R&D Blog
Multiple Time Frames – Bruce Babcock | Trading Strategy (Entry)
I. Trading Strategy
Developer: Bruce Babcock (Conquistador Trading System), Nelson F. Freeburg. Source: Freeburg, N. F. (Dec. 1994). Formula Research, Quantitative Treatment of the Financial Markets. Memphis, TN: Formula Research, Inc. Concept: Trend-following strategy based on multiple time frames. Research Goal: (1) Strategy performance with time exits only; (2) Benchmarking against alternative entry methods. Specification: Table 1. Results: Figure 1-2. Trade Setup: We are looking at three different time horizons. Long Trades: (a) Today’s close is above the 10-day moving average (MA) of the close, and (b) Today’s 10-day MA is above the 10-day MA 10 days ago, and (c) Today’s close is above the close 40 days ago. Short Trades: (a) Today’s close is below the 10-day MA of the close, and (b) Today’s 10-day MA is below the 10-day MA 10 days ago, and (c) Today’s close is below the close 40 days ago. 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: MA_Length & Time_Index (Definitions: Table 1):
Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).
| STRATEGY | SPECIFICATION | PARAMETERS |
| Auxiliary Variables: | MA(Close, MA_Length) is a simple moving average of the close price over a period of MA_Length. | MA_Length = [10, 100], Step = 5; |
| Setup: | Long Trades: 1. Close[i] > MA[i], and 2. MA[i] > MA[i − MA_Length], and 3. Close[i] > Close[i − Trend_Index] Index: i ~ Current Bar. Short Trades: 1. Close[i] < MA[i], and 2. MA[i] < MA[i − MA_Length], and 3. Close[i] < Close[i − Trend_Index] Index: i ~ Current Bar. | Trend_Index = 4 × MA_Length; |
| 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: | MA_Length = [10, 100], Step = 5 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 (1980/01/01−2013/06/30) |
Table 1 | Specification: Trading Strategy.
III. Sensitivity Test with Commission & Slippage
Tested Variables: MA_Length & Time_Index (Definitions: Table 1):
Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).
IV. Rating: Multiple Time Frames – B. Babcock | Trading Strategy
A/B/C/D
Related Entries: Dow Theory – Multiple Time Frames (Entry) | Dow Theory – Trend (Entry & Exit) | TD Setup – Trend (Setup & Exit) | Toby Crabel – 2 Bar NR Pattern (Exits) | Greatest Swing Value – Trend (Filter & 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/babcock/conquistador/