The skinny on tape reading and trading
- Thread starter Big Game Hunter
- Start date
You point out two principles.
Any ATS that is in all the time on right side of market Will have subroutines that deal with this.
Generically these scripts are referred to anti- whiplash.
The concept behind getting these additional profits is equivalent to buying the volatility.
The OP is using an inductive approach and therefore looks, as you see, what is happening that he thinks defines trending price movement. Should (IF) he switch to the null hypothesis instead, THEN he gets to add the volatility (bar heighth) to each trade.
The second principle is recognizing that "trending" has two characterisitcs and that non trending also has two characterisitcs. So the OP is only considering 1 of 4 time based possibilities for trading.
As you point out, he nets down by the losses incurred in the conditions of three out of four possibilities.
The analysis of his stated method came out two ways in one person's backtesting which was done once poorly and once otherwise.
In trend trading based on adjacency (and working from the null point of view), there are seven initial cases and only 2 are resolved with 2 bars. With respect to the null hypothesis cases of non trending there are 13 cases and, further, the outcomes may be used to deal with getting the profit represented by the individual bar volatility and injecting an anti-whipsaw profitability.
The OP observes that market to market, the inductive approach varies. This is a first order clue of how rash it is to work inductively.
Your first circled illustration focuses on the OB; the second deals with "chop" where traders whipsaw themselves for some of their reasons.
I guess what I'm asking is how do these scripts deal with this because right now I don't see how this model could be profitable outside of very trendy markets. Even looking at the chart the OP provided us with, there are still instances of this happening all the time.
What are said characterstics?
thanks
Not very if you're using a single FX broker. One of BGH's key points is to spread this over several brokers and probably over several currencies as well.
If you're using a single broker things get a lot harder. No one's noticed it, but TradeStation allows for fractional pip pricing. The profitability changes quite a bit if you test this system with a full pip above/below instead of the 1/10th pip in the test I provided.
Also, my backtest doesn't account for slippage either.
Agreed this is some of the best automated scalping strategy I have ever seen.
What am I missing here?
Look at this chart?
Yellow diagonal lines = long positions
Magenta diagonal lines = short positions
Look how many downward yellow lines there are and upward magenta lines there are!
Was the backtesting period a giant uptrend?
Unless I'm misinterpreting the OP's rules, there's no way this works.
Look at this chart?
Yellow diagonal lines = long positions
Magenta diagonal lines = short positions
Look how many downward yellow lines there are and upward magenta lines there are!
Was the backtesting period a giant uptrend?
Unless I'm misinterpreting the OP's rules, there's no way this works.
The dates of the backtest are included in the attachment I posted. It was a one year test of one minute data with trades active from 6am to 6pm ET.
What you're missing is that this is a trend-following scalper. Many small losses and a few big winners.
Just so no one thinks this is the Holy Grail, here's the key statistics when using a full pip: Profit Factor, 1.12, $80.9K net, $199K commisions and, if you can handle it, a $30K drawdown, more power to ya...