Documentation for Strategy 1-2-3 (long only)
page documents the paper trading that was done on the
trading plan & strategy
used to illustrate this site.
Your documented record of
paper trading (and backtesting) is invaluable
for improving your ability to swing trade stocks.
For twelve consecutive weeks, every possible trade generated by
strategy 1-2-3 (long only) was paper traded. A total of 63 trades
The total amount invested was $123,822.00. At the conclusion of
the paper trading period, that amount grew to $125,475.58 after
for a total profit of $1,653.58, or 1.34%.
Key performance statistics are as follows:
Retesting After Paper Trading
The statistics above represent an improvement over a previous
version of the trading strategy which did not include the EMA(8)
entry and exit criteria.
Without this criteria, 19 additional trades (stuck-through in the
table above) were taken.
A total of $161,345.05 was needed to make all 82 trades, which
netted $162,812.92 after commissions,
for a total profit of $1,467.87, or 0.91%.
Comparable statistics are as follows:
Other retests run at the end of the paper trading period did not
improve profitability (as measured by expectancy).
This includes: 'Set the initial stop at 0.5ATR, or just below low
of entry candle, whichever is higher.' The idea was to cut losses
as soon as a full 5 candle swing point low fails to materialize (ie
, on the 5th day, prices go
below 4th day candle low). While this did maginally shave off
losses on many losing trades, it turned enough winners into losers
to lower overall profitability.
Also retested and failed was to 'Go long at the end of the day
(3:30) of the fifth candle of the swing point low.'
Retesting During Paper Trading
The current version of the trading strategy is also a result of
improvements made to it during paper trading.
For instance, an early version of the strategy defined a swing
point low using only 3 candles, with entry to be made on the 3rd
candle. After four weeks, total losses far exceeded total wins.
The strategy was subsequently updated with a 5 candle definition,
the data re-paper traded to reflect the change, and testing moved
forward using the new criteria.
A different process was used to decide how and where to set stops.
Testing initially proceeded by calculating a variety of stop
levels for each trade: just below the lowest low; at 50% of the
distance to the lowest low; just below the retest low; at the
below the entry point; and at the entry point
minus various multiples of ATR (ie
0.25, 0.33, 0.4, 0.5, 0.75, 1.0, 1.5, 2.0). Once it was decided to
use ATR, the multiple was optimized to the levels currently
specified in the trading strategy.
Other criteria were similarly optimized. These include the 10 and
30 time units for moving averages, the 50% retracement level, '7
days after up cross,' and '1 day or more below trend line.'
Further retests can be run against the testing data. These
The length criteria for the downward trend. Is 21 candles optimal?
Or would lowering this number possibly generate more trades with
better overall results?
It is also suspected that by supplementing entry conditions with
major bullish candlestick patterns (and exit conditions with their
bearish counterparts), overall profitability could be improved. At
stake is how the other criteria in the trading strategy could be
made to work with this supplement so that the number of tradable
trades generated would not be negatively impacted. This can be
analyzed and tested against the documented record as well.
of Backtesting and Paper Trading
of Live Swing Trading ⇨