Tuesday, 26 December 2017

Do you want to be spot-on or making money, maybe both?

Well nobody can be right at all times.  Accept it and move on.  Rather focus on the second part, making money.
The following strategy is a very easy, but proven concept.  I’ve tested it and gladly share the results.  For this strategy, we are using the Moving Average Envelope as an indicator.  Plot a standard 14 period MAE, with a 2% offset* on the close price.  Repeat it with another one, with a 1% offset* setting.  All setting and variables can be adjusted to personal preferences.  *Note: These offset settings are recommended for the J200 tradable index and needs adjustment for each other share.

The result should look like the following graph:
The strategy works as follows: Find areas where the closing price over extends the outer bands and wait for it to close back within the membrane area.  This will then trigger you buying or selling.  Place a protective stop, just below recent lows for the long position or above recent highs for the short position.   For the exit, you can use the trend line and once violated close the trade.  Alternatively, switch the trade on the next trigger.  A target at the opposing inner band and the protective stop at the crossest, opposite outer band can also be used as an other option.

Note that the exit on trend line violation maybe premature and we can lose out on the next rally.  Neither was there a buying trigger for rally A.
This was tested with data over 700 days. 22 Long and 28 Short triggers were generated, leaving us with 50 triggers over these 700 days. About a trigger every 14 trading days. A maximum drawdown close to 5% (a protective stop would prevented it) and a maximum benefit just shy off 10% over 10 trading days or a total of 40% profit during these 700 trading days.  The result was closely to a 50/50 right/wrong per trigger, but looking at the summation results it's a different story. The conclusion is, when you're on the right side of the trade, stay invested.  In converse, when you on the wrong side, get out as fast as you can.
This strategy is spot-on and will make money for you.

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