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i'm trying to determine if i should be considering yesterday's high or low in my strategy. i've got a strategy that has been measured over about 300 trades at roughly 3 trades per day.
i wanted to see if i added to the strategy the ability to avoid trades where the target would exceed yesterday's high or yesterday's low. for example:
if the current price is lower than yesterday's high, and the current price + 1st contract target would be higher than yesterday's high, don't trade. inverse for shorts.
i was unable to prove any benefit with just this change. the strategy took far fewer trades but yielded no better win/loss ratio, win percentage, or drawdown.
so i then re-optimized the strategy thinking well the other values might now be tweaked because there is (presumably) less risk so if i avoid these higher-risk trades (into yesterdays high/low) then maybe the tweaking of remaining strategy values will help.
again, i was unable to prove any benefit. i re-optimized the strategy against several formulas that i've written and while there was a few conditions of increased net profit, the increase was less than 10% while the number of trades increased 50% and drawdown increased 150%. this is obviously not preferred behavior.
so i ask do fellow traders who believe that yesterdays high or low should be respected, do you have long term sustainable factual evidence to this point? i mean sure you can point to a few charts and make observations, but have you observed it over months of activity and hundreds of trades to see what the long term benefits are?
if so, can you please share your research and method? perhaps i am at fault here with my method.
"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain
Can you help answer these questions from other members on NexusFi?
I have never been big on the previous day's high and low. sometimes the Overnight high is useful and same with overnight low. For me alot depends on what kinda trading day its going to be. choppy, range bound, or trend. if its choppy or range bound then these values might matter, otherwise i don't pay much attention. I'm bigger on pivot points and fib numbers, as well as the opening range.
And lets not forget the VWAP, the robots at 85 broad love the VWAP. If I could trade with only one indicator VWAP would probably be the one.
For me, and the guys at Traders Int, pivot points are the most important. Their backtesting showed trades had lower probability of success at the pivots then anywhere else. I hope that helps
High and Low are very important but maybe not in the way you're using them. I use the high and low all the time in my trading. I use it in 3 ways:
- a high volume high/low is usually retested, and if tested on lower volume then there is often a reversal or a false breakout
- In my trading I use a higher high to confirm an entry point and a lower low to confirm an exit (or reversal).
- I try to set stops above/below recent swing high/low
I'm currently working on a mechanical strategy so I put in that once my exit criteria is met I will exit once there is a lower low (for longs). I then ran the test with and without this check. The results were much better with it. I was able to stay in trades longer. It made a big difference.
So it's definitely important, you just have to find out how to use it. I think the reason you're not seeing an improvement is because the high or low of just any day probably isn't important. It's at market turning points, support & resistance, etc. that the high & low is valuable. If you look at my 3 points above, they're at turning points.
what time frames are you trading cunparis? i believe you are a swing trader right? when you say a high volume high/low i assume you are looking at a higher time frame than i normally do say maybe a 15m chart or something?
"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain
I do both day & swing. For day trading I use 2097, 699, & 233 tick chart for ES (I use 3 timeframes and trade when I get a signal and/or confirmation on all 3). I also do swing trading using weekly, daily, and an intraday chart (135 minute or 60 minute).
I try to stick to things that work on all timeframes, and my points above about high/low are valid for any timeframe. The exception to the all timeframe bit is when using breadth data because that has to fit the data source (usually weekly or daily). For example I haven't found pc ratio useful intraday.
15m chart is good, do you use other timeframes? If I were to trade 15m I'd use one up (45m or 60m - I prefer a multiple of 3 but 4 works well too) and one down (5m).
i don't use any minute charts just range volume and tick charts. just trying to learn how you are using the high volume high low.
i'm not using hh, ll or yesterdays high, low, open or none of that. so far my answer to my original post on this thread is "no it is not important".
to most traders a hh or ll or a swing high/low are subjective. everyone draws them differently (which originating bar to which completion bar) for breakouts. drawing them on a tick chart will yield vastly different result than on a range chart an so forth.
settings stops outside of swing area... the question that comes to mind is the same question i ask myself when i try to prove or disprove any new concept or theory on the market. does this action/decision improve the outcome? improvement for me does not mean higher net profit it means better net profit. better is not always higher. improved ratios for instance etc. so i wonder how many trades you are excluded from vs. how many you stay in and at the end of the day if setting the stop outside the swing area is beneficial by documented research for instance.
not trying to pick on you just make an observation that i have seen many fellow traders rush to judgement based on what they see on a couple charts or what a friend says. we should remember these friends well 90-95% of them anyway are losing their asses so probably best to not listen to them. so i always like to document a theory one way or another by doing research and trial and error trying to both prove and disprove it. does waiting for a hh on a long entry really work? for instance you've said you've tried it on your strategy and it does. but i've found that you cannot really just change that one component on or off and do a real test. you must instead rework more of your strategy as if you fully believed that the hh made no difference, thus you give it all of your effort to prove (disprove) it doesnt work. and vice versa for when you want to prove it does. then you document this and the numbers wont lie.
sorry for rambling this is now sufficiently off topic to my original post and intention but nonetheless an important concept that i feel many traders have not yet learned for themselves.
"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain
My answer is that it can be important depending on where the high or low occurs and how you use it. What you have proved in your test is that it's not important for your particular setup. You're using that to try and prove it's unimportant in a general sense. Just because it's not important in your particular setup doesn't mean anything for a general sense. Just as me saying it's important for my strategies doesn't mean anything for using high/low outside of my strategies.
For the volume tops, here is an example. Look at the red arrow. This is a low volume test of the top. Here is where I'd use a lower low. As soon as I get a lower low I'd consider going short. There is also a bearish divergence with the stochastics. I wouldn't go short on this alone but when my other criteria are met then the low volume test of the top is a good confirmation. We get a lower low on the bar after the blue.
A bit later the top is tested yet again on higher volume and eventually the top is taken out but then sellers come in and push price back down. So not only is volume important but it's important to know if it's buying volume or selling volume.
This 2nd top is tested too. Sellers come in and push price down but then buyers come in and price goes up. It continues going up the rest of the session.
Just using the volume at the top isn't enough to trade this, it's just one more piece of the puzzle which can confirm or reject a potential setup. I use it a lot.
I cannot give you a definite answer about whether yesterday's high or low is important or not because I am still testing whether it is. I have a strong suspicion that it is. Here are some of my thoughts:
Do you believe that "running of the stops" occur? I think it is highly likely that those stops are above the high and below the low.
A lot of people trade the "gap" - and some believe gaps are closed 80% of the time (have not tested this myself). If it is true then again yesterday's high and low is important since for example if the market opens below yesterday's low it will go higher 80% of the time to close the gap between the open and the low.
I am working on testing:
If market opens above high to go short
If market opens below low to go long
I hope from the above it is clear that I am not referring to yesterday's high and low per se - but the "pit session" high and low - maybe you should test using the pit session high and low and not the whole day's high and low?
1 - Gaps do get filled but it's the 20% that don't that completely mess you up if you fade them. The R:R is often skewed because the gap could be filled a day or two later. Often gap up shows motivated buyers and it takes a while for them to become exhausted.
2 - I like your idea for your test. You're using price and not indicators. I'm very interested in your results.
3 - I find the globex high/low (on ES) is often tested during the regular session. When I see a test it sets up a potential double top/bottom. If I get divergences with my volume indicator then it makes it even more reliable. This is one of my favorite setups.
What you have proved in your test is that it's not important for your particular setup. You're using that to try and prove it's unimportant in a general sense. Just because it's not important in your particular setup doesn't mean anything for a general sense. Just as me saying it's important for my strategies doesn't mean anything for using high/low outside of my strategies.