Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Trading the Previous Day High and Previous Day Low Breakout – Do Simple Strategies Really Work? [Part1]

1 min read

Do simple strategies really work in Indian Markets? This curiosity arises when one of our Amibroker Mumbai Participant comes up with a simple trading strategy. Hence the tutorial series, Do Simple Strategies Really Works?. This tutorial series explores the space of simple rules, easy to practice, easy to adapt and the to explore if there is any real edge with the simple rules.

Lets kickstart with the very simple trading strategy,

Buy if the price touches previous day high with stop loss as previous day low
Sell if the price touches previous day low with stop loss as previous day high

as the day progress previous day high and previous day low will be acting like a trailing stop loss. It is a simple long-short system where the system is always in position.

Previous Day High Low Breakout Strategy

To test this rules written a simple Amibroker AFL Code where the entry is limit order as the entry levels are predefined (Either your previous day high or low is your entry point) and if there is any gap down situation at open then buying/shorting at price is considered. And the AFL code is programmed accordingly to get the appropriate backtesting results.

Symbol Nifty Futures
Timeframe 1 min
Trade Execution LMT order at a touch of price level & MKT order in case of Gap up/ Gap Down
Dataset Length Sep 2010 – Oct 2017
Trading Commissions + Slippages 0.02%
Initial Capital 3,00,000
Position Sizing 2lots or 150 shares per trade (Fixed shares)
Filter 1 point filter from entry level

If you are using a discount broker like Tradejini, Zerodha, Upstox theoretical commissions works out to 0.01% in case of futures whereas with full broker theoretical commissions will be bit higher. Since there are gap up and gap down situations, where one cannot exactly punch orders at the open price of the candle hence market orders are placed which eventually results in extra slippages. So a theoretical value of 0.02% is used whereas in real life it could be even much higher depends on how volatile markets are when it is opening with gap up or gap down. Higher the volatile or emotional higher your slippage would be.

 

Backtesting Metrics Long/Short Long Only
Initial Capital 3,00,000 3,00,000
Ending Capital 9,30,581 9,41,319
Net Profit 6,30,581 6,41,319
Annual Return % 17.22% 17.41%
Total Trades 797 399
Winning Ratio 37% 40%
Drawdown -47% -34%
Sharp Ratio 0.43% 0.91%
Avg Profit/Loss 791 1607
Profitable Months 54 out of 86 months 56 out of 86 months

Equity Curve – Trading Long/Short

Equity Curve – Long only

Trading strategy makes money undoubtedly in both long/short and long-only system. However, it tends to lose money when only short is practised. Overall performance of long-only is good in terms of risk and returns in comparison with the long-short system. In long-only system drawdown is controlled, profitability is increased. But still there are emotional phases where it goes through the extensive drawdown in terms of money and time which will definitely test the patience of any trader.

https://gist.github.com/b7db3d34ef3e089168dd33550f7f28a3

 

Download Amibroker AFL Code Previous day High Low Breakout Strategy

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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4 Replies to “Trading the Previous Day High and Previous Day Low…”

  1. Dear Sir,

    Please provide any free site or software where I can get the daily, weekly and monthly data of stocks in the same view.

  2. This strategy makes money in a trending market , nifty was sideways/flat at 5000 levels from 2010 to 2013 loses money. Also SAR will loose money if the markets become volatile.

  3. What happens if both high & low breakdown happens on the same day?? How to backtest it on daily data(without Intraday Data), I mean without knowing which breakout happened first in this case?

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