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Trend Following on a Weekly Time Frame

Cover unholy grailsOne of the most popular systems I wrote about in my 2012 book, Unholy Grails, was the Bollinger Band Breakout strategy.

That version used daily bars, but a common question I got was, "How does it perform on weekly data?"

Back then I coded up a weekly version to appease readers, so let's revisit to see how it's stood up over the last 7-years. We'll call it the Weekly BBO.

In layman's terms the rules are:

When the broader market is in an uptrend, look to buy any stock that breaches the upper side of its Bollinger Band. Place an initial stop 20% below and continue to trail that stop 20% behind as price moves higher. However, if the broader market trend turns down, then tighten that trailing stop to 10%. We will also exit if the stock closes below its lower Bollinger Band.

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Have you been doing the maths?

Have you been doing the mathsNew traders rarely focus on maths.

And if they do, it tends to be primarily a focus on the winning percentage of their trades. In fact, if you tell your friends you are a trader, one of the first questions they ask is “What is your winning percentage?”

And if you answered 70 - 80% you’d likely get a fair number of approving nods and pats on the back. Yet if your losses were huge compared to your wins, you could actually be losing money with an 80% win rate.

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Combining Strategies For Comfort

Combining Strategies For ComfortBefore I get into today's article I need to respond to some comments received after last week's Mean Reversion article. One criticism was the system was losing its edge as the equity curve had been flattening over the last few years.

This most likely came about as I used a log scale chart. So for better clarity, here is the linear scale chart.

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Trading Mastermind

trading mastermindYour special topic for today is Trading Psychology.

Your time starts now.

Question: How can you overcome your most debilitating psychological trading barriers?

My Answer: Go out and get another job. We’ve discussed this before. And I don’t mean stop trading. I just mean add some other revenue streams into your bread winning basket. If trading is your only source of income, you are going to be under pressure every month to make money. No matter what the market conditions.

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An Effective Mean Reversion System - Part 2

trading strategyLast week I laid the foundation for mean reversion trading. You may read that article HERE.

I'll build upon that now with a specific set of rules then test the outcome.

In layman's terms the rules are:

When a stock is trending higher look for a heavily oversold point. Once an oversold level is attained, place a buy order below the market for the following day. If that order is filled, await the first higher close then exit the position on the next open.

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