Please Comment On My New Strategy

[carltonp]

Hello Traders,

I have been working on trading strategy that I have been paper trading for a while. I will attempt to explain it in as much detail as I can - if I forget to add some crucial information let me know.

Let me start by saying the overall trading style is based on comparative relative analysis.

I'm going to first provide some of the detail in bullet point then elaborate.

• I'm trading YM.
• I am using the components of the Nasdaq 100 for comparative analysis.
• I use On Balance Volume and Advance / Decline of the 100 stocks mentioned above.
• I trade on 2 minute interval.
• I have programmed the stocks into Excel.

Now I will explain how I use the information and Excel.

As I'm sure you're aware at this stage that I use the 100 stocks to assess the likely direction of YM.

The data from the stocks are fed into Excel.

I have programmed Excel to compare the OBV values over two intervals - in this case two minutes. So, lets say the value of the OBV for a particular stock was 100 and the price was 20 at the end of one minute. Now, during the following minute Excel would compare the OBV and Price of the stock and if both OBV and Price were increasing for that particular stock Excel would add it to a table. Excel would do that for all 100 stocks individually and if say 85 of the 100 were increasing in both OBV and Price I would use that as indication as to where I think the YM might be going.

I have used the same calculation that is used for the NYSE Tick for the 100 stocks. So at any time I can see how many stocks are trading on an uptick vs how many are trading on a down tick over a two minute period. Again, this is achieved by programming Excel to compare stocks trading on an uptick and downtick over a two minute interval.

What is a little more tricky is programming Excel to alert me when the price of YM has remained stagnant for 3 seconds. I have no reason why I chose three seconds - it just seemed like a good number to make a decision if the stock has remained at a certain price level for three seconds or more.


So that is what is set up, now for my style.

If say 85 or more of the stocks are increasing in both OBV and Price there will be a pullback. Sometimes the pullback will turn into full reversal, but 8 - 10 times no matter how strong the move there will be some form of pullback/reversal. I won't actually place a trade on YM when I pullback is identified on the chart but I will only trade a pullback when the pullback is accompanied with an increase in OBV and Price on the stocks in my spreadsheet (to be honest I only use a chart for visual affect, not for actual trading)

Now once I've decided that the pullback is in full affect as described above I wait to see at what price YM has remained stagnant and how many times it has remained stagnant at a certain price. Let me give you an example:

1. Pullback is in full effect.
2. OBV and Price on stocks are going in the direction of the pullback.
3. YM has remained stagnant at say 11000 for three seconds.
4. After three seconds, the price has moved in the direction of the pullback or the direction of the OBV on stocks and is now 11002 and stays a further three seconds at 11002.
5. The price then moves to 11004.
6. I will then place a trade at 11004.

While all this is happening the direction of OBV and Price for the stocks are either moving in the direction of the pullback or the price of YM.

My exits are far simpler, but we can get into that another time.

I'm really sorry for the very long explanation but I think if I want decent feedback then I should provide as much information as possible.

It has been suggested that I forget about charts completely I use T&S. I've never used T&S but will learn if more people suggest its the way to go.

I'm sure there are aspects that I have missed, but just ask me any questions you like. I just need good honest feedback and suggestions.

I look forward to hearing from you all.

Cheers

 

[Brock Landers]

I think you have done a lot of good work here, but I don't expect it to manifest itself into a trading edge. In the end, I can't see that you have accounted for the Nasdaq / Dow spread, which is going to bring alot of noise into your P&L.

But, what you have done seems sensible enough, which is a good start. Far better than many strategies you see banded around.
If I were you, I would look at

1) Switching from the Nasdaq/Dow to S&P/Nasdaq, for various reasons which I won't go into.
2) Including in your strategy some way of examining the nq/sp futures spread
3) Introduce some tape reading...

... because, if you are looking at trigger of, say, 3 seconds, it should not be too much effort to look at the tape/dom. Then, for example, you might notice that, say, the nasdaq is leading the equity rally, and there are ETFs and buy programs working the constituent stocks, but someone is offering the spread.

Sorry to be critical, but to be fair you have here the basics of a trading strategy that may well have some merit, I'm just trying to give you direction.

GL

 

[carltonp]

GL

Not critical at all. That's the kind of feedback I'm after.

Cheers

 

[carltonp]

... because, if you are looking at trigger of, say, 3 seconds, it should not be too much effort to look at the tape/dom. Then, for example, you might notice that, say, the nasdaq is leading the equity rally, and there are ETFs and buy programs working the constituent stocks, but someone is offering the spread.

GL

I'm still relatively new. Would you mind providing an explanation?

Cheers

 

[carltonp]

OK T2W members

It is clear to me that a number of you have misunderstood what I'm trying to achieve with my system. As a result, I posted the same thread, word-for-word on a rival forum and they too didn't fully understand what my goal was.

Therefore, I have failed in making myself clear.

Having admitted my failure there was one guy who totally got it. This is how he replied:

"What is statistically significant about 3 second pauses? Or pauses at all? Have you measured the significance? Is there a significant probability increase only if you have OBV/Priced in trend? Or in counter trend?

Are you trading in line with OBV/Price or against?

It sounds like you're using OBV/Price composite (NDX) as your primary indicator. But something to do with YM pauses as a trigger. That doesn't seem very deterministic.

I like your OBV/Price composite concept, but would want a couple of price action confirmations on the YM (not just pauses and toggles) to trigger trades."

That is it ladies and gentlemen, he's got it. This is what I need help with.

So, in order to more feedback I thought I would add a real sample. Here it is.

Yesterday, 09/08/11 the price of YM paused for 6 seconds at 11:12:14 to 11:12:20 EST at 11455.

Now, it has been suggested that if I really want to know what was going on during those six seconds I should study the 'Time and Sales' at that time. It just so happens I recorded the Time and Sales at that time. I have attached what happened.

I might submit another thread because the question I'm about to ask might confuse the issue, but I think its related.

So, the question is, can someone adept at reading the tape tell me what they think was going on according to the attached snapshot of T&S during the pause?

That's it folks.

If you can answer that question you may have answered everything I need to know about my system - whether its crap, has merit or otherwise.

If you're able to provide decent feedback on this snapshot I will send another snapshot where the price paused at 5 seconds, 8 seconds. If there are members willing to share constructive feedback I will happily share my Excel spreadsheet with all the formulas (that's if you're interested in it)

To assist you, all pauses happen after a pullback.

Wow, my posts are really long.....

Cheers
P.S.

 

[eegozi]

OK T2W members

It is clear to me that a number of you have misunderstood what I'm trying to achieve with my system. As a result, I posted the same thread, word-for-word on a rival forum and they too didn't fully understand what my goal was.

Therefore, I have failed in making myself clear.

Having admitted my failure there was one guy who totally got it. This is how he replied:

"What is statistically significant about 3 second pauses? Or pauses at all? Have you measured the significance? Is there a significant probability increase only if you have OBV/Priced in trend? Or in counter trend?

Are you trading in line with OBV/Price or against?

It sounds like you're using OBV/Price composite (NDX) as your primary indicator. But something to do with YM pauses as a trigger. That doesn't seem very deterministic.

I like your OBV/Price composite concept, but would want a couple of price action confirmations on the YM (not just pauses and toggles) to trigger trades."

That is it ladies and gentlemen, he's got it. This is what I need help with.

So, in order to more feedback I thought I would add a real sample. Here it is.

Yesterday, 09/08/11 the price of YM paused for 6 seconds at 11:12:14 to 11:12:20 EST at 11455.

Now, it has been suggested that if I really want to know what was going on during those six seconds I should study the 'Time and Sales' at that time. It just so happens I recorded the Time and Sales at that time. I have attached what happened.

I might submit another thread because the question I'm about to ask might confuse the issue, but I think its related.

So, the question is, can someone adept at reading the tape tell me what they think was going on according to the attached snapshot of T&S during the pause?

That's it folks.

If you can answer that question you may have answered everything I need to know about my system - whether its crap, has merit or otherwise.

If you're able to provide decent feedback on this snapshot I will send another snapshot where the price paused at 5 seconds, 8 seconds. If there are members willing to share constructive feedback I will happily share my Excel spreadsheet with all the formulas (that's if you're interested in it)

To assist you, all pauses happen after a pullback.

Wow, my posts are really long.....

Cheers
P.S.

No offense but.....have you ever heard the concept of K.I.S.S?

I think this is WAAY too complicated to develop into a working "edge". Too many moving parts to manipulate and refine to get your edge which is probably no different than just entering at random or what you think is the reversal.

Also, is your premise that the increase in OBV and price designates a reversal of the trend or a sign of a trend that is strong and therefore your entry is in the direction upon retracement/pullback from that recent high. Too me it sounds like you think this a reversal. But in my opinion that would designate a stronger trend as OBV and price increase.

Just my 2 cents.

 

[carltonp]

No offense but.....have you ever heard the concept of K.I.S.S?

I think this is WAAY too complicated to develop into a working "edge". Too many moving parts to manipulate and refine to get your edge which is probably no different than just entering at random or what you think is the reversal.
.

The beauty of my system is that all the working parts are programed. I don't have do a thing but sit there and wait to be alerted when my setup is in place. However, I agree it would be impossible to focus on all the moving parts.

What is K.I.S.S.?

 

[ichi]

What is K.I.S.S.?

Keep It Simple Stupid