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Trading Range Breakout - Long Strategy

by QuantShare, 3143 days ago
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During a non-trending period, the price of an asset usually crosses above and below its moving average several times in a short period. The power of the bulls is almost equal to that of the bears. The more crossovers occurring between the price and the moving average the more the direction of the price movement is uncertain.

Given the above conditions, the moment the trading range is broken is a powerful signal that could indicate that the bulls may have won the battle and that a strong bullish trend is forming. The likelihood of this movement continuing its upward trend improves if the trading range breakout is accompanied with an increase in trading volume.

The non-trending period (characterized by several crossovers), the trending range breakout and the increase in volume are the main buy rules of this trading system. The sell rules consist of two stop rules: A 30% trailing stop and a 60-Period N-Bar Stop.
The strategy includes also an additional rule that prevents it from buying illiquid stocks.

Here are some stats generated by the simulation report of this trading system for the U.S. Stock Market and for the period that spans from 2000 to 2011:
- System Type: Long Only
- Maximum number of positions: 10
- Annual Return: 21.86%
- Maximum Drawdown: -45.67%
- Sharpe Ratio: 0.83
- Profit Factor: 1.54
- Payoff Ratio: 1.48
- Ulcer Index: 15.56
- Standard Deviation: 20.4%
- Average Bars Held: 52
- Number of Trades: 506
- Percent of positive trades: 50.99%


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Type: Trading System

Object ID: 961


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Market: All

Style:
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Technical Analysis


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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.