Craigaudio's ER2 Buyzone Strategy

trading strategies and money management discussion, code, results

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n3wb
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Postby n3wb » Fri Jul 11, 2008 11:11 pm

Hi,

I have been forward testing this strategy using bracket orders (stop and limit) for a few days. No slippage.

The rules are as stated in post 1:

Opening price
Go long = Opening price + 11 ticks
Long profit = Go long + 10 ticks
Long stop loss = Go long - 12 ticks

And vice versa for shorts.

If first trade is a loss, re-enter only in opposite direction.

I have attempted to trade exactly according to the rules mentioned in this thread (especially by not using market orders).


My total so far since 6/30 is -22 ticks not including commissions. My trades are below.


ER2
Opening = 8:30am CST

7/11
Open = 663.7
Short at 662.6
Profit taken at 661.6
+10 ticks

7/10
Open = 661.7
Long at 662.8
This would've been profitable except before continuing in long direction price dropped to the stop loss price of 661.6 at 8:30:52 CST.
Price never came back down to touch the short entry point.
-12 ticks

7/9
Open = 682.3
Short at 681.2
Stopped out at 8:35CST at 682.4 before price resumed its original direction
- 12 ticks

7/8
Open = 658.4
Short at 657.3
Profit at 656.3
+10 ticks

7/7
Open = 668.5
Short at 667.4
Stopped out at 668.6
-12 ticks
at 8:33 price hits the long entry point of 669.6
at 8:35 the long entry is stopped out at 668.4
- another 12 ticks
-24 for the day

7/4
4th of July - didn't trade

7/3
Open at 672.4
Short entry of 671.3 hit immediately after open
Short stop loss hit within 1 minute
-12 ticks

7/2
Open at 690.7
Long entry at 691.8
Long target of 692.8 hit after 8 minutes
+10 ticks

7/1
Open at 681.7
Long at 682.8
Long target hit at 683.8
+10 ticks

6/30
Open at 698.0
Short entry hit at 696.8
Stopped out at 698.1 at 8:35
-12 ticks
but then the long entry is hit at 699.1
The long stop loss is ALMOST hit a few times, but the long target is hit about 10 min later at 700.1
+10 ticks
-2 ticks total for the day


Am I doing something wrong?



Not including slippage and commissions this strategy with its 10 tick reward to 12 tick risk would need a 55% win rate to be profitable. Based on my (admittedly small) test this is not the case (edit - with ER2. Maybe it works on Forex or currency futures).

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khalid
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Postby khalid » Sat Jul 12, 2008 4:39 pm

n3wb,

I think you are doing EVERYTHING wrong!!!!!!

You are trading a (discretionary) methodology as a strategy!!!!!

The strategy dictates average profit to be at best 9 ticks (10 ticks minus a minimum of 1 tick transaction costs) and average loss to be at least 13 ticks (12 ticks plus a minimum of 1 tick transaction cost); which makes average profit 0.6923 times the average loss!!!! Meaning just to cover the debited dollars in your trading account without making money you could take home 59.1% of your trades must be profitable!!!

In your P/L accounting, you are not including the very minimal costs, being the commission, exchange fees, etc.; even if you do not factor in the depreciation of computer(s), the Internet charges, and other out of pocket expenses!!

You are trading an instrument which is not the most liquid of US stock indicies; yesterday ER volume was 348,360, NQ volume was 586,094 and ES volume was 3,251,690!

Do yourself a favour; read the TRO BuyZone Manual here:
http://kreslik.com/forums/viewtopic.php ... sc&start=0

And get TRO Money Management Matrix spreadsheet here:
http://kreslik.com/forums/viewtopic.php?t=455

Then start trading the BuyZone as a discretionary method, change your profit target and stop settings to cover your costs and, if you must trade stock indices futures, switch to emini S&P 500.

Please find attached the yesterday's opening minute's tick data with volume for ES, NQ and ER. I am sure by comparing these you will understand why I favour trading ES.

Good luck.

Khalid
Attachments
TICKdata.zip
(7.33 KiB) Downloaded 28 times

n3wb
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Postby n3wb » Sat Jul 12, 2008 10:54 pm

khalid wrote:n3wb,

I think you are doing EVERYTHING wrong!!!!!!

You are trading a (discretionary) methodology as a strategy!!!!!


Thanks for the reply...

I was trading this strategy exactly as described in this thread. Same instrument. Same entry/exit method. Same tick increments.

The strategy dictates average profit to be at best 9 ticks (10 ticks minus a minimum of 1 tick transaction costs) and average loss to be at least 13 ticks (12 ticks plus a minimum of 1 tick transaction cost); which makes average profit 0.6923 times the average loss!!!! Meaning just to cover the debited dollars in your trading account without making money you could take home 59.1% of your trades must be profitable!!!


I'm not disagreeing with any of that.

In your P/L accounting, you are not including the very minimal costs, being the commission, exchange fees, etc.; even if you do not factor in the depreciation of computer(s), the Internet charges, and other out of pocket expenses!!


I didn't include any of those because this strategy as I tested it is already not profitable BEFORE commissions. Commissions will make it worse. My commissions are less than 1 tick per trade and I don't have slippage.

You are trading an instrument which is not the most liquid of US stock indicies; yesterday ER volume was 348,360, NQ volume was 586,094 and ES volume was 3,251,690!


I am trading the ER2 because that is what this thread was all about. It's even in the thread title. I understand that ER2 isn't the most liquid instrument in the world, but this is an ER2 thread. I expected to be able to duplicate the "profitable results" achieved by the threadstarter and the other person who backtested it, yet I did not.

I am open to critique of my methods here but "you are trading the ER2" is not a valid critique when this is an ER2 thread.

Do yourself a favour; read the TRO BuyZone Manual here:
http://kreslik.com/forums/viewtopic.php ... sc&start=0


I have that.

And get TRO Money Management Matrix spreadsheet here:
http://kreslik.com/forums/viewtopic.php?t=455


I have no issues with Money Management. I was trading this on the ER2 with single lots and it's not going to make me go broke :)

Then start trading the BuyZone as a discretionary method, change your profit target and stop settings to cover your costs and, if you must trade stock indices futures, switch to emini S&P 500.


Valid advice, however this is a thread about using the Buy Zone on the ER2 so you can't say change to the ES. You also can't say to change profit targets and stop settings when those values were specifically given in the first thread.

Please find attached the yesterday's opening minute's tick data with volume for ES, NQ and ER. I am sure by comparing these you will understand why I favour trading ES.


No problem. I'm not saying this won't work on the ES.

I'm saying it hasn't worked on the ER2 in the last 10 days and I don't think it would work on the ER2 at all regardless of timeframe.

Good luck.


Thanks!

BenP
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Postby BenP » Sun Jul 13, 2008 6:07 am

n3wb,

Thanks for sharing your data. I've gone back a few weeks and just eyeballed the trades that this strategy would have generated (pretty easy to do). To me it seems like a coin toss ...and not worth putting money on it.

It's been my experience that the market moves thru different personalities, and what works today as a profitable setup might not work well a few months from now. Perhaps this technique doesn't work in the market conditions we are in. ...not sure.

I posted a question to this thread that asked the original participants how trading the ER with this techique has gone. I was wondering if they've tweaked the targets or stops or entries, or if it's just been too random to trade.

Edward seemed like a true believer in this system and it sounded like trading the ER this way was paying off well. I'd love to hear from him. I'm not here to try to discredit anyone or disrespect them. I just think this thread is old enough that we should know by now if it's a winner or not.

When all you have is a hammer, everything looks like a nail. I wonder if the TRO BuyZone works really well on certain trading vehicles and not others. If the ER2 is a loser, What does the BuyZone method work acceptionally well in?

Respectfully,
Ben

n3wb
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Postby n3wb » Sun Jul 13, 2008 8:19 am

I'm also curious how people adapt the buy zone to other instruments. The pip setup everyone uses for Forex works for that but I don't know that you can just convert like 1 pip = 1 tick.

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khalid
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Postby khalid » Sun Jul 13, 2008 8:25 am

n3wb,

Please accept my apologies for hurting your feelings. My intent was to not direct criticism at you and I am sorry if I came across otherwise. Your fault is no more than to accept, and trade, a strategy which is not in conformity with the BuyZone Manual.

Caveat emptor is the time-tested profitable strategy!

Please do not believe in "not going to make me go broke"; the journey towards making money starts with not loosing it.

craigaudio must be applauded for his courage and effort. Such must be encouraged. When someone presents his/her findings on the forum those more experienced must make constructive criticism and suggest improvements.

Sadly this did not happen on this thread. Indeed, all critical posts were shouted down.

We, and that includes kreslik.com, are all the poorer because of this.
craigaudio reports 385 trades during the test period, 241 winners and 144 losers for a win percentage of 63%. So far good enough.

Then he goes on to say the average profit per trade was +1.9 tick. How he got this number baffles me.

The average profit per trade should be +0.771 ticks!

Here is how:

gross profit 241X9=2169 ticks, including 1 tick transaction costs;
gross loss 144X13=1872 ticks, including 1 tick transaction cost;
net profit 2169-1872=297 ticks;
average profit per trade 297/385=0.771 ticks.

With such profit all of craigaudio plans-for-riches are no more than mere fantasy, even if they have been applauded by experienced traders.

n3wb, BenP and other doubters,

Which strategy or indicator is not important. To make money in the long run, what is important is:

your average profit MUST be larger than your average loss;
(average profit/average loss)Xpercentage of winners MUST be => 100.

The BuyZone methodology as described in the Manual works on all freely traded and liquid markets. If you have MultiCharts or TradeStation download BuyZone_time here
http://kreslik.com/forums/viewtopic.php?t=1141&start=0
and check out for yourself. But be prepared to work hard to find the appropriate settings.

I believe Skyline BuyZone indicator for MetaTrader also allows this kind of research.

I hit upon BuyZone in March this year; therefore, I do not consider myself amongst the experienced. But here is how I trade ES:

entry + or - 4 ticks from the open;
stop 4 ticks;
profit target 8 ticks;
when volatility is steady and preceding 5 minutes bars range between 8 to 20 ticks;
not at daily open bacause the RT hours volatility is not known;
not when there is significant range expansion or range contraction;
buy only when there are higher highs and higher lows;
sell only when there are lower lows and lower highs;
only trade once a day and not be greedy.

But please understand BuyZone is a discretionary methodology; it has some very good guidelines but has no strict rules.

Khalid

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Postby n3wb » Wed Jul 16, 2008 12:17 am

^ I will experiment with your methodology on tick charts of the ES and report back.

Cheers!

khalid
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Postby khalid » Wed Jul 16, 2008 2:59 am

To start with: on paper and WITHOUT MONEY, please.

I will amend the following:
buy only when there are higher highs and higher lows PREFERABLLY when a sell has just failed;
sell only when there are lower lows and lower highs PREFERABLLY when a buy has just failed;

AND there was a mistake in my previous post: it is BuyZone_interval indicator here

http://kreslik.com/forums/viewtopic.php?t=1141&start=0

not BuyZone_time.

My apologies.

Khalid

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Postby eudamonia » Wed Nov 19, 2008 9:03 pm

Khalid and n3wb,

I know this isn't exactly timely but I'd like to point out a few things.

1) The ER2 is dead people! Sheesh! It got ICED when it moved off the CME. Do not trade this method on a dead market. As Khalid pointed out the ES, NQ, YM etc. are good places to try. You will need to adjust your targets and stops.

2) No I never shouted down the critics because they provided criticism. I did shout down the folks who kept saying they were doing "realistic" backtesting while using incorrect assumptions.

3) No one ever seemed to understand LIMIT order only. Read my lips - no market orders. This is how Craig arrived at his average 1.9 ticks. Ken could not figure out this very basic math. If you surrender 2 ticks per trade on market orders (1 in and 1 out) that leaves you with a negative expectancy.

4) IMHO you do not need discretion for this method. But you do need to test a significant set of trades. The problem is people want a 100% winning system. Never gonna happen.

And to answer the question of whether I am still trading this method the answer is yes. But not on the ER2.

Edward
Eudaimonia (pron.: you-die-moan-e-a) (Greek: εὐδαιμονία) is a classical Greek word commonly translated as 'happiness'. The less subjective "human flourishing" is often preferred as a translation.

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Postby gecko » Wed Nov 19, 2008 9:11 pm

This was very active thread and died with these last few es posts. I am trading the es would love to hear if anyone kept up with this and how things are going? Where is eduardia who was so strong on this and made so much money for one year using this strat. Is it still working for him or did it stop working and now he is doing somethng else, just wondering? Thanks

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