TD Setup – Trend | Trading Indicator (Setup & Exit)

I. Trading Indicator

Developer: Thomas DeMark (TD Setup™ and TD Sequential™; Trademarks of Market Studies, LLC). Concept: Momentum strategy based on TD Setup patterns. Source: (i) DeMark, T. R. (1994). The New Science of Technical Analysis. New Jersey: John Wiley & Sons, Inc.; (ii) Kaufman, P. J. (2005). New Trading Systems and Methods. New Jersey: John Wiley & Sons, Inc. Research Goal: Strategy performance with time exits. Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Trades: At least 9 consecutive closes are higher than the corresponding closes 4 trading days earlier (Close[i] > Close[i − 4]; Index: i ~ Current Bar). Short Trades: At least 9 consecutive closes are lower than the corresponding closes 4 trading days earlier (Close[i] < Close[i − 4]; Index: i ~ Current Bar). Trade Entry: Enter on the close of the day on which the setup is completed. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 33 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: Setup_Length & Time_Index (Definitions: Table 1):

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

INDICATOR	SPECIFICATION	PARAMETERS
Auxiliary Variables:	N/A
Setup:	Source: (i) DeMark, T. R. (1994). The New Science of Technical Analysis. New Jersey: John Wiley & Sons, Inc.; (ii) Kaufman, P. J. (2005). New Trading Systems and Methods. New Jersey: John Wiley & Sons, Inc. Pattern: We reverse the original concept of the TD Setup and trade in the direction of trend. Long Trades: At least 9 consecutive closes are higher than the corresponding closes 4 trading days earlier (Close[i] > Close[i − 4]; Index: i ~ Current Bar). In the case where today’s close is equal or smaller than the close 4 trading days before, the setup must begin again. Short Trades: At least 9 consecutive closes are lower than the corresponding closes 4 trading days earlier (Close[i] < Close[i − 4]; Index: i ~ Current Bar). In the case where today’s close is equal or greater than the close 4 trading days before, the setup must begin again. Note: Each day in a look back period is a trading day.	Default Values: Setup_Length = 9; Setup_LookBack = 4; Sensitivity Test: Setup_Length = [5, 25], Step = 1;
Filter:	N/A
Entry:	Entry on the close of the day on which the setup is completed.
Exit:	Time Exit: nth day at the close, n = Time_Index.	Time_Index = [1, 40], Step = 1;
Sensitivity Test:	Setup_Length = [5, 25], Step = 1 Time_Index = [1, 40], 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; 33 years (1980/01/01−2013/05/31)

Table 1 | Specification: Trading Indicator.

III. Sensitivity Test with Commission & Slippage

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

Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).

Related Entries: TD Sequential (Setup & Countdown) | TD Sequential (Countdown & Exit) | TD Sequential – Adjusted (Countdown & Exit)
Related Topics: (Public) Trading Strategies

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/demark/setup-trend/