Optiontimer's Project

[optiontimer 10]

HI,

 

How is everyone doing with this trading method? Has it held up during the last 2 weeks?

 

thx

MMS

 

This strategy, like any, will have periods of drawdown, plateau, and profits. Two weeks or two months or two quarters or two years - it always does the same: drawdown, profit, plateau, profit, drawdown, plateau in some order or other.

 

I have been primarily in cash as far as stock and stock options go. I tend to trade equities mostly from the long side, and current price action has not favored the long side.

 

For commodities and futures, I play both sides. The only position I hold currently in the project account is short coffee. The entry was made on 9/14. In principle it was made in accordance with the system outlined here, though in terms of the specifics of the system the entry would be judged to have been early. Additional short entries were signalled on 9/27 and 10/06, but I did not add any in this account as I have just not paid as much attention to it as I might have. The total equity (open + closed) in the project account is currently $54,157.89. I am thinking that once this coffee position closes I'll split the account and trade two project accounts - one for futures and the other for stocks & options.

 

My largest positions in my main account are short coffee, short copper, and short soybeans. Each is sitting with large open profits and stop losses that should assure profitable closes should the down trends suddenly reverse. I have also had numerous small losses, e.g. sugar, cotton, hogs, and both cattle markets.

 

Drawdown ... Plateau ... Profit ... Plateua ... Drawdown ... Profit ... Drawdown ... Plateau ...

 

In spite of losses in cotton, hogs, and feeder cattle, as well as ealier losses in wheat, bean oil, oats, EURUSD, and OJ, the account is in a nice profit, largely from a long 10yr, short YM, and now short coffee ...

[Dirk 10]

HI , may be in 48 hours we can enter short EURUSD......

[Dirk 10]

EURUSD position on radar screen...this is an help to follow many pairs.....

[Dirk 10]

GOLD ready to short tomorrow ???

[PWP 10]

Yes Dirk - I agree - there are many possible setups for end of day today. We'll see. - PWP

[livernik 10]

Daily euro usd

Is the green rectangle the exact entry as οτ method??

[optiontimer 10]

Daily euro usd

Is the green rectangle the exact entry as οτ method??

 

Strictly speaking, using this method as outlined in this thread, you would have shorted the 6E (EURUSD futures) on 10/26 at approx. 1.3840 and you would have been stopped out the next day at approx 1.3960 (-120 pips). You would have re-shorted on 11/03 at approx 1.4120 and you would still be short with an open profit of approx +800 pips.

 

Strictly speaking, there has been no new signal based on the system and indicators as set forth here in this thread without at least slightly bending the rules.

[JTurner77 10]

OptionTimer:

 

Great thread. I am only thru the first 80 posts and have about 320 more to go to catch up. SIUYA brought this thread to my attention after I posted some thoughts in the beginners forum about my trading style. Interestingly enough, although I am not nearly as regimented or structured as this system I am beginning to learn about my style mirrors this very well and will serve as a great way to allowing me to become much more disciplined.

 

Additionally, not to sound lazy, but can you point me to the post number detailing the exact rules and indicators you decided to go with? In the first 80 posts you guys are feeling it out and discussing stochastics, rate of change, etc. It appears you settled on stochasticRSI. I use the think or swim platform and the stochasticRSI default settings are:

 

rsi length: 14

overbought: 80

oversold: 20

rsi choice: Wilder

rsi price: Close

k period: 14

d period: 3

slowing period: 1

smoothing type: Simple Moving Average

 

Can you clarify what settings you are using?

 

I am trying to follow along but would like to be able to have my charting software up with the same parameters you are using while going through these charts.

 

Thank you for the tremendous amount of time you have devoted to this thread.

[JTurner77 10]

Point is - dont focus on making a better entry, as while yes it might have been better to have waited and had a better timed entry....you only know this through hindsight, the issue here and IMHO the mistake was in the premature exit based on trying to eliminate anxiety after the worst part of the anxiety had passed....its like locking the barn door after the horse has bolted and feeling better about it.

 

SIUYA:

 

In my thread I have discussed my tendency to cut my winners too short and I believe this commet by you hits the nail on the head for me.

 

As you know, I enter up tight against resistance or down at support levels in my trading to minimize my risk exposure. However, there is an anxiety level that is probably higher than other entries because you are so closed to getting stopped out. I think you have crystialized this issue for me in that there is such a wave of anxiety at my entry points that once my trade moves in my favor and the anxiety begins to subside I want to exit the trade. Poor analogy but I liken it to a running back that breaks thru the line of scrimmage, gets by the linebackers and then takes a knee out in the open field when he is in the secondary and has nothing but open field and the goal line ahead of him.

 

Brilliant observation on your part. Thank you.

[Avarice 10]

 

Additionally, not to sound lazy, but can you point me to the post number detailing the exact rules and indicators you decided to go with? In the first 80 posts you guys are feeling it out and discussing stochastics, rate of change, etc. It appears you settled on stochasticRSI. I use the think or swim platform and the stochasticRSI default settings are:

 

[...]

 

Can you clarify what settings you are using?

 

J, you will find a summarized description of the system in post #344.

 

I wouldn't get too hung up about finding the "right" indicator parameters. One of the main points that has been made in this threat is that the technical manner in which you enter a trade (i.e. stuff like stochRSI settings, even the usage of stochRSI or any other oscillator) is a personal choice and pretty irrelevant. As long as your trade selection method complies to OT's rules (enter on a weakening pullback of an ongoing trend) you should be good with respect to this thread.

 

I know this didn't help much but if you want to dig deeper you should really read the entire thread, it's pretty instructive (at least it was for me). :missy:

[JTurner77 10]

J, you will find a summarized description of the system in post #344.

 

I wouldn't get too hung up about finding the "right" indicator parameters. One of the main points that has been made in this threat is that the technical manner in which you enter a trade (i.e. stuff like stochRSI settings, even the usage of stochRSI or any other oscillator) is a personal choice and pretty irrelevant. As long as your trade selection method complies to OT's rules (enter on a weakening pullback of an ongoing trend) you should be good with respect to this thread.

 

I know this didn't help much but if you want to dig deeper you should really read the entire thread, it's pretty instructive (at least it was for me). :missy:

 

 

Thank you for responding. I am aware of what you said and take it to heart, however, I am not familiar with the StochRSI indicator and how its parts make up the indicator. I am more concerned about having settings that are timeframe consistent so to speak.

 

For example, in this thread it is stated that the moving average doesnt have to be 21 and 65 and that it is flexible. However, a 4 and 9 MA would not work for this system since it is a little too far off. I am trying to make sure my settings for my stochRSI are in the ballpark for these rules.

 

Can anyone confirm this for me based on my post above? I am pretty sure I need to change both the 14 settings to 7. Do I need to modify anything else?

[livernik 10]

Hi J Turner ,

About optiontimer method

 

I will try to help a little ,( AS I COPIED THE BASICS FROM PREVIOUS POSTS)

stoch rsi in metastock language is ( copy paste from previous posts and worked for me ):

 

bars:= Input("Periods",2,255,7);

Rs:= RSI(C,bars);

StochRsi:= (Rs-LLV(Rs,bars))/(HHV(Rs,bars)-LLV(Rs,bars)+.000001)*100;

StochRsi

 

If you cant do it with stoch rsi , you may use

momentum 8 , or stoch 7 or something similar

You also need

EMA 21

EMA 65

I SUPPOSE YOY MAY PLAY WITH PARAMETERS AROUND 21 +- AND 65 +-

Try to keep ratio 21 to 65 around 1 to 3

 

so you have as time parameters:

7 ..stoch

21..ema

65 ..ema

 

The best is to go through all the posts , in brief here is some copy paste"( from previous posts )

......

When the 21 EMA is above the 65 EMA, we do not want to be short, and we may be looking for a long entry signal. Only oversold readings( bottom prices ) of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly below. A long entry is signaled when stochRSI has turned up on a closing basis, and entry is made the next day if price makes a higher high than the prior day.

 

When the 21 EMA is below the 65 EMA, we do not want to be long, and we may be looking for a short entry. Only overbought readings ( at the tops ) of the stochRSI are relevant, and they are relevant if and only if price has retraced back to a level between the EMA's or even slightly above. A short entry is signaled when stochRSI has turned down on a closing basis, and entry is made the next day if price makes a lower low than the prior day. .....

In previous posts you will find charts and many interesting instructions.

Edited December 21, 2011 by livernik

[zosorock 10]

Hi Optiontimer,

 

You have done a great job of explaining Kroll's strategy. Thank you very much for all the work you put into your project. I have just now came across this thread and would like to request a quick confirmation to make sure I got it right. Do you see a sell signal for Oats on 12/28 with entry on the 29th?

 

Thank you!

[JTurner77 10]

ZOS:

 

I am definitely not OT, but my understanding is that you are correct based on my charts/indicators.

 

I am curious to know how you all view cotton, wheat, corn and beans under the rules of this system. They all triggered sell signals on 12/29 or 12/30 but the next day's low either equaled the signal day low or fell just short of the low.

 

The markets then rallied again and the stockRSI setting did not climb to 100, but did rise once again and is now beginning to tick down. Are these simply "pass" trades?

[iwshares 10]

Hi guys,

 

I've been following this thread since it's inception, but haven't until recently designed a system I was comfortable with. I have used OT's entry system as part of the day trading plan I'm getting going at the moment.

 

I trade the 5m spot EUR/USD charts from 9am-5pm UK time Monday-Friday. After that time I will manage open trades but will not open new positions. Entry is as per the rules. If another setup signal is given while a position is open then it is taken. Initial stop is placed above the high/below the low of the signal bar (shorts/longs). Initial stop position size is no greater than 2% of account equity. For exit in OT (a) I trailed the 65 EMA. Any open positions on Friday were closed prior to market close for the week.

 

In back testing of 50 trades over a month period OT (a) worked out at 1.03 expectancy. The last week I've been trading with a small amount of real capital to test myself and my broker. Possibly due to greater volatility, combined with an element of poor execution - a major move was missed, which skewed things a little - in a week it worked out at -0.12 expectancy, which was a little disappointing.

 

However at the same time I papertraded with a different set of profit taking rules and the expectancy of that worked out at 0.72. Again it would have been higher with the missed move, but these things can always happen so I'm not going to fiddle the data to make it seem better. I used the fills I got with OT (a) but recorded the outcome with different stop movements.

 

OT (b) is the same as OT (a) except I move stop loss 1 pip above the swing highs (for shorts) or below the swing lows (for longs). Look at Thales thread for a definition of swing highs and lows.

 

In raw pip terms (a) was -7, (b) was 214.

 

Next week I'm going to trade the new profit rules live. Now I know I'm not comparing like for like exactly with 1 month of backtest versus 1 week of live, but the main reason for changing is I wasn't very comfortable leaving so much open profit with the trailing EMA, especially given the significantly longer periods the trades were open. In order to keep a semblance of scientific accuracy I will papertrade (a) while live trading (b). I'll keep you posted with my results and conclusions. If anyone has any questions let me know, I would really appreciate any input.

 

Once again thanks OT for this great idea, and after a week of live trading a trailing stop exit, moving average crossover intraday I totally understand the placement in the Trading Psychology of TL...

[iwshares 10]

Could only trade 2 days this week so don't have enough trades for a proper analysis of OT (b). Hypothetically could be up 28 pips, though no way to know how the markets, or I for that matter, would have behaved. While discretionary stop is a better fit, I have slipped into taking profit early this week, something I will have to keep an eye on.

 

In daily chart world (still have the time to keep an eye on it even though not daytrading) EUR/GBP spot and GBP/CHF spot look like they'll have a short and long setup respectively - I'll check later when the spot markets have closed for the week. I'll place entry orders on Sunday night if so - OT (b) exit rules.

 

Lots of other spot currency pairs are also overbought/oversold and between the EMA e.g. EUR/USD, GBP/USD, GBP/JPY, EUR/JPY, USD/CHF. Interesting how so many currency pairs have suddenly had setups or possible setups in the last couple of days. Any thoughts on the correlation OT? How is it comparing to the futures charts? Have you come across similar patterns between 6E, 6B, 6Z etc?

 

I've also done some testing of a slight variant on OT daytrade (finished work early this evening....). The imaginatively titled OT © uses 20 pip range bars on the EUR/USD spot forex chart, traded between 9am-5pm UK time. Stop loss is 22 pips, swing highs/lows for trailing stop like OT (b). Due to a lack of data I could only test late April 2011-May 2011, and Dec 2011 to present. Results of 25 trades (1 trade open at the moment) was +915 pips, mean expectancy 1.5R. Risking 1% per trade this gave equity increase of 41%.

 

I completely accept that 25 trades, randomly distributed, is not suitable for analysis, however as range bars seem popular at the moment I thought someone might find my results interesting, good luck if you profit from using (once you've throughly tested it yourself etc).

 

Hope my ramblings are useful for other traders out there, have a great weekend all.

[NeoTrader 10]

Hello all. Been a while, but thought I would come back and post some trades. Hope all is well with everyone in the new year. Wanted to thank OT again for sharing his insight, it has helped me break through to the next "step" in my trading evolution. I have struggled some with setting wide enough stops, and controlling my urge to hop out early.

 

As they say though, the only way out is through. :bang head:

 

On to the trade.

Setup on GBP/USD

 

Signal forming at 1.5532

Stop placed at 15775 about 2.5 X ATR14 at previous resistance

Keeping a close eye on all that support around 1.5300, we shall see.

 

cheers

[NeoTrader 10]

Short entry not triggered, price is still headed up. At least this might provide me a lower risk entry. Will be watching.

[NeoTrader 10]

...but the main reason for changing is I wasn't very comfortable leaving so much open profit with the trailing EMA, especially given the significantly longer periods the trades were open.

 

 

IWShares

 

I would be very interested in your new exit strategy. I have been struggling with coming up with a decent alternative to trailing the EMA as I am not comfortable with that either.

 

thanks in advance

[iwshares 10]

Hi Neotrader,

 

For simplicity I've attached a chart of the daily EUR/USD as it's quite clear to show my trailing stop system. A short entry is marked along with the initial stop and two possible exits. As price makes each lower high marked with H move your stop down to 1 pip above the high. With this system entry was at 1.3591, stop 1.3816 - profit 712 pips or 2.8 R. Trailing the EMA would have taken you out at pips for 475 pips or 2.1 R.

 

As can be seen there is an element of discretion with the highs and lows. My biggest problem using the discretionary trailing stop method on shorter charts is letting swing highs and lows fully develop. However doing so is worth it as there have been quite a few 60+ point moves in the last few weeks anyway (not all of which I have been able to take advantage of). This has made my live performance worse than backtesting but I will carry on practising in the live markets with the small risk capital I am using. Please note that so far my forward testing of the OT system based on range bars is proving more profitable but only time will tell.

 

P.p.s I've also attached a picture of what the range bar system looks a bit like for contrast.

N.b. 7 days overbought on StochRSI and price above 65 EMA so I'm looking out for a short on the daily (could happen Monday if ECB announce QE and it's not been priced in so it drops heavily - I'll be trading intraday so will take the trades I'm presented with).

 

P.s. I would have taken the short at 1.4 too and then added to my position by also taking the short as shown in the diagram. If I was using the 65 EMA exit system I would have adjusted my stop to the 65 EMA once price dropped below the 21 EMA so would have been stopped out sooner than with the swing high trailing system which would have had two positions open for most of the down move.

 

However it seems a case of swings and roundabouts as sometime the EMA will stop you out sooner (intraday often before price then catapulted up, but before the StochRSI indicated a trade) and sometimes the swing highs will stop you so make sure you test which is best for your time frame both in terms of expectancy, profit, drawdown and how much open profit is left on the table.

[NeoTrader 10]

Thank you for your detailed response. Using the previous swing high makes a lot of sense to me compared to the 65 EMA on the daily.

 

I'll have to do some of my own testing on the shorter time frames. I am currently testing with the 7 and 21EMA with 3 period RSI respectively on the intra-day time frames. I find these settings more comfortable for setups. Effectively just cutting the averages down to a third. It just seems that 21 and 65 is too sluggish intraday. (this very may well be stating the obvoius) I am still on the beginning half of my trading journey if that's not already painfully apparent.

 

You've inspired me to do some research on my own regarding the use of range bars. I use them currently to find support and resistance levels on higher frame charts, but not usually during live trading. :missy:

 

p.s.

Looks like the shorts are on in EUR/USD and GBP/USD

[iwshares 10]

Hi Neotrader,

 

I'd be interested to know how many setups form during your trading day, how long a period do you trade for, do you focus on one pair or several like I do with the daily chart watching (though I'm not actively trading the longterm setups)?

 

I find with the standard settings on average 2-5 setups form each day. If a strong intraday trend develops I generally have two opportunities to enter depending on when it starts. By taking all the entry signals I'm given this sometimes means I can gain more from a trend without risking too much equity on the first entry, though I always think of each trade in terms of its individual risk/return.

 

If a price is trading in a range, perhaps after a strong move the previous day I'm often stopped out on all those setups. Something to consider trying, which I looked at but decided not to use, is if you find yourself stopped out frequently you could add another longer term moving average e.g. 63 MA and not take any setups unless the long EMA is below the medium and short (for longs) or above the medium and short (for shorts).

 

Another thing to consider is filtering intraday entries based on either greater risk/return of exclusively short or long trades (need quite a lot of testing to determine this). You could alternatively take entries in line with the daily (or any longer timeframe) trend, again you'll need to do quite a bit of testing.

 

N.b. I know this sounds like the classic "I'm improving a working system syndrome" trader line! In back testing I found I was happy with the number of setups versus the return so stuck to the simplicity of the two EMA with StochRSI confirmation and focussed on working on my own exit strategy.

 

I'd be interested to hear how things go for you, I appreciate how long it can take to back and forward test a strategy.

[SIUYA 11]

If I may comment....good comments iwshares.....

and all of this is just personal opinion

 

Many years ago I could not get past the issues with MAs and in much the same way worked out for me at least visually spotting the high and low swings worked best.....unfortunately these are always really lagging, but they do seem to give for me a better perspective on changing market moves. I also have found that range bars give a clearer picture of this - however in testing in some backtests it appears that using a roughly equivalent time bar - eg; for me a 5min bar in FX equates to a 10 pt range bar - depending on the currency, and this is also a moveable feast - that the time based bars actually might test better in hindsight.....non the less I stick with visually spotting my swings by and large. (when you have a 80-100 pt range in a day and 50 of that occurs in 5 mins which does happen it can be an issue)

 

I find with the standard settings on average 2-5 setups form each day. If a strong intraday trend develops I generally have two opportunities to enter depending on when it starts. By taking all the entry signals I'm given this sometimes means I can gain more from a trend without risking too much equity on the first entry, though I always think of each trade in terms of its individual risk/return.

 

This is an important point as ideally it does allow you to pyramid - and can build quite large positions (if not closing out) as you are mentally only really risking a small amount each time - leaving open PL on the table is not an issue once a real trend develops. This also seems to work quite well with manually moving stops via visual swings and lows.....with the aim being not to get stopped out at break even too often, but instead to get as many trades on as possible when a trend develops. It can be very frustrating at times, but once on board, very rewarding.

 

If a price is trading in a range, perhaps after a strong move the previous day I'm often stopped out on all those setups. Something to consider trying, which I looked at but decided not to use, is if you find yourself stopped out frequently you could add another longer term moving average e.g. 63 MA and not take any setups unless the long EMA is below the medium and short (for longs) or above the medium and short (for shorts).

 

Another thing to consider is filtering intraday entries based on either greater risk/return of exclusively short or long trades (need quite a lot of testing to determine this). You could alternatively take entries in line with the daily (or any longer timeframe) trend, again you'll need to do quite a bit of testing.

 

there are many other ideas as well and ideally as mentioned by zdo - they are system specific and everything ends up being a trade off between being not on a trade, missing out on capturing open pl, win v loss ratios etc; etc; Much depends on what you are trying to achieve and how comfortable you are running positions etc; etc;

 

Ideas as extra food for thought.

- rather than use MAs, use the mid lines of the donchian channels. These also give a feel for 50% retacements and often are flatter than a MA. Ultimately they often get you out at a similar spot but seem less jittery

- after a strong move, dont take the first trade, look for a small loosing trade first, or

- after a strong move only then apply a filter

- personally i like to just trade with the trend that already exists in my framework as it makes it easier

- modify your entries dependant on what is happening - eg; if the instrument rallies into strong resistance in a down trend, do you have a sell limit order sitting right at resistance just in case, do you wait for a resumption of the trend down before entering, do you wait for the MA to cross.....again all personal preferences that work for you.....the idea being to capture the next move down with as little risk as possible per trade.

- do you think a an instrument such as FX trades the same way as a commodity, or a share index.....forget about a system needs to be robust.....think about more that a system needs to make money, and I can live with that system.

- take into account the rumpled ones idea of only taking a trade in the top/bottom 20 pips of the day.

 

N.b. I know this sounds like the classic "I'm improving a working system syndrome" trader line! In back testing I found I was happy with the number of setups versus the return so stuck to the simplicity of the two EMA with StochRSI confirmation and focussed on working on my own exit strategy.

 

I'd be interested to hear how things go for you, I appreciate how long it can take to back and forward test a strategy.

 

so what....there are lots of ways to skin a cat, and you have to do what works for you.....especially when it comes to discretionary trading.

[NeoTrader 10]

Hi Neotrader,

 

I'd be interested to know how many setups form during your trading day, how long a period do you trade for, do you focus on one pair or several like I do with the daily chart watching (though I'm not actively trading the longterm setups)?

 

 

N.b. I know this sounds like the classic "I'm improving a working system syndrome" trader line! In back testing I found I was happy with the number of setups versus the return so stuck to the simplicity of the two EMA with StochRSI confirmation and focussed on working on my own exit strategy.

 

I'd be interested to hear how things go for you, I appreciate how long it can take to back and forward test a strategy.

 

As of right now I only trade on the daily. I haven't done enough testing itra-day to start pulling the trigger on that time frame.

 

I too am sticking with just the EMAs and the StochRSI. I also will draw in levels of support and resistance that I see to look for levels of confluence. Ultimately I'd like to be able to ditch the EMAs and such and be able to read the price naked.

 

"Fixing" a working system is also a concern. I have seen, heard, and read about all the pitfalls of taking a system and trying to force it to fit your biases and comforts, so I am very wary to fiddle with things too much. Like you I am just going to focus on taking all my setups, sticking to my stops, and focusing on making good exits.

 

Some weeks its more of a struggle than others. As we all know a range-bound market is death to a trend following method but I worry about applying filters. I believe you start eroding the effectiveness of the system and begin missing moves that would otherwise keep your expectancy up.

 

As for instruments, I focus on just 1 or 2 currencies and I trade spot. Don't have capital for futures.

 

Some day....

[zosorock 10]

ZOS:

 

I am definitely not OT, but my understanding is that you are correct based on my charts/indicators.

 

Cool, thanks! :thumbs up: I thought so. I have been forward and back testing the system for a month now and the results are pretty good if you exercise good risk management.

 

I am curious to know how you all view cotton, wheat, corn and beans under the rules of this system. They all triggered sell signals on 12/29 or 12/30 but the next day's low either equaled the signal day low or fell just short of the low.

 

The markets then rallied again and the stockRSI setting did not climb to 100, but did rise once again and is now beginning to tick down. Are these simply "pass" trades?

 

I was wondering about these too. I noticed that if the price crosses the "trigger price" before hitting the "stop price" it is usually still a good entry as well, although normally not as good as a textbook signal (meaning there is a higher failure rate on these). It is a deviation from the system though so, as tempting as they might be, at least on this thread it may be better to stay with just the ones the match all the system's criteria for the sake of consistency.