Hello this is Mark from Tradinformed.com and welcome to this video on a
Simple Swing Trading Strategy. This video is a follow-up to a previous video
that I recorded two years ago in 2016 in which I introduced a trading strategy, a
swing trading strategy for the S&P 500. Now in this video I want to review that
strategy and in particular to see how it has performed in the recent volatile
markets. Now all traders will know that the markets have had a little bit of a
change in 2018 compared to the very calm 2017 and years preceding that, 2018 has
been different, we've seen lots of volatility we've seen wild price swings
and we have seen many traders and trading strategies struggle in these
conditions. So I wanted to have a look at this swing trading strategy and see how
it has performed in the years leading up to 2018 and in particular to compare it
to how it is performed in 2018 itself. So the chart on the screen at the moment is
the S&P 500 500 large cap US stocks and there's obviously a lot of different ways to
trade this market a lot of different ETFs that allow you to get exposure to
this index. Now we can see on the right hand side exactly what I was saying
about the volatility we can see very large candles very large trading swings
and also the often violent swings from positive to negative
we can compare that and contrast with the market preceding that, particularly
2017, but also the years up to 2017, much smaller candles and a much more steady
upward trend. Now it has been relatively simple to trade the markets up until
2018, unless you were only trading short, in which case it was quite difficult, but
2018 has given opportunities for both bulls and bears to get into the S&P and
all other major stock indices so let's have a look at the trading strategy now
the key thing we are looking for here, it is a simple swing trading strategy, the
key thing that we are looking for here is the tendency for markets to
make a fake-out move so we're going to trade long if we get a close down and
we're going to trade short if we get a close up now this may sound
counterintuitive but we are going to protect ourselves by always trying to
trade in the direction of the major trend so we can see on the screen a
candle that closes down as long as it trades up then we want to be getting
entering long here likewise if we are going to trade short we're looking for a
candle that trades strongly upwards and we want to go short at that point the
way that we're going to analyze this trading strategy is using the
spreadsheet now I've got the spreadsheet on the screen at the moment this is a
Tradinformed Backtest Model and it is an updated version of the previous model
which I presented in the previous video now this spreadsheet is way of back-
testing the financial markets you can use it to test all sorts
of different strategies but what I have pre-programmed in here is the strategy
that we're going to talk about today if you want more information about these
spreadsheets there is a link on the screen to the Tradinformed website if
you want to click on that you can see the backtest models that are available
they are all built in Excel and as you can see in this video there's lots of
opportunities to tweak, fine-tune and optimize the trading strategy to make
it your own. So as I said this is an Excel based model and what we've got here on
the left is the price data and in the middle we have quite a bit of
calculations and these are very common technical indicators that everyone will
be familiar with. Now I've used the Japanese candlestick terminology a Marubozu
candle which is basically a block candle that if you see one you'll know
it on the screen it opens near the low point or at the low point and closes
near the high point would make it a long marubozu and if it did the opposite then
it would be a short. But in this trading strategy we're using we're looking for
fake-outs so I'm using this as a signal for short here as a signal to trade long
and a long here as a signal to trade short as I said I am using a filter to
identify the main trend and what I'm using in this strategy is the linear
regression now the linear regression is a technical indicator or a statistical
tool that I find very useful and in this case what I'm going to be doing, the
linear regression is the closest fit or the best fit straight line through a
series of data and the way that we use it most commonly in
technical analysis is in the form of a linear regression line or linear
regression with standard deviation channels now it's very useful for this
purpose and what I'm going to do is use a 200 period linear regression so it's
quite long, quite slow-moving and I'm going to identify the slope of the
linear regression and if it is pointing upwards I'm going to be trading long and
if it is pointing downwards I am going to be trading short now if you want to
hold on till later in the video I will play around with this and look at some
different options for it but this is my base situation ok so we've got the
filter we've got our entry signal and over here we have the calculations for
the trades on this page of the model we have the variables that input into the
model and we have the results we can see over here that we can adjust things like
the profit target and a stop loss and we can see how these make difference to the
trading strategy we could put a trailing stop and again see what difference this
makes the strategy here is using some different ways to exit the trade so
we're going to be using a profit target if that is set but also we are going to
be using Bollinger Band, now Bollinger Bands are pretty handy technical
indicators and one of the things that they are useful for doing is helping us
to exit the market when it is at some sort of a short-term extreme so we're
actually setting the
strategy to exit the position when the closing price is greater than the
Bollinger Bands and you can see that we can set this the multiple of the Bands
and it will affect the profitability of the strategy now another thing we've got
here is the percentage coverage of the candle so sixty-five percent means that
the body of the candle the difference between the open and the close as a
percentage of the high and the low of that particular candle so have I set
this to 85 percent you can see it makes a difference it actually tends in this
case to increase the winning percentage because we're getting more strict candles put it
up to 95 percent and again we can see it makes different to our winning percentage
and our strategy performance the percentage size is simply how large the
candle has to be so we don't get we're not entering on any really tiny candles
which can occur when there's not a lot happening in the market now we've got a
new thing here and the previous strategy when I looked at this in my previous
video I only looked at long trades which was really pretty much the only sensible
game at that time and has more or less been all the way since as we could see
on the chart however things have changed. Whether they're going to change back or
not we don't know at this stage but I've introduced short trades but I've got
introduced them with a filter here so we're going to check box that we can
click on and off now we can see it makes quite a difference to the strategy
includes adding in some short trades now the other small change that I have made
is included a filter for the dates and this just allows us to look
at how the strategy has performed since a particular date so I click this and we
have a look how its performed since 2010 we can see we get a different answer to
since 2000 how its performs in 2012 and once again we can see we've got the best
part of this market this was the calm market that I've been talking about
obviously with a few exceptions but this this is the period when it's
performed particularly well so since we last looked at the strategy since 2016
it's just March 2016 we see once again it's really held its own pretty well you
can play around with these we get slightly different results but on the
whole we can see that it has performed pretty well but now I think the key
thing is to look at how it is performed in 2018 now at the time of this
recording we're still in the early part of 2018 so we don't have enough results
to really give us anything conclusive however I wanted to look at the small
number of trades that we have got and have a think about, see we again we can
just play around with these numbers and see if it makes any difference often
what we're trying to do with the trading strategy it's trying to disprove it
we're trying to prove that it doesn't work and that's a pretty good approach
to have because if you don't trust it yourself you're never going to be able
to trade it because it at the first sign of trouble you will abandon ship and
give up on the trading strategy now what's interesting in the small number
of trades the way I've got it set at the
moment we've got ten different trades you know we can click on to this page and
have a look at them and we can see that we have had some pretty shocking trades
we've had a - 4.3% trade which would have been pretty painful at the time and
a minus two and a half percent trade which likewise would not have been fun. In the
early part of 2018 we were getting short trades because this analysis is looking
at short trades and we were we were getting the early part of 2018 was
really pretty calm so we were getting beaten on the short trades but here we can
see as we go later into 2018 we start making some quick profits on our short
trades with the long trades you can see that we've made a huge recovery 7% trade
there and a couple of pretty decent recovery including this last one here
which is the most recent recovery if we have a little look here and see the
capital growth is based on the cumulative percentage of each trade we
can see we've performed okay now this graph will change depending on
what I set these values out but I'm not looking for a fine-tuned strategy here
what I'm looking for is a strategy that is robust in different situations and
really that is what we we have - this is what the best we have to hope for
because we cannot see the future so I want to click all these things see if
anything makes differencing anything is going to disprove this strategy well I
think what I've shown in this video is that this trading strategy is holding
its own in what has been a very difficult market so far we don't know
what is going to happen in 2018 the markets could well get more volatile we
could see another bounce down we could see all sorts of things happen on the
other hand we could see a return to the relative calm
or the absolute calm in fact we just don't know what we're going to have so
what we need to have is either a range of strategies or a trading strategy that
can cope with different market conditions so I hope you enjoyed this
video if you liked the video please remember to hit the Like button and to
Subscribe to this channel and if you'd like more information about trading the
financial markets learn how to back test your trading strategies and about
analyzing the financial markets in general please go to www.tradinformed.com