Automated Trading Strategy #58:
Strategy 58b is a semi-automated strategy. Over the last 3 weeks, it made $7K on 35 trades and 94% of those trades were profitable.
There is no guarantee that these strategies will have the same performance in the future. Some may perform worse and some may perform better. We use backtests to compare historical strategy performance. Backtests are based on historical data, not live data. There are no guarantees that this performance will continue in the future. Trading futures is extremely risky. If you trade futures live, be prepared to lose your entire account. We recommend using our strategies in simulated trading until you/we find the holy grail of trade strategy.
As a quick reminder, our goal is to find the holy grail of automated trade strategy as defined below:
- Profit factor greater than 3
- Annual drawdown less than 3%
- Annual return on max drawdown greater than 500%
- Maximum daily net loss of -$1,000
- Avg Daily profit greater than $1,000
- Less than 5,000 trades annually
- More than 253 trades annually
We haven’t found the holy grail yet, but we get closer with every strategy. For links to all strategies click here.
If you’re a trader, this won’t be anything new in terms of strategy, but it will provide an application framework for automation. If you’re not a trader, my hope is to provide a quick tutorial that will inspire you to develop your own version of this strategy to practice with in a simulated environment.
Let’s get started…
If you’re not familiar with trading, the average price chart looks like this:
This is a 60 minute price chart for the RTY (E-mini Russell 2000 Index) futures contract and it represents approximately 36 trading days. The vertical lines represent a new trading day or session that begins at 6pm EST and ends at 5pm EST, Sunday through Friday.
If you trade, however, you see much more than vertical lines. In the same way that a tracker looks for clues along a trail, traders instinctively start looking for price patterns. We define these price patterns with trend lines and price levels. So the chart above becomes the following:
Can you see the five additional blue lines?
The additional blue lines represent price levels. You can think of these lines as traffic lights that are prone to congestion. Pivots and price reversals are common along these levels.
And this is what it looks like if you add a trend line:
This is the trader’s pollen path.
And, these are some of the best places along that path to find what we’re looking for — highly profitable trade opportunities as marked in yellow:
This is an RTY chart, but this process works for every instrument. In other words, market structure exists for every instrument that’s traded in the market. To learn more about how and why that is, click here.
The question is, how can you write an automated strategy that can take advantage of these opportunities? You have to have a way to determine your own price levels or pivots.
How To Determine Price Levels
I like to create my own levels like you see above. You can also use indicators like the ones below to help do this for you (all of these indicators can be found in NT8):
Camarilla pivot (weekly)
Fibonacci Pivots (weekly)
Woodies Pivots (weekly)
These are only a few of the indicators traders use to help find levels. Again, I like to use my own lines/pivots, but indicators are also an option.
If I were to create my own price levels — “Celan Pivots” — for the RTY chart above, they would be:
- Resistance 2 (R2)= 1911
- Resistance 1 (R1) = 1900
- Support 1 (S1) = 1877
- Support 2 (S2) = 1833
The order of these price levels is important and will be used to automate the strategy using the Ninjatrader 8 Strategy Builder later on.
To read the rest of this strategy description, which includes a download for Ninjatrader (C#), subscribe to Automated Trading Strategies on Substack: https://automatedtradingstrategies.substack.com. My hope is to start publishing daily pivots at the beginning of the year.
Originally published at https://automatedtradingstrategies.substack.com on December 3, 2022.
