Improving The Double Seven Strategy

About the Author Jeff Swanson

Jeff is the founder of System Trader Success - a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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  • BlueHorseshoe says:

    One advantage of the RSI(2) over this strategy is that the RSI has time decay built into its formula.

    Consider a long position that goes against you . . .

    The harder the market continues to fall, the LESS it will then need to rise in order for the RSI to cause an exit.

    When in the same situation with the Double Seven strategy, the harder the market falls, the MORE it will need to rise in order to exceed prior closes and cause an exit.

    So, with the RSI approach, the assumption that the greater the period of time you’re trapped in a losing position the less likely it is to show a significant profit is built in.

    To do something similar with the Double Seven, you could introduce a rule along the lines of “For each additional day the position is open, the number of days for which the high/low must be exceeded in order to trigger an exit is decreased by one.” After 7 days in a position, only a single higher high or lower low would be needed to exit.

    The RSI seems a much more straightforward way of achieving this though?

    • This is a great observation about the differences between the two systems. It’s a great point.

  • BlueHorseshoe says:

    Something like this would be interesting:

    If c=highest(c,(7-barssinceentry)) then
    sell this bar;

    If c=lowest(c,(7-barssinceentry)) then
    buytocover this bar;

    • I’ll have to try this out. Thanks for the idea! I’ll post the results here.

  • Niels says:

    Hi Jeff,

    I have a basic question concerning buy orders. In this system (for most other systems it’s also true), you get follow up signals if price is going down for more than 7 days. Should one still buy as long as price drops or will you stop buying after the signal until the position is closed? I wonder because I’m implementing the double seven system into a home brew backtesting app and encountered big drawdowns in the account due to big position build up – but it stills seems to profit.

    Niels

    • If I understand you correctly Niels, I think you’re talking about placing multiple buy orders. If this is true then that’s not how the system was tested. Once a position is opened all further buy signals are ignored. It’s only when your account is flat can a buy order be placed.

      • Niels says:

        Thanks. That was exactly what I wanted to know.
        Great website by the way. I’m learning a lot.

  • Here are the results from the exits recommended by BlueHorseshoe. The two-period RSI exit works nice with this system as well. In terms of pure profit, the trailing stop captures more of it at a cost of more losing trades. The RSI exit does provide you with a higher percentage of winners, but less net profit. It seems the original Double 7 system is a nice compromise between the trailing exits and RSI exits. In short, all of the exits “work”, but the question is, what’s right for you?Bluehoreshoe-Results

  • Jim P. says:

    Great site Jeff, thank you for sharing your work. Question for you: In your opinion, is there an RSI(2) parameter that would be viable for an end of day (EOD) only trader, with very next trading day exit? In general, have you come across any viable L/S strategy ideas for very next trading day direction, using EOD only trades? Thanks in advance.

    • Thanks for the kind words Jim. I think the RSI(2) can be used by EOD traders. If you are looking to for ideas for trading the next days direction using end-of-day data, many of the Larry Connors strategy ideas could be used as a starting point.

  • […] is covered as soon as a seven day high is marked. Pretty simple but profitable as you can see on System Trader Success.  The original system can be implemented like in the following C++ […]

  • Jonatan says:

    Hi Jeff, Congratulations for the great website! I like the Connors approach to the markets. I See various articles with Connors systems but all are very similar (the systems , not the articles)and it is impossible use various at the same time. Do you use any system with real money? If you need to pick one, which one do you choose? Thanks!

    • Thanks Jonatan. I do trade Connors based setups with real money. The RSI(2), RSI-TRIN, and RSI(2) Accumulation are all setups I use. I use these signals on daily charts and then zoom in to a 5-minute chart to pinpoint entries. I’ve been doing this for several years with success. I think there are others that are worth pursuing but these are the ones I use currently.

      • Jonatan says:

        Thank you for the answer Jeff. Do you trade the original rules or do you add some kind of stop?

        • I’ve added a stop which is managed on the 5-minute chart.

          • Jonatan says:

            Could you please elaborate on this Jeff? I Think that would be very useful for many. Thanks!

  • Paolo says:

    Interesting Article. How do you claculate your stop? Thank You.

  • Johnathen says:

    This is probably a silly question but if your max position size is 2K then how does the system get 7K+ of drawdowns?

    • Hello Johnathen. Remember the 2K max position size is per trade. If you have three consecutive trades that hit the stop loss of $2,000 then you are already down $6,000. If on the next trade you exit at a $1,000 loss you now have a 7K drawdown.

      • Johnathen says:

        I assume you are applying some leverage so? Otherwise the only way you could loss the a full 2k trade is if the instruments value goes to zero.

        Also your oringinal test says there are no stops so how do you position size in that case?

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