## 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: https://trade-ideas.54solutions.com/OddsMaker/Help.html

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 set at \$20
Max price set at \$40
Min volatility set at 1%
Max count set at 5

These are the trigger events or alerts that are subject to the filters: