R&D Blog
Smash Day Pattern – Type A | Trading Strategy (Filter & Exit)
I. Trading Strategy
Developer: Larry Williams. Concept: Trading strategy based on a failed price pattern. Research Goal: Performance verification of the Smash Day Pattern with the trend filter and time exit. Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Trades: Close[i − 1] > Close[i − 2] and Close[i − 1] ≤ Low[i − 1] + 0.25*(High[i − 1] − Low[i − 1]). Short Trades: Close[i − 1] < Close[i − 2] and Close[i − 1] ≥ High[i − 1] − 0.25*(High[i − 1] − Low[i − 1]). Index: i ~ Current Bar. Trade Entry: Long Trades: A buy stop is placed one tick above the High[i − 1]. Short Trades: A sell stop is placed one tick below the Low[i − 1]. Index: i ~ Current Bar. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 32 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: Trend_Index & Time_Index (Definitions: Table 1):
Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).
| STRATEGY | SPECIFICATION | PARAMETERS |
| Auxiliary Variables: | N/A | |
| Setup: | Long Trades: Close[i − 1] > Close[i − 2] and Close[i − 1] ≤ Low[i − 1] + 0.25*(High[i − 1] − Low[i − 1]). Short Trades: Close[i − 1] < Close[i − 2] and Close[i − 1] ≥ High[i − 1] − 0.25*(High[i − 1] − Low[i − 1]). Index: i ~ Current Bar.  | |
| Filter: | Long Trades: Close[i – 1] > Close[i – Trend_Index]. Short Trades: Close[i – 1] < Close[i – Trend_Index]. Index: i ~ Current Bar. | Trend_Index = [2, 80], Step = 2; |
| Entry: | Long Trades: A buy stop is placed one tick above the High[i − 1]. Short Trades: A sell stop is placed one tick below the Low[i − 1]. Index: i ~ Current Bar. | |
| Exit: | Time Exit: nth day at the close, n = Time_Index. Quick Exit: Long Trades: A sell stop is placed one tick below the min(Low[k − 1], Low[k]). Short Trades: A buy stop is placed one tick above the max(High[k − 1], High[k]). Index: k ~ Entry Bar. 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, 40], Step = 1; ATR_Length = 20; ATR_Stop = 6; |
| Sensitivity Test: | Trend_Index = [2, 80], Step = 2 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; 32 years (1980/01/01−2011/12/31) |
Table 1 | Specification: Trading Strategy.
III. Sensitivity Test with Commission & Slippage
Tested Variables: Trend_Index & Time_Index (Definitions: Table 1):
Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $50 Round Turn).
IV. Rating: Smash Day Pattern – Type A | Trading Strategy
A/B/C/D
Related Entries: Smash Day Pattern – Type A (Exits) | Smash Day Pattern – Type B (Filter & Exit) | Smash Day Pattern – Type B (Exits) | Smash Day Pattern – Type C (Exits)
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/williams/smash-day/a/