Trading FTSE based on Dow close

[Wideboy]

Have a look at this extremely simple strategy.
Backtested since the beginning of the year shows a worthwhile return.

Method:
Place a binary bet on FTSE to finish in the direction of the previous Dow close. ie. if Dow closed -ve yesterday then 'buy' FTSE to finish down.

The figures I have used are very conservative, basing the results on a 50/50 price. ie entering my binary trade at 50. In reality it is often quite easy to get a better price therefore improving the risk reward to say 40/60 or 30/70.
Basically the backtest figures show -150 for a loss and +150 for a win, but in reality could be around -90 / +210 etc. This figures are in pounds using the minimum £3/point bet on IG.

Employing size positioning could have increased return further by upping the £/point after £1000 gain perhaps.

Just some food for thought.

Wideboy

 

[animal8]

Interesting idea!

I'm not sure I understand your figures...
when backtested, what is the ratio of wins to losses?

 

[dsmodi]

Wideboy

I sent u a PM - have u received it?

 

[wins71]

interesting. what exactly do you do?

 

[wins71]

i am quite new to trading and do not quite understand what u mean by a binary bet. plaese explain further as it does sound like quite a simple and low risk way to trade

 

[2468steve]

wins71,
take a look here
http://www.igindex.co.uk/content/so_binary.html

I believe they are the only co offering this at present although others will surely follow

cheers

 

[Glenn]

The FTSE can gap or fly up or down at the open.
So seems you would have to enter a position after FTSE closes to take advantage, and then the SB co's would be moving their quotes to account for Dow movement after FTSE close.

Otherwise the gap points have to be subtracted from projected profits.
Glenn

 

[Wideboy]

A good time to consider entering a trade is around 2:45pm after the US has opened.
By this time even if the FTSE is relatively unchanged(say +/- 10 points) the quotes offered by IG may be around 35/65 due to the short length of time left till expiry.
As we all know the US has a direct impact on the FTSE, so if you feel a tank or rally is gonna happen across the pond then jump in on the FTSE at a good price and you could be looking at a risk / reward of 3:1 ish.

Wideboy

 

[bbmac]

hi,
what is your winning day strike rate for your system? ie no. of winning days, no of losing days, and your longest losing run?

taking a quick look at your chart it seems to be that it has made money in every month but one. I wonder wether there are any possibilities with other fixed odds betting, betonmarkets.com perhaps.

cheers,
bbmac.

 

[Bigbusiness]

I suppose if the Dow closes positive but has pulled back from the time the FTSE closed, it would be possible to buy the binary bet for less than 50.

I am just thinking out loud here but it often seems that when the Dow closes near the high of the day, the FTSE opens up but then falls. Today is a good example. So buying a down binary bet after the open might be a good idea. I will have to do some research to see if this observation is correct.

 

[Wideboy]

That is exactly what I meant earlier Bb.
The are opportunities for some gains when there are gaps.
For example FTSE opened down this morning so I placed a FTSE UP bet at 13 points this morning.
Relatively low risk (max loss=13*£3=39, max win=87*£3=261)
If the FTSE pulls back sometime today, the quote will have moved nicely in my favour.

In response to bbmac, from the start of the year, there has been 31 more winning days than losing days. Last week was bad, 4 losses and just 1 win. This may not seem a lot but the key to this is placing trades at a good price (at least below 50) so that when you win, it will cancel out at least 2 or more loseing trades.
The chart I attached earlier is based on 50/50 trades and still shows a profit, so by trading at a lower than 50 price profits can be much better.

Worst drawdown was from April 15th to 6th May which had 12 losses to just 4 wins.

Wideboy

 

[Bigbusiness]

The only real way to find out if it works is to trade it. It looks sensible to take the bet when the quote is below 50 but the % chance of success from these trades might be lower. Without intra-day data for the IG quotes, it is impossible to work this out. It is a shame that the spread bet companies don't provide intra-day data for their quotes. I suppose they realise it would give the clients an advantage.

 

[bbmac]

hi wideboy thanks for the additional info, on the ig binary bets do you counter trade in the opposite direction, or close our early, if your trade is obviousely going against you, to minimise losses?

cheers
bbmac

 

[Wideboy]

Depends really, one of my systems in test is to let the trade run till close. Normally I buy at a relatively good price, circa 30 or below hence losses are fairly minimal.
With volatile days, you can often make a few points on reversals, eg Dow at 2:45pm & 7:30pm etc.

 

[Wideboy]

Yesterday trade started the week off nicely with a winner, however due to the big gap down in the morning, was nigh on imposssible to get a good entry price.
Best was around 75 which was a bit risky for my liking.
If it had all gone pearshaped that would have been a hefty loss - not worth the risk.
As I have said before, any price below 50 to stick to the system, never trade above 50.

 

[Wideboy]

Yesterday FTSE closed -ve even though towards the end looked almost certain to close +ve.
Was opportunities during the afternoon for a sub 40 entry, if you had waited till US open (often a wise choice) then once it went +ve you could have bought 'FTSE down' at anything from 30 to as little as 5 at 3:30pm.
Nice little earner of between 70 and 95 x stake size.

So far this week, both days winners, however Mondays was slightly too risky to actually trade due to large gap.

 

[Slaine202]

First of all ... hi, this is my first post

Secondly, thanks for the chart Wideboy. Would it be possible for you to produce a similar backtest for the FTSE 12:00 Binary that IG do?

I'm just about to fund my IG account and have been intending to do something like this, but my idea was to do 2 trades/day, 1 on the FTSE 12:00 before open and 1 on the FTSE close after DJ opens.

 

[Alfaman]

I still don't really understand binary betting but I can now concur with Wideboys thoughts.

My figurtes suggest that from 1998 to date 835 days FTSE followed previous Dow and 641 did not. This year 112 have 77 have not.

When I get the hang of binary I might try this (IG dont seem to have all the worked examples they did withh straight spreadbets).

However, I wonder if it will work with spreadbets as well - I'll check the points position when I get a chance.

 

[Alfaman]

Lovely opportunity today at around 1pm. Could have got odds as low as 15 on FTSE down for a profit of around £255 for a £45 risk.

I am concerned however of the spreadbetters bias. Tonight for example, it's already over 70 on the FTSE closing up. If we don't trade over 50 we will perhaps miss quite a lot of the potential winning bets ?

I kind of hoped 50:50 would be available at some point each day!

Alfaman

 

[Wideboy]

That is a problem Alfaman!
Often on a day which gaps strongly at open and continues the trend through the day, there may not be an opportunity to trade at or below the 50 level.
Works best on undecided days or whipsaw days but not all are like this.
This obviously will affect the results by trading this system.