Spreadbetting Journal Trend Strategy

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Old Oct 25, 2010, 2:47pm   #1
 
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Spreadbetting Journal Trend Strategy

This journal will cover my active trading within my spreadbetting account. The timeframe used is mainly daily charts and weekly charts, with 4 hour charts for entries. Products traded will be Currencies, S&P 500, Gold and Stocks.

The aim of this strategy is to only play trades with a high probability of success. The indicator rules were chosen to help filter out the volatile sideways periods and to identify a developing trend, which I can hopefully then ride up until being stopped out using a Chandelier Exit stop loss.

I backtested this strategy using just the first four main criteria on FTSE stocks, Commodities, Indexes and a range of Currencies. The top performers were those that had fairly consistent volatility during uptrends and tended to trend the most. This tended to be the major indexes, currencies and gold. So I will focus on trading mainly the S&P 500, Gold and a few currency pairs that I have the risk tolerance in my account for with this strategy.

Daily Buy Signal On Criteria

Long Entry

All of the following MUST be fulfilled to consider a long entry:

1. Close above the Chandelier Exit (settings: High Period: 22; ATR Period: 22; Time Period: 3)
2. Rising 22 Day EMA
3. Close above Ichimoku Kinko Hyo Senkou Span A Calculation
4. Close above Ichimoku Kinko Hyo Senkou Span B Calculation

Once these criteria have been fulfilled I need to confirm the buy signal using my other favourite indicators.

Daily Indicators
1. Force Index 10 day cumulative summation line must be above its 22 day moving average line.
2. RSI The 14 day line must be above its 9 day moving average line.
3. rRelative EMA crossover The 22 Day EMA must be above the 52 Day EMA.

Weekly Indicators
1. rRelative 50 must be in an uptrend. i.e a weekly rRelative EMA must have had a crossover to the upside.
2. Force Index 13 week force index must be above its 9 week simple moving average.
3. RSI must be above its 9 week simple moving average.

Short Entry

This system is mainly suited to uptrends due to their lower volatility as I mentioned before. But if I want to short, the reverse of these settings MUST be in place to consider a short entry. However, from testing it is clear that shorting using this system only works well when trading currencies. But it is not as successful as trading long only, and gives many more false signals.

These are the rules for the system that I aim to follow. I will use other discretionary analysis such as economic data, news events and general market trends as well to help filter out the false signals.

Next Step

If confirmed Look for entry point
1. Drop down to the 4 hour chart to look for an entry point.
2. Aim to buy in the daily value zone between the 11 Day EMA and the 22 Day EMA.
3. Dont buy until the 22 Bar EMA crosses above the 50 Bar EMA on the 4 hour chart after a pullback to value.

Stop Loss
1. Initial placement Safezone Stop setting of 2x average downside penetration. If however, this is above entry point, then check the Average True Range (ATR) and place the stoploss a reasonable distance below based its daily range and my acceptable risk per trade. If the risk is greater than 2% of my account value then the trade is not possible. Ideally for currencies the risk should only be 0.5% of my account.
2. Chandelier Exit once it rises above the initial stop loss update daily to lock in profit.

Elders Money Management Rules

Risk per trade 2% rule
Trade sizes: Small (0.5% risk), Medium (1% risk), Large (2% risk).
1. Is the trades risk 2% or less?
2. 6% Rule Stop trading for the rest of the month after hitting a 6% limit of drawdown plus open risk.

Exit Rules
1. Chandelier Exit automatic stop loss (settings: High Period: 22; ATR Period: 22; Time Period: 3)
2. Safezone Stop (setting of 2.5x average downside penetration) if the price accelerates away from the Chandelier stop loss and indicators are diverging, then use discretionary safezone stop. Close position manually if it closes below the safezone stop.

It is a fairly simple system at its core basically identify an uptrend, buy at value and follow the uptrend until stopped out. However, it will require a number of discretionary decisions once the buy signal is activated to decide whether the signal is valid or not to help filter out the false signals.

My starting account size is 4024.61, so initial maximum stoploss position for 2% risk is 80.49 per trade.

I will aim to trade well below this to begin with, so as to give me time to test the system in real life with only minimal risk to my overall account. As I know spreads can be widened by unscrupulous brokers to stop you out of a trade. Im hoping my spreadbetting firm wont do this, but Id like to be prepared incase they do.

Ok, lets see how I go. I will update the journal once I have my first potential trade in the coming days.

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Attached Thumbnails
system_example_22-10-10.png  
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Old Oct 25, 2010, 3:24pm   #2
 
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Re: Spreadbetting Journal Trend Strategy

isatrader started this thread The trend strategy isnt the only strategy I will be using to trade in my spreadbetting account, as I like to trade stocks and commodities as well using more discretionary methods. So I will be showing my trades for these as well. For example, Im currently considering opening a position on the VIX to add some protection to my long term ISA portfolio, but I have a bit more research to do yet before placing it.

I aim to update the journal regularly when I take new trades and will show my trading spreadsheet and profit and loss chart every month, so I have a record of my progress.

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Old Oct 25, 2010, 5:24pm   #3
 
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VOLATILITY S&P 500 entry

isatrader started this thread Ok, after looking through the VIX charts it looks like its near a good support long term support around $17.50 which has held for the last few years. Long term price has gone as low as $10.42 in Jan 07, but that was after a few years of the market rallying.

Current price is at $19.41 as I write, so this looks like a good point to get in with limited downside risk, as Im nervous about the FED disappointing the market next week with QE2. The last major spike up in the VIX was late April and it reached around $45. So some good potential upside if the market gets spooked.

Spreadbetting prices are a bit different than the official prices so Ive bought the Nov spread which has a 0.5 spread.

Trade
Volatility Index Nov 10
Stake: 10
Entry price: 21.1

Ive attached the $VIX chart from stockcharts.com below for reference.

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Attached Thumbnails
vix_25-10-10.png  
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Old Oct 26, 2010, 9:33pm   #4
 
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Re: Spreadbetting Journal Trend Strategy

isatrader started this thread Am still waiting for a good entry signal. The buy signal is still on to go long on the S&P 500, but it has been active for a while, so Im not willing to get in at the moment as I dont want to chase it.

I have been watching the sell signal on GBP/EUR, which turned off after it went through its chandelier stop at 1.1444, so that would have been a really good signal as the entry point was 1.1946 so a 502 point move there. Hopefully now Im live trading, there will be some more of those in the future to try and get into.

So, as theres no good signals on the currency pairs Im watching; Ive been working on refining the trend strategy a bit today, as I noticed a lot of the buy signals that stopped out for a loss, tended to rise for a few days first before turning down. So Ive been experimenting with setting a profit stop as well as a loss stop at different settings to see what generated the best results.

For example the best settings for me on the GBP/USD using data since 01/01/2000 came out as:

Loss stop: 175pts
Profit stop: 350pt

Total: +4157pts
89 trades in total 40 winners and 49 losers.
= 44.94%

It doesnt look particularly great, but is an average gain of +46pts per trade on the GBP/USD with these settings, which seems respectable to me. So Im going to try using these settings when I get a new signal that looks promising on GBP/USD.

My software is fairly basic for testing. I use ProTA Gold and it doesnt give much option on entries and exits. Only the close or open of the day, so if anyone out there is really good at programming and tests out the strategy then Id be interested to see the results.
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Old Oct 27, 2010, 1:39pm   #5
 
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Randgold Resources Order

isatrader started this thread Limit order placed on the Dec 10 spread of Randgold Resources

Date: 27/10/10
Qty: 0.50
Price: 5812

Stop: 5650
Limit: 6500

Account Risk: 2.01%
Potential Gain: 8.55%
Risk Ratio: 4.25

Order reason
The gold market is at a seasonal low point as shown by the excellent attached charts from zealllc.com. Randgold has had a number of good rallies when it has approached the 200 day moving average over the last few years. So looks a good entry point. Technicals have all pulled back and dont look particularly promising, but this order is a seasonal buy, so I am more concerned with the 200 day moving average.
Randgold is a bit big for my little account, so Ive used my maximum risk on a trade and placed the order a few percent below the current price to give me some room. Lets see if it gets filled.

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Attached Thumbnails
hui-seasonal-chart.gif   gold-9-year-seasonal.gif   rrs_chart_27-10-10.png  

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Old Oct 27, 2010, 4:50pm   #6
 
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Randgold Resources Long Entry

isatrader started this thread The gold price seemed to be moving a bit fast to the downside this afternoon so I moved my limit order down a few times, especially after the crude inventories data hit as the gold price took a big down leg at that point. I decided to manage my entry manually using the 2 min and 30 min chart for my entry point.

Trade Details
Randgold Resources Dec 10 Spread
Entry Price: 5779.11
Qty: 0.5
Spread: 24pts

Stop: 5618
Limit: 6500

Account Risk: 2%
Potential Profit: 8.96%
Risk Ratio: 4.47

Entry Grade: 90%

Below is the end of day chart for RRS.
Attached Thumbnails
randgold_chart-27-10-10.png  
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Old Oct 27, 2010, 7:41pm   #7
 
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S&P 500 Long Entry

isatrader started this thread Ive opened a very small position on the S&P 500 Dec 10 Spread with the intention of scaling in on future pullbacks to bring my position up to 1% risk.

Entry Price: 1171.9
Qty: 0.5
Spread: 0.6pts

Stop: 1147
Limit: 1220

Account Risk: 0.31%
Potential Account Profit: 0.6%
Risk Ratio: 1.93

Ive attached the S&P 500 historical charts I created as well as the 4 hour chart so you can see why I think its a good time to get in.

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Attached Thumbnails
sp500_entry_27-10-10.png   sp500-bearhistorical_22-10-10.png   sp500-historical_27-10-10.png  

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