Insights, January 24th 2020
A Nasdaq 100 Index backtest, monitoring trading edges
Nasdaq 100 Index & Bollinger Bands
What tends to happen when the Nasdaq 100 Index ETF (QQQ) closes above its Bollinger Bands (20)?
over the last 4 years when the QQQ closed above its upper band it has showed an AVERAGE GAIN of 0.12% on the next trading session (against 0.09% for any random day in that same period)
it happened on 62 trading sessions over that period;
the % of winning trades was 62%;
And what tends to happen when the Nasdaq 100 Index ETF (QQQ) closes below its Bollinger Bands (20)?
Well, the results got even more interesting:
over the last 4 years when the QQQ closed below its lower band it has showed an AVERAGE GAIN of 0.46% on the next trading session (against 0.09% for any random day in that same period)
it happened on 40 trading sessions over that period;
the % of winning trades was 58%;
This study shows in statistical terms how profitable it has been to buy the dip in the U.S. stock market indexes over the last few years.
(3-month QQQ chart from StockCharts.com)
Annotated quote: a superior form of trading
“Tracking your edge is relatively easy when you place several trades per day.” - – Brett Steenbarger, PhD
Why is that? Because you will be creating a large sample of trades to analyse every week, every month. But if your trading frequency is low (one trade per week, a few trades per month) then a longer period of diminished performance could go by and represent nothing more than a random bad sequence of trades or in other words, an unlucky streak. This is one of the reasons why I consider short-term trading and especially intraday trading to be a superior form of trading.
There’s more to life than trading
Weekend European football: I know I will be watching Valencia FC vs. FC Barcelona on Saturday. Barcelona has been shaky recently and the newly appointed manager is yet to impress. On Betfair, the odds strongly favor Barcelona with a win paying 1.69 against a fat 5.2 for Valencia to win. The draw pays well too, at 4.5.
Best sports play this week: If good trading is much about precision, what can we say about this play? I do not even know this sport but this is absolutely superb!
Talk to you soon,
Henrique
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