One day Dow breakout trades

tomorton

Legendary member
7,725 1,098
I'm going to log here the results of these potential trades on the Dow. I will actually take as many of them as I can using spreadbets but the log will show the theoretical trade gains and losses, not my actual results. Trades will be opened by pre-set order but closed manually: I won't always be able to post here in real time when I set an order or close a trade but will report all results.

Method is highly simplistic: before the New York open -
set buy order at yesterday's high with stop at the day's low
set sell order at yesterday's low with stop at the day's high
whichever trade is triggered, close it manually when New York closes next day.

Backtesting over the last 3 months suggests a win rate of 56% for a potential gain of 3,600pts (not accounting for slippage and spreads).

I can't yet truly believe this can work, so this forward testing to show up pitfalls.

Comments welcome.
 

tomorton

Legendary member
7,725 1,098
Further backtesting for April-July indicates a 65% win rate for +1,300pts - seems quite rational as a much more trending period than the more recent three months. But glad to do this test deomstrating reliability through varying market conditions.
 

tomorton

Legendary member
7,725 1,098
Set up for session 12/10 -
Buy order 17111, stop 17027:
Sell order 17027, stop 17111:
Risk = 84pts
If one order triggered, don't cancel the other.
 

paszkman

Established member
649 54
Hi Tom, interesting idea and I like concepts like this. I guess that as soon as one order opens, say the buy order, you cancel the pending sell order?

Would you run it as 1$ per point, or would you use position sizing so that each position, no matter how many points, is equal to every position?
 
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tomorton

Legendary member
7,725 1,098
Hi Tom, interesting idea and I like concepts like this. I guess that as soon as one order opens, say the buy order, you cancel the pending sell order?

Would you run it as 1$ per point, or would you use position sizing so that each position, no matter how many points, is equal to every position?

Cheers paszkman - I would leave the untriggered order in place so that I automatically get a stop and reverse if my first order is stopped out. Outside days, when price breaches both the high and the low of the previous day, are not that common (looks like 18 in the last year on the Dow) and 12 of these closed outside the prior range also, raising the possibility that a stop and reverse would have generated a profitable second trade as the first was stopped.

Position sizing is an individual issue but I would run this with varying amounts of $ per point so that the total risk for the trade remains constant: I would base this figure on a %age of my account size. But I can see that there might be the possibility of increasing/reducing $ per point in certain patterns as probability varies, but I just don't have data on these yet.
 

paszkman

Established member
649 54
Cheers paszkman - I would leave the untriggered order in place so that I automatically get a stop and reverse if my first order is stopped out. Outside days, when price breaches both the high and the low of the previous day, are not that common (looks like 18 in the last year on the Dow) and 12 of these closed outside the prior range also, raising the possibility that a stop and reverse would have generated a profitable second trade as the first was stopped.

Position sizing is an individual issue but I would run this with varying amounts of $ per point so that the total risk for the trade remains constant: I would base this figure on a %age of my account size. But I can see that there might be the possibility of increasing/reducing $ per point in certain patterns as probability varies, but I just don't have data on these yet.
is your research based off say yahoo historical data (so real cash trading session high/low/open/close) or off spreadbetter daily high/low/open/close data?
 

tomorton

Legendary member
7,725 1,098
is your research based off say yahoo historical data (so real cash trading session high/low/open/close) or off spreadbetter daily high/low/open/close data?

Historical data from Sharescope to give me high, low and close prices. These are restricted to the actual NY session times whereas the SB charts show their Dow market virtually 24 hours a day so e.g. the SB high could have been printed during the Asian session while NY is closed - so I'm aiming to get orders in as late as possible before the actual US open so that Asian volatility doesn't cause false entries.
 
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tomorton

Legendary member
7,725 1,098
Today's result -
Buy order triggered at 17111, closed manually at 17131 = +20pts
Win rate = 1/1 = 100%
Total gain = +20

Tomorrow's orders -
buy at 17140
sell at 17064
 

tomorton

Legendary member
7,725 1,098
A frustrating experience today. The spreadbet quote on the Dow opened well below yesterday's Low so there was no chance to enter the trade short - you can't trade a breakout through a level that price has already passed.

At that point I had thought this would be a no-trade day as price was unlikely to climb all the way back through yesterday's High. However, it did do so and then fell all the way back to close at 17082.

So I'm going to count this as a failed Long -
Buy order triggered at 17140, closed manually at 17082 = -58pts
Win rate = 1/2 = 50%
Total gain = -38pts

Ho hum.
Tomorrow's order levels -
Buy at 17173
Sell at 17034
 
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stockanaya

Junior member
12 0
Hi Tomorton,

I am newbie to this forum as well as to Spread betting, I really like your idea...infact I tried something similar not exactly the same. I will test your system in my demo account for sure.

Regards
 

tomorton

Legendary member
7,725 1,098
Cheers and good luck stockanaya.

I'll be slightly amazed if something so simple can work but its worth a try. Please be aware that this method goes 180 degrees against much conventional trading wisdom - running your winners, buying only in an uptrend, risk reward ratio etc. Anyway lets have some fun and see where it takes us.
 

tomorton

Legendary member
7,725 1,098
A good result today. Price fell through yesterday's Low of 17034 and closed at 16924.
Gain = +110pts
Win rate = 2/3 (66%)
Cumulative gain = +72pts

Helpfully, the SB quote at the US Open was right in the middle of yesterday's range so there was no problem entering both buy and sell orders and I was able to make an actual profit.

Tomorrow's order levels -
Buy at 17112
Sell at 16887
Risk = 225pts (will be adjusting £ per pt accordingly obviously)
 

paszkman

Established member
649 54
Helpfully, the SB quote at the US Open was right in the middle of yesterday's range so there was no problem entering both buy and sell orders and I was able to make an actual profit.
So have you thought about how to deal with gaps? i.e. if open price is outside of previous day's range? Will you set limit orders? or ignore until price returns to range?
 

tomorton

Legendary member
7,725 1,098
Was thinking about gaps when I woke up this morning. Best I can plan is, if SB quote is above (below) the prior day's range, I would not set a Buy (Sell) but would go ahead and set the Sell (Buy) order. If I had screenwatching time, if and when price touched the mid-point of the range, I would then set the Buy (Sell) order as well.

The lowest risk option would be treat it as a no-trade day. But Outside Days on the Dow are not that common and two-thirds of them end in at least some profit at the close from the breakout trade opposing the gapped open.
 
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