publication

strategies
It should also be noted that an unadjusted continuous
contract data series was used for the DAX futures to
minimise data anomalies caused by the back adjustments
that are typical for a continuous contract series.
Trading Rules
The strategy is built on just a few core calculations:
• Relative Strength line
• 10-bar average of the Relative Strength line
• 5-bar momentum of the 10-bar average of the Relative
Strength line
• 21-bar correlation coefficient
Long entry signals are based on conditions in both
Relative Strength and correlation.
• Momentum of average RS line greater than zero
(positive momentum)
• Correlation coefficient less than -0.1 (negative
correlation)
Selecting a Bar Interval
There is no ‘best’ intraday interval, and any selection
of an interval for research purposes is subject to change
as feedback is received from backtests. Consider these
selection criteria.
• Start with an interval that divides the day into enough
data samples (bars) to generate useful analysis and an
appropriate number of signals per day.
• Experiment with intervals that tend to reflect a useful
amount of price action for the strategy. Bars that contain
too much or too little range may either hide information
from the strategy or overwhelm it. A small amount of
historical research will reveal the range tendencies of
different bar intervals.
• When using time-based bars, consider how the interval
divides the day and that each bar be of the same length.
That is, try an interval that is a whole-number factor of
the length of the session.
Short entry signals are based on conditions in both
Relative Strength and correlation.
margin requirement and maximum drawdown seen
in the tests.
• Momentum of average RS line less than zero (negative
momentum)
• Correlation coefficient less than -0.1 (negative
correlation)
Entry signals are restricted to 9 am until 5 pm CET,
and any open positions are closed at 5.30 pm.
No protective stops, profit targets or exits other than
the end-of-session exit rule were used in the tests. Open
positions are closed and reversed when new signals are
generated during the day.
Additional test parameters:
• The period tested was the calendar year 2013. The
first trades were on 2 Jan 2013 and the last trades
were on 30 Dec 2013.
• Position size was one contract only, with no
pyramiding, add-ons or scaling.
• Commissions were deducted at the rate of € 2.80
round turn per contract, with no deduction for
slippage.
• Initial capital for backtest purposes was set to
€40,000. This was chosen to cover the approximate
Test Results and Observations
The Total Net Profit for this test was almost € 46,000.
While this is certainly an attractive number, the Profit
Factor was only 1.28 so the margin-of-error was narrow.
With 43 per cent of the trades profitable, 46 per cent
of the long trades and 41 per cent of the short trades,
there appears to be healthy bi-directional symmetry. It is
interesting to note that the ratio of average winning trade
to average losing trade is almost 1.7, a metric that goes
well with a 43 per cent win rate.
Nine of the twelve months were profitable, with the
lowest percentage of profitable trades in any month
coming in July (a losing month) at 35 per cent.
Profitable trades were held 1.6 times longer than
losing trades, despite the fact that no stop-loss orders
were used and end-of-session exits were mandatory.
This is an encouraging trait in itself but it may be
most important when considering the conservation
of psychological capital. It is rewarding to see holding
periods skewed toward the better trades.
Drawdowns and losing streaks experienced during
this test would generally be considered unacceptable.
The period from mid-June through late July 2013 was
the period of notable drawdown, approximately €
43