Trade Ideas Blog

Following This Bear Swing Set-Up Netted a 84% Win Rate

Mar 11, 2009

Improved OddsMaker Models Swing Trades
Noticed anything?  We changed The OddsMaker by expanding the range of the backtest and introducing longer hold times with which to model trading rules.  The details of the enhancements are in the User’s Guide.  This post demonstrates via an example strategy how the changes improve the universe of possible trading scenarios a trader can imagine for a given strategy.
The results page shows how the new features in The OddsMaker improve important trading decisions.  Although active day traders think in minutes the majority of active investors still see days and even weeks as very short investment time horizons.  The OddsMaker’s insight into the viability of longer term trends helps swing traders improve their decisions and at the same time helps intraday traders uncover powerful strategies in a time horizon with probabilities of trading outcomes which they feel more comfortable.  Let’s take a look at a relatively simple yet powerful example:  
The Set-Up Explains How to Keep Trading Despite ‘the bounce’
In the alerts window below we are looking at stocks that are moving up at least 25 cents in the last minute and at that same time they are approaching the opening price for the day.  We call this window: 
(Click on the header to open this strategy).  We use 1 Alert subject to 6 Filters:
Running up now; Filter=0.25 ($) Running Up Now = $0.25

Min Price=10 (Dollars)  Min Price = $10

Max Price=50 (Dollars)  Max Price = $50

Max Distance from Inside Market=0.01 (%)  Min Distance from Inside Market = 0.01%

Min Daily Volume=200,000 (Shares / Day)  Min Daily Volume = 200,000 (shares/day)

Min Up from the Open=-0.05 ($)  Min Up from Open = -$0.05

Max Up from the Open=-0.01 ($)  Max Up from Open = -$0.01

This time we are going to backtest to see what happens if we hold this trade for 10 days; exiting at the close after 10 days.
Figure 1: The new OddsMaker configuration window with expanded backtesting ranges
 
The results are quite compelling.
 
Figure 2: The backtested results using the expanded ranges of the improved OddsMaker
Compare the results above (Figure 2) to the results below (Figure 3) which show the backtest before the enhancements in time.
 
Figure 3: Results from the previous version of The OddsMaker
The previous version allowed a maximum hold of 1 overnight period (i.e., until the next day’s open).  Going farther in time simply gives the trader more confidence to see the trend.  
Conclusion
We’ve made this improvement based on our customers’ feedback.  Traders cannot afford any blind spots in their trading and their tools should reflect adjustments they make based on alerts, filters, or even timeframes.  Now it does.  The ability to hold a position longer gives a larger set of traders with longer time horizons the same ability to ask better questions of their trading plan. The enhancements to The OddsMaker also shows intra-day traders other risk and reward scenarios, so that a trader uses probabilities instead of ego to make decisions.
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