Trading Strategy

S

shorty_mcshort

I have been working on this trading strategy for a while now. I will spell it all out here and see what kind of responses there are. It is a swing trading strategy but I don't see why it can't be used intraday also as a matter of fact i would be interested to see how it performs intraday if there is anyone out there that does system testing.

For Longs:
1. todays low > 50 ema
2. rsi < lower bollinger band
once 1 and 2 are satisfied buy once the previous days high is taken out.
(if it gaps above the high then don't take trade)

For Shorts:
1. todays high < 50 ema
2. rsi > upper bollinger band
once 1 and 2 are satisfied short once the previous days low is taken out.
(if it gaps below the low then don't take trade)

Stops/exits:
Initial stop is 1.5 * ATR (average true range) from entry
1st exit is 1 ATR from entry : once this is hit move stop to breakeven and trail at a 3 bar low/high.

I found that this works better with etf's etc.. than with regular stocks. SPY is one that I really like trading it on. I have actually been trading it since the spring but have tested it with SPY for the past several years.

Eric
 
Quote from shorty_mcshort:

2. rsi < lower bollinger band
...
I have actually been trading it since the spring but have tested it with SPY for the past several years.

Eric
More...

Eric,

I'm not clear what "rsi < lower bollinger band" means. BB's are applied to price and appear in the same price chart pane. I've always seen RSI appearing in a separate pane. How does one make a comparison between RSI which is scaled to fit between 0 and 100 and BB's which are in units of price?

Have you got any software backtested results?

Richard
 
Eric,

I'm not clear what "rsi < lower bollinger band" means. BB's are applied to price and appear in the same price chart pane. I've always seen RSI appearing in a separate pane. How does one make a comparison between RSI which is scaled to fit between 0 and 100 and BB's which are in units of price?

Have you got any software backtested results?

Richard

When I say rsi< lower bollinger band what it means is I plot bollinger bands around rsi instead of price. So it is actually the rsi bollinger band instead of price. Instead of saying it is oversold at a static level of 30, for example you use BB which is a relative level of oversold because it changes daily.

As far as software backtested results no i don't have any but I went back to 1980 in the S&P 500 index and manually checked, the results were pretty good. I know that the actual index isn't the same as trading spy or es but it gives me very similar signals if not the exact same ones.

The thing about this strategy is that it doesn't give very many signals per year that is why I would be interested to see if anyone would like to test this intraday.

Eric
 
Hey Shorty, I actually ran a backtest on this system inside eSignal on the daily $SPX. I'm not sure what values you use for the RSI length, Bollinger Band length, and how many std devs to use for the Bollinger Bands. So, I ended up using some pretty standard values of 8 for RSI length, 20 for Bollinger Band length and 2.0 for the number of std devs the Bollinger Bands are apart.

Using these values, I got 5 longs and 1 short back to the start of 2002. 66% were profitable. Is this roughly what you had been seeing? I had 2 quick losers right at the end of June of this year.. without those it would have been very profitable.

Incidentally, reducing the Bolling Band distance to 1.5 std devs doubled the number of trades and 58% were profitable. Can you confirm that I am doing this right? If I am, I can look into intra-day too... I just want to make sure we are getting the same results. Also I am worried about my ATR calculation.. is it really half of what it was 11 months ago?
 
Well, I decided to take what I had and run it on intra-day data. These signals actually pop up about once a day on 5 minute charts. Using a profit target of 20% ATR and a stop loss of 15% ATR, I had 99 trades over the past 80 trading days with 53% being profitable. Using different profit targets and stop loss values drastically affects performance (obviously).. this was the best performance I was able to get.
 
adonos,

sure thing. My exact settings are

rsi is 4 periods
bollinger bands are 21 ema with 1.75 STD
ATR is 40 periods

I did get a loser in June this year but it could be that my settings were a little different. But yes I have it about 75% winning % and letting the 2nd part run gives you a chance for a big homerun. So you have both a high winning % and a chance to let your profits really run.

I have been watching SPX on a 60 min chart recently and it seems that the intraday works too. I would love to see what it does intraday.

Eric

Quote from adonos:

Hey Shorty, I actually ran a backtest on this system inside eSignal on the daily $SPX. I'm not sure what values you use for the RSI length, Bollinger Band length, and how many std devs to use for the Bollinger Bands. So, I ended up using some pretty standard values of 8 for RSI length, 20 for Bollinger Band length and 2.0 for the number of std devs the Bollinger Bands are apart.

Using these values, I got 5 longs and 1 short back to the start of 2002. 66% were profitable. Is this roughly what you had been seeing? I had 2 quick losers right at the end of June of this year.. without those it would have been very profitable.

Incidentally, reducing the Bolling Band distance to 1.5 std devs doubled the number of trades and 58% were profitable. Can you confirm that I am doing this right? If I am, I can look into intra-day too... I just want to make sure we are getting the same results. Also I am worried about my ATR calculation.. is it really half of what it was 11 months ago?
More...
 
Eric, your settings work very well on the daily charts. I think I had 5 of 7 profitable trades using your settings. However, it is not working quite as well on intra-day data. I am unable to be decently profitable with any different settings or profit/stop levels. What are your ideas for the profit and stop targets? In addition to any other changes you would do to use this intra-day. Right now it will only make small profits on 5/15/60 minute charts.

If you have eSignal, I can send you the code I wrote up so you can work with it too.
 
adonos,

That is what I was afraid of on the intraday charts that it wouldn't be as good. This system needs a stable environment. So I think intraday may have too much "noise". I really like the ATR as profits and exits because it automatically adjusts to the market that you are trading. Basically as the market becomes more wild then your stops and exits are adjusted and as it becomes very calm so are the exits. It is a self adjusting system. What about taking the 1st profit when RSI crosses the 15 ema, or 20 ema?

Are you getting signals that are pretty extended? If you add a filter for only taking trades that are within 2 ATR multiples, for example, of the 50 ema maybe that would cut down on the trades that are too extended.

Eric

Sorry I don't have esignal

Quote from adonos:

Eric, your settings work very well on the daily charts. I think I had 5 of 7 profitable trades using your settings. However, it is not working quite as well on intra-day data. I am unable to be decently profitable with any different settings or profit/stop levels. What are your ideas for the profit and stop targets? In addition to any other changes you would do to use this intra-day. Right now it will only make small profits on 5/15/60 minute charts.

If you have eSignal, I can send you the code I wrote up so you can work with it too.
More...
 
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