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Bobwest and Kevindogs advice can be like elixir of life from very experienced traders to us, what kevindog has mentioned about "Curve fitting" was something that took me very very long time to figure out, almost half of my trading life.
Good points, and I really do appreciate your taking the time to help me. First, sideways action, as I have used it in this case, maybe too broad a term. I am not talking about trade-able swings in a trading range. I am referring in this case to tight, horizontal trading ranges of 4-8 points with defined support and resistance. To me, those are relatively easy to spot after spending 2 years in Al Brooks' trading room. It's just that I have tried purely price action trading, and while it works great for Al, I have accepted my limitations, and I have discovered I need more clear entry and exit criteria, so I am trying to create code to mimic Al's discretionary rules.
I haven't really tried yet to add conditions to make the strategy viable in all timeframes. I certainly can do this. The strategy was profitable across all tested timeframes, albeit with unacceptable drawdowns. I can add an ADX filter, etc., especially if I can add a 5-minute ADX into the one-minute strategy. I know this can be done with BloodHound, but I don't know if I can do it with NT Strategy Builder.
I am confident that I will be able to get it to work, because the strategy uses a 1-minute chart to mimic the common tactic of placing limit orders to buy below bars and sell above bars on the 5-minute chart in a tight trading range. I have a limit of 1 trade every 4 bars to avoid excessive overhead and overtrading. My target is 8 ticks to cover commissions and slippage, and to allow one scale in to increase probability.
This is a work in progress, so I will continue to refine and test it. If you have any other comments, I wholeheartedly welcome them.
Thanks.
Kevin: as of 12:30, today is what I meant by lots of tails. My strategy is a 1-minute strategy, but it's based on the action on the 5-minute chart (I'm essentially trading the 5-minute chart using 1 minute entries). Most of the 5-minute bars have been reversing on the close, and every trend has been reversed. Limit order traders are making money buying below everything, and selling above everything. Price is oscillating around the 20 EMA. Breakouts on every timeframe are being faded. This is a sideways market, and it's pretty easy to identify in real time.
Back testing is more a function of how many trades you log in your back test than how many days you back test. I would suggest googling margin of error for more information on the topic. Let’s say you log 500 trades which would give you a 4% margin of error for your win rate. This means that your win rate could be +-4%. The more trades you do the lower the margin for error will be so a 2,000 trade sample gives you a 2% margin of error.
This is important because if you know your win rate with a given strategy then you can look at your RR to determine if your going to be profitable or not. Hope this helps.
Thanks for the reply. Are you speaking about a source for the algorithm? Would it be useful to an individual trader? I'm currently building my own algorithms to have the computer take the trades that I would take as a discretionary trader, but the computer can take them more quickly, more accurately, and without emotion.
I understand that institutions are constantly reevaluating their algorithms and updating them. Has that been your experience as an institutional trader? Or do they usually leave them alone until they stop working?
Thanks. I will check that out. I understand what statistical significance is; I just don't know how to find the margin of error for my own trades. That will be useful. Currently my algorithms show win rate of ~> 70%. One is a 1 minute strategy, so I have tested well over 500 trades.
