There are almost as many trading strategies as there are traders, and each one comes with its unique qualities. One of the strategies making the headlines now is the Powerx strategy described by Markus Heitkoetter in his book, “PowerX Strategy 2nd Edition: How to Trade Stocks and Options in Only 15 Minutes a Day.” Let’s find out what the strategy is about.
The PowerX strategy is a momentum-based stock trading strategy developed by Markus Heitkoetter and described in his book, “PowerX Strategy 2nd Edition: How to Trade Stocks and Options in Only 15 Minutes a Day.” It is based on the stochastic, RSI, and MACD indicators and gives a signal when all three momentum indicators agree on the price direction and momentum.
In this post, we answer some questions about the Powerx strategy, and at the end of the article, we make a backtest.
What is the PowerX Trading Strategy?
The PowerX strategy is a momentum-based stock trading strategy developed by Markus Heitkoetter and described in his book, “PowerX Strategy 2nd Edition: How to Trade Stocks and Options in Only 15 Minutes a Day.” It is a pretty normal technical trading strategy that is based on indicators, especially momentum indicators.
Although now converted into a single trading script, the strategy is based on the stochastic, RSI, and MACD indicators and gives a signal when all three momentum indicators agree on the price direction and momentum.
Here’s how the indicator works:
- When all three indicators are “green”, the stock is in an uptrend
- When all three indicators are “red”, the stock is in a downtrend
How does the PowerX Trading Strategy compare to other trading strategies?
The PowerX trading strategy is pretty much like any other technical trading strategy out there. It is based on technical indicators like most other trading strategies and uses specific rules to know when to enter or exit a trade. And it also applies risk management strategies, such as position sizing and stop-loss orders.
The strategy uses three indicators: RSI, stochastic, and MACD. The settings are as follows: 7-period RSI, 14-period stochastic (14,3,3), and the standard MACD setting (12,26,9).
Here are the entry rules for a buy signal:
The entry rule for a sell signal:
- The RSI falling below 50
- The stochastic falling below 50
- The MACD line crossing below the signal line
The indicator is configured to give a green (buy) or red (sell) bar when all the rules for entry line up, and a black bar when one of the indicators is out of phase.
The exit methods are based on the use of stop loss and profit targets, with a reward/risk ratio of 2:1. Alternative exit is when any of the indicators go out of phase from the others — that is, when a black bar prints on the chart.
What is the success rate of the PowerX Trading Strategy?
The creator didn’t indicate the success rate of the strategy but claims that he has been using it to make money off the markets. According to him, the strategy works for many assets, including stocks, forex, indices, and cryptocurrencies. Regarding the preferred timeframe, he recommends the daily timeframe, and he prefers swing trading.
What types of market conditions does the PowerX Trading Strategy work best in?
The strategy works best when the market is nicely swinging about. It does not matter whether the market is trending or range-bound; once there are sizeable swings that can be traded, the strategy can be used. However, in a narrow range, there would be too many false signals.
What data and metrics are used to backtest the PowerX Trading Strategy?
The creator never claimed to backtest the strategy. Rather, he claimed to have been using it to trade live in the markets. If truly the indicator makes money in live trading as he claimed, it may be worth backtesting. The good thing is that the strategy looks pretty simple and easy to backtest, as it is a rule-based system.
How does the PowerX Trading Strategy manage risk?
It primarily uses position sizing to limit the capital at risk. The creator recommends risking only 1-2% of account size per trade. With that, he uses a stop loss order to make sure that only the specified amount is risked. Profit targets are used to ensure a 2:1 reward/risk ratio.
There is also an alternative exit when the rules of the signal break down — when any of the indicators go out of phase from the others, the system prints a black bar on the chart, indicating that it is time to exit as the condition to be in the market is no longer there.
Are there any drawbacks to the PowerX Trading Strategy?
Yes, the strategy tries to time the momentum of the market and in using three momentum indicators, it tends to lag the price, causing you to enter late into a move. That would not be a problem on occasions when the market stays in one direction for a long time, but if the price is choppy, you would get a lot of losing trades from late entry.
What are the most important elements of the PowerX Trading Strategy?
The three momentum indicators: the RSI, stochastic, and MACD. Another factor is that all the indicators must be in the same phase to generate a trading signal, and when they are out of phase, it is time to exit the market.
What timeframe does the PowerX Trading Strategy work best in?
According to the creator of the strategy, the best timeframe to trade the strategy is the daily timeframe. The strategy is developed for swing trading, so it makes sense to trade it on the daily timeframe. In fact, depending on the market, the daily timeframe tends to have good price swings that can be traded with the strategy.
What is the win/loss ratio of the PowerX Trading Strategy?
The creator did not state the win ratio. But in one of his YouTube shows, he did give an example that with a 2:1 reward/risk ratio, a 50% win rate can still be remarkably profitable. However, that does not mean that the strategy has up to a 50% win rate or a win/loss ratio of 1. In fact, it is nearly impossible to find a strategy with a 50% win rate that offers a 2:1 reward/risk ratio.
What type of investors is the PowerX Trading Strategy best suited for?
Any retail trader can make use of the strategy. It is a simple strategy that is easy to apply in any market. However, do not put your money on the line until you backtest it to know if truly it can make money in the markets you want to trade.
Does the PowerX Trading Strategy allow for flexibility and customization?
The PowerX strategy is a rule-based trading system, with specific indicators, entry, and exit rules. You can tweak it or customize it to suit your trading, but it will no longer be the PowerX strategy per se.
What are the key advantages of the PowerX Trading Strategy?
The main advantages of the PowerX strategy include:
- It is based on simple and well-known indicators
- It is a rule-based strategy
- The rules are simple to understand
- Anyone can use the strategy
How reliable are the backtest results of the PowerX Trading Strategy?
The creator of the strategy did not show the backtest results, so there is no way to know how reliable the results are. But he did claim to have been using the strategy for live trading for more than a decade.
The Powerx Strategy – Backtest – Does It Work?
A backtest with trading rules and settings is coming shortly.