The Trading Journal: Appendix B

[DbPhoenix 42]

I'm ready to start backtesting my revised plan, here in the form of a comparative study. The setup used for this exercise is basically the same as the one described previously in this journal, but with the following adjustments:

 

General Rules

 

-- Positions may be only opened between 2:00 a.m. and 12:00 noon. Any open positions must be closed at 1:00 p.m.

-- All valid entries must be taken.

-- S/R levels may be adjusted any time before a trade (no fair adjusting levels to invalidate a running trade or to call a trade after the fact, and stops once entered may not be moved back).

-- During backtesting, if the sequence of price movements in a bar is unclear, I'll assume the least advantageous outcome.

 

Entry and direction

 

-- Trades are entered after a BO, defined here as any price penetration through a S/R level, followed by a SL/SH above/below that S/R level (entry details specified previously in this journal).

-- After BO, price must return to the S/R level (within a pip) prior to any entry. There will be occasional exceptions to this rule (RET's taken beyond the S/R level), but only at levels specified in advance. (Edit: this is to allow more leeway when price BO through more important levels, and price may not retrace all the way to the S/R level, at least as shown with the time resolution of the chart I'm using. Trade management rules are modified slightly for these trades.)

-- Trade direction is determined by trend direction. If price is in a range, the last trade direction remains in force.

 

Trade management

 

For this exercise, three contracts are traded:

- One contract is closed when price has reached the same distance from the entry point as the distance from the stop level to the entry point, or when SO.

- At that point, the stop is moved to the S/R level for the remaining contracts.

- The second contract is closed once price touches the next S/R level, or when SO. If there is no S/R level available during backtesting, I'll use the same distance as between the last two S/R levels. (Edit: at levels specified in advance as major BO levels, the rules for this contract are the same as for the 3rd contract, below.)

- The remaining contract runs until a signal is received in the opposite direction, or when SO.

- If one or both of the first two contracts has been closed, I may open a new trade (on a valid signal, same trade management rules) even if the third is still running.

 

If past is prologue, other issues will inevitably arise. But this should get me started. (FX_Cowboy)