Even Simpler Profitable Method

Discussion in 'Technical Analysis' started by panzerman, Jan 16, 2007.

  1. Method:

    Wait for the current bar to close above (below) the previous bar. If close above, go long with stop below low of bar. If close below, go short with stop above high of bar.

    No, I haven't backtested this, but it is the essence of simplicity. Since the markets are fractal in nature, it should be valid for any time frame.
     
  2. In for backtested results.

    edit - I would do it but I have no backtesting software. Seriously. If I had backtesting software I'd probably spend 5 hours a night coming up with stuff and backtesting it.

    edit 2 - As I read this thread I have XMSR's 2 min chart up on my other monitor, and it looks like this strategy would have worked today. Now I'm going to sit back and wait for someone to tell me why I'm wrong. Actually, you'd have to have a good strategy of when to take profits with this method. Maybe keep changing your stop to the low of the PREVIOUS candle as the price advances (and do the reverse for shorting).
     
  3. An exit strategy would be to wait for a reversal bar and close or reverse your position.

    Example:

    You are long, sell when the current bar closes below the previous bar. You could also reverse your position and get short at this time.

    As with any method you will get stopped out and possibly whipsawed, but losses should be manageable as there are clearly defined exit prices, and you will be on the right side of the trend most times.
     
  4. First, your commissions would eat you alive. Second this will only work in trending markets. And if you've watched the market for a decade or so, you realize that 80% of the time the market is non-trending noise.
     
  5. I don't agree with the commission statement, but this is a technique to put one on the right side of the trend. In sideways markets, this method will often stop you out. However, when prices start to run, this method will get you in early, and on the side of the momentum.

    The price action within a trend is not necessarily random, but the timing of when a trend starts and when it will end is random. This method, I believe, will get you in on the trend when it does occur, and should help keep losses under control.

    I'll emphasize again that I haven't backtested this strategy. I'm just basing it on emperical observation.
     
  6. If you are aiming for simplicity, why not toss a coin and place a trade based on its outcome. If you aim to make money, you'll realize that a method without a back test doesn't exist. If you see an article that says that "The simplest thing to do to prevent cancer is to cut your hair short because it breaks the fractal structure of the skin", would you believe it in the absense of any evidence whatsoever?

    Here are the back test results for your method: on the 5-min December 2006 S&P E-Mini future from 09/07/2006 to 12/06/2006, it generates 1952 trades for a loss of $3255 per contract traded. If you simply bought and held it instead, you would have made about $5300 per contract. As RiceRocket guessed correctly, your commissions along would be about $2343 per contract (at a very modest rate of $1.20 per side). So there.
     
  7. Nice way to blow out your account. Thanks for the contribution.

    RoughTrader
     
  8. Panzerman,

    Don't let this discourage you. Keep coming up with ideas, but find a way to test them first.

    Traveler
     
  9. As a consolation, I'd note that the original "simple profitable method" after which you apparently named your thread does not withstand the scrutiny of a back test either.
     
  10. ess1096

    ess1096

    Actually, it's common to use the opening 30 minute bar with that strategy. Since many believe the opening is meaningless and the market chooses it's direction after 10:00 am.
     
    #10     Jan 18, 2007