Retracement entry strategy

Rather than time reversal, a much more probable and less risky setup is to enter on retracements. From the above YM graph, see that the price is in a downtrend already from the 50MA (gray dotted) below 200 MA (white dotted) lines in plot1.

The first vertical line denotes setup #1 for the retracement shorting opportunity. Note the following:

1. price is just above Keltner Channel
2. CCI stopped rising from above 100
3. Stochastic Slow crossing below signal line

The second vertical line denotes setup #2, which may be weaker because of fewer indicators alerting.

1. Stochastic Slow crossing below 80 and just crossed signal

P.S. A 200/50 MACD Histogram could replace the 2-line MA’s for easier reading. And use slowing CCI as confirmation of Stochastic crossing 20 or 80.

Update: This is actually a reversal strategy and not retracement. Retracement shouldn’t end up on the other side of the Keltner channel. See this newer reversal strategy for a new adaptation.

Day trading YM day 2 and revised strategy

Made one short trade today on YM with a profit of $110. It was a very good call, on both entry and exit timing. I went in as TRIX is above zero and slowing down. Stochastic slow has just crossed its MA line. Also the 5 min chart shows similar reveral signals from overbought zone. In addition, the fundamental was good because yesterday’s up run was overzealous and unjustified (Bernanke’s hint of rate cut in Feb) in a sea of financial troubles lately. All signs pointed that today’s market would be down and the charts showed a good opportunity.

I exited when the stochastic bearly showed sign of upturn. The price rebounded slightly. Another less probability chance for short came on the 2nd mid level Stochastic cross under. I could have re-entered after a small bounce at that point and made a lot more on the 2nd wave. Lesson learned. When the stars are aligned, it’s good to be greedy.

I’m using TRIX and Stochastic Slow now. CCI gives more or less the same signal as Stochastic but lags a bit more, so I got rid of it. TRIX seems to complement Stochastic well because it gives a trend. I’ve been working on a new system. It also has a few new tricks too. Such as a window of opportunity feature so both signals doesn’t have to happen on exactly the same bar for the conditions to meet.

I watched the market for a while today but didn’t make any trade afterward. I didn’t want to lose my winner from today. Plus, I prefer to use an automatic system. So I continued to develop my new TRIX + Stochastic system today based on these 2 days’ experience.

dual-Keltner channel strategy

A trading strategy I picked up today from TS forum.

Using multiple Keltner Channels of the same length but with different ATR. The ones with larger ATR’s give wider bands, and the ones with smaller ATR’s giver narrower bands.

To go long with the system, you would buy stop when price have risen to cross into the wider band, and stop is always adjusted to where price would have dropped to cross the narrower band, thereby giving you a trade that stays long as long as price is outside of the narrower band.
For example, on May 1st, 2003, doing so with 2 ATRs for the wider band and 1 ATR for the narrower band would have given you the trade of BRCM entered at 13:33 at 17.67 and exited at 14:51 at 14:51 at 17.92, for a difference of 25 cents.

It is suggested to use this concept with ADX and Time Series Forecast.

2MA w/ ADX and disappointing realization

Another day, another strategy. For the past couple of days, I’ve been working on the 2MA cross with ADX confirmation strategy for ER2H08 1200 sh/bar. Basically, an HMA(Low, 8) crossing over EMA(Low, 24) as the trigger. Condition2 is that the current high is highest of past 3 bars. Condition3 is current ADX is also highest of the past 3 bars. Condition4 is that it is during day time so fewer slippage.

Exit is simply HMA(Low, 23) crossing under EMA(Low, 33) or it is nearing the close of the day session. Stop is $350; Floor is $500 and 63% retracement.

Upon loose optimization on Oct 1, 2007 to Nov 30, 2007 data, the Long strategy achieved 3.37 profit factor, 57% profitable, and a steadily rising performance graph. Very good indeed. I was estatic yesterday.

I continued to work on the strategy for the whole day today and developed a Short version using the same concept. The result were very good too (PF > 3, etc).

From the back-testing data, the Long and Short together has PF over 2 and steady rising performance too. From the calculation, I would make over $7000 for the 2 months on 1 contract alone.

Feeling pretty confident, I felt the system was somewhat complete, so I tested it using the lastest 30 days of data. Unfortunately, it failed miserably. PF was way under 1.0 and the gross profit were a mere couple of thousand dollars. The net profit were estimated to be just a few hundred dollars.

So I tested the system on another set of data. August 2007. The result was even worse!

Long story short, I found out that ADX isn’t that reliable to confirm with major swings.

200 contracts / bar the sweet spot for ZG?

The average daily volume of ZG seems to be about 20,000 contracts. Given about 21 hours of trading per day. 20000 contracts / 1260 minutes ~= 15 contracts / minute. So using a minimum of 100 contracts / bar chart seems reasonable. A 200 to 300 contracts bar seem to be a good starting point on first glimpse.

The key is to maintain reaction time of the system while not overtrading. I prefer to catch the big wave and not worry about the dips and spikes too much. Ideal holding period is in hours and not minutes.