I idea I'd apace follow upward on the "Why Short-Term Traders Lose Money" post that I late linked via Twitter.
Data come upward from the fantabulous Barchart site: We're looking at the S&P 500 Index (SPY) going dorsum to belatedly 2003. Our arrangement buys SPY if it closes higher upward the 2 criterion divergence Bollinger Band surrounding the 20-day moving average. The arrangement sells SPY if it closes below that band. We function out the merchandise in ane lawsuit the average moves dorsum inside the envelope defined past times the upper together with lower bands.
The logic of the arrangement is that nosotros hold off for a pregnant trend--one that is a 2 or greater criterion divergence deed away from an average price--and together with then fountain on board.
The average asset fourth dimension per merchandise is three days. The arrangement gave us 105 trades since belatedly 2003. Of these trades, lxx were long together with 35 were short.
Of the lxx long trades, 25 were profitable together with 45 were unprofitable. Of the 35 brusk trades, fourteen were profitable, xx were unprofitable, together with 1 was scratched. In all, the arrangement gave us 39 winners out of 105 trades--about a 40% winning percentage. The gross P/L for the arrangement (not including commissions or slippage) was -39.70 points, or almost 400 ES points. This is because the average size of the losing trades was larger than the average size of the winners.
I inwards no means propose that this is an indictment of Bollinger Bands. On the contrary, they appear to endure a decent starting betoken for a winning arrangement if ane trades against the trend. Rather, the lesson is that in ane lawsuit a tendency becomes "significant", it is already long inwards the tooth. If nosotros precisely follow human nature together with extrapolate the recent past times into the present, nosotros volition endure good on our means toward losing coin consistently.
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