Stop And Reverse Trading

the past two weeks, based upon the advice of an excellent trader i respect i have been entering a stop and reverse order rather than exit the market and "sit on the sidelines" waiting for the next trade entry. In essense I have been either long or short the ES emini all the time. My results have been fantastic ( having caught several big moves) but before I say I have discovered the HOLY GRAIL possibly some other traders can comment on this style. I exit the market by 3:45 so there is no overnight risk . Also, my trading capital is $12,000 per contract so I can afford some aberrent losses. thank you.

 

Great while it's volatile and big ranges everyday.

Try that (eg) last February and you would have got chopped to pieces in the sideways mulch!

 

I would tend to agree with funster. The market has had some great intraday moves in the last week where an 'always in the market' strategy would be great. I would just enjoy the rollercoaster ride and milk it for everything I could.

 

THANKS GUYS. AT LEAST I WASNT SCREAMING THAT I FOUND THE THE HOLY GRAIL. BEEN THERE DONE THAT!!

 

Hi LarryBF,

I will let you in on a secret. For the NS, the market tends to move between trending and non-trending phases. My system uses a stop exit during trending phases and a stop reverse during non-trending phases. Primarily because during none trending phases the chance of a major move either way is exactly 50%. While during trending phases the chance of a trend contination are closer to 65%. Like you, this system allow me to occassionally buy within 30 points of the bottom an sit on on those big 70 point cover moves that catch everyone by suprise.

Be careful with a completly long to short / short to long system though. There are times when it can distroy a man. The above should give you an insite in to how and when to apply this strategy.

Runningbear

 

Thanks for sharing your insights Runningbear. Just to clarify, if the trend is up and you are long, you will only go short if the trend goes to neutral or non-trending first?

 

RUNNING BEAR: THANK YOU VERY MUCH FOR THE PRECISE ADVICE

 

I've seen mechanical stop and reverse strategies advertised for sale. One thing they never show you is what happens when the system is wrong ? Will it keep whipsawing you to death ?

 

Exactly, I have two criteria that determine a long upward trending market. When one of them is violated, I exit. if I get a reconfirmation of the long trend I re-enter long in 'none trending' mode. If the second long criteria is broken when I'm long in 'non trending' mode I use the stop reverse, so Im straight from long to short. If while Im short, the second short criteria is achieved, Im in a 'short trending' market and I lengthen my stop then wait for the next exit or stop reversal signal.

Depending on the market conditions. The system can go long trending to exit or long trending straight to a stop reverse. And visa versa.

During the non-trending phase my stop / reverse is half the length of my trending market stops. The great thing about this approach is that a market can go from trending long to non-trending, make a new relative high in non-trending mode then quickly reverse into a trending down pattern with very little support. Because your trading the none trending rules you catch most of the powerful reversal move.

This is a swing system so we are talking 2 or 3 trades a week however I believe it may have some application on hourly bars. I have never bothered to do any research for shorter time frames. It also works on weekly bars. But who trades that time frame?

It works best on the S&P, NASDAQ and bonds.

I guess this approach could work with any number or type of confirmation indicators you wish to use. The important thing is understanding that a trading system needs to be able to recognize when the market is operating in a chaotic or orderly manner.

Runningbear

 

dotslashfuture,

I'm familiar with most of those systems. They are not worth the CDs they are burned on.

Most achieve results similar to coin flipping your entries. They take a high number of losses with the odd very large win. All have huge drawdowns and use optimised historial performance to 'prove' their effectivness.

I read about such a system once that achieved results close to 200% per year over 10 years. Only problem was an 11 month 60% drawdown. Imagine trying to place your trades in the 10th month. Personally any system that has a drawdown of more than two months is simply not robust enough for me. Life is too short to sit out an 11 month drawdown.

Runningbear