Bollinger Band Position Trading Example

Discussion in 'Strategy Development' started by Hook N. Sinker, Sep 2, 2006.

  1. OK lets see what happens when I trade Boeing stock using a Bollinger Band system. Trading begins 2 January 1962 and ends 14 July 2006. These are the rules:

    1) Buy when stock price increases above the 350 day average value plus 2 standard deviations.

    2) Sell when stock price decreases below the 350 day average value.

    3) Position size in shares is 1 percent of account equity divided by 10 times the average true range value. Decrease position size if necessary to remain within equity limit.

    Number of trades 12
    Total profit $ 13615410
    Profit after subtracting $ 10.00 commission, slippage per transaction: $ 13615170
    Risk is 1.00 per cent of equity.
    Drawdown is 0.0961 (9.61 per cent).
    Cumulative Annual Growth Rate (CAGR) is 306.51 per cent.
    CAGR / Drawdown is 31.91
    Instanteously Compounding Annual Growth Rate (ICAGR) is 11.08 per cent.
    Annually Compounding Annual Growth Rate (ACAGR) is 11.72 per cent.
    Information Ratio is 1.03
    Initial capital is $ 100000
    Long trades only.
    Growth rates are calculated after subtracting commission & slippage.

    ===

    Growth is about 307 percent per year and greatest draw down is about 10 percent.
     
  2. This is the second time I've seen you copy and paste these crazy strategies here.

    Why would you make a trade every decade based on a MA of 350 days?

    Seems like you know how to test strategies. Why don't you come up something viable?

    I'd be dead next time I'd get a signal using this.
     
  3. Why position trade long term? The following is what happens when a 10 day average is substituted for the 350 day average in the example above.

    Number of trades 394
    Total profit $ 107978
    Profit after subtracting $ 10.00 commission, slippage per transaction: $ 100098
    Risk is 1.00 per cent of equity.
    Drawdown is 0.5444 (54.44 per cent).
    Cumulative Annual Growth Rate (CAGR) is 2.25 per cent.
    CAGR / Drawdown is 0.04
    Instanteously Compounding Annual Growth Rate (ICAGR) is 1.56 per cent.
    Annually Compounding Annual Growth Rate (ACAGR) is 1.57 per cent.
    Information Ratio is 0.04
    Initial capital is $ 100000
    Long trades only.
    Growth rates are calculated after subtracting commission & slippage.

    Instead of about 307 percent growth with a greatest drawdown of about 10 percent the system now shows about 2 percent growth and a greatest drawdown of about 54 percent.

    Sometimes my best choice is to do nothing, just sit and follow the trend.
     
  4. cashonly

    cashonly Bright Trading, LLC

    Is this just for BA?

    How does it work for a larger universe of stocks?

    Cash
     
  5. hmmm what if you just bought Boeing in 1962 and just held it until 2006. I bet it would still be an impressive return...

    Less commissions too lol....

    Any blue chip tht is still around will show an impressive return if you just bought it in 1962 and held it until 2006....
     
  6. survivorship bias
    Definition

    The tendency for failed companies to be excluded from performance studies due to the fact that they no longer exist. Survivorship bias causes the results of some studies to skew higher because only companies which were successful enough to survive until the end of the period are included. Similarly, mutual fund performance may be misleading due to survivorship bias if the fund family tends to merge or discontinue underperforming funds.
     
    Xela likes this.
  7. LMAO!. Sucks for you I guess. :p
     
  8. what program do you use to back test that? I have esignal and I have no clue how to back test that automatically. I do it manually by graph intraday.
     
  9. I write computer programs and test trading methods. "Modeling" trading methods might be a better phrase. I also write software to model the behavior of an entire portfolio. One day I might post a page of results of portfolio studies. I suspect the behavior of a portfolio is more important than the quality of a trading method. I am performing portfolio modeling studies now.

    I am a little concerned with historical bias. Some companies dissappear because of mergers or some kind of problem. A trend following method exits a long position when price decreases. If the business deteriorates and stock price decreases then a trend following system exits a long position. Commodities and currencies can not merge or go bankrupt. If price falls the system exits long futures or currency positions.

    This example represents a backtest of a trading system using data of a specific security. Traders have only two choices: (1) backtest or (2) do not backtest.

    The alternative to backtesting is guess and hope.
     
    dratsum likes this.
  10. Good point, lots of people love to put down backtesting, but when done CORRECTLY, it's extremely valuable.
     
    #10     Dec 11, 2006