Post Tagged with: "mean reversion"

Simple Shorting Strategy

October 17, 2016 5:00 am9 comments

Over the years I’ve looked at several very simple long strategies that were published in the book, “Short Term Trading Strategies That Work” by Larry Connors and Cesar Alvarez. Those articles include the following long strategies: Double Seven Strategy RSI(2) Strategy VIX Stretch Strategy RSI And VIX Strategy Buried within Connors and Alvarez’s book you will find one simple shorting strategy which can be used on the major market indices. In this article I will review this strategy and also combine it with the Double Shorting strategy we explored last week. Simple Shorting Strategy The rules of this system are very simple. The instrument must be below its 200 day moving average. If the instrument closes up for four or more days in […]

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Better To Buy Strength or Weakness?

October 3, 2016 5:00 am4 comments

Emotionally it’s a lot easier to buy on strength than to buy on weakness. Buying into a falling market feels unnatural. Your instincts warn that price may continue to fall resulting in lost capital. On the other hand buying when the market makes new highs feels more natural. Price is moving in your direction and the sky is the limit! However, with so many other aspects of trading what feels natural or easy is often the opposite of what you should be doing. Trading psychology can make or break not only your mental state-of-mind but your trading account. In this post I’m going to compare these two different trading strategies on the S&P E-mini futures market and see which one produces better […]

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Using System Parameter Randomization To Estimate Future Returns

August 1, 2016 5:00 am10 comments

You just spent a ton of time creating a trading system and being very careful not to over-optimize. You then tested it on the out-of-sample data segment and the performance looks good. What’s next? Jump right into the live market? Maybe. But instead, you would like to perform one more test called System Parameter Randomization. The article, System Parameter Permutation – a better alternative?, provided a unique way to estimate possible future returns of a trading system. This method is called System Parameter Randomization (SPR) but, there was no practical example within the article. I like practical examples and I know you probably do too. So, in this article I’m going to take an example trading model from System Trader Success, and follow the guidelines found in the SPR article and […]

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When To Go Short: S&P Intraday Price Study

March 14, 2016 5:00 am0 comments

This article is going to be an extension of a previous article where we performed an intraday price study. We do this by exploring different market sessions to determine if we can find an edge for a possible intraday trading system. If you have not read the previous article, When To Go Long, I urge you to read this because we are going to jump right in and explore the same concept on the short side. As a reminder here are the five different market sessions we will be looking at. Six Market Sessions Pre-Market, 06:20 – 08:30 The Open, 08:30 to 10:40 Midday, 10:40 to 13:50 The Close, 13:50 to 15:00 Post-Market, 15:00 to 17:10 We will be using the […]

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What is the difference between Relative Strength and Trend Following ?

September 28, 2015 5:00 am1 comment

After publishing our Two Centuries of Momentum article last week, we received a number of requests for our thoughts on the recent underperformance of multi-asset, relative strength portfolios Now, we tend to fall more on the trend following side of momentum.  So we wanted to spend some time talking about the difference between relative strength and trend following. Hopefully, in doing so, we can also shed some light on expected performance differences between the strategies as well as against a benchmark. So what is a multi-asset, relative strength strategy?  Traditionally, a relative strength strategy works by sorting securities based on some trailing return metric and tilting the portfolio towards those that have recently out-performed. For example, a “Best 3” strategy might […]

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Trend Testing S&P Emini Futures Market

July 20, 2015 5:00 am5 comments

Some markets exhibit trending behavior while others do not. I was wondering what would be a good way to determine if a given market exhibits trending behavior. One simple method to accomplish this is to build a simple trend following strategy and test how well it performs.  Then build a simple mean reversion strategy and apply it to the same market. From there we can see which trading strategy performs better. This simple trend following strategy consists of a single 50-period simple moving average (SMA) on a daily chart. To keep things simple, the system only takes long signals. It opens a new trade when price crosses above the moving average and closes that position when a daily bar closes […]

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S&P Overnight Trading Model

September 8, 2014 5:00 am13 comments

The last couple of articles I’ve written were highlighting simple trading models that could be the basis for a profitable trading system on the S&P market. These ideas would be suitable either for the ETF market or the Emini futures market. This article will explore yet another simple trading model. Recently I was inspired by a post at Quantifiable Strategies titled, “How To Make Money From The Close Until Tomorrow’s Open in SPY/S&P 500” by Oddmund Grotte. This brief blog post builds up the work of Rob Hanna at Overnight Edges to test another simple S&P model. I thought I would create the model in EasyLanguage and put it through my own testing. The Overnight Edge The overnight edge is […]

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Inverting The RSI and VIX Strategy

July 7, 2014 5:00 am2 comments

Today we look at a reader’s question and reverse our RSI and VIX strategy to take short positions. Let’s do this and see if any edge awaits us. As pointed out in a previous article, “Profit By Combing RSI and VIX“, combining RSI and VIX can be a profitable strategy for trading the S&P. If you’re not familiar with this simple yet powerful strategy, please take a look at the previous article first. Shortly after the original article was posted a reader asked what would this strategy look like if we reversed the rules and took short positions. It’s an interesting idea and something I’ve not tested in many years. Here’s why. First of all I’m not a big fan […]

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Testing A Euro Currency Futures Scalping Strategy, Part 2

January 13, 2014 5:00 am5 comments

This is a second part of examining a scalping strategy for the Euro currency futures. In the first article, Testing A Euro Currency Futures Scalping Strategy, we introduced a simple shorting concept. As a quick review here is what we started with. The strategy is based upon a 1% price envelope below the current price on a 5-minute chart. When price closes beyond the envelope a long trade is opened. The trade is closed when price returns to the envelope. Below is an image of the system with a trade example. Notice there are times when price touches the lower bands and no trade is entered. Price must close below the band to trigger a trade. We concluded the first article with a look at adding […]

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Connors 2-Period RSI Update For 2013

March 18, 2013 5:00 am88 comments

It’s been about a year since I’ve taken a 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. Over the past few years the standard 2-period trading system 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 system into loss. It has been slowly recovering since. Below is an equity graph depicting the trading system’s equity curve trading the SPX index from 1983. You can easily see the […]

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