Strategy Session: Take Your Trading to New Depths

Strategy Session: Take Your Trading to New Depths

Dec 14, 2006

A recent conversation on EliteTrader featured an interesting strategy with which I decide to experiment. It’s based on an analogy that Dr. Brett Steenbarger and I discussed awhile ago and one that wound up in his recent book, Enhancing Trader Performance (Wiley, 2007) pg. 147

“If the sea life at a particular market depth is not interesting, the [Trade-Ideas] technology allows the trader to move to a different depth and uncover previously unseen life. Just as the military utilizes satellite photography and electronic intelligence gathering for decision support, traders can expand their cognitive capacities with the assistance of such screening tools.”

Think of price and when you trade the strategy during the market session as various depths in the sea you would find if you were with Jacques Cousteau, or say on the set of a James Cameron film. The forum discussed a trading preference for a specific narrow band (i.e., depth) of stock price; namely, from $20 to $50. Using The Odds Maker I also concluded the best time to use the strategy was 30 minutes after the open, trading only in the morning session (i.e., another example of depth), and holding all positions until the close.

Here is The Odds Maker readout:
29 winning trades out of 59 total (this is a strategy to assign a sound to and minimize on your desktop – it is not that active) = 49.15%. Winning trades defined as up $0.01 at the close;
Average winner = $0.8341; Average loser = $-0.5228; Net winnings = $9.03; Best = $6.40; Worst = $-2.08; Casino Factor = 83.24%

To undertand what these numbers mean, refer to The Odds Maker manual:

When I started modeling the strategy with an even narrower price range, I surprised myself with these results. Look what happens when I change the price from a range of $20 to $50 to between $20 and $40 – a big increase in the strategy’s profitability (achieved mainly by removing a lot of losing trades):

Here is more details on this improved strategy that really just takes stocks in the morning session that are making 30 minute highs, running up, or making new highs on the ask and holding them until the close.

The Strategy: “Long – 30 Min Highs for $20 – $40 Range

How It’s Modeled:

Here are the filters for this strategy:
Min Price=20 (Dollars) Min price set at $20
Max Price=40 (Dollars) Max price set at $40
Min Volatility=1 (%) Min volatility set at 1%
Max Count=5 (Alerts) Max count set at 5

These are the trigger events or alerts that are subject to the filters:
New high ask New High Ask
Running up (confirmed); Filter=3 (1.0 shows the most alerts, 10.0 shows only the fastest moving stocks.) Running Up (confirmed)
Running up (intermediate) Running Up (intermediate)
30 minute high New 30 minute High

Frankly I am not certain how to explain the results. Have I stumbled upon a temporary phenomenon? What makes stocks between $20 – $40 such better momentum candidates than $20 – $50 (and held until at least the close of the day)? Like the ocean there always appears to be counter-currents at different depths. Thanks to The Odds Maker for its ability to see these differences, it appears that this strategy is strong enough to ride for the immediate future.


  • Link to other Strategy Sessions
  • Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this ‘as is’ or modify it to your own liking as many others do. Know, however, that and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, alerts and all other features are for research purposes only and should not be construed as investment advice