Supplimental study to: Swing trading tactics: Buying after a low close in S&P 500 Futures (ES) and ETF (SPY)

This article is intended as a supplement to this article.  If you have not read the original, make sure to do so.   Lets evaluate the entry rule we simulated in our final study of the original article, but with a different exit strategy.

Here are the updated rules:

  • IF today’s close is in the bottom 20% of today’s range
  • Buy the next day with a limit order 8 points below the open
  • Sell on the close the first day where the close will be in the top 50% of the current day’s range.

Here is a graphical representation of the results.  Once again, we are using a compounded return on a fully funded futures account to compute results.  This puts the strategy’s impact at the forefront by removing the impact of leverage choices.

 

 

This supplemental study highlights the  impact that the exit strategy has on a trading approach, and also reemphasizes the importance of compounding returns over time.   The average holding period has now gone from intraday to slightly over one trading day.

Because we are evaluating futures contracts, lets take advantage of the leverage offered and trade the same rule-set using a position size that is 150% of  equity value and examine the results:

Ending equity for this one strategy jumps to over $3,000,000.  Since futures typically allow for 10 to 1 leverage, this leverage amount is actually fairly conservative.  However, it is better to apply leverage to a portfolio of strategies, rather than to a single strategy.

Once again, this one idea is not designed or intended to be a stand-alone trading method.  It would function best as part of a portfolio of trading edges.  Also, keep in mind that as with any analysis that uses historical data, there is never a guarantee that a trading or investing idea will continue to work in the future.

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Good Trading.

 

 

 

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