Wednesday, July 09, 2008

Happy Trails

Here's a little different approach to the markets using moving averages. In this case IWM. What I've done here is construct an oscillator by subtracting a moving average (MA) from the closing price. When the close is higher than the moving average, momentum is positive. When the close is lower than the moving average, momentum is bearish. The system therefore uses 2 oscillators - the high minus the MA, and the low minus the MA. If the trend is up the oscillator lows set up BUYS. If the trend is down the oscillator highs set up SELLs.
This system also uses a stop loss ($310) and a thing TS calls the Breakeven Floor amount ($25).
An interesting area for further research would be deploying the system on intraday bars (10 and 60 minute, for example) to test shorter term efficacy.

Although the results are very impressive this system has certain unique characteristics that not everyone will be comfortable with. As seen in the equity curve below, there are distinct flat periods of equity growth. This is because of the break even floor. If the position starts to go against you, it's out. So there are a lot of trades with zero gain. It's only when price breaks out (either up or down) that the system rolls.
When the performance results cite the # of consecutive winners and losers, the numbers are really reflecting zero gain or loss trades as non-losers. A bit of semantics here, but necessary to understand how the system works.


mr rolfsson said...

I really like this strategy. I have tested this in TS8 on e-minis with great results. Let me know if I can help you out with some testing.

pdmoney said...

Great Blog! Just found you through Traderfeed. I also just started using Tradestation myself and love all the great info on here. I will be checking in regularly!