Been reading a lot of Trend Following ideas from people like Michael Covel. He talks a lot about following the trend on Daily charts and longer. I decided to find a way to trade the daily charts which suited my temperament but also managed the volatility without giving up too much in terms of profit.
First I went through all the turtle style systems and decided that although they have extremely large winners once every few cycles, on a yearly basis they don't perform very well. The Alpha as they say is almost nonexistent. Enter a small adjustment. Instead of tracking Moving averages of price, try tracking the crossover of momentum with the RSI and CCI. I used a 10 period SMA and the results are mighty satisfying.
One way I found which manages to get better exits than using hard stops is to wait for the daily close outside of the swing high or low to exit with a loss. I have seen that almost half of the trades which ended in loss later turned into winners if this one simple rule was followed. Just on Gold alone the market has done this a handful of times. It changes the outcome of the system results from break even to extremely profitable.
Here are a few results from this year so far:
Gold: +1500 pips
SP 500: +7150 pips
If market closes outside of the swing high and positions are reversed the returns are doubled! (perhaps this is the main finding of this entire study which I did not even consider until I posted this blog entry) This is probably the most robust daily trade system I have ever data mined. I will definitely be forward testing this and probably making an EA out of it.
REcalculating by stop and reverse the pip totals are just sickening...
Gold: +1475 (loss of 25 pips; but this takes into account those several 180 pip price swings in the past month so definitely a fat tail to consider)
EURUSD: +1060 (loss of 63 pips but well worth the extra risk considering the huge bump in other mkts)
Even when the stop and reverse decreses the pip total if we look back on multiyear data it will be obvious how this can lead to greater gains. Based on my years of price observation, swing high reversals are very high imbalance points in price. What this means is that price either reverses or it doesn't. Price does not just hang around these points and consequently the intial trade will work out or it will reverse against the original signal and run like hell. The way I see it, taking on more trades in this method is actually a reduction of risk.