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hello everybody,
i work on the indian stock markets and develop position trading
strategies on the index - NIFTY.
i have been testing a volatility system and have got very nice
results with a pretty smooth equity curve. but a very persistent
problem exists. first i'll give a brief explanation about the
system , then the problem.
the system checks if the range today (H-L) is less than the 14 day
average true range. if yes than a position can be taken the next
day. then i take a long position at the open of the next day + 1%,
or a short position at open of the next day - 1%, effectively a
long position if the market moves up and short position if the
market trudges down. a stop is placed at 1% as well. so far so
good, great results great equity.
the problem is on days that th market moves both ways the system
takes a position in one direction and then takes another one in
the other direction and holds the other position, in cases even
ignoring the 1% stop. then the next day it holds the other
position if profitable or then exits with a huge opening gap and a
big loss.
so if market opens at 1000, goes to a high of 1020, the system
takes a long at 1010, and if the low is 980 then takes a short
position at 990 exitting the long with -20 points, and keeping a
short open position.
now the sequence of high and low is not really known. also easy
language assumes that the high would be made after the low if the
close is up. how should i modify the system to take just one
position, in whichever direction and if that is not possible
should i trade this system in its current form (assuming that the
results anyways consider the largest losses that could occur on
such big volatile days).
i "do not have intraday data" for the index and this testing has
been done on daily data.
regards,
dhiraj kothari.
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