Strategy Trading in 4 Parts

Strategy Trading
(In Four Parts)
© 2012 Sunny J. Harris ALL RIGHTS RESERVED
Introduction
• After 30+ years of trading, research, & teaching,
Sunny Harris has developed many strategies
both for herself and for clients.
• Primarily, Sunny trades for her own account. She
does not trade OPM, or a Hedge Fund. Her own
proprietary trading makes such high percentages
she won’t even reveal it, because it seems
unbelievable.
• Sunny likes to teach other people to have great
successes for their own accounts. That’s what
this seminar is about.
About Sunny
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Sunny J. Harris
BA, MS, PhD Mathematics
Trading since 1981 (30 years)
#1 Rated trader by Stark Research
1993 & 1994 (365% & 178%)
• Research: Programming & Testing
since 1981
• Teaching others to trade since 1986
Books by Sunny
• Trading 101—How to Trade Like a Pro
• Trading 102—Getting Down to
Business
• Electronic Day Trading 101
• Getting Started in Trading
• TradeStation Made Easy!
• Working on Grading the Gurus
• …and more after that
Critical Acclaim
– Technical Analysis of Stocks &
Commodities magazine –
Top 10 Consultants
– Technical Analysis of Stocks &
Commodities magazine –
Top 10 Courses & Seminars
– Top trader at 365% in under $10 mill –
Stark Research
Published Articles
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How Good is Your Data? (TASC Feb 2011)
Futures, Omega Magazine, Traders’
World, Active Trader, Stocks & Commodities (magazines)
“From No System to a Proven System in Three Well-Defined Steps”
“Clustering Effects of Good Optimization”
“Day Trading Basics”
“Trading Difficult Markets”
“Learning to Trade: A Systematic Approach”
“On the Job Training”
Sunny Answers Users’ Questions on Quote.com
“Nuggets of Profitability”
“Testing, Testing, 1, 2, 3…
“Working for a Living”
“Optimal Trading”
“Asking the Right Questions for Trading Success”
…and many more: see www.moneymentor.com
Appearances
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Frequent guest of Richard Saxton on Channel 22 KWHY TV in Los Angeles
Radio Interviews
Online Chat Sessions for INO.com and Quote.com
Online Investor Expo (a Money Show production) —December 2000
Futures West
International Online Trader Expo
Online Investor Expo
Equis Online Trading Summit —January 2001
“Get Off the Floor” —Chicago Mercantile Exchange —July 1998
Market Technicians Association Symposium —Chicago, November 1998
“Electronic Trading” Chicago Mercantile Exchange —January 1999
Futures South —February 1998
Futures West —September 1998
TAG 19 —November 1997
Omega Research Group of Dallas —1997
Omega Research Group of Orange County —1998
Omega Research Group of San Diego —1997
Omega World 1
Omega World 2
Online Investors Expo
Barnes & Noble book signings
Omega Research Users’ Groups
AAII groups
The Winner’s Edge” —Orlando, FL, March 1996
Sabbatical
• From 2002 until 2011, Sunny took
time off her hectic schedule to raise
her grandsons, of whom she has
custody.
• Now, by 2011 they are independent
enough to allow Sunny time to trade
and teach again
• “TradeStation Made Easy!” was
released in early 2011
• And I’m back to Speed Trading on 1-&
5-minute charts.
Four Sessions
What is a Strategy & How Do I Get One?
Designing YOUR Strategy
Testing & Optimizing Your Strategy
How to Trade a Strategy
What is a Strategy and
How Do I Get One?
What is a Strategy?
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Recipe
Map
Set of Rules
IF...THEN... Consequences
– aka Boolean Algebra
• Plan
• A fixed set of rules that you follow
What is a Strategy?
• What if you don’t follow all the rules?
• Then it is called discretionary trading
• or Cheating
What is a Strategy?
• If you don’t follow the rules you can’t
really measure the success of your
system
• How could you “backtest” a
discretionary system?
• That’s just using guessing or using
intuition (aka “into-wishing”*)
*term coined by Adrienne Toghraie
What is a Strategy?
• If you are using discretionary trading,
you can’t run experiments on it and
generate results that you can compare
to other strategies or other input
parameters
• You can’t independently compare a
discretionary system to another
system
What is a Strategy?
• If you feel you need to use discretion,
two things could be possible
– you haven’t stated all your rules
– your system isn’t “well-defined”
– you don’t want to know the truth of the
testing outcomes
What is a Strategy?
• Before risking capital in the markets,
know how your strategy could have
performed in the past.
• Why do people NOT like to test?
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Tedious
Time Consuming
Don’t Understand the Process
Don’t Think it is Important
Don’t Want to Know the Results
What is a Strategy?
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You need some tools for testing
Pen & Paper
Excel (Microsoft Office)
Already built-in to TradeStation’s
EasyLanguage & MultiChart’s
PowerLanguage
• Called Reserved Words
– or Built-In Functions
– or Operators
Boolean Logic/Algebra
• George Boole, way back when,
invented another way of doing
arithmetic without numbers
• He used logic
• The terms are True and False
• And IF and THEN
Boolean Logic/Algebra
• To properly use Boolean Algebra you
must know the functions of operators
on the values of True and False
• These different outcomes are called
Truth Tables
• They look like this:
Boolean Algebra: TRUE
AND
Premise 1
Premise 2
Outcome
T
T
T
T
F
F
F
T
F
F
F
F
Boolean Algebra: OR
OR
Premise 1
Premise 2
Outcome
T
T
T
T
F
T
F
T
T
F
F
F
IF…THEN…
• Sunny has red hair = True
• Sunny is 6’ tall = True
• Sunny has green hair = False
• Sunny has red hair AND Sunny is 6’ tall = True
• Sunny has green hair OR Sunny is 6’ tall = True
• Sunny has green hair AND Sunny is 6’ tall= False
IF…THEN…Consequence
• We specify it like this:
• IF something happens THEN do the
consequence
• If the “something happens” is TRUE,
we do the “consequence”
• But if the “something” happens” is
FALSE, we DON’T do the
“consequence”
• This is called Logic, or Boolean
Algebra
Set of Rules
• Rules look like this:
• IF {it rains today} THEN {take my
umbrella};
• IF {it doesn’t rain today} THEN {don’t
take my umbrella};
Set of Rules
• It is the IF…THEN…Consequence
pairing that makes a Strategy/System
• You need rules to tell you:
– When to get in
– When to get out if you’re right
– When to get out if you’re wrong
• That’s it.
What Is a Strategy?
• Let’s get down to EasyLanguage /
PowerLanguage Basics for a moment
IF...THEN...
• IF (
• Condition(s)
• )
Conditions
• Conditions can be any thing that
evaluates to True or False
• Examples:
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C > C[1]
C > XAverage(C,10)
H > Highest(H,10)[1]
Angle less than certain value
RSI > 70
etc
Consequences
• What to Do IF the Condition evaluates
to TRUE:
• Examples:
– THEN
– Buy
– at H + 0.1 stop;
The Whole Statement
IF Condition1
THEN
Buy at H+0.1 Stop;
Condition0…99
• TS and MC allow unnamed conditions
in the range from 0 to 99.
• Thus you have 100 conditions you
don’t have to name in input or variable
statements
• Condition0, Condition1, Condition2,
etc all the way to Condition98,
Condition99
IF…THEN…System Structure
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IF … THEN logic
BUY and SELL
Setups
Entries
Exits
IF…THEN…
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When to Enter
When to Get Out if You’re Right
When to Get Out if You’re Wrong
(Thanks to Joe Krutsinger who put it
so succinctly)
IF…THEN…
• Enter on Conditions
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IF MovingAverageCrossover
IF NewHigh
IF HighVolume
IF BreakOut
etc
• Enter on Stops (not Limits)
• IF condition THEN BUY at
Highest(H,3)[1];
• IF condition THEN SELL at
Lowest(L,3)[1];
IF…THEN…
• IF condition THEN Exit;
• Conditions
– Same as entry
– Different from entry
– Price hits pre-defined value
• ie ProfitTarget
• ie StopLoss
– Price hits moving average
– Price hits support or resistance
– Secondary indicator performance
IF…THEN…
• When to get out if you’re wrong
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IF C < EntryPrice – amount
IF C < Average(L,10)
IF C < Lowest(L,10)[1]
etc
Why Do You Need One?
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Psychology
Discipline
Statistical Evaluation
Promoting Yourself
Your Business Plan
Trading OPM
How Do You Get One?
• Buy It
– See FuturesTruth http://futurestruth.com
– See Club3000 Bo Thunman
• Lease It
– Brokerage houses
• Create Your Own
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Years of Observation
Years of Research
Years of Programming & Testing
Years of Simulated Trading
• Employ Consultant to Do It For You
– Tell them your rules
– Let them suggest rules
– Experiment
How Do You Get One?
• Discretionary Trading (no system)
• Purchasing Systems
– Sources
– Performance Comparisons
– Pit falls
• Building Your Own System
– Basic Structure of a Strategy
• IF … THEN … BUY/SELL
• Market vs Limits
– Using TradeStation’s / MultiChart’s Components
• Examples of Strategies
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Moving Averages
Larry Williams
Joe Krutsinger
Sunny Harris
Discretionary Trading (no system)
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Hit and Miss
Throwing Darts
Feelings
Intuition (“Into Wishing”)
News & Events
Purchasing / Leasing Systems
• Sources
• Performance Comparisons
– Which Statistics Matter?
• Pit falls
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Don’t know “what’s behind it”
Might not know long-term performance
“NIH” – Not Invented Here
Expiration
Leasing a Strategy
Building Your Own System
• Basic Structure of a Strategy
– IF…THEN…Buy/Sell
– Market vs Limits
• Using TradeStation’s or MultiChart’s
Strategy Components
Components
Examples of Strategies
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Moving Averages
Larry Williams
Joe Krutsinger
Sunny Harris
• See the upcoming “Grading the
Gurus” for more
Moving Averages
• Price above or below Moving Average
• Fast Moving Average crosses Slow
Moving Average
Price Crosses Above or Below MAV
MAV Crosses Itself
Larry Williams
• OOPS
• SmashDays
Larry Williams OOPS
INPUTS: jset(1) {which set of conditions},
jDay1(3), jDay2(4), {Not which days}
jVLen(9), jLen(9); {Avg lengths}
Condition1 = OpenD(1) < LowD(2); //Opening below the previous day's low
(Buy setup) Indicates potential market reversal
Condition2 = OpenD(1) > HighD(2); //Sell setup
Condition3 = Dayofweek(Date)<>jDay1; //not day of week
Condition4 = Dayofweek(Date)<>jDay2; //not day of week
Condition5 = Volume > Average(Volume,jVLen); //Above average volume
Value1 = Average(C,jLen);
Condition6 = Value1 < Value1[1]; //Avg less than yesterday's
Condition7 = Condition5 AND Condition6; //Above avg vol on decl momentum
Condition8 = Value1 > Value1[1]; //Avg gt yesterday's
Condition9 = Condition5 AND Condition8;//Above avg vol on incr momentum
If jset = 1 THEN BEGIN //Conditions 1 ^ 3 ^ 4 Days of week
If Condition1 and Condition3 and Condition4 THEN BUY next bar on open;
If Condition2 and Condition3 and Condition4 THEN SELL SHORT next bar on
open;
END;
If jset = 2 THEN BEGIN //Conditions 1 ^ 3 ^ 4 ^ 5 Days of week and volume
If Condition1 and Condition3 and Condition4 and Condition5
THEN BUY next bar on open;
If Condition2 and Condition3 and Condition4 and Condition5
THEN SELL SHORT next bar on open;
END;
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If jset = 5 THEN BEGIN //Conditions 1 or 2 ^ 5
Volume but not Days of Week
If Condition1 and Condition5 THEN BUY next bar
on open;
If Condition2 and Condition5 THEN SELL SHORT
next bar on open;
END;
If jset = 3 THEN BEGIN //Days of Week ^ decr Avg
on buy, incr Avg on sell
If Condition1 and Condition3 and Condition4 and
Condition6
THEN BUY next bar on open;
If Condition2 and Condition3 and Condition4 and
Condition8
THEN SELL SHORT next bar on open;
END;
If jset = 4 THEN BEGIN //Days of Week ^ Incr Vol
^ Decl Avg
If Condition1 and Condition3 and Condition4 and
Condition7 THEN BUY next bar on open;
If Condition2 and Condition3 and Condition4 and
Condition9 THEN SELL SHORT next bar on open;
END;
Larry Williams OOPS
Larry Williams Smash Days
//Smash Days Type 1:
INPUTS:
j_Side(0) {0=both, 1=long, -1=shorts},
j_Day1(0), j_Day2(0), j_Day3(0), j_Day4(0), j_Day5(0); //1=Monday
// j_Days permit that day of the week as tradeable. If the number doesn't match, don't trade that day.
// If j_Day = 0 => this day is allowed.
If j_Side = 0 OR j_Side = 1 THEN BEGIN //Permits longs
Condition1 = ( j_Day1 = Dayofweek(Date) ) OR j_Day1=0 ; //Permit this day
If Condition1 THEN BEGIN
If C < Low[1] THEN Buy next bar at High stop;
If Barssinceentry >=1 then sell next bar at high stop;
End;
END;
If j_Side = 0 OR j_Side = -1 THEN BEGIN //Permits shorts
Condition1 = ( j_Day2 = Dayofweek(Date) ) OR j_Day2=0 ; //Permit this day
If Condition1 THEN BEGIN
If C > High[1] THEN Sell Short next bar at Low stop;
If Barssinceentry >=1 then Buy To Cover next bar at low stop;
End;
END;
Larry Williams Smash Days
Joe Krutsinger BuyMonday
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//Joe Krutsinger BuyMonday w Sunny Harris modifications to allow for testing other days of
the week
{
Have this one run on 1-min data and check for the open at 6:30a. If it is Monday and the
open of
the Session, then buy next bar will buy at 631.
}
inputs:Da(1) , Amount(500) ;
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If DayOfWeek(Date)=Da THEN BEGIN
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Value1 = SessionStartTime(1,1)+1; //start time of regular session, first session
If Time = Value1 THEN BEGIN
Buy Next Bar at Market ;
End; //End Time Check
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End; //End day of week check
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SetExitOnClose;
SetStopLoss( Amount ) ;
Joe Krutsinger BuyMonday
Sunny Harris
• Sunny’s Dynamic Moving Average
• SunnyBands
Session Two
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Session Two will contain:
Evaluating Someone Else’s Strategies
Backtesting
What is Possible?
Buying & Selling
The Strategy Performance Report
…and more
Discount for Attendees
• 30% 50% Discount for attendees of
this webinar
• Good until February 29, 2012, only
• Or, later if you are viewing an old
presentation.
• PS: a price increase will take effect
on Jan 31, 2012
Please Return
• Please return to this same time and
place next week, as we go into more
depth in Session Two
Keep In Touch
• Sunny J. Harris
• 1547 Mission Meadows Dr.,
Oceanside, CA 92057
• www.moneymentor.com
• [email protected]
• (760) 908-3070
• Skype: (760) 444-4174
• Fax: (760) 859-3057