1. A Better Regime Filter: True Range Adjusted Exponential Moving Average
This article uses the True Range Adjusted Exponential Moving Average (TRAdj EMA) as an improved regime filter compared to the traditional 200-bar Simple Moving Average (SMA). While the SMA reacts quicker, it results in more false signals. In contrast, the TRAdj EMA more efficiently identifies major trends with fewer trades. Backtests on the E-mini S&P 500, Crude Oil, Soybeans, and Euro Currency show the TRAdj EMA captures strong trends with higher profit per trade. Understanding and experimenting with the TRAdj EMA can significantly enhance your trading strategy.
Key Points:
- Backtests show the TRAdj EMA results in fewer but more profitable trades by better identifying major trends.
- The TRAdj EMA incorporates volatility to be more responsive than traditional moving averages.
- The 200-bar SMA and TRAdj EMA have value depending on trading style and risk tolerance.
2. Capture The Big Moves! (Updated 2023)
This article explores an RSI-based indicator that identifies major bull and bear markets. Using a 12-period weekly RSI and thresholds of 40 and 60, signals are generated to exit positions before crashes and enter before bull runs. Backtests over 1960-2020 capture moves like the 1990s bull market and 2007-2009 financial crisis with solid profits while avoiding drawdowns. The indicator struggles with sharp, short-term moves like the 2020 COVID crash. While imperfect, it provides a mechanism to avoid severe drawdowns and enter bull markets early.
Key Points:
- Uses a 12-period weekly RSI with thresholds of 40 and 60 to determine bull and bear markets
- Backtesting over 1960-2020 shows the ability to capture upside moves while avoiding major drawdowns.
- Struggles with short-term crashes like 2020 COVID selloff, but can help guide long-term position trading
3. Enhancing RSI Mean Reversion Strategies with VIX Filtering
This exploration looks at boosting the performance of a classic RSI mean reversion system in index futures by adding a Volatility Index (VIX) filter. Testing on the ES market shows going long when a 2-period RSI crosses below 20, producing profits and excessive trades. Incorporating additional rules like only taking trades if the VIX high 7 bars ago is above 50 cuts trades in half while doubling average profit per trade and halving drawdowns. When optimized, the enhanced strategy delivers a consistent edge across multiple indexes like NQ, RTY, and YM over various timeframes.
Key Points:
- A VIX filter dramatically reduces trades and drawdowns for RSI strategies without sacrificing total net profit.
- Optimal VIX lookback periods and overbought/oversold levels differ across index futures and timeframes.
- Automated strategy testing makes finding the best VIX filter parameters for each market quick and easy.
4. Testing Market Regime Indicators
Trying to trade the same way in all market conditions often leads to disappointment. This article explains an easy method to adjust your trading system dynamically based on whether you’re in a bull or bear market regime. Knowing the current regime can help you take advantage of different market characteristics. For example, only taking long trades in a confirmed bull market.
The article tests four common indicators to categorize the market: SMA, ROC, Adaptive Momentum, and Relative Strength Ranking. Each is optimized over 2000-2023 for markets like the S&P 500, crude oil, soybeans, and the euro currency. The best performers overall were Adaptive Momentum and smoothed ROC, able to reliably determine bull vs bear regimes across different markets.
Key Points:
- Adaptive Momentum dynamically adjusts its inputs based on recent price action to determine bull or bear markets.
- Smoothed ROC reduces false signals by averaging the rate of change values over multiple bars.
- Systematically testing regimes on different markets helps build robust strategies optimized for current conditions.
5. Can You Time the Market Using Nothing But Moon Cycles?
Intrigued by a trader who profited from using moon cycles, this article backtests the simple strategy of buying on the full moon and selling on the new moon over the past 20 years. Surprisingly, it slightly beats buying and holding the S&P 500 while having lower drawdowns and only being invested half the time. Adding filters like moving averages or stops fails to improve performance. However, combining with positive day-of-week tendencies and a profit target transforms returns. The resulting system has a great equity curve, improved risk metrics and continues working even 18 months later.
Key Points:
- Combining monthly moon cycles with positive weekly seasonality filters creates a winning swing trading system.
- A $1000 profit target on moon cycle trades vastly improves overall performance and drawdown.
- Even though counterintuitive, the simple system has worked well for over 20 years on both the long and short side.
6. Crafting a Winning NG Futures Strategy with CCI and Build Alpha
This exploration dives into using the versatile Commodity Channel Index (CCI) indicator to develop a robust trading strategy for natural gas futures. After coding a basic short-side strategy in EasyLanguage, the author upgrades it by leveraging Build Alpha - a no-code platform for strategy creation and optimization. Within minutes, Build Alpha tests thousands of combinations and discovers that adding a 200-day moving average filter and tuning the profit targets and stops boosts performance. Rigorous validation on unseen market data verifies the CCI system is profitable, robust, and not overfit.
Key Points:
- Build Alpha rapidly prototypes and stress-tests trading ideas without any programming required.
- Adding a simple moving average filter and optimizing exits improved the short-side CCI system for natural gas futures.
- Multiple validation techniques confirm the strategy is robust and poised to work in live trading.