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Forward Performance of a High Reward Risk System for QQQ

This system was machine designed by Price Action Lab in October of 2011 and the results were published in this blog to serve as an example of the existence of high reward:risk patterns in historical data. In this post it is shown that the forward performance of this system of patterns has been excellent not only in QQQ but also in SPY and DIA and, surprisingly, also in TLT.

One of our Price Action Lab customers reminded us today of a post 2 years ago and we thought it would be a good idea to see how this little system of 6 patterns that was published in October of 2011 has performed since then. Let us first recall the Price Action Lab search results for this QQQ system of patterns:

QQQ_HIGH_RR_RES

The in-sample performance of this system, whcih is made up of 4 long and 2 short high reward-risk patterns, is shown below (all signals):

QQQ_HIGH_RR_RES_IS

The forward testing period is from 10/13/2011 to 07/25/2013 and the performance results for all signals are shown below:

QQQ_HIGH_RR_RES_FS

It may be seen that the system maintained a high CAR and percent return in the forward period. The above point backtest is based on one share per trade and thus the drawdown shown is not indicative of what would have been obtained in the case of a fully invested system with risk and money management implemented. In addition, the system exposure to the market is of very short duration with a total of 44 trades.  Users of the program can generate code and analyze in more depth the performance of this system for various risk management schemes in backtesting platforms, such as Tradestation and Amibroker.

Below is the performance of the QQQ system YTD

QQQ_HIGH_RR_RES_2013

The percent return for 2013 is about 8%, below the buy-and-hold return, but this system has been in the market for about one month and a half only during the last 7 months. Note that the last trade was in June, it was a short and a profitable one.

Performance of the QQQ patterns in SPY for 2013

It is interesting to see the performance of the patterns that make up the QQQ system in SPY. That is, the signals are taken when the patterns are formed in SPY. This is easy to do with the new version of Price Action Lab. All one has to do is to change the symbol name to SPY from QQQ, using the Change File Name tool:

QQQ_HIGH_RR_RES_SPY

The backtesting results for 2013 are shown below:

QQQ_HIGH_RR_RES_SPY_2013

Again, it may be seen that the system has returned about 9% and it has currently an open long position.

Apparently, similar performance is obtained when changing the symbol to DIA:

QQQ_HIGH_RR_RES_DIA_2013

In this case too, the return is close to 12% with a long position open.

It is even more interesting to see the performance of this system in TLT, a market that has had negative performance in 2013:

QQQ_HIGH_RR_RES_TLT_2013

 Although TLT is down about -11% YTD, this system has generated a gain of about +11%.  These results are a slap on the face of those who often declare that the markets are random, that significant patterns do not exist and that traders are always fooled by randomness.  The fact the techniques, programs or people using some techniques or programs cannot get something significant is not proof that nothing of that sort exists but only says something about the quality of the techniques, programs and/or people using them. Trading and trading system development is an art and a science and requires prudent use of tools, a lot of experience and continuous effort.

Disclosure: no relevant positions.
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