February 15

How to Backtest a Day Trading Strategy – Hourly Breakout Part 1

Welcome to another series in which I give you an over-the-shoulder look into a trading strategy development process.  I test and develop a trading strategy to show you each step of the process.  By the end of the development I hope to have a useable strategy, something that you may also consider trading.

In this video I outline the strategy rules on the whiteboard then go ahead with the first stages of development.

Even after the first 2 stages, we have the start of a strategy with some promise.

Here’s the rules for the strategy we will be looking at:

We are trying to identify a time window within the trading session where we can take a breakout above the high or below the low of the session so far.

Firstly we start with a 1 hour time window.  Let’s imagine our time window is 1am to 2am.  At 1 am we look at the high and the low of the session so far.  The market we are looking at is USD/JPY and so the session began at 17:00 the previous day.

If within our 1 hour time window the high or low of the session is broken then we take the trade.  We go long if the high is broken and short if the low is broken.

We will use a stop loss.  And we exit the position at the end of the session.  So trades last less than 24 hours.

 

 


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