Craigaudio's ER2 Buyzone Strategy

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Craigaudio's ER2 Buyzone Strategy

Postby craigaudio » Wed Dec 12, 2007 3:30 pm

Eudamonia asked me if id put add a post about the buyzone setup Ive started using on the ER2 which I pretty much copied off him, so Ed, thanks on the starter for ten :-)

Goes without saying id also id like to thank Avery for all of help, sharing his strategies, indicators and advice. Big Kudos.

With that said lets move on...

Buyzone Parameters:

Trigger Long: Open Price + 11 ticks
Trigger Short: Open Price ? 11 ticks
Target: 10 ticks
Stop Loss: 12 ticks

When I see the open price for the day I subtract 11 ticks in my head and place a limit short order with my broker. I add 11 ticks to the open price and place a limit buy order with my broker. When one order is filled I pull the other order.

I use Transact futures and have the orders automatically setup so that if filled the profit and targets are automatically set when I getting filled.

I make maximum 2 trades per day. If the first trade is a winner then I go enjoy myself.

If the first trigger is a loser, no stress, I will only take a second trade if it hits the opposite side of the buyzone.

For example, lets say I went short in the sellzone and was stopped out for a losing trade, I would take no more shorts that day, the only possible trade for me would be to go long if the buyzone trigger was hit. If that trade is a loser then I quit for the day. As I live in the UK I only to trade the morning futures session.

I do not trade every time price crossed the buy or sellzone.

If the second trade wins then I have drawn for the day, 1 loss vs. 1 win, and take the drawdown on commissions.

This is such an easy strategy to back-test, taking minimal time and effort.

From my own testing by eye and a few horizontal lines I have gathered the following results:-

02/11/2006 to 11/12/2007

# Trading Days: 282
# Trades: 385
# Winners: 241
# Losers: 144
Win Ratio: 63 %
Ticks Per Trade: +1.9
Max Consec Losers: 3
Max Consec Winner: 11

Starting Capital: $10,000
Risk Per Trade: 4% (compounding, max limit of 30 contracts per trade)
Ending Capital: $148,320
Profit: $138,320 (inc. commissions $5 round trip)

With an average win of 1.9 ticks per trade, with say 22 trades per month, thats a profit of 41.8 ticks per month. With 10 contracts per trade thats a smooth $4180.

With 10 contracts you make $1000 for every winning trade (excluding comms). Over the year I have tested so far there are occasions where you have had 11 max consecutive winners before a draw or loss (max 3 consecutive losers). Thats a tidy profit of $11k in just over a fortnight.

If you compounded your capital (like I do) and traded a percentage of your account for each trade, lets say 3%, then as you win your stakes get higher after each success and also reduce if you encounter a losing. Due to the high hit rate and the attendant liquidity in the futures market, with an account of size $100k taking 3% risk per trade, you could be trading 25 contracts making $2500 per trade before commissions. Nice.

I would post the spreadsheet here but to be honest, if youre seriously considering trading this method you should definitely do your own due diligence and research. It will certainly give you confidence that the system works well. Sods law you will encounter 3 consecutive losers when you start trading and be totally put off by the approach.

Note that just because the ER2 has behaved in this volatile manner for the last 12 months it doesnt mean that it will continue to do so, it just gives us more confidence that the pattern will continue. Continuation is more likely than change. Monitoring the entries and exits are necessary in order to tweak the entries and exits if required.

Also you might be thinking ?hey that trade isnt even 1:1 risk reward, the stop is bigger than the potential profit. Well from the research i've done so far the strategy works much better with a bigger stop due to the fact that the open price often acts as support or resistance and can help keep you in a trade.

As far as the target goes, Im currently looking into the effects on the numbers if the target is raised by a few pips more but havent quite got round to that yet. A lot of times it seems you could squeeze out more but I dont have the figures to back that up yet. If you find that you have better results with a different targets and stops then id love to hear more.

As you can see, this strategy is extremely good on emotional capital. You dont spend all day long staring at charts, winning trades, losing trades, clocking up commissions, and eventually ending up breakeven or even worse... at a loss for the day. I?ve had plenty of days where Ive sweated blood and tears only to end up with a negative P&L.

With this approach you are trusting the statistics, the emotion is totally taken out of the trading. I spend maximum of one hour per day on this and the figures backup the strategy as a profitable one so you cant really ask for more than that?

Dont get lost in the markets. Trade to live, dont live to trade.

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