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Historical Records

Using tick-by-tick data, I back-tested the COR. My work indicated that the method works best on 20-minute price bars. I back-tested approximately 569 trades in three different yearly time frames, as shown by the historical records in Figures 11-9 through 11-12. Figure 11-8 shows how the trades appear on an intraday chart. See my notations.

The best market for this approach is S&P futures, although the method can be adapted for use in any active market that is suitable for day trading. The parameters used for each of the tests are listed on the accompanying historical printouts. You will note the following general conclusions based on the above system test results:

ж The usual long-entry successive bars is 3-4, while the usual short-entry bars is longer, at about 5-8. This is a characteristic of bull markets. In a bull market, valid sell signals tend to occur after a longer string of closes below opens because the underlying or secular market trend is bullish. Reactions to the downside tend to recover quickly, which means that a shorter number of bars that show closes below opens will likely yield false signals.

ж The initial stop loss amount is, of course, a function of market volatility. The very volatile S&P market of 1997 required a very large initial stop loss, whereas the relatively tame S&P market of 1990 required a smaller initial stop loss. The 1997 stop loss was about four times the size of the 1990 stop loss. Please note that in all day trading it is important to give the market plenty of room by using a larger stop loss as opposed to a smaller stop loss. Unfortunately, this goes against the grain of many traders who mistakenly think that small stops are the best way to trade profitably.

ж The usual long-entry successive bars is 3-4, while the usual short-entry bars is longer, at about 5-8. This is a characteristic of bull markets. In a bull market, valid sell signals tend to occur after a longer string of closes below opens because the underlying or secular market trend is bullish. Reactions to the downside tend to recover quickly, which means that a shorter number of bars that show closes below opens will likely yield false signals.

ж The initial stop loss amount is, of course, a function of market volatility. The very volatile S&P market of 1997 required a very large initial stop loss, whereas the relatively tame S&P market of 1990 required a smaller initial stop loss. The 1997 stop loss was about four times the size of the 1990 stop loss. Please note that in all day trading it is important to give the market plenty of room by using a larger stop loss as opposed to a smaller stop loss. Unfortunately, this goes against the grain of many traders who mistakenly think that small stops are the best way to trade profitably.

ж The usual long-entry successive bars is 3-4, while the usual short-entry bars is longer, at about 5-8. This is a characteristic of bull markets. In a bull market, valid sell signals tend to occur after a longer string of closes below opens because the underlying or secular market trend is bullish. Reactions to the downside tend to recover quickly, which means that a shorter number of bars that show closes below opens will likely yield false signals.

ж The initial stop loss amount is, of course, a function of market volatility. The very volatile S&P market of 1997 required a very large initial stop loss, whereas the relatively tame S&P market of 1990 required a smaller initial stop loss. The 1997 stop loss was about four times the size of the 1990 stop loss. Please note that in all day trading it is important to give the market plenty of room by using a larger stop loss as opposed to a smaller stop loss. Unfortunately, this goes against the grain of many traders who mistakenly think that small stops are the best way to trade profitably.

ж The floor amount is relatively small in all cases. In other words, for this system to make money you must begin using a trailing stop as soon as you have a few hundred points of profit, since it is not uncommon for S&P futures to trade in a large range, at times taking away all of your open profit.

ж The trailing stop loss percentage is applied to the floor amount. In most cases, it has run about 50 percent, although in more volatile markets you must be willing to give back a few more dollars given the wide intraday price swings.

ж Exit on the nth profitable opening is an excellent strategy. In most cases, the seventh through the tenth profitable opening or MOC (whichever comes first) is the best strategy.

ж Percentage accuracy has run from about 61 percent to a high of 76 percent over the time frames tested.

ж The average trade in all cases is very respectable for a day trade, while drawdown is reasonable for S&P futures.