I often get asked what is the best QQQ/Nasdaq 100 strategy that i have tested - well in this
video i'm going to look at the three best trading strategies that i have tested in 2020 and 2021
I'm Mark from Tradinformed.com and if you like this video please don't forget to hit the like
button and subscribe to this channel if you want more content like this about analyzing
and back testing the financial markets i have tested literally hundreds of different
trading strategies and the qqq has been one of the best performing markets not just in
terms of the overall return although this has been very good but in terms of the smoothness
of the price action and what this means is that it is easier for mechanical and
discretionary traders to trade, we get less false signals which means we get more winning trades
in this video i am going to cover how I compared the strategies including the metrics that i think
are the most important i'm going to cover each strategy and show you exactly how to trade them
i'm going to show you how i tested each strategy the results that i got and also my thoughts about
each strategy so stay tuned so how have i compared these strategies and why have i chosen these
three, well there's loads of great metrics out there but i have chosen three for this analysis
number one the MAR ratio the MAR ratio is compound annual growth rate divided by maximum drawdown
so as a single metric to compare strategies it is very powerful compound annual growth rate
includes our overall net profit as a function of time and maximum drawdown shows how much pain
we have felt in following this trading strategy number two the win-loss ratio this may seem like
a very simple way to compare strategies but it is absolutely crucial for our psychology
in terms of implementing the strategy you can get a strategy with 95 winning trades that you
cannot follow because the drawdowns for those 5 of losing trades are too high equally a strategy
with only 20 winning trades can be easy to follow if you're comfortable holding on to your winning
trades - it's all about how your psychology works and number three average trade expectancy
now this is a way to measure how much profit we can get in terms of the underlying market per
trade so this makes a difference because cost of trading is a factor that many of us don't consider
so the higher average trade expectancy is the lower our cost of trading per trade will be
let's have a look at the three trading strategies strategy number one is the renko strategy renko is
a japanese charting system that uses price instead of time to calculate the bars now
i am using it as a filter the strategy is very simple trade in the direction of the renko bricks
and enter on a daily retracement strategy number two is the stochastic strategy now this uses the
stochastic oscillator as the entry signal we enter when the stochastic oscillator crosses above the
entry level now i'm using two entry levels in this strategy and i will show you what they are
later there is a supplementary filter to this strategy and that is only enter when
the ratio of the closing price divided by the ATR is lower than three percent and the logic for this
is that we only trading long trades so we only want to enter when volatility is relatively
low the third strategy is the two ema strategies and this is to enter when the price crosses above
the three period ema and it is also above the 13 period ema next i am going to look at how i tested
the strategies and the results that i got on the screen is aTradinformed backtest model it is built
in excel and this particular model was created for Tradinformed members so i'm going to briefly
show you what you can do with this model firstly i have each of the three strategies i have the renko
i have the stochastic and i have the two ema strategies so you can switch between
the different strategies just using the check box here you can test different profit targets
you can use different ways and see how the results change in real time you can test different markets
i'm testing on the QQQ but you can very easily test this on the spy the TQQQ or any market
that you wish we've got different exit conditions and over here in real time we have the strategy
results so if you want more information about how to use Tradinformed backtest models there
is a link on the screen and below this video so please check that out for more information
let's have a look at the individual strategies firstly renko you can see for each strategy
i have programmed in some different variables so for renko the key one is the bar or brick size
so i've set this to 20 we can easily change this to test different values
and you can see again the results adjusting in real-time so I'm going to set this back
to 20 per cent now we can also adjust the profit target so I'm using a fairly tight profit target
of just six per cent stop loss of two per cent and a trailing stop a chandelier style trailing
stop of three per cent I'm also using some exit conditions now these are excellent conditions
that I've worked on over time and I really like so we've got two different exit conditions you
can see them in a lot of my models and strategies firstly I'm using them for all three strategies
close after a number of bars if the trade is in profit so we're going to give the trade a decent
a number of bars and if it's in profit and we haven't and it hasn't hit our targets then we're
going to exit it so it's a type of inactivity stop secondly we're using what I call a strength close
but the difference is for this one we're using it for only when the trade is in loss
so all that means is two consecutive bars of at least this gain close to close we will exit
the trade and I'll explain more about that in a moment so we have Renko if i check this
box here we can have a look at stochastic now the stochastic was probably the most
versatile in terms of working for a number of different
settings and setups you can see we're getting pretty good results in terms of the MAR
ratio down here in terms of net profit percentage winning trades for all of these different setups
so I found a very tight trading stop working well which shows you that the entry conditions
are quite sharp so we were able to use a tight trailing stop and stop-loss
so finally let's have a look at the stochastic look back period I'm using
five bars it's not essential to use five but a shorter period tended to work better
although a longer period will also give decent results so I'm going to keep it at five there my
stochastic entry levels I told you I'm using two different levels now you don't have to
you could just set one of these to zero and we're only testing one, in fact,
that's a good way to check the range of values but I've found two giving a better set of results
now the EMA strategy i've used a different reward to risk
profile for my two ema strategy I'm using this time
a profit target of three and a stop loss
of 100 and all this effectively means is that that stop loss is not active
so only the profit target is active here however we have these other exit conditions
so we haven't got very many
variables for this strategy we've only got two so we've got a 3 and a 13-period EMA
just sticking to the Fibonacci numbers you can see we're going to get different profiles you see
if we keep ema two longer it's going to act as more of a filter if i push that out to 35 we're
getting a lower net profit but still decent MAR ratio so the strategy is working successfully for
a range of values again now the exit conditions are more significant here because we're not using
a traditional stop loss so we only want the trade to go on for a short while if it is in profit and
we want the trade to exit any time we have a little bump up and even if we're in loss or rather
when we're in loss a couple of days that's showing a reasonable daily gain then we're going to exit
that trade on the screen i have the combined results of each of the three strategies you can
see that renko and stochastic are returning very similar results and the EMA strategy
is returning a different profile of results we've got a much higher percentage of winning trades
and we've still got a good MAR ratio and a higher average trade expectancy i said at the start
of this video i was going to give my thoughts on each of these three strategies because the numbers
never tells the full story firstly renko it is easy to follow if like most people you have a
job and other commitments this is as easy as it gets all you need to be looking for is a
close lower than the previous close and then you enter the trade this system relies on renko bars
now these are a price based system and they are different but now difficult for most of us
who are used to candlesticks standard weekly daily five minute bars to get used to so you
need to be aware that this is a price based bar system and it is more difficult to conceptualize
the stochastic strategy this is probably the most versatile of the three strategy
it works well with a wide range of settings and i like that it makes it feel a lot more robust
however this strategy is in the market a lot so
if and when we get a downturn this strategy will get us into that downturn
the two ema strategies firstly number one the great win loss ratio this is fantastic for people
who like a lot of winning trades and most of us do but because we have no stop loss this strategy
you're going to spend time with trades that are underwater that are losing and you have to be
patient at those times because the strategy has systems to get out when the market bounces back
also for the two ema strategy there's not as many trades as the other strategies now this
can be a good thing or a bad thing depending on your perspective it can be a good thing if you
like to be patient wait for the best setup and if you're impatient quite clearly this could be
a negative because you're going to want more action trade a strategy that is appropriate
for you i hope you enjoyed this video as much as i enjoyed doing the analysis
if you want more information about trading the financial markets about trading strategies
about analyzing and backtesting trading strategies please go to Tradinformed.com