The Stochastic Indicator

Status
Not open for further replies.
See notes to right on chart.

after trade 2 there was mostly congestion. when you have made several multiples of intial capital you can trade the congestion off the MACD. i will detail it out on expanded charts.

I am a CERT start up this weekend so I will catch as catch can here.
 

Attachments

Quote from dawg:

1. 10:45 s(88.00, 85.39) macd hist +0.567

i entered during this bar @ 865.00 when the mkt broke the HOD. 11:30 had a 5m macd xo, but was still within my channel, but at 11:45 another xo and breaks channel. exit 867.25

*****You did set up points 1,2,3, got synch by time of pt2. MACD was above 0.4 from just fter 10:15. From here all you need is Stoc slow line to hit 75 or 80. You have a four bar stall (set of same size bars and they are lined up laterally.) I recommend that you consider that price range as the entry. From 10:36 on the 1min you do have every indication that volume is driving price up and DU is stabilizing price. This is the clue; no flaws. By 10:45 you had many minutes to pick off 863. The volume for the situation (Friday during war) is at a low general range. I know that this is a good reasonable thing to use to stay out since it was low.

I don't know how to convey this to you easily but you are doing a killer job under these circumstances. You cannot imagine what will happen when we have a "resonable" market. You are definitely going to excell.

Your sell is excellent.



long @ 865.00 (863+ was possible)
sell @ 867.25 (excellent)

day: +2.25 9 days: +21.00

2. 12:05 s(0.00, 7.84) macd hist -0.57 low 864.75

short on break @ 864.50. 1:20 channel break and mcd xo. exit 864.00.

Good channel. good entry. very very good hold in a slow trend. This is very good. Good exit.

short @ 864.50
cover @ 864.00 +.50

day: +2.75 9 days: +21.50

3. 2:25 s(9.09, 22.29) macd hist -.39 low 860.50

short on break @ 860.25. 2:30 and 2:40 reversal bars and 2:50 macd xo. exit at 863.00 during 2:50 bar.

******Okay here is the cure. You needed to do a prorata on the 2:35 bar re: volume. The rocket was dead. You saw a Failure to BO down here. See how the volume had to be sustained. BO vol started at 2:20, 2:25. 2:30... then capute. You have five min lead with vol over price move. There were three candles in a row asying zreo price volatility. No big deal but we can nail this stuff as days pass.

short @ 860.25
cover @ 863.00 -2.75

day: +0.50 9 days: +19.25

in general:
could there be less volume? and these moves totally suck. while i haven't made anything, i haven't lost much either...big whup. the war has killed this market.

try and find the channel and trade off the bands b/c no follow thru at all.

******You have everything right here. And it is a big deal and makes it difficult. I have not commented on these trades before because I wanted you to build a foundation. You certainly have.

I am so impressed!!!! From here on in I will be commenting as day goes by into the group thread. I will raise points. Today I said "It's Friday" This was a "summer" friday to boot. A summer Friday is when the smart money goes to the Hamptons and Greenwich early. There was a barbershop in Greenwich across from the pickwick at the top of the hill. All the barbers were millionaires. What a neat place.

anyways have a good weekend.
More...
 
your comments accurately convey what i was 'feeling' during the trades, but somewhat hesitant to act upon....now i have a set of pictures i can think of when faced with a similar situation. while today was not a profitible $ wise, it was definitlely an addition to my knowledge that can be drawn upon in the future. i feel like these are all steps in the right direction.

thanks for all your help. enjoy the weekend.

dawg
 
Here are the backtesting results for Jack's methodology.

Size traded: 1 contract
Commissions: $5/round trip (IB's rounded up)
Time frame: 5 min
Time of day: 9:30-12:00 EST except for Mon 9:30-16:00 (the hours that I trade).

Entry: the signals used for variations of the method are indicated in the first column, and the entry price was set to the midpoint of the entry bar (average of open and close) to approximate live entry as soon as the line crosses rather than on bar close. I've included several results for entry on bar close for comparison.

Exit: on close of signal bar, or at indicated stop.

Settings: Stochastic 14,1,3, MACD 5,13,6
Software used: WealthLab


First I tested entry on fast line in and MACDhist +-0.4 /exit on fast line out with different point stops (and also a stop on low of bar), on the most recent expired contract (ES03H). All entries after 9:30. Entry after 9:45 - synch period - included as it has better results then entry after 9:30. Two different triggers were tested 20/80 and 25/75.

Contract Stop Stoch P&L Win/Loss(max consec) Max Ddown
ES03H
in:fast line 1 pt 20/80 $8,950 135/138 (8/10) -$444
and MACDhist 25/75 $8,953 123/159 (6/10) -$700
out:fast line
1.5 pt 20/80 $9,595 145/113 (8/9) -$497
25/75 $9,629 130/129 (7/9) -$588

2 pt 20/80 $9,177 146/110 (8/8) -$598
25/75 $9,358 131/121 (7/8) -$592

[in:after 9:45] 2 pt 20/80 $9,087 135/85 (8/8) -$452
25/75 $9,456 121/94 (8/8) -$786

3 pt 20/80 $9,859 145/100 (8/8) -$520
25/75 $9,995 130/110 (8/8) -$560

bar low 20/80 $8,741 134/134 (5/8) -$481 (-$130 largest loser)
25/75 $9,351 122/139 (6/8) -$481 (-$130 largest loser)

From these results it appears that the best results (highest return, highest win/loss ratio, lowest drawdown) were obtained with a 3 pt stop, and a 25/75 trigger. A 3 pt stop 20/80 trigger, however, offers a better win/loss ratio and a smaller drawdown, although total return is slightly less. Results for 2 pt stop were the next best thing, and when tested over 5 contracts the 2 pt stop was better than the 3 pt (results not shown).

Next, I tested entry on both lines in, or on fast line in/no MACD hist.


Contract Stop Stoch P&L Win/Loss(max consec) Max Ddown

in:both lines 2 pt 20/80 $4,856 111/112 (10/9) -$824
out:fast line 25/75 $4,765 116/133 (7/11) -$1,360

in:fast line 1 pt 20/80 $9,946 177/175 (7/10) -$490
exit fast line 2 pt 20/80 $9,807 174/173 (7/10) -$490

Waiting for both lines to get in misses out on signals with almost half the return of entry on fast line, without much improvement in win/loss ratio. Drawdown is significantly higher too.

Next, I tested entry on close of signal bar (tested volume greater than 5,000 as entry condition to see if it makes a difference).

Contract Stop Stoch P&L Win/Loss(max consec) Max Ddown

in:fast line
and MACDhist 2 pt 20/80 $1,041 93/168 (5/10) -$2,224
on close 25/75 +$1,857 92/163 (5/10) -$2,421
out:fast line

in:fast line 2 pt 80/20 +$480 62/93 (7/7) -$1,722
and MACDhist 75/25 +$567 55/99 (4/7) -$2,265
and vol>5000
on close
out:fast line

Return is down dramatically because of the late entry. Entry only on vol>5,000 misses out on signals with lower return.

Next I tested entries a la dawg, on the break of the signal bar.

Contract Stop Stoch P&L Win/Loss(max consec) Max Ddown

in:fast line 2 pt 20/80 -$437 61/109 (4/8) -$1,667
and MACDhist 25/75 -$172 63/113 (3/8) -$2,538
on hi/lo break 3 pt 20/80 +$262 62/99 (7/7) -$1,601
out:fast line

in:fast 80/20 3 pt 80/20 +$967 45/69 (7/9) -$1,843
and slow 75/25
and MACDhist
on hi/lo break
out:fast 75/25

Returns are very low most likely due to even later entry (above close of bar).

Next, I tested a variation of the exit signal - on MACD cross instead of fast line out.

Contract Stop Stoch P&L Win/Loss(max consec) Max Ddown

in:fast line 2 pt 80/20 +$7,190 114/114 (6/6) -$690
and MACDhist 75/25 +$7,760 122/127 (7/6) -$640
out:MACD cross

in:both lines 2 pt 80/20 +$3,762 83/90 (5/6) -$996
and MACDhist 75/25 +$3,731 97/118 (5/9) -$1,266
out:MACD cross

Returns and win/loss are slightly worse than exit based on fast line out, so will stick to the fast line signal.

Since the best returns, highest win/loss ratio and lowest drawdown were obtained with:
- entry after 9:45 on fast line in and MACDhist >< +-0.4, as soon as line crosses
- exit on fast line out, on close of bar
- 2 pt stop
this combination was tested 5 contracts back (for some reason, software failed to retrieve earlier contracts data from Quote.com servers - will try it at a different time).

Contract Stop Stoch P&L Win/Loss(max consec) Max Ddown


ES03M to date 2 pt 20/80 $1,136 23/21 (6/3) -$397
25/75 $1,290 23/24 (4/4) -$412

ES02Z 2 pt 20/80 $10,283 146/106 (6/5) -$545
25/75 $10,250 123/122 (6/5) -$575

ES02U 2 pt 20/80 $15,612 148/97 (11/4) -$650
25/75 $17,251 147/104 (8/4) -$725

ES02M 2 pt 20/80 $9,175 128/112 (5/6) -$461
25/75 $9,047 116/122 (6/6) -$478


ES02H 2 pt 20/80 $5,038 96/80 (11/4) -$466
25/75 $6,015 90/92 (7/6) -$730

ES01Z 2 pt 20/80 $3,805 89/105 (7/5) -$648
25/75 $2,663 87/124 (5/7) -$701

As you can see results ar consistent with a peak return on Sept 2002 contract, and lower returns on older contracts.
Roughly, 250 trades are taken for a given contract, which comes to 3 trades/morning and 7 trades/full trading day.

The results indicate that the method is profitable historically, which gives one confidence in the method when trading it.
If you remember that these results are for mornings only (and one full day) than they are even more impressive!

Contract Stop Stoch P&L Win/Loss(max consec) Max Ddown

ES03H 9:30-4:00 2 pt 80/20 $16,783 272/203 (10/8) -$800
75/25 $18,266 240/221 (6/7) -$800


Of course, live results will differ from backtested due to differences in entry prices, false signals that do not show up on the historical charts, rationalization of signals etc.
Better exits may be obtained in live trading since in backtesting the exit was on bar close.
Also, using sequences, 1 min chart prorating, volume, channels, wash trades and all the other refinements that Jack is kindly teaching us may greatly improve returns and win/loss ratio.

Hope this is helpful. If anyone is interested, I'll post the WealthLab script that I used.
 
Vorzo,
You did a great job ! If i am not mistaken , Jack also mentioned divergence in a past as an confirmation tool. If you have a time,try to test entries only after Stoch. and price divergence. It will cut down number of trades, but it should improve profitability.
Thanks,
Walter
 
Quote from vorzo:


Entry: the signals used for variations of the method are indicated in the first column, and the entry price was set to the midpoint of the entry bar (average of open and close) to approximate live entry as soon as the line crosses rather than on bar close. I've included several results for entry on bar close for comparison.
More...

Thanks very much for the testing.

I'm not sure what you mean by the above...entry price set to midpoint of entry bar. Don't you have to wait until the signal bar has closed to know if you've got a valid entry? How can you anticipate this in real time? It would seem to me you'd have to enter on the open of the bar following the signal bar (crossing of fast line over 75 or 80). Am I missing something?

ges
 
what does the software do with the following:

during the bar the fast stoch goes above 80, but closes below 80....would it exit you at the close or once in the trade your 2pt stop kicks in? thanks in advance.

dawg
 
Quote from ges:



Thanks very much for the testing.

I'm not sure what you mean by the above...entry price set to midpoint of entry bar. Don't you have to wait until the signal bar has closed to know if you've got a valid entry? How can you anticipate this in real time? It would seem to me you'd have to enter on the open of the bar following the signal bar (crossing of fast line over 75 or 80). Am I missing something?

ges
More...

ges,

As Jack mentioned several times, the entry should be as soon as the fast line crosses into signal area (be it 75 or 80). Yes you get more false signals (fast line crosses during the bar and snaps out of the area before close of the bar) but that's where sequences, volume, etc. come into play.

vorzo
 
Status
Not open for further replies.
Back
Top