Ideas for 2 simple intraday strategies, feedback & ideas appreciated

[RunTheNumbers]

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.

The following is a copy from a post on TMF by a valuable poster hokusai2908 who has an interesting history. He indicates the system is best in ranging markets than trending, but is a proven system and well worth looking into IMO.

Remember in what follows that I was dealing with commodity and financial futures rather than stocks, though of course very much the same kind of 'rules' apply to both:


(1) The majority of daily bars in a reasonably volatile instrument of any kind have an open, a close, a high which is higher than both of these and a low which is lower than both.

(2) The most frequent course of a day's trading is either:-

-- Open, rising to a high, then falling to a low and rising again to the close, or

-- Open, falling to a low, then rising to a high and falling again to the close.


(3) It follows (so I reasoned) that you can set:

(a) a price U1 points above the open, at which you will sell:
(b) a price D1 points below the open, at which you will buy;
(c) a target number of points, T, which you intend to 'scalp', starting at either U1 or D1, whichever occurs first;
(d) a stop-loss U2, above U1, and
(e) a stop-loss D2, below D1.


Hence, a trade will result in one of the following (this is all terribly Run-Jane-Run, but that was my general level of comprehension back then):-

(a) Price rises through U1 and then falls through (U1 - T) wihout hitting U2. You win T, your target number of points.

(b) Price falls through D1 and then rises through (D1 + T) without hitting D2. You win T points.

(c) Price rises through U1 and hits U2 before U1 - T. You lose U2 - U1 points.

(d) Price falls through D1 and hits D2 before D1 + T. You lose D1 - D2 points.


[ Note: I experimented briefly with 'closing out at the end of the day anyway' (which gives two further possible outcomes) but without perceptible gain in performance so I dropped this rule; all trades are thus left in place until they either succeed or hit their stops.

(e) Price reaches neither U1 nor D1 during the day, in which case no trade is initiated.


U1, U2, D1, D2 and notably T are chosen so that most trades are completed inside one day, occasionally remaining in place overnight until the next day and, on a very few occasions, until Day 3. ]


That's it. Pretty childish really, as I say.

-----------

Main question, of course: How to pick U1, U2, D1, D2 and T?

Answer:- I wrote a small machine-code and Basic program which, before each day's trading, simply

(1) Looked at all the Os, Hs, and Ls for the preceding 14 trading days, held as a small rolling database on 5.25" diskette (yes we're talking that ancient);

(2) Ran through all possible combinations of U1, U2, D1, D2 and T for those days, and

(3) Returned the selection of U1, U2, D1, D2 and T which yielded the greatest total number of points over the 14 days examined.

Then I used these 5 figures to set up 'today's trading'.

Regards

Ben

 

[RunTheNumbers]

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

An awful lot of posters on this BB seem to take the high ground by talking about price action.

I confess I do not know what is meant by price action. Would anyone care to help me understand?

Thanks in advance

Regards

Ben

 

[mr_cassandra]

re anomally

I trade using a program I started writing some 6 years ago. Just wanted to add my 2 cents on anomallies. I think you can only take a mechanical rule set just so far and there will always be events/situaations it will not handle. Imo, the key is getting it to handle so many well enough that the occasional anamolly doesn't shake it. Imo, it can be far more useful to go after the goal of getting as much as possible from each targeted move type, but spend little effort on making sure you get every point of every move. I beleive that is a myth and can be done by no man or machine.

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.

 

[mr_cassandra]

price action versus indicator

There are succesful traders on both sides of this fence. Some use no indicators, others use indicators. The only thing where they can go wrong is when proponents of either philosphy confidently pronounce 'my way is the only way'.

wrong.

An awful lot of posters on this BB seem to take the high ground by talking about price action.

I confess I do not know what is meant by price action. Would anyone care to help me understand?

Thanks in advance

Regards

Ben

 

[RunTheNumbers]

Does "price action" just mean a breakout then?

regards

Ben

 

[the blades]

Does "price action" just mean a breakout then?

regards

Ben

Hello RTN,

Others will explain better, but if you consider that indicators are basically some formula driven signal from the price, then what can they tell you that the price action (simple chart) alone cannot? ie just look at the chart alone. I believe this is what "they" mean.

Cheers,
UTB

 

[RunTheNumbers]

Hello RTN,

Others will explain better, but if you consider that indicators are basically some formula driven signal from the price, then what can they tell you that the price action (simple chart) alone cannot? ie just look at the chart alone. I believe this is what "they" mean.

Cheers,
UTB

Thanks for that, but I'm still a bit puzzled. Can you systemise "price action" other than through a break-out system?

I do hope it's not all about drawing arbitrary lines on a graph. Please tell me it is not this?

Regards

Ben

 

[neil]

USE THE "SEARCH" FACILITY

Thanks for that, but I'm still a bit puzzled. Can you systemise "price action" other than through a break-out system?

I do hope it's not all about drawing arbitrary lines on a graph. Please tell me it is not this?

Regards

Ben

MAKE AN EFFORT PLEASE - Use the search facility.
Try "trading on the darkside" or simply price action or put "price action" in Google

 

[mr_cassandra]

Your method(s)

That was a good tip Neil gave you. Theres a world of explanations out there by doing a google search.

Can you tells us some specifics of what your methods are?

Thanks for that, but I'm still a bit puzzled. Can you systemise "price action" other than through a break-out system?

I do hope it's not all about drawing arbitrary lines on a graph. Please tell me it is not this?

Regards

Ben

 

[ymonly]

My way is the only way. For me. It gives me the answer before the price movement occurs. In the high percentage range. 90% plus. To say mine is a better way for most is true. But, honestly, no one will accept exactly another's stuff per the exact code. Simply put, the ego requires that it has to be mine, not someone else's, someone else's is better so they must be smarter than I. So they will tweak and pervert almost perfection to scambled junk. Most of the time. Emini daytrading only for me. Do I use indicators? yes.....Do i have to, no....indicators take the read from adult level to 5 yrs old brain required....totally mechanical....with eyes...to see the signal... finger to punch the entry button. It si only price action. No such thing as bar noise...it is all price movement

 

[timsk]

Does "price action" just mean a breakout then?

Hi Ben,
No, price action does not mean a 'breakout'. A breakout is a type of trading strategy, along with retracements and reversals. Arguably, all trading strategies fall under one or other of these three generic groups. Each occurs as a consequence of price fluctuation, movement or action -call it what you will. To the inexperienced or the disinterested, 'price action' is a black art and an immensely dull one at that. My wife cannot understand how I can spend as long as i do studying a chart. To her, price goes up, then it goes down and there's certainly no knowing what it's going to do next. She likes to read novels - and lots of 'em. When I explain to her that there is more drama, passion, fear and greed going on in the story unfolding in just one of my charts than there is in all of her Jackie Collins novels, she gives me one of those sideways glances which only ever mean one thing: she thinks I'm barking. She may be right, who knows - who cares! But it that very drama that I'm trying to see and understand. Those traders who are skilled at this, have the ability to see who the strong players are and how they fool the 'weak hands' (as mr marcus used to refer to them) into actions or inactions that they soon regret. The "arbitrary lines on a graph" that you referred to are anything but arbitrary, if they are drawn correctly. They are an invaluable tool to help the trader build up a picture of the underlying sentiment attached to the instrument s/he is studying. To start to get a grip on all this requires an understanding of the forces of supply and demand. But rest assured, all of this and more, is contained within 'price action'. If you wish to investigate further, in addition to the suggestions already made, you might like to look at the 'price and volume' forum, paying particular attention to the posts of dbphoenix.
Enjoy!
Tim.

 

[bearishtrader]

Mechanical Systems, Gap Fill

There is a mechanical day trading system for the US stock index futures (and eminis) that a lot of pros follow. It involves looking at the gap level between yesterday's close (the US stock index futures) and the open. There is a statistical tendency for the gap to fill so if the gap is at an acceptable level (based on proprietary analyses) certain systems will take a position in the opposite direction of the gap and expect that the gap will be filled (or partially filled) some time during the day.

Different systems have their own variations on how to play the gap. Some systems use a stop equal to or slightly more than the gap size and others will not have a stop at all, but the position must be closed by the end of the trading session. The time of the month, fed days or special days like options expirations are also taken in to consideration sometimes in determining the likelihood of success of the setup to work.

It seems like you could write an esignal or tradestation script to go over historical bars and do your own tally of gaps successful fill percentages as well as 50% gap fills etc. and calculates the minimum stops required for the trade setup to work, etc etc

 

[mr_cassandra]

I guess thats where we differ

my approach is very mercenary. IE I don't care if its my program which does it or someone elses, its the bottom line net profit that matters. Though my work is very good, after some 6 years of programming, if someone comes along and betters it, like merlin, then I go that way. If they falter, my program is still there as a backup. (disclaimer merlin is a pay svc). I disagree on tweaking, I keep a past list of system results on mvp, and they march steadily upward. Anyone who tweaks to disaster must not be using a program which sums results for them, even though they are fairly common.
Only net results in your wallet count, the rest is just chat.

My way is the only way. For me. It gives me the answer before the price movement occurs. In the high percentage range. 90% plus. To say mine is a better way for most is true. But, honestly, no one will accept exactly another's stuff per the exact code. Simply put, the ego requires that it has to be mine, not someone else's, someone else's is better so they must be smarter than I. So they will tweak and pervert almost perfection to scambled junk. Most of the time. Emini daytrading only for me. Do I use indicators? yes.....Do i have to, no....indicators take the read from adult level to 5 yrs old brain required....totally mechanical....with eyes...to see the signal... finger to punch the entry button. It si only price action. No such thing as bar noise...it is all price movement

 

[altrade2win]

JTrader

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.

Blue.

Bluetipex (or anyone else), just been reading this thread and am wondering if you could expand on your concept of the gradient of 34/100EMA? Are you suggesting measuring it in degrees? Sounds interesting if so (you can do this with NinjaTrader) ... do you have any values in particular you are looking for or any resources you can point me towards? Presumably you must have, as a subjective interpretation is arguably not any better (certainly less consistent?) than an ADX reading of 25+. As an other alternative, there is always Chande's RAVI using 3% as a confirmation level. Would be interested to compare the slope gradient to ADX and RAVI to see differences ....

Thanks,
Al

 

[lbranjord]

Re: I guess thats where we differ

my approach is very mercenary. IE I don't care if its my program which does it or someone elses, its the bottom line net profit that matters. Though my work is very good, after some 6 years of programming, if someone comes along and betters it, like merlin, then I go that way. If they falter, my program is still there as a backup. (disclaimer merlin is a pay svc). I disagree on tweaking, I keep a past list of system results on mvp, and they march steadily upward. Anyone who tweaks to disaster must not be using a program which sums results for them, even though they are fairly common.
Only net results in your wallet count, the rest is just chat.

Which merlin are you talkin about?

 

[Adamus]

Yes, I wondered about merlin as well. But Mr Cassandra hasn't posted this year so we may not find out. I didn't find anything on google either - just programming books by a guy called Merliln Something.

 

[lbranjord]

Hmm.. I always overlook the posting date on these things.

 

[oiltrader81]

you can find the best strategies for sideways days but if the commission you pay is not low you would lose money anyway.

Try momentum indicators but i think that reducing bollinger bands is a good idea for a very short term scalping

 

[forker]

As long as your screen looks like a Christmas tree on steroids you will be just fine