Pascal
04-17-2016, 04:47 AM
With the Doha talk ready to roil the energy markets, here are a few ideas on how we could trade ERX (Triple leveraged ETF) on Monday.
We will test three hypotheses and see how these worked using data for the past 300 days.
1. Shorting a Breakdown on Volume
We can see that such an hypothesis worked well in the past.
35619
It is interesting to look at the list of trades on which the stats have been built. We can see that the best trades were executed before March 2016 (During the downtrend.)
Since March 2016, there has been no such trade.
35617
Also, we can see that the bottom reversals type of trades (Green arrows) were triggered when the price was at a low (Obviously this is only known in insight.)
35618
2. Buying a Breakout On Volume
If the Doha results are good, then oil could jump and push the whole sector higher.
We can see below that Buying a Breakout on Volume did also work in the past, both before (Win ratio of 7/9) and after March 2016 (win ration of 5/8)
35624
35621
3. Shorting an Overbought Situation
Surprisingly, shorting an overbought ERX could also work, as far as the price is far in the upper section of the envelope.
35622
These trades occurred mostly before March 2016, but shorting overbought conditions worked relatively well also after March.
35623
Conclusions:
Because the Breakout Calculator can test different types of hypotheses, it is easy to "make it tell" what you want to read. This is called "trading bias."
In general, Buying work best when the price is low and the uptrend is starting. Shorting works best when price is high and downtrend is starting.
These situations can be easily spotted in hindsight.
Since we are working with an unknown future, the best is to test opposite hypothesis and decide depending on how the market acts on Monday.
We will test three hypotheses and see how these worked using data for the past 300 days.
1. Shorting a Breakdown on Volume
We can see that such an hypothesis worked well in the past.
35619
It is interesting to look at the list of trades on which the stats have been built. We can see that the best trades were executed before March 2016 (During the downtrend.)
Since March 2016, there has been no such trade.
35617
Also, we can see that the bottom reversals type of trades (Green arrows) were triggered when the price was at a low (Obviously this is only known in insight.)
35618
2. Buying a Breakout On Volume
If the Doha results are good, then oil could jump and push the whole sector higher.
We can see below that Buying a Breakout on Volume did also work in the past, both before (Win ratio of 7/9) and after March 2016 (win ration of 5/8)
35624
35621
3. Shorting an Overbought Situation
Surprisingly, shorting an overbought ERX could also work, as far as the price is far in the upper section of the envelope.
35622
These trades occurred mostly before March 2016, but shorting overbought conditions worked relatively well also after March.
35623
Conclusions:
Because the Breakout Calculator can test different types of hypotheses, it is easy to "make it tell" what you want to read. This is called "trading bias."
In general, Buying work best when the price is low and the uptrend is starting. Shorting works best when price is high and downtrend is starting.
These situations can be easily spotted in hindsight.
Since we are working with an unknown future, the best is to test opposite hypothesis and decide depending on how the market acts on Monday.