The following results are for applying The Intra-Day Momentum Method to three market-based ETFs – SPY, DIA, QQQ. This research is conducted from February 2022 through August 2022. The purpose of this application is to demonstrate the scalability of the model. This research is a simulation. The rules are listed at the top. There are no stop-losses, no risk management, and no profit targets. For the purposes of this study, the entry price is always the ML1 or MS1 level, whichever is reached first. The Exit is always calculated as the Close of the day. It does not matter how fast a level is reached. It does not matter what time of day a level is reached.
Results
As you can see, the Win Rate or the Percent Profitable is something to work with. The main issue with this approach is that the Win/Loss Ratio is below 1.00. This means that the average win is less than the average loss. The point total does not indicate much. It just indicates the results if you were to take one share. The results are calculated without commissions or slippage. The purpose of this calculation is to see if this is something that you can work with.
The biggest drawback to this approach is that you do not have a stop-loss. There is no risk management. This is detrimental because in every single Intra-Day Reversal, you will be on the WRONG side of the trade. This is will result in rather large losses on these days.
These observations should have you questioning. Are there ways to improve these results?
Improving the Results
There are numerous ways to improve the performance of this approach. To begin with, you could add a stop-loss. A fixed or trailing stop-loss placed properly would improve the results. Additionally, a profit-target, and position-sizing would likely improve the performance. In order to optimize this approach, identify patterns where it performs well. As well as where it performs poorly. When these patterns occur, adjust your capital at risk. This adjustment is based on the historical performance of the patterns.
Pullback Entry
In order to improve the results of this strategy, you could enter the position on a pullback. This pullback can be calculated from the directional level or the high/low of the day. Remember that the strongest and weakest stocks do not pullback all that much. Every single intra-day reversal does. Therefore, a deep pullback may not provide a high probability scenario.
Stop-Loss
What would a stop-loss do to enhance the performance of this strategy? Let’s start by just taking a loss only if an intra-day reversal occurs. Would this improve the overall results?
Position Size
How about positions sizing? Would defining our position size so that we normalize risk affect the results?
Profit Target
Would a profit target at the next level or second level from entry improve the results?