Two Swing Trade Systems – Part 2

Yesterday I discussed two swing-trade systems that work pretty well in out-of-sample data. While each works differently, they overlap enough that you don’t get any benefit from running them both at the same time. One great thing about these two systems is that they’re dead simple to manage. Trade at the open or the close, simple math, etc., etc.

I will repeat the caveat from yesterday: these trades average <1% gain per trade. You must have sufficient capital and/or a low/nonexistent commission fee to make these work. While you can use leveraged ETFs or account leverage to help increase the profit/commission ratio, you also increase your chance of a catastrophic hole in your money.

In the lead image, you can see that I have indicators for both RSI and PIRDPO. PIRDPO occurs more frequently, and the RSI trades are a complete subset of the PIRDPO trades (during this particular time frame). There is no benefit to trading both systems.

The Simple RSI System

Two Swing Trade Systems - Part 2

Calculate the two-period RSI value of SPY at the end of the day. You could for example use this free online chart.
• When the value is less than or equal to 12, there’s your signal.
• Buy at the open of the next day.
• Sell at the first close that is higher than your buy price, but you can’t sell the same day you buy.
• Exit ten days later at the close, if still not profitable.
• Don’t enter into a second trade if you get a new signal while still in a previous trade.

That’s it. “WTF? Where are the stops?!”, you say. To which I reply, “what’s your language?” Sure there’s a stop… it’s a time stop. You get out after a set period of time. It has been my experience that swing trades rarely benefit from defined stop loss exits. They sometimes don’t even benefit from profit targets, but in this case the profit target is simply “any”.

If you think this sounds stupid, please refer back to the chart in the previous post.

The Simple PIRDPO System

Two Swing Trade Systems - Part 2

First off, what does “PIRDPO” stand for? “Position In Range Detrended Price Oscillator”. Just say, “purd-poh” for ease of use. This one requires that you keep a spreadsheet.

Keep track of the closing prices of SPY for every day.
• Calculate the average of the last 11 days in another column. This will be a moving average (“MA”).
• In the next column, calculate the detrended price, which is ( Close – MA ) / MA
• In the next column, calculate the minimum of the last 11 days worth of detrended prices.
• If today’s detrended price is the lowest of the last 11 days, there’s your signal.
• Buy at the next day’s open.
• Sell at the first close that is higher than your buy price, but you can’t sell the same day you buy.
• Exit ten days later at the close, if still not profitable.
• Don’t enter into a second trade if you get a new signal while still in a previous trade.

Pretty flippin’ simple, eh? Now go make some money.

–by Matt Haines from blog throwinggoodmoney

About the Author Matt Haines