Ideas for 2 simple intraday strategies, feedback & ideas appreciated

Hi

I WANT to design two separate intraday mechanical strategies and implement them using Tradestation 8.1 with the AIM of profiting from the two main market types – trending and ranging-sideways markets.

I do not intend to hold positions overnight.

I plan to run these 2 distinct strategies simultaneously on the same instrument, on seperate charts,spreading the risk between 2 strategies, accepting that they will both lose money at times, but will make a profit overall – HOPEFULLY.

To avoid curve-fitting, stable indicator-strategy parameters are also important.

I want both strategies to be as simple & successful as possible, with as little drawdown and few negative trades as possible. So -

1. A strategy designed to profit from a ranging market, which tries to restrict trade entries during a trending market.

2. A strategy designed to profit from a trending market which tries to restrict trade entries during ranging/sideways markets.

So far, for the strategy designed to profit from ranging markets, I am considering basing trade entries around a cross above an RSI 14 value of 30 and a cross below an RSI14 value of 70. In essence, the RSI Long Entry (LE) & Short Entry (SE) strategies. I accept that this strategy/s will lose money during trending markets, as prices continue to fall. Therefore I wish to try and identify trending periods, and keep this strategy on the sidelines during trending periods. I am considering combining this entry strategy with the ADX or ADXR indicator. The ADX measures the strength of a prevailing trend as well as whether movement exists in the market. A low ADX value (generally less than 20) can indicate a non-trending market with low volatility whereas a cross above 20 may indicate the start of a trend (either up or down). If the ADX is over 40 and begins to fall, it can indicate the slowdown of a current trend. This indicator can also be used to identify non-trending markets, or a deterioration of an ongoing trend. Therefore if I limited RSI entries to times when ADX14 was 25 or below for example, my chances of achieving a higher % of profitable trades MIGHT be increased.

So far, for the strategy designed to profit from trending markets, I am considering basing trade entries around the MovAvgCross LE and SE strategies. I accept that this strategy will lose money during sideways - ranging market periods, so wish to try and identify sideways periods, and restrict trade entries during sideways-ranging market periods.
I could combine the ADX/ADXR indicators again with the MovAvgCross.
I could also add conditions so that the strategy will not enter another trade following a negative trade/s, until a price breakout has occurred. Therefore I could combine the MovAvgCross LE & SE with a strategy like “Price Channel” LE & SE, which waits for a breakout from the HI-LO of x number of bars.

I have not yet fully considered the combination of exit strategies that I want to use in both strategies. But for both strategies, possibilities include a stop loss Long Exit (LX) & Short Exit (SX), percent trailing LX & SX, profit target LX & SX, Profitable closes LX & SX, breakeven stop LX & SX.

For the MovAvgCross strategy, specific exit criteria could be the MovAvgCross LX & SX, that will exit a trade once the price, or x number of closes have crossed back above or below the MA. line.

Why bother with indicators in the first place you will really be one step ahead of the game if you just concentrate on price action that is if you are daytrading as you propose to.
You dont live far from me (30 min) maybe one day I will come and watch you trade and you can come and watch me. I daytrade the YM with IB purely on price action.
kind regards

I do not know what TS8 is, however, I think your basic premis is very sound indeed. It encapsulates what I do every day. However I prefer CCI as it's slightly faster than RSI, and I also use ADX.

However, if there was a way you could measure the GRADIENT of the 34/100 EMA to determine a trending or ranging market then in my opinion this would be more reliable than ADX. For example if you plot the 34 and 100 EMA on yesterdays Dow chart on either a 3 or 5 minute chart you will see that the gradient was only slight all day, thus overbought/oversold indicators like RSI, CCI, Stochastics etc will work very well. This enabled me to make 3 solid profitable trades. However, my ADX indicator was over 25 and using your suggested parameters would have prevented these trades.

On 3 Feb 2006 at approx 3.10pm the 34EMA on a 3 min chart of Dow is quite steep which stopped me going long when RSI or CCI moved out of oversold condition (although this is not a good example as this would still have been a profitable trade after a little bit of heat for 30 minutes or so).

Conversely, If the gradient of the 34EMA is in the right direction, this MAY give a higher probabilty of a trade in the same direction will work.

Please note that both of our methods would have given a losing trade at approx 19.38pm on 1st Feb, as the 34EMA was flat, ADX only 22, yet short signal given by RSI was followed by a rally all the way to the close of the market!!

Overall I think the fundamental ideas are sound, although more thought needed to cater for the above anomally.

Good luck, and I'd be interested to discover if you manage to devise such a system, and the results derived therefrom!

Thanks bluetipex for the ideas

TS8.1 = tradestation 8.1.

I've not really looked into CCI or stochastics yet, as I've always liked RSI. It's good to hear that you do a similar thing that works. Do you trade two distinct strategies? or is it all combined into one? Are you a discretionary trader?

jtrader,
I, too, long ago gave the ADX a fling as far away as I could because
1.Mega Lag.
2.Bad intrinsic ‘scaling’ to magnitudes of trends and nontrends
If you’re looking for possible ‘off the shelf’ substitutes TS library has
TrendArea indicator
TrendQuality indicator
(you might be able to come up with something creative with the 'ribbon' avgs also)
It’s been a while since I looked at any of these, but I do remember leaning to the fast side for parameters when I did. PM me if you want me to try to find any code, notes, settings, etc I have left on them.