A New Potential Daytrading Strategy, Part 3

Last Updated on April 18, 2023

I had a look at my performance on one of the new strategies I’ve implemented over the summer and fall. Here are the previous first two posts I wrote:

  1. Part 1
  2. Part 2

I started trading this strategy live in July with the lowest minimum size I can possibly trade. Now I’m about to put on more size and just summarized the numbers so far.

First, here is the day to day profits:










July, August and October all showed decent profits. September was just a grind.

And here is the accumulated returns:










Now, 10 000  USD for almost four months of trading is nothing to write home about. However, I can easily trade 5 times the size I’m doing now. And I emphasize the importance of having several strategies. This is just one of 6 others I’m currently trading. I don’t want to reveal this strategy as I don’t want a crowded marketplace on the paths where I go. The strategy takes on positions during the first two hours of the trading day and exit is on MOC. The entry is based on parameters/performance going 1-3 days back.

Both long and short orders have outperformed SPY with 0.08% during the holding period. Now I’m looking to hedge with SPY those days where I’m too long or short.

There are no stops except time stop at MOC. Using my stats I can probably take profit earlier when I reach about 7-10 cents per share in profits. I have had a lot of days when my P/L have dropped significantly from the peak. So far the best day is 10 cents per share traded.

As expected the strategy has performed worse than the backtesting. Backtesting always involves a little bit of curve-fitting and better fills you’ll never get in real life.

The number of fills varies from day to day, but the average is 35 fills per day. On average I have about 200 000 USD worth of stocks, both long and short. I expect to trade 1 mill USD quite soon on average. If I deposited 200 000 in a retail account (I trade prop), then I would have at least 800 000 in buying power, so 200 000 should be more than sufficient to trade this strategy. This means that the strategy has generated 5% return in four months with hardly any drawdown at all! I think that is pretty good and it shows the value of daytrading and the law of big numbers. Just a small edge can turn into acceptable numbers if done multiple times.

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  • In your first part you said that you got filled through limit orders (which I assumed meant that you put limit orders x% of ATR from the open, similar to Frank Hassler’s posts). I toyed around with a strategy like that, which seemed profitable on paper if I knew in advance how many fills I would get that day, but I quickly found that some days got hundreds of fills will others had very few obviously due to changing volatility in the market. If you don’t mind revealing too much, I am just curious if you changed your strategy to not use limit orders or how you got around this fact. It looks like you might be doing something different since you say your trades only occur in the first two hours.

    Also, upon digging deeper I found that many of the winners were just from outlier high/low data that occur on the open and isn’t very tradable, so I totally agree with your other posts about having good data sets. Using daily data doesn’t seem to cut it here.

    One more thing, have you ever looked into pair trading techniques? They seemed to be the most popular MR strategies that people use but they tend to be much less effective than they once were. However, they are still acceptably profitable if you have a large account.

    • Yes, you’re right I don’t do it like Hassler. I have twisted it quite a lot. The problem with this strategy is you get a lot fills in one of the directions. So I’m trading it like a little bit of a pairs strategy…. Not completely like a pairs strategy, but put some to offset directional bias of the market.

      I traded pairs in my first two years of daytrading. Since 2004 I have stopped completely with pairs. It’s trending too much.