Monday, August 24, 2009

Fibonacci Long 1st 30 Minutes = 88% Odds in Your Favor: TASC Trader's Tip September


Traders’ Tips: September Issue

"Now, you listen to me! I want it reopened right now. Get those brokers back in here! Turn those machines back on!" Mortimer Duke, Trading Places (1983)

This month’s Traders’ Tips concerns pivot points. While researching an appropriate strategy for this month, we discovered a stock trading strategy based, in part, on Fibonacci values. We liked the results as reported by our event-based backtesting tool, The OddsMaker, so much that it's the basis of this month's strategy and our proxy for pivot points.

This month’s strategy is a long strategy, but because it produced only 34 trades in the last 30 days, our recommendation is to also run the flip of this strategy with the same trading rules modeled in The OddsMaker. The 'Flip' feature is a button found in the Trade-Ideas PRO configuration window. The results of this flip strategy appear in Figure 4.

Description: “Fibonacci Long First 30 Minutes”
Provided by:
Trade Ideas (copyright © Trade Ideas LLC 2009). All rights reserved. For educational purposes only. Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results.

Type or copy/paste this shortened string directly into a browser then copy/paste the full length link into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window):
http://bit.ly/sjNIE (case sensitive)

You can build the strategy from Figure 1 below.


Figure 1 shows the configuration of this strategy:











Where 1 alert and 7 filters are used with the following settings:
  • Fibonacci 79% Buy Signal Alert
  • Max Price = 40 ($)
  • Min Spread = 50 (Pennies)
  • Max Spread = 200 (Pennies)
  • Min Daily Volume = 50,000 (Shares/Day)
  • Max Volume 5 Minute Candle = 150 (%)
  • Min Today's Range = 40 (%)
  • Max Distance from Inside Market Filter = 0.1 (%)
The definitions of these indicators appear here: http://www.trade-ideas.com/Help.html.

That’s the strategy, but what about the trading rules? How should the opportunities that the strategy finds be traded?

To recap briefly The OddsMaker doesn't just look at a basket of stocks, à priori, to generate backtest results. Rather it considers any stock that matched a desired pattern in the market, finds that stock, and applies the backtest's rule set before summing up the results into a detailed set of totals: win rate, average winner, average loser, net winnings, confidence factor, See Figure 3.

In summary this strategy trades the first 30 minutes of the market buying Fibonacci 79% signals. We evaluated several time frames, but were ultimately led to a hold time of just 15 minutes with a $0.40 stop and no pre-determined profit target.

Here is what The OddsMaker tested for the past 30 days ending 7/14/2009 given the following trade rules:
  • On each alert, buy (long) the symbol (price moves up to be a successful trade)
  • Schedule an exit for the stocks after 15 minutes
  • Trade only the first 30 minutes of the market session
The OddsMaker summary provides the evidence of how well this strategy and our trading rules did. The settings are shown here in Figure 2.













The results (last backtested for the 30 day period ending 07/14/2009) are as follows:




The summary reads as follows:

This strategy generated 34 trades of which 30 were profitable for a win rate of 88%. The average winning trade generated $0.45 in profit and the average loser lost $0.24. The net winnings of using this strategy for 30 trading days generated $12.48 points. If you normally trade in 100 share lots, this strategy would have generated $1248. The z-score or confidence factor that the next set of results will fall within this strategy’s average winner and loser is 100%.

As mentioned earlier you can also deploy the flipped version of this strategy to trade stocks in the opposite pattern. Here successful trading means selling short each opportunity. The backtest results of this approach appear in Figure 4 below.




Understand these backtest results from The OddsMaker in more detail by reading the User’s Manual: http://www.trade-ideas.com/OddsMaker/Help.html

-- by Jamie Hodge & David Aferiat, Managing Partners, Trade Ideas LLC
www.trade-ideas.com, david@trade-ideas.com


Wednesday, August 19, 2009

In Response to Trusting Market Moves: Why Relative Volume is Important

Let's start with my comment first and then the excellent post this AM from the ever astute and keenly insightful Dr. Brett Steenbarger:
Glad to read your emphasis on the importance of 'Relative Volume' in determining how trustworthy market moves really are.

It's the bedrock of much of our analysis at Trade-Ideas as you know. We express the concept as a ratio, placing the current accumulated volume up to any given point in the day over the historical average volume of the same period. A reading such as 1.5 means therefore that a particular issue is 50% above its normal volume. A reading of 7 means its trading 7x more than usual; and so on for readings of 0.6, etc.


Source:
http://traderfeed.blogspot.com/2009/08/trusting-market-moves-why-relative.html?showComment=1250691755319#c4900951752302019060
Here was Brett's original post:

Monday, August 03, 2009

A 1-hr Visit Can Improve Your Trading Plan

The good folks at DTI and Tom Busby invite Trade-Ideas to present during their very popular Live TradeRoom sessions tomorrow, Tuesday, August 4 beginning at 9:15 AM EDT.

Here is the agenda for tomorrow. Note: I will be speaking at 12:00PM EDT.
9:30am - 12:00pm EDT
"Live Trading and Education: Futures First: Using the Indexes to Get the Trend"
DTI Team

12:00pm - 1:00pm EDT
Topic: Modeling IntraDay Breakouts
David Aferiat, Managing Partner, Trade Ideas LLC
If you are new to Trade-Ideas or an old hand in need of a fresh pointer or two, please register for this free event by clicking on this link:

Reserve Your Place - Register
I hope to see you there!

Related Articles:

Does Your Trading Plan Benefit from Continuing Education?