in this video i'm going to show you how the net new highs and new lows can give you better trade
entries compared to using price alone in fact i'm going to show you two trading strategies i'm going
to show you how you can analyze them i'm going to show you the results and i'm going to show
you how you can do it yourself my name is mark from tradinform.com i have backtested developed
and analyzed hundreds of trading strategies i have helped traders all around the world to
improve their trading with better analysis in this video i'm going to show you two different
trading strategies that use the new highs and new lows and i'm going to show you exactly how you can
do this analysis if you enjoy this video don't forget to hit the like button and if you want
more information about analyzing the financial markets back testing in particular using excel
to improve your trading please subscribe to this channel on the screen at the moment is an Excel
based tradinformed back test model now this is a way that you can backtest all sorts of different
trading strategies different markets and different time frames it's very easy to use i do all my back
testing in Excel and it's a great platform a great way to analyze develop and test trading strategies
if you want more information about Tradinformed backtest models there is a link on the screen and
below this video so i am testing on the spy the spy etf and i'm also using new highs and new lows
so i'm going to click in here this is the back test page and i'm going to show you exactly the
strategy that i am testing you can do this you can replicate this in any version of Excel so
the strategy is a moving average crossover so price is crossing over moving average i'm using
a simple moving average of the price so when the close price is greater than the simple moving
average then we enter rather it crosses over the simple moving average then we enter but there is
a filter and this filter is the net new highs and new lows now this i'm using another simple
moving average this value must be greater than zero so this is our filter so we have two key
conditions both indicating strength and they both need to give us a green light before we can trade
let's look at how i've set up the strategy so i'm using profit target
and a trailing stop in this strategy in fact these are my two key ways of closing the trades
now i'm using percentage based mode so this is something that i've tested many times
before and i've found that particularly for the SPY percentage based profit targets and
stop losses usually work well so i'm using see here i've got this button here checked
showing true and which means that this here is 15 so a profit target of 15 which is a nice move
on the SPY now trading this stop loss is set to a large value because the trailing stop is active
now here are the simple moving averages first of these on the price set it here to 15.
now you can update this and as you can see over here on the right hand side
the results and the capital graph update in real time as i change these values
now you don't have to scroll through each of them manually you can use the optimizer which is not
just a way of optimizing a strategy it's a way of finding more about your strategy it's a discovery
process so i'm going to test the SMA on the price entry level see that from the drop down menu
and i'm going to click optimize and it's going to go through all the values in turn
and we can have a look at the results now here are the results you can see in a nice
easy to read traffic light system red with the lower values orange and the greens and
the darker greens you can see we've got quite a smooth transition here which is encouraging it
shows you we've got some stability at this end now of course we can optimize further and have a look
further on here but i think we've demonstrated how it works so i had it here at 15. if we want
to optimize for a higher net profit we could try 20. so come back here
put in a value of 20 and you can see it reflected in the results now the estimate on the new highs
and new lows this is another this is a way to the new highs and new lows is quite jumpy if you look
at it on a chart you can see it moving up and down very quickly this is a way of smoothing that out
but relatively small amount of smoothing just four periods so we can have a look at that and
let's do that very quickly now so set an initial value of one so a value of one as i'm sure you
realize is just the underlying information a value of two would be an average of two periods
there we go we can see a value of four produces the best results in this very small test but you
can see also how quickly that was to do so switching into four here we've got one other
exit condition that is active here now i could switch that on and off
was making a small difference and what that means is that if the new highs and new lows
drops below 75 in other words we're getting to not bearish conditions but fairly negative sentiment
then we exit the trade now i said i'm going to look at another strategy and i'm going to show
you how easy it is to change this strategy testing one thing to a completely different one now so
you can recreate this yourself in excel i'm going to go through this fairly quickly but
first of all i'm going to show you why i am doing it so i'm going to
insert a new column here i'm going to put in a function
that calculates the sum of the current
net new highs and new lows plus the previous values and this is cumulative and i'm going
to copy this down by right clicking to all the cells below so cumulative
new highs and new lows okay so now when i highlight all of this
put it into a chart you can see
we've got a pretty interesting pattern there worth having a look at further i think
so why don't we compare it to the price so i'm going to call that spy and i'm going to get value
all the way down to the final row 5492
okay and make this a bit more useful a bit more legible
put it over on the secondary axis
so we have here in red
and i'm going to put it on a
new page to make it a bit more visible so you can see i've literally just done this now
and you see we've got the price over the past two decades financial crisis recovery since 2008 2009
there we have the kovid crash up until october of 2021 now you can see this tracks pretty nicely
and gives us some useful information as well in fact it's an alternative to price
so we've got more information we've got different source of information to just using price
now we don't need that anymore so i'm going to use cumulative new highs and new lows
i'm going to insert another column i'm going to call it ema
and if you like to calculate the ema it is super easy to do
first of all you need your ema factor i'm going to calculate it over five bars
and we need an average to begin with that's because the ema always is based on the previous
value so we need to give it a previous value put in our parentheses we multiply that by our factor
and we add the previous value copy that down
so there we have an ema so the ema here is a signal line
so we're going to have a new entry condition based on that now this is
our previous strategy i'm going through this quickly but it is very easy to understand
so cumulative new highs and new lows must be greater than the signal line
previous value must be lower than the signal line okay so once again we have a crossover
okay gone back to the result so we can see the results here so we're we're not
using price at all here we're just using that cumulative data that we just a moment ago looked
at on the chart so we can use it with profit target trading stop or we could take those off
i'm going to do something else slightly different i'm going to include a new exit condition
again this might look complicated but it really isn't this time i'm going to say
whenever our cumulative new highs and new lows drops below its ema signal line then we exit
okay so there we go and
let's bring this value over here
so we're creating this moment by moment it's really easy to do
so i'm just going to call that ema and i'm going to make it into a table so it looks nice
you can see once again we can update the values in real time see how it changes the strategy one
thing i noticed for a lot of these values is a MAR ratio above one which is a really
nice thing to have so we're getting good entries with this getting a good number of winning trades
as well good more ratio nice net profit over time good compound annual growth rate as well
i hope you enjoyed this video i really enjoyed recording it let me know in the comments what
you think about it what you would like me to test next and if you want more
information about backtesting about trading the financial market please go to Tradinformed.com