R&D Blog

ORBP with Momentum Filter | Trading Strategy (Filter & Exit)

I. Trading Strategy

Developer: Toby Crabel (ORBP: Opening Range Breakout Preference). Source: Crabel, T. (1990). Day Trading with Short Term Price Patterns and Opening Range Breakout. Greenville: Traders Press, Inc. Concept: Volatility expansion with a trend filter. Research Goal: Performance verification of a trend filter and time exit. Specification: Table 1. Results: Figure 1-2. Trade Entry: ORBP with Momentum Filter: A trade is taken at a predetermined amount above/below the open. The predetermined amount is called the stretch. Long Trades: In a bullish mode (defined by the Filter; Table 1), a buy stop is placed at [Open + Stretch]. Short Trades: In a bearish mode, a sell stop is placed at [Open − Stretch]. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 35 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.

Tested Variables: Filter_Look_Back & Time_Index (Definitions: Table 1):

Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY	SPECIFICATION	PARAMETERS
Auxiliary Variables:	Noise: The difference between the open for each day and the closest extreme to the open on each day (Noise[i] = min(High[i] − Open[i], Open[i] − Low[i])). Average_Noise: The simple moving average of Noise over a period of Stretch_Length. Stretch[i] = Average_Noise[i] * Stretch_Multiple. Index: i ~ Current Bar.	Stretch_Length = 10; Stretch_Multiple = 1;
Setup:	N/A
Filter:	Long Trend Filter: If Close[i] > Close[i − Filter_Look_Back + 1] then the trend is “long” (only long trades are accepted). Short Trend Filter: If Close[i] < Close[i − Filter_Look_Back + 1] then the trend is “short” (only short trades are accepted). Index: i ~ Current Bar.	Filter_Look_Back = [2, 100], Step = 2;
Entry:	ORBP with Momentum Filter: A trade is taken at a predetermined amount above/below the open. The predetermined amount is called the stretch (defined above). Long Trades: In a bullish mode (defined by the Filter), a buy stop is placed at [Open + Stretch]. Short Trades: In a bearish mode, a sell stop is placed at [Open − Stretch].
Exit:	Time Exit: n^th day at the close, n = Time_Index. Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop].	Time_Index = [1, 50], Step = 1; ATR_Length = 20; ATR_Stop = 6;
Sensitivity Test:	Filter_Look_Back = [2, 100], Step = 2 Time_Index = [1, 50], Step = 1
Position Sizing:	Initial_Capital = $1,000,000 Fixed_Fractional = 1% Portfolio = 42 US Futures ATR_Stop = 6 (ATR ~ Average True Range) ATR_Length = 20
Data:	42 futures markets; 35 years (1980/01/01−2015/07/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Tested Variables: Filter_Look_Back & Time_Index (Definitions: Table 1):

Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $50 Round Turn).

IV. Rating: ORBP with Momentum Filter | Trading Strategy

A/B/C/D

V. Summary

(i) The trend filter defined by the variable “Filter_Look_Back” improves performance of the Opening Range Breakout (Figure 1-2); (ii) The longer holding period defined by the variable “Time_Index” is preferred (Figure 1-2); (iii) This test serves as the base case for the subsequent research of short-term patterns.

CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

Codes: matlab/crabel/orbp-tf1/

← Previous Article