Hello this is Mark from TradInformed.com and welcome to this video on a
Simple S&P 500 swing trading strategy now we've all been there when the market
is showing a good trend we've opened our trade and the price is immediately
reversed against us maybe even taken out our stop-loss before continuing in the
original direction now this can be very frustrating and one of the ways to deal
with this, and in fact to take advantage of it, is to use a swing trading strategy
now when we're looking at swing trading we're looking at the times when the market
retraces a little bit, or even a lot against us, and use these as buying, in
this case looking for long trades, as opportunities to enter a trade at a
better price but still in the direction of the dominant trend. So in this video
I'm going to look at this simple swing trading system. I'm going to look at the
the actual system that I'm going to suggest. I'm going to look at the results
of a back test of this strategy and then finally, for people who are interested in
checking the robustness of the strategies, I'm gonna look at random
entry to see how it compares to the strategy and in particular the entry
system. OK so nice and quickly the trading strategy is really just
comprised of three elements. The first of these is a entry filter and I'm going to
use one of my favorite technical indicators which are the standard
deviation channels, these straight channel lines here, I'm going to use
these quite simply as an entry filter: when they're pointing upwards I'm only
going to take long trades, and in fact I'm actually in this particular case,
only looking at a long trading strategy so when the channels are pointing
downwards we'll be in cash and waiting for the market
to move back up again. Now the next part of the system is the exit closing
system which is these dashed lines which are Bollinger Bands and finally the
entry trigger and the entry trigger is a candlestick based method, very simple, I'm
looking for candles that are moving against the direction of the dominant
trend, so in this case we're looking for long trades, so we are looking at red
candles that close below this standard deviation line. Now it was the candles
themselves I was originally looking at Japanese marubozu candles which I'm sure
many of you will know are these totally full candles complete green one here and
down here we've got a complete red one but in fact the results show that I
don't need to wait for these relatively rare candles and in fact I've got a
system that is just simply a fixed percentage of the overall length or
height of the candle and I'm using a fixed percentage candle that has a body
of at least 65% of the height of the candle. Right how have I done this back
test? Well I've done it using an Excel spreadsheet and this is the one that I
have used and this is an example of a tradinformed back test spreadsheet
which is a great way to test all sorts of trading strategies any markets and
any timeframes they're quite simple to use for anybody
with some Excel skills to test their own strategies, refine them and see
what the good points are and the bad points are of their trading strategies
now there is a link on the screen and a link below if you'd like more
information and you can click on it if you'd like to find out more about these
tradinformed back test spreadsheets. So over here on the left we have the data
this is the S&P 500. I'm using the daily timeframe which I do think is an
excellent timeframe for looking at trend, trend following even though there's a
swing trading strategy we are still looking for markets that are obeying and
following relatively long term trends and I think the daily timeframe is the
one of or possibly the best timeframe for these types of trades we've
got the technical indicators here in the middle and over here towards the right
we have the actual trading strategy. Now we've got here a results tab and we can
have a look at some of the inputs I have used a stop-loss here but what I'm really
trying to get at, this is a simple strategy, I'm not trying to show an over-
optimized curve fitted strategy I could get rid of this stop-loss and the
strategy would still be profitable. OK so what are some of the things that I've
included in this version. OK well I have used a stop loss I haven't used a
profit target I've used a Bollinger Band, I've slightly tweaked it here I've
gone for a multiplier of 1.5 rather than 2 I've used a linear regression offset
of 0.5 standard deviations and what I was saying about the
candlestick entry I'm using a coverage here of 65% of the entire candle
height now we can see from the capital graph that this looks a fairly nice
trading strategy this is certainly the sort of capital graph that I would like
to see on my on my trading strategies. I've got a couple of flat areas here and
this is of course when our filter is pointing downwards and in fact we can
identify them here we've got the dot-com bubble-and-bust and here we have
the Great Recession 2008-2009 stock market crash and here just at the end we
have the 2016 is still going on stock market
wobble. OK so these are the sort of results that we're getting we're shown a
net profit over the period but a profit factor of nearly two and a half which is
the gross winning trades compared to the gross divided by the gross losing trades
we've got a nice healthy win percentage 72% and we've got a
maximum drawdown of 6.9% it's a very nice low drawdown and certainly something
that I would be quite happy to see in any trading strategy that I was using
now I said at the beginning we've got some results here but how can we be sure
that these results came from our entry trigger and aren't just being caused by
well probably by the entry filter. Well one way that we can test this is to use
random entry now I've designed in into this spreadsheet already a way to test
the same strategy using the same entry filter and the same exit but without the
candlestick entry and in fact using a random entry and I just click back to
here I can double click here and this has changed the strategy being tested to
a random entry and we see that of course the capital graph has changed and so
have our results here. Now it's nice I can just click any button and the random
entry will change what I've also done is just put a simple test here and we can
take a sample so I'm gonna run a very quick sample just by clicking on this
button which will test it five times and give us our combined results here we can
see as the results appear that we'll get some results that are pretty decent
really we've got we're still making a profit over this time period it's quite
variable we can see it varies from a very small level of profitability
to relatively high they're showing consistently above 50% level of winning
trades winning percentage of trades which is very good something that I
would be very pleased about in pretty much any strategy as well again a
drawdown which is slightly higher but this is only to be expected we've got a
completely non-optimized strategy and again 16.7% is relatively I say
relatively decent under the circumstances I want to test it again I just click the
button again and we get some updated results. OK so we do have some results
we've got some in fact looking at these second lots of results they've changed
quite a bit here in fact they're consistently higher but still a lot
lower than our original entry now we can test this again and again and it would
be interesting to do so but what we've got here really for my mind is a couple
of things we've firstly very simply but at least we have shown that our entry
system works better than random entry which is very encouraging secondly we've
shown that the entry filter over now a number of different tests has been
consistently showing a profitability a number of winning trades above 60 and
even 70% which is very encouraging again finally our max drawdown although still
higher than our original is within an acceptable level so there we have it we
have a trading strategy a nice simple trading strategy a way to trade using
historical data the S&P 500. Now please if you're interested in more videos like
this do subscribe to the Channel and also use the comments section below tell
me what you think tell me anything that you think I should include in this test
or not includ in this test and anything else you would like to put
relative to trading the markets and for more trading information and
financial markets in general please go to www.tradinformed.com