So guys, as you requested, some more information about a long on holiday set up, here we go!
As I said this is a setup, a known setup, it does not come from me, on index futures and this is the structure of the rule, actually, the important rule is the first part of it.
If there are a number of days left before the holiday, then enter at the market, next bar at the open.
Here I have some additional conditions, which are available here just to a single month, if I put my month equal to 0, I just test every single month, if I put a specific input from 1 to 12 I test only setups occurring on a specific month.
Here I can also test, as we are entering long if I put my average equal to 0, I don’t add any condition.
If on the contrary, I put a value here, I enter the trade only if the close is greater than the moving average of this period of the closes.
This is the rule, actually, and I can tell you that the input is 2 days before the holiday, which means 2 days in advance I give the enter signal to enter the following morning on the open, that is the last open day before the holiday, I enter long.
Then, how to exit?
There is a time long exit, which is after a certain number of bars in trade, which I put equal to 5, as one trading week, let’s say, as a default, and then an ATR stop loss and then an ATR take profit.
Simply I take the average tue range of the last 10 days, 2 weeks or 2 trading weeks and then multiply by an ATR stop and the same thing I do to take a profit with an ATR take profit multiplier which is 1 for the stop and 3 for the take profit.
I tested these, you can put different inputs, this is a very basic setup, just to test the overall scenario of this thing.
We can start with the miniS&P here and we run, let’s see what happens.
Well, you see the trade is profitable, the equity line is not really the best, but it produces profit and if we look at the monthly history, month by month we see that there are some months with profit and some which are mixed.
So we can, in this case, test the outcome on different months going from 0 to 12, step 1.
So we see this chart here, 0 is all trades and here it is the different months.
Here we see that Christmas, December and probably Easter, here in April, are the most profitable setups.
So these are the trades to pay attention to, all the others do not have a real edge by seeing things here.
I don’t find anything significant here, but on Easter, I get 90% wins, this is the Kelly which is not something we are interested in.
90% wins, so I mean Easter is a real killer for this kind of trades.
Also, something here in June which I don’t exactly remember what it is, but you can study that, 100%, but there are obviously more trades here.
What we could do next, is to consider a very short time exit, immediately after the holiday.
So apart from our stop or take profit, we exit immediately and in this case, we see that there is a better distribution, more wins.
So it seems that to exit immediately after the entry of the trade instead of keeping the trade opened, could lead to a better result, in this case in terms of winning percentage, but there are still very bad periods, you see here and here.
By seeing these periods we could think that a solution could be to test the moving average filter and enter only when we have some uptrend, let’s say, and in fact looking at the very short moving average 50 or the longer 180, 170, 190 which is more or less the 200 moving average, we make less profit, you see, but we reduce the maximum drawdown.
The profit you see, the maximum is here, then we have some stabilization here, but if we measure the maximum drawdown instead, we see that actually taking all the trades, is much more dramatic than filtering trades only in an uptrend.
You see how we cut the average drawdown by doing so.
So actually this is the result of the e-miniS&P, where this technique was born, but let’s put everything back to, let’s say, our default inputs and let’s have a look at other parts of the world, and let’s, for example, take a European important future, such as the Dax future, here we go.
This is very interesting, you see, that makes really a lot of money and it’s very consistent in its wins.
So Dax is an interesting place to look at this trade.
What’s interesting here on Dax, is again that if we test this month per month, let’s see, we find out the gain on Eastern and Christmas are the most profitable setups, March/April here and December which is Christmas.
What sounds interesting on Dax is the trade on the unification of Germany, which is in October, which with this setup is not really exciting, not at all.
But if we change our holding periods, to a very short run, the situation changes, it’s not the best, but you see that from losing a lot of money, we make some money.
So if you really want to trade in the unification day of Germany with this setup, still keep in place your ATR stop and profit, but eventually close the trade immediately on the close of the first open day after the setup.
Another interesting market to check in Europe is, of course, the Italian future, here it is, and using the standard inputs we have this thing here, which is not bad.
Looking at the single months we have again the confirmation that Easter and Christmas are the winners.
It is interesting August, which is normally the 15th of August that is a very important holiday in Italy, we do not see interesting profits as witnessed by this chart.
Also in this case, if we change the holding period to a very short one, the situation changes.
So if you really want to trade on the 15th of August, this is a nice equity line, exit immediately the trade after having entered it.
So the first open day after the entry, close the trade on the close of the day.
Here there are some other trades, I don’t remember what this holiday was on the 29th, end of August here, but generally, it is August the 15th the trade for the Italian future.
Now going back to the standard inputs on overall markets, we can have a brief look to some other markets, the Hong Kong Index which is not very nice and this is an exception to more or less all the indexes we are looking at here, because also if you look at the future, which is here, I took the index because it had a longer history period, but also in this case you see the situation is bad in the last period.
On the Nikkei, the Japanese future, the situation looks better.
You see, the things work out pretty well and also looking at the Australian future, look at it here, again we have something which looks appealing.
Of course, this is a very specific setup which does not leed to many trades.
So we’ve seen more or less everything here.
The question is: is it worth trading this?
Here it is an example in the DAX future.
In my opinion, it’s not worth because in spite of the results we have a very high risk.
The high risk due to the fact that we are sitting in a trade on a period where the market is closed and we cannot react in case of a problem.
I mean Christmas, Easter and so on, but, of course, this is the setup, you enter on the open, the first day before the holiday and you open your long trade and (this is just an example here) ten-day ATR stop or 3 times the stop, take profit.
If nothing happens in between, five days in the trade and you close at the close of the session.
This is the setup, this is what happens on DAX future, I personally don’t think this is worth the risk, but this is what you can trade on holidays as you requested for the setup.
Here it is your setup, this is it, see you next time.
Ciao from Andrea Unger.