Wednesday, May 07, 2008

Strategy Session: Automation for Swing Trades

The fast paced world of trading excites us - buyers vs. sellers, large capitalized players vs smaller and quicker/nimble players, etc.

However we at Trade-Ideas recognize that for many in the investing public, trading twenty or thirty times a day is a lot - completely alien. That's why our tools are also made for longer-term traders.

Let's define some terms first.

The difference between day traders and swing or position traders is length of trade: the day trader exits position by the end of the trading day. Longer-term traders ride the position for a couple of days or weeks.

How can a real-time intra day scanner be used to find longer term trades?

We asked them (our surveyed customers) and they responded. Trade-Ideas focuses on getting the longer-term trader through the best initial entry point and getting him/her to the next day and beyond. That's when risk management takes over. In their words, "Trade-Ideas puts you in front of a tail wind so that hopefully you can ride the longer term trend."

How? Let's use the intra day scanner to set up the entry and then test a set of trading rules with the OddsMaker to make sure that it works. We can then put it on autopilot (via controlled automation) with our brokerage partners supporting this automation at TD Ameritrade, InteractiveBrokers, and OptionsXpress.

So here we go. One of the easiest tells in terms of supply versus demand is something that is also often overlooked: Gaps - specifically Gaps to the upside. In this strategy we are going long.

  • First let's find stocks on the NYSE, AMEX, and NASDAQ Gapped up over $2 USD today. That is done by going to our Window Specific Filters tab and putting a 2 next to the Min Gap Up filter.
  • Second we add a market direction filter just to make sure we are not buying or even looking at opportunities when the market is really heading south. In Trade-Ideas we have market direction filters for the S&P requiring it to be up a certain amount in the last 5, 10, 15, or 30 minutes. In this case the S&P must be up .01% in the last 30 minutes. That gives us just a bit of an insurance that there has been some positive action.
  • Third we do something a bit counter-intuitive. This is a bit like poker. We are assuming that the the Gap Up is the tell. So we actually wait for a signal showing some weakness in the stock. This weakness signal is when the stocks crosses below the Opening Price.
Basically we'll see and do the following: if the stock Gaps Up, trades and falls back to just below the Opening price assuming the S&P was up .01% in the last 30 minutes, we are going long.

Then we hold at least until the Open tomorrow. Here is the set up with more of the details.

Strategy Session: Gap Retracement Play Hold till next Open

When we start this strategy we wait for the first 30 minutes of the market to give the S&P a chance to see where it is going. Then after the first 30 minutes we enter positions. Our stop for this strategy is 1 dollar + the wiggle which is our custom volatility based stop-loss number.

Here is the overview: In the last 15 trading days this system had only 3 losing days and they were pretty small, while on the upside it was able to rack up 51 points in 76 trades.

OddsMaker Summary:

45 / 76 = 59.21% up $0.01 at next open; Average winner = $1.7813, Average loser = $-0.9264, Net winnings = $51.442, Best = $7.59, Worst = $-3.186; Casino Factor = 99.88%
Daily summary:
4/15 : +18.0100 /7
4/16 : +5.9600 /7
4/17 : +0.9900 /1
4/18 : +4.4134 /13
4/21 : +2.9400 /1
4/22 : +9.1300 /4
4/23 : +11.4244 /11
4/24 : -(1.8327) /3
4/25 : -(0.8600) /7
4/28 : +0.5800 /3
4/29 : +0.5300 /2
4/30 : +1.1405 /5
5/01 : +0.8965 /6
5/02 : -(1.8800) /6

(to fully understand what all the numbers mean, refer to The OddsMaker Manual)

Remember that this type of strategy can be automated using our integrated brokerage partners mentioned earlier. This is the trend in trading. Institutions run their algorithms - and now the "instividuals" such as yourself have the same capabilites only with much better analytics and backtesting features.

Related

Interested in automating a trading strategy like this one or one that you design with even better odds? Consider one of the brokers mentioned above that offer automated trading of your Trade-Ideas strategies. Details can be found be clicking on their links in this post or simply email us at info@trade-ideas.com and tell us you are interested. There are also great discounts available from these brokers.

Footnotes

  • Link to other Strategy Sessions
  • Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this 'as is' or modify it to your own liking as many others do. Know, however, that Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, alerts and all other features are for research purposes only and should not be construed as investment advice
  • See this video on our Collaborate function to learn how to open these strategies inside Trade-Ideas PRO

3 comments:

Anonymous said...

Nice strategy. When do you run this set-up during the market? It looks more appropriate to trade only in the morning. Were these trades the Oddsmaker used from throughout the day or over a defined period during the day?

D TradeIdeas said...

The entry happens at all different times during the day. That is why it is a good candidate for automation. The exit happens the next morning.

heywally said...

Trade Ideas; I've just subscribed to your service - perhaps you can point me a bit more clearly towards automating this with IB? TY.