In the third study, Chapter 16, I review the results for trading after a specific pattern occurs on the daily chart. There are two types of this pattern that can occur. When the ML1 and MS1 are reached in the same trading day. And in the situation where a signal (ML1/MS1) is not generated, the market must move at least a specified distance in price above and below the Open. This is also referred to an Intra-Day Reversal.
Because there are so many books that focus on patterns for intra-day trading, this is the type of optimization that I had believed people may be the most interested in. This is only two different patterns, by definition. There are most likely unlimited patterns that could be designed mathematically to add to this optimization.
I had believed that this was the single most important rule until recently. There is another rule that I believe would override this rule for optimization. That rule identifies a pattern that shows up whenever the market Closes at one end of the days range and then opens at the other end the following day, the range of the day is also a determining factor. I will be presenting more on this pattern in the future. That pattern is not discussed in the book.
Rules for the Study:
- Intra-Day Reversal occurs during the previous trading session.
- Trade the Intra-Day Momentum Method Level that is met first during the next trading session.
- If ML1 is reached go Long from ML1.
- If MS1 is reached go Short from MS1.
- Exit at the Close of the day.
Results for 2/2022 through 1/2023
Supporting Data for Study 3:
https://qatsystems.com/bookdata/Study-IDRF.php
This study generated a much higher % Win Rate, but still had a Win/Loss Ratio of less than 1.
This type of study, one that optimizes the methodology based on patterns is what I believe traders would benefit the most from. Simply because everything can be defined by a pattern, trends are patterns, overbought and oversold conditions are patterns, expansions and contractions are patterns. Patterns that occur intra-day can be defined as well. There are essentially an infinite number of patterns that can be defined. I have chosen to use patterns that were specific to this methodology. However, there are several books that define patterns for short-term trading that I believe would benefit from this sort of optimization.