Okay, let's test something real-time for a month and see how the results will be. It is a retracement strategy. The strategy is to buy at 25% or 50% of the range. Basically, in the RTH when the market breaks-out above or below the overnight range, buy at 50% retracement with a stop 1 pt. below the high or low. If the 50% retracement price is below the low of the morning session(8-9.30 EST), buy at 25% with a stop 1 pt. below the 75% retracement. Exit at close. Examples coming.
For example; For Friday 3/23. Overnight range: 1443.75-1448.5 Morning range: 1444.5-1448.5 ES goes to 1451 at 10.05est. 50% retracement = (1443.75+1451)/2 = 1447.375 = 1447.5 which is within the morning range. If this number was above the morning range, we'll look to buy at 25% retracement. Stop: 1443.75-1 = 1442.75 max loss: 1447.5-1442.75 = 4.75 pts. On friday, ES closed at 1448 at 4 pm. So we have a gain of 0.5 pts excluding commissions. This is just an example. I will update this thread at the end of the day daily. I am going to track this for a month and see how this works.
One other thing that i'll like to test is the difference in profits/losses by adding one more filter. For example, if we get a long signal today but got stopped out, then on next day we'll take a short signal only. I want to see if that changes the profit/loss. I think it will because we will not be in the market when it is in a trading range.
One thing that I have noticed by going over several day's charts is that it is better not to use this strategy if the market opens at the absolute high or low. Most of the retractement that have turned into a reversal are when the market opens at the high or low of the overnight session. In this case, it is better to trade break-outs, after we get some retracement. For example: The overnight low and high are: 40-45, market opens at 44.75 and goes up to 47 and retraces back to 44. In this case I'll have a buy stop at 47.5 and sell-stop at 39.75.
Trading retracements is quite risky in a trending market. One could easily be stopped out. It will more advantageous to use retracements as the entry point to trade along the direction of the general trend after being confirmed by momentum indicators.
Momentum indicators are a result of price. It is hard to tell whether a market is trending or not till after the fact. Let's see what the results look like in a month. I haven't done any back-testing yet, so I do not know.
What a way to start!!! Loss of 8.25 pts. After looking at previous days, I noticed that the times when these retractments worked well is when your orders get executed before noon. Since this is testing, I'm going to include this in the calculation but in real trading I don't think I would be comfortable with such a wide stop. Another Rule: If your order is not executed by 12.00est, cancel it. So far: 1 trade 0 Win 1 Loss Average loss: 8.25 pts. Here is what I have: Support: 1433.75 Resistance: 1451