Ideas for 2 simple intraday strategies, feedback & ideas appreciated

Hi

I WANT to design two separate intraday mechanical strategies and implement them using Tradestation 8.1 with the AIM of profiting from the two main market types – trending and ranging-sideways markets.

I do not intend to hold positions overnight.

I plan to run these 2 distinct strategies simultaneously on the same instrument, on seperate charts,spreading the risk between 2 strategies, accepting that they will both lose money at times, but will make a profit overall – HOPEFULLY.

To avoid curve-fitting, stable indicator-strategy parameters are also important.

I want both strategies to be as simple & successful as possible, with as little drawdown and few negative trades as possible. So -

1. A strategy designed to profit from a ranging market, which tries to restrict trade entries during a trending market.

2. A strategy designed to profit from a trending market which tries to restrict trade entries during ranging/sideways markets.

So far, for the strategy designed to profit from ranging markets, I am considering basing trade entries around a cross above an RSI 14 value of 30 and a cross below an RSI14 value of 70. In essence, the RSI Long Entry (LE) & Short Entry (SE) strategies. I accept that this strategy/s will lose money during trending markets, as prices continue to fall. Therefore I wish to try and identify trending periods, and keep this strategy on the sidelines during trending periods. I am considering combining this entry strategy with the ADX or ADXR indicator. The ADX measures the strength of a prevailing trend as well as whether movement exists in the market. A low ADX value (generally less than 20) can indicate a non-trending market with low volatility whereas a cross above 20 may indicate the start of a trend (either up or down). If the ADX is over 40 and begins to fall, it can indicate the slowdown of a current trend. This indicator can also be used to identify non-trending markets, or a deterioration of an ongoing trend. Therefore if I limited RSI entries to times when ADX14 was 25 or below for example, my chances of achieving a higher % of profitable trades MIGHT be increased.

So far, for the strategy designed to profit from trending markets, I am considering basing trade entries around the MovAvgCross LE and SE strategies. I accept that this strategy will lose money during sideways - ranging market periods, so wish to try and identify sideways periods, and restrict trade entries during sideways-ranging market periods.
I could combine the ADX/ADXR indicators again with the MovAvgCross.
I could also add conditions so that the strategy will not enter another trade following a negative trade/s, until a price breakout has occurred. Therefore I could combine the MovAvgCross LE & SE with a strategy like “Price Channel” LE & SE, which waits for a breakout from the HI-LO of x number of bars.

I have not yet fully considered the combination of exit strategies that I want to use in both strategies. But for both strategies, possibilities include a stop loss Long Exit (LX) & Short Exit (SX), percent trailing LX & SX, profit target LX & SX, Profitable closes LX & SX, breakeven stop LX & SX.

For the MovAvgCross strategy, specific exit criteria could be the MovAvgCross LX & SX, that will exit a trade once the price, or x number of closes have crossed back above or below the MA. line.


This is just a basic outline of what I am trying to accomplish, the direction in which I am considering going, and the approach that I HOPE to see work.

1. A strategy designed to profit from a ranging market, which tries to restrict trade entries during a trending market.

2. A strategy designed to profit from a trending market which tries to restrict trade entries during ranging/sideways markets.

I am after any input, ideas, comments and criticisms with the aim of making these 2 strategies as robust as possible, including any ideas as to what combination of indicators and entry and exit strategies may work well within such proposed strategies.
Do you have any comments, criticisms, ideas, etc. that will enable improvement upon what I have outlined


ALL feedback welcome, many thanks

jtrader.

Hi Jtrader

Why bother with indicators in the first place you will really be one step ahead of the game if you just concentrate on price action that is if you are daytrading as you propose to.
You dont live far from me (30 min) maybe one day I will come and watch you trade and you can come and watch me. I daytrade the YM with IB purely on price action.
kind regards

JTrader

I do not know what TS8 is, however, I think your basic premis is very sound indeed. It encapsulates what I do every day. However I prefer CCI as it's slightly faster than RSI, and I also use ADX.

However, if there was a way you could measure the GRADIENT of the 34/100 EMA to determine a trending or ranging market then in my opinion this would be more reliable than ADX. For example if you plot the 34 and 100 EMA on yesterdays Dow chart on either a 3 or 5 minute chart you will see that the gradient was only slight all day, thus overbought/oversold indicators like RSI, CCI, Stochastics etc will work very well. This enabled me to make 3 solid profitable trades. However, my ADX indicator was over 25 and using your suggested parameters would have prevented these trades.

On 3 Feb 2006 at approx 3.10pm the 34EMA on a 3 min chart of Dow is quite steep which stopped me going long when RSI or CCI moved out of oversold condition (although this is not a good example as this would still have been a profitable trade after a little bit of heat for 30 minutes or so).

Conversely, If the gradient of the 34EMA is in the right direction, this MAY give a higher probabilty of a trade in the same direction will work.

Please note that both of our methods would have given a losing trade at approx 19.38pm on 1st Feb, as the 34EMA was flat, ADX only 22, yet short signal given by RSI was followed by a rally all the way to the close of the market!!

Overall I think the fundamental ideas are sound, although more thought needed to cater for the above anomally.

Good luck, and I'd be interested to discover if you manage to devise such a system, and the results derived therefrom!

Blue.

Thanks bluetipex for the ideas

TS8.1 = tradestation 8.1.

I've not really looked into CCI or stochastics yet, as I've always liked RSI. It's good to hear that you do a similar thing that works. Do you trade two distinct strategies? or is it all combined into one? Are you a discretionary trader?

Hi JEDI

If I were to develop two strategies as above without indicators based on price action only, I presume that I would base all entries purely upon some form of breakout, whether from ranges/channels, individual bars (bearish engulfing, bullish engulfing etc.) and a combination of exit criteria like a profit target, stop loss, trailing stop loss, x number of profitable closes etc?

A price action & range breakout based strategy would seem to capitalise from a trend formation or continuation. But how could I go about capitalising from the oscillations within a trading range if basing all trade entry decisions on price action only?

This price action only idea sounds good in the sense that it is simple and all the rules could be contained within one strategy, as opposed to 2?

At the moment I am not actively trading, but am using a trial of tradestation 8.1 to develop some strategies, and see what i can come up with. Still in the parents living room I'm afraid, so active trading not really an option till I get my own pad (hopefully sometime soon) or some other arrangment .

Many thanks

jtrader.

jtrader,
I, too, long ago gave the ADX a fling as far away as I could because
1.Mega Lag.
2.Bad intrinsic ‘scaling’ to magnitudes of trends and nontrends
If you’re looking for possible ‘off the shelf’ substitutes TS library has
TrendArea indicator
TrendQuality indicator
(you might be able to come up with something creative with the 'ribbon' avgs also)
It’s been a while since I looked at any of these, but I do remember leaning to the fast side for parameters when I did. PM me if you want me to try to find any code, notes, settings, etc I have left on them.

Blue mentioned the gradient of central tendencies. Try using the absolute ‘slope changes’ between [1] and [0] (previous and current reading) of one of the adaptive averages (like AmCan, Jurik, T3, Hull, etc ). These retain sufficient smoothness even when using ‘fast’ parameters and will pick up flatness quick enough to participate in the ‘ranges’ with the oscillators (but will of course still miss / lag entry for the trends) . For catching trends ‘mechanically’ when they break out of identified ranges, you might try to just start scaling in after the 2nd failed (crossover,etc) signal during a congestion.

Because of the lag factor ( indicators are like a dog tracking a scent, they are usually behind) and the scarcity of sustained trends in the markets and time frames you are researching I would look to exit ~2/3 of each load quickly and trail a stop (LeBeau, etc.) only on ~1/3 of each position (in both trend and range systems). Also, for entries, I wouldn’t look to turn 1 system off and the other on – rather look at scaling each up and down independently. This complicates things initially but pays off in the long run.
KISS = keep it simple sometimes.
Enjoy your research!

HTH

zdo

For day trading, range breakout can work effectively in range or a trend. It depends on the scale. I have not found indicaors to be much use although I do use bollingers. All my intraday systems are breakouts.

Thanks guys

I've been looking at Keltner channels and price channels today, with long and short entries based on breakouts from them. Basic backtest results have been profitable, but only about 1400 pips on EUR/USD in one year based on 1 years worth of 10-minute charts trading 24 hours a day. These results are based on using a stop loss, percent trailing (from maximum profit) exit and a profit target.

The idea of trading breakouts does look simpler than combining indicators. Do you think it would be easier to fit all code from breakout based strategies designed to profit from trends and ranges into one single strategy, than it would be to fit all code from indicator based strategies designed to profit from trends and ranges into one strategy

I still like the idea of using moving average based strategies with criteria to restrict entries during sideways periods, and range trading strategies with criteria to restrict entries during trends (although it sounds like ADX might be out the window).................Capturing the profits consistently looks easy on the historical charts. It's just a case of coding the right sort of criteria that will capture these profits consistently in real-time.............Trading this way I would intend to have the 2 strategies turned on at all times and able to enter trades throughout my trading session.

Thanks again
jtrader.

Hi Jason

I live in between Barnsley, Huddersfield and Wakefield.