Thursday, January 12, 2012

NR7 - Market Test Your Scan with OddsMaker

We've been in a mean reverting market for almost a year and long breakouts are few and far between. Long setups that worked well in 2009 and 2010 had little chance of success last year. If that sounds familiar, you need to refine your trade setups to the reality of the current market environment.

One of my favorite setups is the 15 minute NR7 which reflects price/volume contraction ahead of expansion. I like to trade NR7 with stocks showing intraday momentum. NR7 is a great trading strategy to deploy during earnings season. Earnings gaps offer good trading opportunities but we don't want to chase. Wait for NR7 and catch the next leg with low risk.

Using Trade-Ideas Pro Scanner 3.1 in conjunction with OddsMaker, I am able to market test under current conditions and refine my NR7 scan to generate a winning strategy.

As depicted below, my scan generates a 27.7% win ratio. That may not sound like a lot, but since I use a tight stop, losses are small and winners generate good income over a short period of time. The OddsMaker quickly market tests my NR7 scan and provides summary and detailed results of the strategy over the selected number of days of back testing. In this sample, I used 500 share size for all trades and after 15 days it generated $4,000.00. Even if we reduce the maximum number of trades possible on any given day, the results are still impressive, given that my testing assumes that all trades are closed after a $1.00 profit is attained.



My NR7 scan starts with a preview of stocks gapping up in pre-market and then alerts me of NR7 stocks that meet the criteria in real time as depicted below. If you want the exact configuration of this scan click here.

A couple of sample NR7 trades are CROX on Jan. 11 and SINA on Jan. 12.




Identify a trading strategy that works well under current market conditions and then let OddsMaker back test and crunch the numbers. All you have to do is refine the scan and trading rules to enhance the results and make the strategy manageable.

For more info check out the Trade-Ideas blog.

14 comments:

D TradeIdeas said...

We have TraderMike from way back to thank for assisting us get this alert into the application!

Jamie said...

Yes, indeed, Trader Mike was a champion with NR7 and inspired many day traders, including myself.

TI Maven said...

Great example of using technology to gain the edge!

Unknown said...

Hi Jamie,

Great post.

This is one of my favorites strategies that has been proving profitable. Since NR-7 is a point of indecision between buyers and seller, trading with the price action and the market direction yields profitable trades.


When I tested this strategy using Oddsmaker by keeping 25 cents stop loss versus 10 cents stop loss for a trading period of last 10 days and purchasing 500 shares per trade, the win rate increased from 27% to 43% and total profit increased from $1800 to $2300.

How do you decide on the stop loss is the key question.

Helix

dptrading said...

Hey guys,

Have you/NR-7 factored holding costs and spreads/commissions into the modelling?

Jamie said...

Thanks Helix,

That is a good point. The optimum stop loss should be sufficient to cover the average length of the NR7 bar plus some wiggle room. In my NR7 strategy I'm using a $0.30 stop loss, assuming the average NR7 bar is around $0.25.

I don't want to give it too much more room, because the model assumes that the coiling is just a pause in the uptrend.

Jamie said...

dptrading,

No, the strategy doesn't involve over trading so commissions are just part of doing business. The bid ask spread built into the model is maxed at $0.05.

Miami Trader said...

how does the pro scanner and the oddmaker tie together? sorry for the newbee question.

Once we get the pro scanner with your preferences that is all we need for it to select the stocks correct?

thank you

Jamie said...

Miami Trader,

The TI pro scanner is a stand alone system from which you can run as many different scans simultaneously, as you wish. The OddsMaker is an add-on feature which allows you to back-test your TI scans as described in this post.

That's correct, you don't need the OddsMaker to run the NR7 scan.

Steveb said...

Hi Jamie,

Have you tested this on the short side?

Thanks

Jamie said...

Steveb,

Not recently, but I'm sure it worked quite well from June to October 4th 2011. I'll test it later this week and get back to you.

joshua said...

jaime,

thanks for sharing your configuration. its neat to see how other people set up their scans. now, a question, how did you get so few stocks coming across that nr7 screener? are you tweaking some of the settings so you don't see as many?

thanks
joshua

Jamie said...

Hi Joshua,

In addition to the configuration, I'm only scanning Nasdaq stocks. That significantly reduces the number of hits.

joshua said...

Ah, gotcha.