JD Trading Systems

                                                                                by Joe Duffy

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NOTICE: HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE IS THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

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Note that Trend & Retrace filters and selects only higher probability overbought and oversold readings with a red or green dot on the oscillator.

There are zero user optimizable parameters in the Trend & Retrace indicator formula. However a strength of trend parameter can be changed when displaying the indicator highlights. In our tests we used a constant strength of trend parameter. However we give the user the option to change this as suited for different markets and/or time frames. For testing the Trend & Retrace Indicator we set up another very basic entry and exit:


Trend & Retrace Indicator Test Model

Buy Signal Entry

If Trend & Retrace last bar is a green dot

then buy at market

Sell Signal Entry

If Trend and Retrace last bar is a red dot

then sell at market


This test uses the exact same entry and take profit rules for the every market but within those rules the amount of the stop loss and profit objectives are modified to suit each markets volatility. It also uses a market order to enter so are there zero optimizable parameters with the entry method.

Below is the equity curve for a basket including Euro Currency, E-Mini SP, Gold, Crude Oil, and Soybeans using daily data. Again simply market order entries based on a green dot or a red dot per Trend & Retrace.

TREND & RETRACE INDICATOR


Introduction

This indicator provides evidence based analysis to the trader on two fronts; the strength of a trend and the identification of retracement levels within that trend.


Design Philosophy

Through many, many historical tests we found that in most markets and under most conditions entering on a signal after pullback in the direction of the main trend is a superior strategy to entering on signals that do not follow pullbacks.

Given this evidence we needed an indicator to help identify high probability trade zones after a retracement in the trend. Our research eventually led to another very important discovery; the strength of the trend is directly related to the probabilities of successfully entering during a retracement to the trend. The Trend & Retrace indicator therefore first measures “trend strength” and second identifies the area of a potential “retracement”.

Using Trend & Retrace we measure trend strength in two ways. If the market achieves a minimum threshold of trend strength a trend strength count is initiated internally in the indicator calculation. The greater the strength of the trend the higher probability that a trading position can be successfully entered on a retracement or pullback in the trend. A green dot is shown on the indicator for buy zones and a red dot is shown on the indicator for sell zones.