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Education ETF-Results IDMM-ETFs QAT Systems, LLC The Intra-Day Momentum Method The Intra-Day Momentum Method - ETFs

The Intra-Day Momentum Method with a Trend-Following Filter

The goal of this research is to determine if applying a short-term directional indicator would increase the accuracy of The Intra-Day Momentum Method(IDMM) levels. We will examine the results for three ETFs over the past three months. The ETFs we will examine are the SPY, DIA, and QQQ. While there are many different ways to determine the short-term trend, we will look at three ways to define it. This article will focus on a single approach.  Additional articles will focus on the others.  In this research, we are not seeking out patterns to indicate a change in direction. As a result, this approach will fail during the phase where the markets change short-term direction. In the coming weeks, I will be demonstrating how patterns can help determine short-term market direction change. The results for this research are displayed in the image below.

First, we want to see what we are working with. Over the past three months (February – April 2022) I have applied the IDMM to the SPY, DIA, and QQQ. We will look at the results of applying the model to these ETFs. Most importantly, we want to answer the following questions about the method:

  1. What percentage of the time does the ETF close at or above the ML1 level? What percentage of the time does the ETF close at or below the MS1 level?
  2. Simulate a trade at the levels (ML1/MS1) and close out the position at the end of the day? Calculate the results without any sort of risk management.
  3. Determine percent profitable, win/loss ratio.
Simulation Guide

As Is – Applying the Method

My research shows that if you traded the levels as they are, for the past three months, the results are as follows:

The SPY, DIA, and QQQ closed in the direction of the Level 64.% of the time. This means 64% of the time either level was met ML1/MS1, the market closed at or above the ML1 or at or below the MS1. This was considerably greater than what I would have expected. I usually test all of my techniques using no stop-loss or risk management. This means that I enter a trade (simulate) at the levels (ML1/MS1) with an exit at the close of the day. What this means is that you would be in every single reversal on the WRONG side of the trade. I try to demonstrate a worst-case-scenario, from the start. I do this so that the strength and scalability of the The Intra-Day Momentum Method can be observed.

 Applying a Trend-Following Filter

With the first trend following filter, regardless of the direction of the intra-day levels the performance was less effective from a percentage standpoint. The levels were successful 54% of the time. This was regardless of which level was met. In this scenario, I simulated entering a Long position if the short-term trend indicator was Up. I simulated entering a Short position if the short-term indicator was Down. Using this trend-following approach, the directional filter did not improve the success of the levels.

However, it would have performed much better in regards to the Win/Loss ratio. As the average win was about 50% more in this example than in the example that did not filter for the short-term trend. This is very crucial in trading as many traders would like to see their average win greater than their average loss. That being said, remember, there is absolutely no risk management being used in this research.

This research was conducted based on levels being reached intra-day. There were no other conditions. All fast moves were included. As well, calculations that have demonstrated improved performance of The Intra-Day Momentum Method levels were not performed in this research. Such as the following calculation: Searching for Higher Probability Intra-Day Methods.

Conclusion

In this research, I found that filtering for the short-term trend in this instance did not increase the success of the levels. However, it did demonstrate improved performance in reducing risk. This shows up in the research by increasing the Win/Loss Ratio.

In order to increase the performance of this approach, we suggest the following improvements. Filter for specific price patterns, such as expansions and contractions. Define overbought and oversold conditions. These improvements are likely to enhance the Intra-Day Momentum Method levels.

This research will continue. There will be monthly updates to this work in progress. I will continue this discussion by demonstrating that filtering for certain patterns would likely increase the results. Many of these particular patterns do not repeat often. I will then demonstrate the affect of having a confirmation of the short-term trend combined with reaching the level intra-day. confirming the direction. This will be done for at least three different ways of defining the short-term trend. The goal is to combine all of these concepts to develop a high probability low-risk approach to the intra-day markets.

Red Indicates errors in data received. Yellow = ‘Fast Moves’. Green = First Level reached when an Intra-Day Reversal occurred. Orange = Intra-Day Reversal. Light Green = Day after an Intra-Day Reversal. Light Blue = Day after Gap Reversal.
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ETF-Results IDMM-ETFs The Intra-Day Momentum Method - ETFs

ETF Week in Review

Over the week of 2-7-22 to 2-11-22, the ETFs reached the levels intra-day several times. The Gap Up on Wednesday resulted in a tight range for each of the ETFs. On Thursday however, in a Fast Move, the markets attempted to close the gap. The move failed and later the ETFs became intra-day reversals. All three ETFs reached the ML2 level by 11:30 AM.

SPY

The past week saw a few days where the IDMM Levels were reached in each of the market-based ETFs. The SPY met the MS1 in a late day ‘Fast Move’ and closed above that level. Tuesday, the SPY reached the downside limit before reaching the ML1. The ML1 (449.61) was reached in the early afternoon and the SPY closed above that level. Gap Openings, such as the one on Thursday tend to move back towards the previous day’s trading range. The SPY reached a ML2 (456.06) level by 11 AM. Later Thursday, the SPY became an intra-day reversal. Back-to-back intra-day reversals are not common, but they do occur. Friday, the SPY reached the MS1 Level, after having reached the Upside Limit. It continued lower to the MS2 Level and closed below that level.

QQQ

On Monday, the QQQ made a Fast Move to the MS1 Level in the last 30 minutes of trading. It closed above that level. Tuesday, the QQQ reached the ML1 level and closed above that level. Wednesday and Thursday were gap openings. Wednesday resulted in a ‘Tight Range.’ Thursday, the QQQ opened down and tested Wednesday’s trading range in a Fast Move to the ML2 level (365.20). Later the QQQ became an intra-day reversal. Friday, the QQQ reached the MS1, MS2, and MS 3 Levels and closed below the MS2.

DIA

The DIA consolidated on Monday, as it did not reach either level, the ML1 or MS1. The downside limit was met in early trading on Tuesday. The DIA later reached the ML1 level and closed above the ML1. The DIA gapped up on Wednesday and traded in a tight range. Thursday, the DIA opened down and tested Wednesday’s trading range in a rather fast move to the ML2 level (357.66). Just after noon Thursday, the DIA became an intra-day reversal. On Friday, the DIA reached the MS1 Level, after having met the Upside Limit in earlier trading. The DIA traded down to just below the MS2 level and closed below the MS1 level.

A few things to remember from this week about market tendencies. Gaps have a tendency to move back towards the previous day’s trading range. While they do occur, back-to-back intra-day reversals are not likely.

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ETF-Results IDMM-ETFs The Intra-Day Momentum Method - ETFs

ETF Week in Review

The Intra-Day Momentum Method for SPY, DIA, and QQQ for 1-31-22 to 2-4-22

SPY

This week, the SPY reached on the ML1 on Monday and Friday. Monday the ML1 was at 445.76. The SPY never reached the Downside Limit and closed above the ML1. On Friday, the SPY reached the ML1 at 449.60, after reaching the Downside Limit. The SPY closed just below the ML1 Level.

My research suggests that if the red level (Downside Limit) below the OPEN is met, the probability of a CLOSE above the ML1 is slightly lower. This is regardless of the time of day the level was met. It also suggests the likelihood of the market reaching the ML2 Level has diminished. As you can see, on Monday 1-31-22 the red level was not reached. On Friday 2-4-22, the red level was reached in early trading. Just as the likelihood of an intra-day reversal increases with a FAST MOVE to the ML1/MS1 Levels. One would tend to think that the earlier the Lower Limit Down is met, the more likely we could see a close ABOVE the ML1 Level. Because the momentum has changed. A move later in the day to the Downside Limit would be less likely to close above the ML1.

DIA

The DIA reached the ML1 on Monday (1-31) at 348.70. The Downside Limit was not reached during Monday’s session. It closed above the ML1. On Wednesday (2-2) the DIA reached the ML1 at 355.65. Once again, the Downside Limit was not reached during the trading session. It closed above the ML1. On Thursday (2-4), in a rather Fast Move down, the DIA reached the MS1 Level down at 357.88. During the rally back towards the Open, the Upside Limit at 355.79 was never reached. The DIA traveled to the MS2 Level and closed below the MS1 Level.

QQQ

On Friday 2-4, the QQQ reached the ML1 Level at 357.92. It had reached the Downside Limit earlier in the day. It closed just above the ML1 Level.

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ETF - IDMM HP RT ETF-Results IDMM-ETFs The Intra-Day Momentum Method - ETFs

Results for 6-10-21

All three market-based ETFs had ‘Fast Moves’ off the Open. The SPY and DIA resulted in Intra-Day Reversals. The QQQ managed to extend to the ML2 Level and after a rather deep pullback returned to that level.