoms, except in cases on major trends.

When we use three or more moving averages we don't have this problem. I have optimized a triple moving average system on this basket. The results are attached. I deducted $75.00 slippage and commission.

Please view attached report and system code for the optimization run. In the next installment we will discuss finding good values for the optimization.
 

Attachments

Murray,

Could you please draw your conclusions of this backtesting? Also, did this method work better on certain markets? Which? What time frame? It seems that the %wins was in the mid 30s with w/l in the 2s. It's probably ok for a trend following system but it doesn't seem something to write back home about ... or it is?
Quote from Murray Ruggiero:

Let's now discuss developing our Trend following system. We need to develop the trend detection component. The first one I will discuss is the triple moving average crossover. The triple moving average crossover works different than the dual moving average crossover. The dual moving average crossover has many problems. One example is if I use a short term moving average which is 1/2 the dominant cycle and a long term equal to the dominant cycle , the system is 180% out of phase with the market and I will be buying tops and selling bottoms, except in cases on major trends.

When we use three or more moving averages we don't have this problem. I have optimized a triple moving average system on this basket. The results are attached. I deducted $75.00 slippage and commission.

Please view attached report and system code for the optimization run. In the next installment we will discuss finding good values for the optimization.
More...
 
In tomorrow installment we will discuss how to pick the best set of parameters from the optimization runs. Next we will analyze these results. This simple 3 MA crossover is not the system, it is a piece of it. We will be adding a few more layers on top of this over the next few days. My goal here was to walk though the process both good and bad.

I am actually developing this system on the fly as part of this case study. If this system does not work we will be changing direction. I though it was a good case study to do this for Elite Trader members. This way they could see how a system developer works though his development.
 
Thanks. It's useful.
Quote from Murray Ruggiero:

In tomorrow installment we will discuss how to pick the best set of parameters from the optimization runs. Next we will analyze these results. This simple 3 MA crossover is not the system, it is a piece of it. We will be adding a few more layers on top of this over the next few days. My goal here was to walk though the process both good and bad.

I am actually developing this system on the fly as part of this case study. If this system does not work we will be changing direction. I though it was a good case study to do this for Elite Trader members. This way they could see how a system developer works though his development.
More...
 
The whole topic of picking the best set of parameters from a optimization is a bit of an art. You almost never want to pick the best performing set of parameters. You want to pick a set of parameters which does well, and has similar sets of parameters with similar performance. Curve fitting is a big problem in optimization, but when we are picking the best set of parameters across a basket of markets that helps reduce this problem.

Here is how I am going to do this. Please download the optimization report in Excel. I would like you to post your analysis on what sets of parameters you would pick. Yes, this is pretty robust so there is more than one good answer. What I want to see are your reasons why you picked them. My goal is to force you to follow though the analysis and explain your answers. I will give you feedback as part of the learning process.

Tomorrow night or Tuesday morning I will post my critics and my analysis. I will then discuss the next step in this system development process.
 
I lack excel skills so I could not manipulate the data and make surface charts to see which parameters had lots of profitable points around them.

But I did eyball the charts

I noticed that the systems that had the 5, and 45 or 50 sma in had the high profit areas.

5 10 50
5 20 50

I think on the longer averages the 45s also looked strong.


I find this intersting because back when I made a ton of money day trading stocks I had these averages on my charts and I made trades when the averages were in proper alignment. I also looked for bounces off these averages.

So perhaps I approached the excel data with a bias.

I also noticed that the parameters that had the highest win rate were not profitable. That was very interesting.

I look forward to your answers.
 
I will keep checking this thread in case someone get lost and makes a post here for the tutorial. I am extending the time to tomorrow afternoon or evening for my analysis of the optimization since I moved the original tutorial to a new thread.
 
I just wanted to tell people who were following my opening range breakout thread and have not seen any activity that I have been busy finishing TradersStudio 2.0. We plan on shipping the product next week. After we start shipping, I plan on continuing to write more entries on opening range breakout as well as my system development course.
 
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