CHAPTER 17
Examples of Original Trading Systems
Nothing works at all times in all kinds of markets.
—Adam Smith
The previous chapter provided two examples of generic trading systems—moving averages and breakouts. This chapter details several original trading systems that are based on some of the patterns introduced in Chapter 9. Although the systems detailed here represent fully automated trading strategies, the primary goal of this chapter is not to offer specific trading systems, but rather to give readers a feel for how technical concepts can be utilized to construct a mechanical trading approach. Studying these examples should provide readers with ideas as to how to design their own trading systems.
■ Wide-Ranging-Day System
Basic Concept
A wide-ranging day, which was introduced in Chapter 9, is a day with a much wider true range1 than recent trading sessions. The high volatility inherent in wide-ranging days gives these days special significance. Typically, the market will tend to extend in the direction of the initial price move beyond the boundaries of the wide-ranging day. However, situations in which the market originally penetrates one side of the wide-ranging day and then reverses to penetrate the other side also have significance.
The wide-ranging-day system defines trading ranges based on wide-ranging days. Signals are generated when prices close above or below these trading ranges. In the simplest case, the trading range is defined as the wide-ranging day itself. ...
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