Regardless of whether the market is going up or down there are trading opportunities to take advantage of.
A rising tide will lift all boats, which means that if the market is bullish almost any trading strategy will make money from buying shares. But what happens when the market turns bearish? Fortunately there are some indicators that produce excellent results in both bull and bear markets. But since there are hundreds of different indicators around, how do you find these “magical” ones? The answer is simple – test them out using the D2MX Trading System.
The D2MX Trading system is built in to the Bourse 7 and the Market Analyser 7 platforms. Click on the D2MX Trade Tools menu and select Trading System to access the back testing capability. To build a strategy click on Create, then Yes.
Now you can select your entry and exit criteria with a wide range of indicators to choose from. Click Add and then select from the list. (You can even create your own combination indicators in the Analyser Wizard tool, and test these.) Once you have selected an indicator you can set its parameters. Specify the direction of the position, Long or Short and even select a timeframe – Daily, Weekly or Monthly. (You can select more than one indicator in the Trading System using the Advance Mode, which allows you to enter brackets, ‘and’, or ‘not’ values to combine indicators.)
For exit signals, you can again select from a wide range of indicators using the Add button and selecting the indicator. Set the parameters for the indicator in the same way you do for entry signals. In addition to using indicators for exits you can set stops, based on price movement or time. This allows you to use a trailing stop for an exit. You can use both stops and indicators or just one of these as an exit signal.
Before you move on remember to select your Trade Settings on the right, which includes how the trade is to be entered, the size of the trade and brokerage. Also remember to select the watchlist you want to test in the Check for Signal box. You can test on any of the system watchlists or you own saved watchlists. Finally click Save and give your test a name, then click Ok.
Now click on the Run Strategy tab and you can enter the timeframe you wish to run the test on. Note that the longer the time frame and the larger your watchlist is, the more time it will take to run a scan.
Once the scan is completed you will be able to view a Profit Chart as well as a wide range of reports which provide information in a summarised format, down to the details of every trade.
Now you are ready to test your ideas and find out what works in both Bull and Bear markets. I have run a large number of tests myself and have found that the best trading opportunities occur when the market reaches an extreme. This extreme can be measured in many ways, including Bollinger Bands, RSI, Money Flow Index or Commodity Channel Index. Run your own tests to see what you can find that delivers good trading opportunities regardless of market conditions.
Jeff Cartridge
Education Manager
Tags: back-testing, bear market trading, bull market, d2mx, market scanning, technical indicators, trading shares, Trading Strategies
