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Posted by DarkProtoman on November 16, 2006, 2:35 pm
I developed a new trading strategy. I suggest this only be used for
companies w/ relatively strong fundamentals, otherwise you'll probably
get into a long squeeze death spiral.
Enter condition: When the stock price reaches or goes below the bottom
Bollinger band, and the RSI and MACD/MACD-H are indicating an oversold
condition, buy/cover.
Exit condition: When the stock price reaches or goes above the top
Bollinger band, and the RSI and MACD/MACD-H are indicating an
overbought condition, sell/short.
Rinse and repeat.
Backtest it and see how it works. Any comments, suggestions, or
improvements are most welcome. Thanks!!!!
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Posted by Lawyerkill on November 16, 2006, 3:11 pm
DarkProtoman wrote:
> I developed a new trading strategy. I suggest this only be used for
> companies w/ relatively strong fundamentals, otherwise you'll probably
> get into a long squeeze death spiral.
>
> Enter condition: When the stock price reaches or goes below the bottom
> Bollinger band, and the RSI and MACD/MACD-H are indicating an oversold
> condition, buy/cover.
>
> Exit condition: When the stock price reaches or goes above the top
> Bollinger band, and the RSI and MACD/MACD-H are indicating an
> overbought condition, sell/short.
>
> Rinse and repeat.
>
> Backtest it and see how it works. Any comments, suggestions, or
> improvements are most welcome. Thanks!!!!
LK
I'm reading an interesting book that just came out, "Evidence-Based
Technical Analysis" by David Aronson. I just started reading it, so I
haven't gotten to the, "good stuff" yet, but he argues that most
subjective TA, like patterns, can't really be test and so are
meaningless. He also makes a good point, one that I have made before,
backtesting can't be taken in a vacuum, but also must consider the over
all market bias like up and down trends at the same time. There is
also, "look-ahead bias" where you may backtest on a closing price, but
untill the real close there is no way of knowing that price so it's
very hard to buy at it, and the opening price may gap. He also goes
into the idea that the mind imposing order on random visual sensory
stimuli.
The author was a big believer in TA and taught a graduate level course
in it as an adjunct professor at Baruch College.
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Posted by DarkProtoman on November 16, 2006, 3:59 pm
Lawyerkill wrote:
> DarkProtoman wrote:
> > I developed a new trading strategy. I suggest this only be used for
> > companies w/ relatively strong fundamentals, otherwise you'll probably
> > get into a long squeeze death spiral.
> >
> > Enter condition: When the stock price reaches or goes below the bottom
> > Bollinger band, and the RSI and MACD/MACD-H are indicating an oversold
> > condition, buy/cover.
> >
> > Exit condition: When the stock price reaches or goes above the top
> > Bollinger band, and the RSI and MACD/MACD-H are indicating an
> > overbought condition, sell/short.
> >
> > Rinse and repeat.
> >
> > Backtest it and see how it works. Any comments, suggestions, or
> > improvements are most welcome. Thanks!!!!
>
> LK
>
> I'm reading an interesting book that just came out, "Evidence-Based
> Technical Analysis" by David Aronson. I just started reading it, so I
> haven't gotten to the, "good stuff" yet, but he argues that most
> subjective TA, like patterns, can't really be test and so are
> meaningless. He also makes a good point, one that I have made before,
> backtesting can't be taken in a vacuum, but also must consider the over
> all market bias like up and down trends at the same time. There is
> also, "look-ahead bias" where you may backtest on a closing price, but
> untill the real close there is no way of knowing that price so it's
> very hard to buy at it, and the opening price may gap. He also goes
> into the idea that the mind imposing order on random visual sensory
> stimuli.
>
> The author was a big believer in TA and taught a graduate level course
> in it as an adjunct professor at Baruch College.
I know, backtesting isn't everything, but it can help. What do you
think of my trading system, though?
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Posted by Lawyerkill on November 16, 2006, 4:36 pm
DarkProtoman wrote:
>
> I know, backtesting isn't everything, but it can help. What do you
> think of my trading system, though?
LK
I haven't tested it yet, but I read a study that showed that in fact it
was best to BUY when the price moves above the top Bollinger band and
sell when it goes below. If I remember which one of these books it's in
I'll post it.
Right now I'm involved in other esoterical philosophical pursuits so it
may be a while.
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Posted by ynotssor on November 16, 2006, 5:52 pm
> I developed a new trading strategy. I suggest this only be used for
> companies w/ relatively strong fundamentals, otherwise you'll probably
> get into a long squeeze death spiral.
>
> Enter condition: When the stock price reaches or goes below the bottom
> Bollinger band, and the RSI and MACD/MACD-H are indicating an oversold
> condition, buy/cover.
>
> Exit condition: When the stock price reaches or goes above the top
> Bollinger band, and the RSI and MACD/MACD-H are indicating an
> overbought condition, sell/short.
>
> Rinse and repeat.
>
> Backtest it and see how it works. Any comments, suggestions, or
> improvements are most welcome. Thanks!!!!
As a starting point, you'll first need to define the parameters for each of
the studies used.
You'll find that the MACD is the greatest impediment to any functioning of
your method. How does one define overbought and oversold in MACD terms?
I've tried it both ways: when the histogram (the difference between the
fastMA and the slowMA) crosses above or below zero, and when the histogram
is below(above) zero and >(<) the previous value. Both are valid ways of
interpreting MACD behaviour. The trouble with the MACD is that no trades are
generated, since both the above behaviours occur when the BB and RSI are not
in compliance.
Now, you could probably get some good results by optimizing the hell out of
the parameters for each of the studies as a group input, but those of us who
have studied such things over a period of years realize that optimization
(a.k.a. "curve-fitting") is wasted effort, since one can coerce historical
data to yield riches that rapidly dissappear in real-time trading.
It's far, far better when automating a sytem to keep an initial set of
"default" parameters, produce a "reasonably good" trading result, and then
depend on intelligent money management to limit any losses. Those
money-management methods can be added to the automated strategy at any time.
With that said, here's the simple EasyLanguage code for a Tradestation
"signal". The MACD was first tested when the histogram crossed the zero
line, then commented out and replaced by a simple condition for when
the histogram formed a local peak or valley. When neither of those methods
produced any trades, then the entire MACD section was commented out, and
interesting results showed using just your BB and RSI indicators with some
very commonly-used parameters:
inputs: bb_length(20);
variables: mac(0), rs(0), bbtop(0), bbbottom(0);
mac = MACD(close, 9, 18);
rs = RSI(close, 9);
bbtop = BollingerBand(close, bb_length, +2.0);
bbbottom = BollingerBand(close, bb_length, -2.0);
if close >= bbtop and
rs >= 80 {and
mac {crosses below 0} > 0 and mac < mac[1] } then
sell 100 contracts next bar at market
else
if close <= bbbottom and
rs <= 20 {and
mac {crosses above 0} < 0 and mac > mac[1] } then
buy 100 contracts next bar at market;
Applying this strategy to 100 shares of MER with no compounding of any open
position (only 100 shares held at any time) yielded the following results,
with first data day of 16 Jan 2003 (1000 days back). It might be helpful to
switch to a fixed font, as the output contains tab characters:
Performance Summary: All Trades
Total Net Profit $3,797.0005 Open position P/L ($877.0001)
Gross Profit $4,261.0005 Gross Loss ($464.0000)
Total # of trades 4 Percent profitable 75.00%
Number winning trades 3 Number losing trades 1
Largest winning trade $2,856.0002 Largest losing trade ($464.0000)
Average winning trade $1,420.3335 Average losing trade ($464.0000)
Ratio avg win/avg loss 3.0611 Avg trade (win & loss) $949.2501
Max consec. Winners 3 Max consec. losers 1
Avg # bars in winners 194 Avg # bars in losers 282
Max intraday drawdown ($1,873.0001)
Profit Factor 9.1832 Max # contracts held 100
The trades taken were (use fixed font; contains tabs):
Trade# Date Price Contracts % Profit Run-up
Type Profit Cum. Profit Drawdown
1 6/6/2003 46.16 100 (10.05%) 116.0000
Sell 7/8/2004 50.80 ($464.0000) ($464.0000) (1873.0001)
2 7/8/2004 50.80 100 16.73% 901.0000
Buy 12/14/2004 59.30 $850.0000 $386.0000 (345.0000)
3 12/14/2004 59.30 100 9.36% 555.0000
Sell 4/15/2005 53.75 $555.0000 $941.0000 (269.0000)
4 4/15/2005 53.75 100 53.13% 2959.0001
Buy 10/11/2006 82.31 $2,856.0001 $3,797.0001 (175.0000)
5 10/11/2006 82.31 100 -- 39.0000
Sell Open -- -- -- (911.0000)
Taking additional trades in the same direction when additional signals occur
produces *very* interesting results if you can manage the drawdowns, with a
maximum of 300 shares held during the time.
Total Net Profit $12,111.0009 Open position P/L ($877.0001)
Gross Profit $13,078.0010 Gross Loss ($967.0001)
Total # of trades 11 Percent profitable 81.82%
Number winning trades 9 Number losing trades 2
Largest winning trade $2,911.0002 Largest losing trade ($503.0000)
Average winning trade $1,453.1112 Average losing trade ($483.5000)
Ratio avg win/avg loss 3.0054 Avg trade (win & loss) $1,101.0001
Max consec. Winners 9 Max consec. losers 2
Avg # bars in winners 193 Avg # bars in losers 282
Max intraday drawdown ($3,785.0002)
Profit Factor 13.5243 Max # contracts held 300
In conclusion, it performs reasonably well historically, but you'd certainly
better manage those drawdowns, with full knowledge that the method results
will change.
Good luck with it. You're going to need it.
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