Improving The Simple Gap Strategy Part 5

August 10, 2015 5:00 am0 comments

In the last article of the series, Improving The Simple Gap Strategy Part 4, I continued my attempt to improve the Simple Gap strategy by testing dynamic stops and targets. As it turned out these did not seem to offer much benefit. In this article I’m going to take what we have learned over the past couple of articles to create a modified version of the Simple Gap strategy and test it on the out-of-sample data. If you will recall we have determined that the following two filters improved our baseline trading system. Gap Size Filter. Not taking trades when a gap is larger than 9 points. This was tested in Improving The Simple Gap Strategy Part 2 Previous Day Filter. Only taking trades […]

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Improving The Simple Gap Strategy Part 4

July 27, 2015 5:00 am2 comments

In the last article of this series, Improving The Simple Gap Strategy Part 3, I tested a price-based filter on the in-sample data. This filter was based upon the price action of the previous trading day. During this test we discovered that if the previous trading day was a down-day we could open a Simple Gap trade today. On the other hand, if the previous trading day was an up-day we should not take our Simple Gap trade today. In this article I’m going to test dynamic stops and targets. Currently the strategy uses a fixed dollar amount for both the profit target and stop loss. I’m going to use the size of the gap as a factor in determining both the profit […]

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Improving The Simple Gap Strategy Part 3

July 13, 2015 5:00 am14 comments

In the last article in this series, Improving The Simple Gap Strategy Part 2, I tested two filters on the OOS sample data. The first filter was a day-of-week (DOW) filter which did not produce decent results.  The second filter, Gap Size, did show promising results. Reviewing my notes from years ago, I also discovered that the size of the gap will play an important factor in the success of many gap strategies. So, this was not a surprise. It was something I should have recalled, but it was worth testing again. In this article I’m going to test a another idea. At the conclusion of this article you will find the free EasyLanguage code for this strategy. Testing Environment Because I’m currently testing and developing […]

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A Different Kind of System…

March 9, 2015 5:00 am35 comments

So I’ve got this great new system I wanted to share: it wins 57% of the time with a great sample size of 915 trades, only risks a meager $100 a trade, has a max drawdown of $700, has made money 9 out of the past 10 years, has a nice steady equity curve, and has made $10,207 after slippage and commissions since January 2005. Interested? Of course you are, but first let’s conduct a thought experiment before I share the details of the system with you. What exactly is a “system”? What exactly is an “edge”? Better yet, what exactly is our goal in “system trading”? Can we create systems for other markets, outside of the stock market? Well, […]

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Improving the Simple ETF Rotational Trading Model

February 23, 2015 5:00 am3 comments

In last week’s article called, “Backtesting A Basic ETF Rotation System in Excel – Free Download“, Dan presented a simple rotational trading model which anyone could implement given a little knowledge in Excel. What I love about trading models like this is the simplicity. So often simplicity trumps complication. Simple systems often have one important characteristic. They often get you out of the market during bear markets and get you back in to ride the next bull cycle. That is, if you are disciplined enough to actually follow the rules, which of course is another entire topic. Was the presented trading model perfect? Of course not. Looking at the equity curve it’s not very smooth. It’s personally not something I would […]

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Backtesting A Basic ETF Rotation System in Excel – Free Download

February 16, 2015 5:00 am5 comments

Some Background: Let’s face it, technology has made it possible to access a wide range of tools for developing, backtesting, and optimizing systems. However, a simple (but powerful) tool like Excel is a great way to validate a trading system. In this example we’re going to be keeping things really simple and backtesting a monthly ETF rotation system using 5 symbols that significantly outperforms buy and hold. All you need is Excel and an Internet connection. If you’re reading this, I’m guessing you have the Internet connection. This post assumes you have a basic understanding of Excel, but you don’t need to be an expert. You can either build the Excel file yourself by following the steps below or download […]

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Ivy-10 Portfolio 2014 Update

January 19, 2015 5:00 am2 comments

It’s been a year since I’ve updated the performance of this portfolio so here it goes! What is the Ivy-10 Portfolio? Back in 2012 I finished reading a very interesting book called, “The Ivy Portfolio”. This book was written by two money managers, Mebane Faber and Eric Richardson, who work at Cambria Investment Management. The authors wanted to answer the question of why money managers who manage some of the world’s best Ivy League schools produce such consistent results. Routinely Harvard and Yale endowments produce double digit annual returns. Since 1985 Yale University has returned around 16% annual returns and Harvard over 15% annual returns. Not only did they produce outstanding returns, but they did it by also reducing volatility and […]

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Connors 2-Period RSI Update For 2014

January 5, 2015 5:00 am20 comments

With the year 2015 only being a few days old, it’s time to look at the very popular 2-period RSI trading method by Larry Connors and Cesar Alvarez. We all know there are no magic indicators but there is an indicator that certainly acted like magic over several decades. What indicator is it? Our reliable RSI indicator. The modified 2-period RSI trading model makes new highs in 2014. Click To Tweet Over the past few years the standard 2-period trading model as defined in the book, “Short Term Trading Strategies That Work”, has been in a drawdown. During 2011 the market experienced a sudden and sustained drop which put the trading model into loss. Recall, the trading model had no stops. Since this drop the model has […]

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Improving The Simple Gap Strategy Part 2

December 8, 2014 5:00 am10 comments

In the previous article, “Testing A Simple Gap Strategy“, we were looking at two other filters in an attempt to improve the Gap #1 strategy. The first filter was a day-of-the-week filter while the other filter was based upon the size of the gaps. These filters were tested on our in-sample data segment and appeared to help our trading performance. In this article, let’s see how these filters perform on the out-of-sample (OOS) data segment. Baseline OOS Performance We’ll need a metric to compare our new filters against, and the original baseline system will be perfect. The baseline system will be applied to the OOS and the results will be used as our benchmark. We can see the baseline performance is […]

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Improving The Simple Gap Strategy, Part 1

November 17, 2014 5:00 am35 comments

Let’s try to improve upon the gap strategy that was provided by Ben Little’s article entitled, “Testing A Simple Gap Strategy.” In this article Ben demonstrated a simple trading model, called Gap Fade 31, based upon the opening gap in the S&P futures market. This was the first gap based article on System Trader Success and it drew a fair amount of attention. Personally, I’ve not looked at gap strategies since 2008. I never did find a gap strategy that I liked. However, I thought this would be a good time to review some concepts I’ve not reviewed in many years. Gap Fade #1 Trading Model This trading model opened positions in the opposite direction of a gap. Thus, up-gaps were […]

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