The Three Billion Dollar Day Trading System Revealed and Tested

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The idea that markets move from times of volatility to times of calm is probably not new to you.  But it’s this idea that a few traders used to create this day trading system that had the power to turn a $50,000 portfolio into three billion dollars.

It was used by a Market Wizard, by a Hedge Fund Manager, and had “In Sample” test results of 60 percent per year, with a maximum draw-down of just 4 percent.  Needless to say, if you were looking at those test results, as Hedge Fund manager Tony Crabel no doubt did, you would be jumping for joy and singing hallelujah.

In this video, we look at the S&P 500 as the tradable, and how this day trading pattern reacts to it and has performed over the last 50 years.  Using Amibroker, we can see the pre-condition days, the entry days, and the buy price, all neatly overlaid on the chart.  Very cool.

Check it out!

The opening range breakout may not be new to you, however when the system was made public through Tony Crabel’s book, “Day Trading with Short Term Price Patterns and the Opening Range Breakout”, we would expect that the system might have lost its edge.

While the edge did decline, I was surprised to see that in the last six years it has returned to profitability – even though it’s not as immensely great as it once was.

I’d love to know what you think about this, especially as the Reminiscences Trading System completely lost its edge when computers came in, in 2000.  Leave a comment below!

Happy trending 🙂

– Dave McLachlan

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More Market Research Videos:

  1. Stock Market Research: The REAL Effect of “Buy and Hold”
  2. This Simple Indicator SMASHES “Buy and Hold” Returns!
  3. More Stats on the Indicator that Beats Buy and Hold Returns
  4. New Mean Reversion Trading System (Stocks Over 50 day MA) Tested in Amibroker
  5. How This Random Entry Beat The Market (The Tom Basso Coin Flip Proven & Explained)
  6. Does the “Golden Cross” Outperform Buy and Hold? Market Timing, Real Results
  7. The Trading System from “Reminiscences of a Stock Operator”, Tested Over 116 Years
  8. The Three Billion Dollar Day Trading System Revealed and Tested

February 28, 2016  Tags: , , , , , , , , ,   Posted in: Stock Market Research

8 Responses

  1. Jan - February 28, 2016

    Hi,

    Thanks for great review. Please paste few lines responsible for filtering NR7. Thanks.

    Br,
    Jan

  2. oliver - February 29, 2016

    Good video

    Do you have the code for the tradings system you presented?

    Regards

    Oliver

  3. Janusz - February 29, 2016

    I back-tested strategy on SP500 with slightest modification, that always sell with price on Close. The results are not astonishing with CAR/MDD = -0,05 for period 2002.08.01 – 2016.02.16. Are you sure you coded strategy properly?

  4. David McLachlan - February 29, 2016

    Hey Janusz,

    Thank you! Your question prompted me to look at my code again.

    I was also using the closing price. And as discussed in the video, the period from 2000 to around 2010 yielded a sideways equity curve – the results went nowhere during that time, and we spoke a little about why in the video and the last one, in what can happen as a system loses its edge and the reasons for it (like the system being published in a book).

    I found the difference, however, it was because I had the sell delay set to “1”, meaning it would not sell the same day on close, but the NEXT day on close. So there was no future-leak thank goodness. It seems as though this positively affected the system over the 50 years, even if only slightly each year!

    I checked the results from Jan 2002 to Jan 2016, I get a CAR of 7% for both ways, but a CAR/MDD of 0.47 for same-day, and 0.24 for next-day (next-day has larger drawdowns).

    I’ll post a comment on the YouTube site as well. Thank you!

    – Dave

  5. MIke S - March 1, 2016

    Will you be making the afl available? If now where do you recommend we get the code? Can you talk us through the basics?

  6. David McLachlan - March 1, 2016

    Hey Mike,

    There’s a bit of interest, and a few good bits of code in there so I’ll do up a lesson video on it 🙂

    Plus, it’s not too complex, thank goodness!

    Happy trending,

    Dave

  7. Trent - March 10, 2016

    Hi Dave

    Are you just using 1 position with 100% of equity on each trade?

    Trent

  8. David McLachlan - March 11, 2016

    Hi Trent,

    Yes, that’s the one! But as an update, Nick Radge has rightly pointed out that it was tested on the $SPX (cash) as opposed to the $SPY (tradable).

    Using the actual ETF the results are unfortunately negative, as are most other tradables, but the idea of a lower volatility entry – meaning a lower risk between our entry price and our initial stop loss price – remains solid, and is something we could test in different ways within our own trading systems.

    Happy trending,

    Dave

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