Thursday, August 28, 2008

3 Day Lows - Part 3

Here's the 3 Day Low of the DIA, although it's optimized for a 10 day fixed exit.
All studies shown are without stops. I looked at some implications of stops yesterday to mange risk but this is still a work in progress.
Above is thumbnail record of the optimization study indicating the relative returns with a 7 to 10 day fixed exit. Clearly 10 is better, by about $ 1500, the relative trade performance almost identical using 7 and 10 day exit values.
This will be the last post on the 3 day low system, for a while. I've got lots of other themes I would like to explore and time is, well. . .time is a dwindling resource.
Some of the trading parameters I hope to touch on include:
Volume. . . that's a biggy
Pivots. . . my favorite daytrading momentum guide
Linear Regression. . . another versatile indicator of market probabilities
Pairs Trading. . . often overlooked but some prop shops swear by it as the best way to hedge risk
Here are a number of 3 Day low/ Exit on 7th day system performance examples. All of them stick to the 3/7 formula except MCD (and DIA as noted above), which actually works better on 3/11 settings. . . probably because it's been in a solid uptrend since 4/2003 when the study began. MCD also has a great consecutive losers number (2). The QS and IWM records are repeats of previous 3/7 posts, but I wanted to look at some other indices within that context.
Of the ETFs profiled, I prefer the IWM, just because of the $ return relative to the cost of the underlying. I'm still uncomfortable with the size of the avg losing trade and max intraday dawdown, and intend to hone in on better drawdown control for future posts.

The monthly chart of EWC (Canada) looks very similar to MCD for the 2003-2008 test period and given the relative net prices of MCD and EWC, the performance results are comparable.
It would be interesting to run a screen of the major 50 ETFs using the 3/7 system criteria and then trade the top 5 or 10 performers as a basket. I suspect the entry points would be fairly close given the results of some other systems I've tested here. Applying a breakeven floor stop and a trailing % ATR stop should cull out the weaker components of the basket, with all exits capped at 7 days. The screen should also be rolling, run monthly and upgrading the basket to only include the top performers.
OK, who's up to that task?


Cuccaa said...

How about combining the three day lows, with like the Popper "system", and only buy when price is above a certain MA, like the 25-50 daily MA??? IE, pull backs in an uptrend.

jb said...

I just did what cucca suggested. Using the same dates, a 200 day ma, if Close is above the ma go long, opposite for shorts,I get a 90% arr, 81% profitable. Without the ma, I get a much better arr and better profitability.

Like you site BZ


bzbtrader said...

Thanks for sharing your results. I suspect it's important that MA be upslope in order for the cucca trade to qualify as a pullback and intend to check that out also.
That cucca, he's always thinking.

QUIKTDR said...

Maximum contracts held are 100 or 1?

bzbtrader said...

I understand the possible confusion. Max Contract Size on the TS Report page refers to the position size.
I typically use 100 shares = 100 contracts for test purposes. Do not confuse options terminology where 1 contract = 100 shares with TS's concept of contract size for equities.
TS contract size is also applicable to futures contracts trading, which I don't do.