BlueHorseshoe

I'm assuming that your reply is sarcastic. If not, then PM me and I will direct you to places you can download these for free. Given the mocking nature of my previous post though, are you certain that you want to? Bluehorseshoe

It simply isn't enough to rely on somebody in a book (like bullkowski or murphy or nison) telling you that they have 'backtested' and researched something and that it showed great results. There are two possible reasons why whis is not a good idea: a) they haven't tested it in any proper rigourous manner - they've just flipped through some charts and seen whatever they wanted to see - they probably deceived themselves just as much as they might deceive you. b) they have performed thorough backtests in which the were able to objectify the pattern to the extent that a computer could recognise it - unfortunately you don't know exactly how they did this (unless they give you code), so you can't repeat the results. Using concepts and strategies from other traders is great, but it is absolutely critical that you test it thoroughly for yourself. Hope that helps.

Personally I just do this sort of thing without stops and very little leverage. I have wondered many times about employing options, but frankly I just can't be bothered trying to understand them. As far as combos go, the strategy above is pretty much a combination of the VIX for entry with one of Connors beloved RSI rules for the exit, but I was referring more to a combined conditional entry(or exit) criteria. I finally realised the other day that you're a vendor. And that you're in business with the very clever guy from Adaptrade whose code I have spent many hours typing out. As a rule I don't tolerate vendors well, but I did find your website very interesting and will undoubtedly return for a more throrough read . . . Bluehorseshoe

Although I wouldn't go as far as to say that 'squeezes' are a complete waste of time, there are far more useful things that you could be looking at. All markets move through volatility cycles, but only certain markets demonstrate directional volatility. If you do want to trade with this type of indicator then have a read through "Bollinger on Bollinger Bands" first. It's widely available as a free pdf online. Hope that helps. Bluehorseshoe.

I have been using the following MA Crossover formula with tremendous success: If average(vendorpost,3) crosses over average(tolerancelevel,8) then exit thread at market; I think perhaps it works so well because the MA lengths are both fib numbers - what do you think PipBanker? Bluehorseshoe

Tut-tut - have you been stealing John Carter's indicators again?

This is a nonsense statement. All strategies have optimisable parameters. Just because something doesn't include, say, a moving average with a variable lookback does not mean that it is not optimisable. All patterns are patterns in price data, and you will always be focussing on some data and ignoring other data. Price patterns such as "if today is an up day and yesterday is an up day then sell short tomorrow at today's low" is a heavily optimised pattern. Why use the past two days and not the past twenty? Why sell at today's low and not at today's close? Or the close eight days ago? Or the high eight days ago? All price data patterns contain optimisable parameters.

You have a refreshingly healthy and realistic attitude - I like it!

Thanks for a useful post - I always find something of benefit in your system development threads. When adapting the exit criteria to the market condition, what made you decide to adjust the RSI lookback rather than the exit level on the RSI itself? Bluehorseshoe

My advice (and I am not a professional trader) is as follows: - Read/watch lots of stuff by lots of different people. Spend lots of time thinking about what you read/hear/see. Basically expose yourself to as much input of ideas as possible. Spend lots of time testing these ideas. Some may work. Some may be so poor that doing the precise opposite could be profitable. Some will have bits of worthwhile information that can be combined with other bits of worthwhile information. As you test hundreds of different ideas on your chosen market you'll slowly build up a 'toolbox' of things that work and things that don't. You'll develop the kind of intuitive knowledge of how your market moves that discretionary traders develop through thousands of hours of screen-time. A critical part of this process is understanding how to test your idea properly. As well as the well known pitfall of curve-fitting there are a whole host of other things you need to beware of. You aren't likely to find this information in most trading books, however - you'll need to read books on statistical inference and data mining. If you're smart enough you should eventually reach some valid conclusions that will enable you to trade a market profitably.

Hi Pittrader, Thanks for your reply. TradeStation can be set up so that the a strategy order is resident to the exchange rather than sitting on the computer (resident to the TS servers is a third option). In other words, the order is placed exactly the same as if it were placed manually on the DOM. Your information on the order fills for the Russell vs ES are extremely helpful. Cheers, Bluehorseshoe

Thanks for another great thread. I have read the book you reference, but never got as far as testing this particular strategy. An interesting idea with the Connors methods is to use them to filter one another, for example requiring that both the VIX and the 3 Down Days condition you discussed in another thread are both met for an entry. I think that the major issue for most traders here will always be the lack of a hard stop set at the time of entry. It would be interesting to know Connor and Alvarez's own views/research/methods for managing risk. Bluehorseshoe

That's interesting - I completely ignore money management when developing a system as well. If something doesn't work well with a single contract approach, then there is no edge there for the MM to improve.

Hi Steve, This might be me being a bit stupid, but could you clarify the above sentences for me? Do you mean that your profit target and stop are both 1 point (pressumably four ticks in the ES for instance)? Or do you mean something else? Thanks

Hi Steve46, Just to be clear, I am talking about trading on an intraday timeframe (but using an adaptation of the strategy that I am already using to trade from a daily timeframe). When a market remains overbought or oversold all day then I would be trading back in the direction of that longer term trend. So when it was overbought all day (uptrend), I would be looking to buy brief pullbacks to oversold levels within that uptrend. So in as far as my definition of trend is correct, then I would never be trading against the long term trend, but rather looking to trade corrections to this trend in favour of it. I hope that makes a bit more sense than what I originally posted. If you wouldn't mind pointing me towards your posts on chart patterns then that would be greatly appreciated. Thanks for your reply. Bluehorseshoe

Hi ElectronicLocal. Thanks for replying. I'm trying to gather ideas such as the ones you suggest, and then I will test and mechanize them and see where I end up. One of the problems is that I am looking for predictive rather than reactive ways to refine entries. So your suggestion of awaiting a reversal would most likely mean that my entries came too late for the strategy to be profitable. For instance, on an oversold down bar, I could buy on the close in anticipation of a reversal to the upside, or I could place a buy stop at the high of the bar so that I am only taken into a position if the market actually reverses to the upside. Unfortunately the performance of the buy stop is far worse than that of the buy on close (which, in turn, is worse than that of a buy limit at the low of the bar!). So, around the time that I observe an oversold close, I need a method that encourages me to either buy on the close at this level, or to anticipate even lower prices on the next bar. What I cannot afford to do is buy at a level above the close by awaiting a reversal. What you say about 'v' bottoms is interesting. Does this mean that a reversal to the upside should be considered more likely if price has spent a significant amount of time consolidating in a sideways range around the oversold level, where as a sharp rebound from the oversold level should not be bought? Many thanks, Bluehorseshoe

Hi Steve46, Thanks for your reply. You seem to be making a fair few unfounded assumptions though. Relying on overbought/oversold indicators doesn't mean 'nothing' when they are used in an appropriate fashion (such as to buy pullbacks in longer term trends, which is what I do). What it has meant for my swing trading account for the past two years is a happy profit, and this would have been true for each of the prior twelve years that I have backtested. I know that my system has worked well historically, and I am not risk averse (I trade without a stoploss, relying on underleverage to manage risk). A market cannot remain overbought/oversold for extended periods of time in the trader's perception if they don't allow it to. For instance, a trader might have a rule that says something like: "three consecutive down bars in an uptrend is oversold, but a fourth consecutive down bar indicates serious downside momentum - await an up bar and then re-commence the three bar count". A similar analysis can be obtained by using standard indicators such as an RSI with a very short lookback - try setting up a 2 period RSI on your chart, now can you really find many examples of where it remains at extreme overbought/oversold levels for sustained periods? So what I am doing now is exploring the possibility of adapting this strategy to intraday trading, and looking for ideas from other traders on the forum for how to refine entries by watching the DOM etc. You talk about looking for reversal patterns in sub minute timeframes, an idea that I find interesting - can you expand on the type of thing that you'd be looking for? Many thanks, Bluehorseshoe

Here are two different scenarios from a 15min chart of the ES: 1) Price is in a longer term uptrend, and makes a pullback. When my indicator shows that price has pulled back to an oversold level, I buy on the close. Having been oversold, I have bought the market right on the low tick of the pullback, and the market now takes off back in the direction of the long term up trend. 2) Price is in a longer term uptrend, and makes a pullback. When my indicator shows that price has pulled back to an oversold level, I buy on the close. Having been oversold, the market continues to become more oversold. Eventually, at a point significantly below my entry, the market turns back in the direction of the long term uptrend. Now, as a price action trader sitting watching the DOM , Time and Sales etc, what would have told you in the first instance that I was about to buy the low tick (or thereabouts), but in the second instance that the market would continue to fall? What specific signs would you have been looking for in terms of other trader's orders and the market's behaviour? Any thoughts would be greatly appreciated. Bluehorseshoe

Yes/no/neither. As a system trader you neither trust or distrust your backtested signal in any individual instance. Maybe you'l win, maybe you'll lose - who knows? What you do know is that, with a profitable system based on historical probabilities you'll win more than you lose. Your backtests, if adequate, will already have factored in many examples of signals taken 5 minutes before news came out. Worrying about how every permutation of circumstance will affect each individual trade is the province of the discretionary trader; the systems trader already knows this information in terms of net outcome asssuming that the future roughly corresponds to the past. And of course the bit in italics is what the systems trader worries about . . .

Although it's frustrating to work out why (surely a volatility based target makes perfect sense?), volatility targets don't normally do anything to enhance performance in my experience. They just add in another complicated and potentially curve-fitted ingredient.

Hi Roztom, This is just an idea that may be useful or not . . . What would happen if you found your precise entries from the micro timescale, but used the same stop-loss and target that you would use if entering from the 15 minute chart? In theory this would mean that your actual risk:reward (in terms of a hard stop) wouldn't be reduced, but that the likelihood of an uncomfortable adverse excursion would be reduced (assuming your micro timescale entries are actually good). Without wanting to be insulting, this would allow your ego to 'play' with the entry, without any possible negative impact on performance, and with the possible 'reward' of reduced intra-trade drawdowns. By sticking with the higher timeframe stop and target but still entering from the micro timeframe, the micro-timeframe entry would become more of a fun game, where 'winning' with a to-the-tick entry feels good, and 'losing' doesn't hurt your actual dollar performance - a bit like trading in sim! Of course, all of the above assumes that your strategy shows a positive edge when traded in the higher timeframe with that stop and target. Hope that's helpful and makes sense! Bluehorseshoe

Hi SIUYA, Thanks - that's a really helpful response. I was of course ignoring IT/technical issues, and hadn't really considered the brokerage issues that you mention (although my suggestion of placing orders years in advance was just an extreme example - but it is interesting to know that old orders can be purged). Nor have I really considered anything beyond a single contract in backtesting intraday - I've been making a rather lazy assumption that compounding will be beneficial, although I haven't really wondered about partial fills on large orders, so that's plenty to think/worry about. Cheers for your help! Bluehorseshoe

Thanks for your reply - I won't start a new thread as I'm only casually interested to be honest - it just seems ignorant of me not to have a better idea of how options work. In fact, I'll buy a book, I think . . . Cheers, and apologies for the diversion.

Hi SIUYA, I agree that future system performance is likely to be worse, but accurate backtesting should closely resemble what would have been achieved trading that exact same historical data in real time. Slippage is not an issue - there is only positive slippage with limit orders. When I backtest a strategy and require price to trade through my limit, then the result would be the absolute minimum that could have been achieved were I actually trading that market. And when I require price to trade only at limit, then that is the very best that could be achieved. The question is, how can I estimate what would actually have been achieved? Obviously this must lie somewhere between the minumum and maximum performance possibilities (it is likely to be the product of trades executed when price traded through the limit, with just some additional trades thrown in that were executed at limit because I was near the front of the order queue. Bluehorseshoe

Hi Joshdance, Thanks for that. This is my suspicion also, and it has been confirmed by both the negligble difference in results when testing with the at/through fill requirements, and also in live trading. I'm just curious about where this starts to change really - I know that orders placed minutes before are are unlikely to be filled unless price trades through the limit. I was hoping that someone might be able to point me towards some information from the exchange or an independent report on this. Thank you for your reply.