The 5-Day Low of The Range Strategy in 2024
The 5-Day Low of The Range Strategy, with its simple criteria of IBS lower than 0.25 and the close lower than the lowest low of the previous 5 days, has shown remarkable results.
Over the period from January 1993 until today, it has yielded 309 winners out of 517 trades, with an average return of 0.46% per trade—far exceeding the average return for any 5-day period.
Its profitability peaks between 3-7 days, offering a 10.76% annualized return compared to buy and hold strategies. Furthermore, it can potentially be adapted for short selling, albeit not the same impressive returns because short is very difficult to trade. This strategy underscores the potential for consistent profits in trading with minimal complexity.
The 5-Day Low of The Range Strategy
Here is the strategy in plain English:
Trading Rules
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This is a very simple strategy. No fancy tools and hardly any calculations.
This is the result from January 1993 until today:
- 517 trades,
- 309 winners,
- Average of 0.46% per trade.
This is way above the average return for any 5-day period which is 0.11% in the same period. However, the strategy has not worked so well lately. The win ratio is 60%, and the average winner is bigger than the average loser.
Here is a table including the profit factor between 2005 and 2013. (I was recommended to include the profit factor by one of the readers (although in my opinion, one can see that this strategy has high profit factor due to low max drawdown(?)):
| Avg per trade | #trades | #wins | Profit factor | Annualized % | |
| 1 day | 0.45 | 143 | 88 | 2.19 | 7.28 |
| 2 days | 0.36 | 127 | 77 | 1.65 | 5.42 |
| 3 days | 0.73 | 120 | 81 | 2.39 | 9.54 |
| 4 days | 0.7 | 106 | 68 | 1.99 | 8.26 |
| 5 days | 0.98 | 102 | 68 | 2.48 | 10.76 |
| 7 days | 1.11 | 96 | 63 | 2.26 | 11.28 |
| 10 days | 1.26 | 82 | 56 | 2.2 | 11.06 |
| 20 days | 0.85 | 57 | 36 | 1.57 | 5.7 |
As we can see its profitability climaxes at around 3-7 days. If exit at 5 days this strategy has 10.76% annualized return by just staying in the market for 510 days compared to 2826 days for buy and hold!
What happens if we turn it upside down and go short? Using 0.75 as criteria on today’s range gives a lot more fills compared to long. I need to increase it to 0.9 to get a similar number of fills. Over the same period, this has yielded almost 10%. It’s a lot harder to find good short strategies than long strategies.
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What are the results of implementing the The 5-Day Low of The Range Strategy?
During this period, the strategy resulted in 102 trades, with 68 of them being winners. The average return per fill was 0.98%, significantly outperforming the average return for any 5-day period, which was 0.11% during the same time.
How does The 5-Day Low of The Range Strategy compare to buy and hold?
The strategy’s profitability is highest over 3-7 days. Exiting after five days can result in a 10.76% annualized return, outperforming buy and hold, which is held for a significantly longer period. However, lately the strategy has not performed well.
Is The 5-Day Low of The Range Strategy adaptable for short selling, and what criteria are involved in shorting?
The strategy can be adapted for short selling by using a specific criterion on today’s range, such as 0.75, to identify short opportunities, but short strategies are much less profitable than longs.
Conclusion
In conclusion, the 5-Day Low of The Range Strategy offers a straightforward approach to trading with impressive results. By simply adhering to two criteria—IBS lower than 0.25 and the close lower than the lowest low of the previous 5 days—traders can go long at the close and exit after 5 days. Over the period from January 1993 until today, this strategy has resulted in 517 trades, with 309 winners and an average return of 0.46% per trade, significantly surpassing the average return for any 5-day period.
With a win ratio of 60% and larger average winners than losers, this strategy proves its effectiveness. Furthermore, its profitability peaks between 3-7 days, offering a 10.76% annualized return when held for just 510 days, compared to significantly longer periods for buy and hold strategies. Additionally, the strategy can be adapted for short selling, with specific criteria yielding around 10% returns over the same period. This simple yet effective strategy demonstrates the potential for consistent profits in the trading market.