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Attachments: The best scientifically-proven way to trade range markets?
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The best scientifically-proven way to trade range markets?

  • Post #1
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  • First Post: Sep 24, 2013 10:23am Sep 24, 2013 10:23am
Hi,

Suppose that you have a way to know that the market is going to range between certain prices. Everyone of us could come up with a way to trade the ranging market profitably. However, how could we find the best way to do that.

I am looking for using a tool , method or any scientific concept that i could provide the following:

price up, price down, start time, stop time. " parameters that define the ranging market"
then, i am expecting the system to tell me how to trade this condition with the most effective and profitable way.

Any idea?.. where i can find any relevant information to answer this question, scientifically?

Thanks
Skype: tlcodelearncircle
Would NN works in this situation?
Would i need to propose certain trading methods and going to optimize them?
Would MatLab help here?
Skype: tlcodelearncircle
I'm a little bit confused. Are trying to find the best way to spot a range or the best way to trade a range once it is recognized?
No greed. No fear. Just maths.
range or trend or counter trend ...etc doesnt exist ...Its all subjective, depends on what you looking at .
I don't mean to be rude, but I have just never understood.

Where is the benefit in actually trading ranges, from what I see it offers pretty poor R/R and really gives you no scope to run your wins, which is where in my opinion a excellent way to trade, you put the market to work for you.

Anyway, in terms of establishing when a range may happen, Elliot Wave theory kind of hints at it, in certain waves, it tends to be that the correction is more a consolidation than a retracement, maybe look into that.
Quoting PipMeUp
I'm a little bit confused. Are trying to find the best way to spot a range or the best way to trade a range once it is recognized?
Sorry for confusing you. To answer your question, i am trying to find the best way to TRADE a range once it is recognized. Suppose, i have discovered a way that predicts the start , upper price, lower price of a range. And also can determine if we breakout.

Now, i want to scientifically approach the question of how to trade such market situations " effectively"? I know there are many ways people can come up with. However, i am wondering if there is any way i could define the best way to trade them.
Skype: tlcodelearncircle
Quoting Bully Bear
I don't mean to be rude, but I have just never understood. Where is the benefit in actually trading ranges, from what I see it offers pretty poor R/R and really gives you no scope to run your wins, which is where in my opinion a excellent way to trade, you put the market to work for you. Anyway, in terms of establishing when a range may happen, Elliot Wave theory kind of hints at it, in certain waves, it tends to be that the correction is more a consolidation than a retracement, maybe look into that.
People with trend following or breakout strategies might find it difficult or useless to trade range markets. I think their assumption is not true. However, "running your wins" could be by having more profitable small wins than small losing ones.

Also, i am not asking for how to define a range market.
Skype: tlcodelearncircle
One simple pic for share.

Range = Highest and lowest not breached.

Tools can be used in range = fibonacci 0 to 100.

Stop loss after Highest hi for selling and lowest lo for buying.

Wait for reaction at level of interest - > at high = bear actions -> bearish engulfing, shooting stars, false break, price failed to close above highest hi. RSI remained below 70 after price closing. Vice versa for buying.

Range = obey if highest hi or lowest lo is breached, range no longer valid = break out.

Trading is easy if everyone follow the rules, but not easy during live execution as human tend to be blinded by fear and greed.

Stop loss is a must during range trading if not when a breakout happen = GOOD GAME

.

Asia - if not trending = buy lo sell hi range/side way market.
Europe - Tend to breakout abit and trend abit.
US - ANYHOW! go for volatility and trend, but can be whipsaw and false break very often.

Go on bigger timeframe and wait for price reaction at defined range.

Go with 1:2, or 1:3. set and forget.

losers must be accepted at all cost
Attached Image (click to enlarge)
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Quoting QuantHFTer
{quote} People with trend following or breakout strategies might find it difficult or useless to trade range markets. I think their assumption is not true. However, "running your wins" could be by having more profitable small wins than small losing ones. Also, i am not asking for how to define a range market.
I am certainly not saying it is useless - for a start who am I to determine what is useful for other people.

Difficult, yes - I found it to be extremely difficult.

I tried to range trade when I was new to this (demo)
it looked very easy to me, will just buy down here and sell up there and play tennis with price - I could rarely get better than 1:1 RR and very tricky to consistently win 60% of trades. I am not saying the way I trade is better than the way you trade, I was just wondering if you could explain to me why you have chosen this particular style of trading as a pose to others.
Ranges and trends are all subjective and in my opinion fairly useless. By the time you recognize what's going on you're the sucker.....why do you think mom and pop buy after a stock market rally or sell after it's fallen 50%?
Quoting Bully Bear
{quote} I am certainly not saying it is useless - for a start who am I to determine what is useful for other people. Difficult, yes - I found it to be extremely difficult. I tried to range trade when I was new to this (demo) it looked very easy to me, will just buy down here and sell up there and play tennis with price - I could rarely get better than 1:1 RR and very tricky to consistently win 60% of trades. I am not saying the way I trade is better than the way you trade, I was just wondering if you could explain to me why you have chosen this...
This boring market lasts more than 50% of the time. Also, i didn't say this is the only way i trade.

The main question for range traders, what is the best way to trade these range markets?
The main question for math/tech people, how to discover the best way to trade those markets?

Let us focus on the answer of those questions please
Skype: tlcodelearncircle
range bound market = stoch.
trending market = MA.

Trading is easy, but defining and recognizing is the harder(iest) part.
Do a search for How to trade mean reversion, you might start with this link.

You can also research stat arb methods, which typically employ mean reversion strategies such as found in this thread or this thread.

As far as the question of science, I think you mean optimal. There are an infinite variety of MR strategies but they all follow the buy low sell high concept. Within those strategies or classes of strategies there are many parameters that may be optimized to make them optimal for a single strategy of that class. But the usual caveats apply regarding overfitting. Be careful what you wish for!

Testing is the way to find which strategy is better than any other given strategy. Do your testing in a scientific manner if you wish to rely upon your results.
  • Post #14
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  • Last Post: Sep 29, 2013 5:54am Sep 29, 2013 5:54am
a combination of trendfollowing and mean reversion...although they dont work as well as they do in the backtests in reducing drawdowns.Most multistrategy funds would do better just trading a simple trendfollowing method.
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