Weekly Trading Strategy – Backtest with Weekly Charts, Returns, and Performance Analysis
Most traders tend to focus on the daily and intraday charts. Only a few get to look at the weekly chart, let alone trade from them. But the weekly chart may provide more consistent setups that are easier to trade if you have the patients to wait for them. Want to know about weekly trading strategy?
The weekly trading strategy is a method of trading that focuses on the weekly price action. This can take any form: It could be positional trading based on the price action on the weekly chart or using the weekly chart to get a broader view of the market for a trend-following system on the daily chart, or even a weekly rotation system. It could also be a weekly swing trading strategy that focuses on capturing the price movement of the weekly price bars.
In this post, we take a look at the weekly trading strategy, and we’ll also make a backtest of a weekly strategy.
Related reading:
What does weekly trading strategy mean?
The weekly trading strategy is a method of trading that focuses on the weekly price action. This can take any form, such as these:
- Trading based on the weekly chart
- Using the weekly chart to get a broad view of the market
- Swing trading weekly price movements
- Weekly sector rotation between assets
We hope you get the idea. The logic behind using a weekly system is that it trades less frequently than on daily bars, and it also might offer bigger gains. It’s more of position trading than swing trading on daily bars.
Can you trade based on the weekly chart?
When you hear a weekly trading strategy, the common thing that pops up in your head is long-term or position trading because the weekly chart is such a high time frame chart that should give long-term trade setups.
That is right; most who trade on the weekly chart are long-term position traders. But they trade in different ways. Some are trend followers, while the majority look for range-bound markets on the weekly chart.
Yes, you can trade based on the weekly chart. Range trading seems to work best on the weekly chart. At least, range trade setups are more common than trend-following setups. Many trend followers trade on the daily chart. Trading trend setups on the weekly chart would mean holding a trade for several years because trends on the weekly chart can last that long. It’s a bit closer to buy-and-hold investing.
Most position traders that look for 6-12 months trades on the weekly chart mostly trade range markets, and they look for their setups at the support and resistance levels of the range.
Can you use the weekly chart to get a broad view of the market?
A good number of traders that use the weekly chart are those who use trend-following strategies on the daily chart but feel the need to get a broader view of the market structure. They use the weekly chart to check the position of their trade setups within the broad market structure.
Their primary focus is on the key support and resistance levels on the weekly chart, which can guide where they can safely enter the market. Those key weekly price levels are also used to know where to place stop loss orders and profit targets.
What looks like a trend on the daily timeframe could actually be a price swing in a range on a weekly timeframe. So, the trend follower, while trailing the trend on the daily timeframe, may want to anticipate the end of the trend at the weekly chart resistance if the market has been range-bound on the weekly chart.
Trading the weekly price bars
A not-so-common weekly trading strategy is trading the weekly price bars on a lower timeframe, such as the H4 timeframe. By the nature of its duration — often not more than a week — this type of trading can be classified as swing trading.
An example is trading the weekly bar highs and lows. The highs and lows of the weekly price bars can be important resistance and support levels on the lower timeframes. A trader can formulate a strategy to trade those levels on the H4 timeframe. The strategy can be a breakout of those levels or a reversal from there.
Which chart is best for weekly trading?
The best chart for weekly trading would likely be the weekly chart itself. This is because weekly trading involves analyzing price action over longer periods, typically focusing on weekly price movements to identify trends, ranges, and key support and resistance levels. Trading based on the weekly chart allows traders to adopt a position trading approach, holding trades for weeks or months, rather than the shorter-term focus of daily or intraday charts.
Which is best strategy for weekly trading?
This is the best strategy for weekly trading:
- Range Trading: This involves identifying range-bound markets on the weekly chart and trading within those ranges. Traders typically look for trade setups at support and resistance levels within the range. Price action patterns or indicator signals can be used to identify these setups.
- Trend Following: Some long-term traders use trend-following strategies on the weekly chart. Trades based on trends identified on the weekly chart can last for several years. Trendlines on the weekly chart can help trail these long-term trends.
- Swing Trading Weekly Price Movements: Traders can focus on trading the weekly price movements, similar to how day traders trade daily price movements. This can be done on lower timeframes like the H4 timeframe, where traders can trade based on the highs and lows of the weekly bars.
- Using Weekly Chart for Market Structure: Traders who use trend-following strategies on daily charts may also use the weekly chart to get a broader view of the market structure. This helps in identifying key support and resistance levels on the weekly chart, which can guide trade entries, stop loss placements, and profit targets on the daily timeframe.
- Trading Weekly Highs and Lows: Weekly highs and lows can serve as important support and resistance levels on intraday timeframes like H4, H1, M30, and M15. Traders can formulate swing trading or day trading strategies around these levels, employing breakout or reversal strategies.
- Backtesting: Before implementing any weekly trading strategy, it’s essential to backtest it thoroughly to understand its performance under various market conditions. This helps in determining the viability and effectiveness of the strategy over time.
- Choosing Timeframes: The choice of timeframe for weekly trading depends on the trading style and strategy. For example, for swing trading strategies, a combination of the weekly and H4 timeframes may be suitable, while for position trading, weekly and daily timeframes might be preferred.
- Consideration of Trading Regulations: Depending on the market and regulations, such as the pattern day trading rule in the US stock market, traders need to be aware of any limitations or requirements imposed on their trading activities.
What are some weekly trading strategies types?
There are different strategies you can create around the weekly chart, as we have mentioned above. Here, we will focus on a few of them.
Here are some different types of weekly trading strategies:
Range trading
This strategy is all about trading a range-bound market on the weekly chart. It is actually the most common strategy among position traders, unlike what you may think — trend following. Most position traders hold their trades for about 6-12 months, and range setups on the weekly timeframe offer them just that.
The first step in range trading on the weekly chart is to identify a range-bound market and mark the support and resistance levels of the range. Once you have done that, you look for trade setups when the price reaches either the support or the resistance level. The trade setup can be a price action pattern or an indicator signal. Common price action patterns you can use are reversal candlestick patterns, such as the hammer, shooting star, engulfing, or harami pattern. Common indicator signals are oscillator overbought/oversold signals or divergence signals.
Take a look at the chart below:
Trend following
Some really long-term traders can use trend-following strategies on the weekly chart. Such trades often last for several years if trailed with a trendline strategy on the weekly chart. For example, a trade placed following the recovery from the global financial crisis in 2009 and trailed on the weekly chart would only be scratched by the false breakout caused by the 2020 Covid-19 bear market. See the chart below:
Swing trading the weekly price movements
A weekly trading strategy for swing traders could be to trade the weekly price movements, just the same way day traders try to trade the daily price movements. This can be done on the H4 timeframe.
A popular strategy is to trade the weekly bar highs and lows. Since the highs and lows of the weekly price bars can be important resistance and support levels on the lower timeframes, traders can formulate a strategy to trade those levels on the H4 timeframe. The strategy can be a breakout of those levels or a reversal from there. See an example of a breakout trade in the charts below.
Either the breakout or the retest of that previous week’s high could have made a good swing trade. The trade is closed by the close of the week.
How do you do weekly trading?
You can do weekly trading on any chart timeframe, but it may even be easier if you can do a multi-timeframe analysis using the weekly chart and other timeframes. There are many ways you can approach this, but a common strategy is to combine the weekly timeframe and the H4 timeframe.
You can trade the weekly highs and lows on the H4 timeframe, as we have shown above. The weekly highs and lows can be good resistance and support levels on the H4 timeframe, so you can look for trade setups there. A breakout of the weekly high or low can present a good swing trade setup.
The interesting thing is that once the high, which initially served as resistance is broken, it can become a support level. The same happens when the weekly low is broken; it reverses polarity and starts serving as a resistance level. Swing trading opportunities can be spotted at such levels when combined with other indicators, such as the Bollinger Bands.
Is the weekly chart better than the daily chart?
It depends on your trading style and the strategy you want to trade. Both the weekly chart and the daily chart are good for an experienced trader who understands that different strategies can work on different timeframes.
This is why it is important to backtest your strategy on different timeframes to know where it works best. For any given strategy, you cannot know if the weekly or daily chart is better until you backtest it. That said, our experience indicates that backtesting is more powerful on daily bars than weekly bars, at least in the stock market.
However, some trading styles work best on certain timeframes. For example, you won’t want to implement day trading or scalping on the weekly chart. On the flip side, you won’t want to implement position trading on the 15-minute chart. Different timeframes are more suitable for different trading styles and strategies.
If you want to execute position trades, you are better off on the weekly chart than on the daily chart. Even if you have a trend-following strategy, you still need to check the weekly chart because it will offer you a broader view of the market and may even offer you a better entry level than what your daily chart trend-following signal would have generated.
For example, what appears as a trend on the daily timeframe could be a range-bound swing on the weekly timeframe. Instead of waiting for a breakout on the daily timeframe to enter your trend, you could enter earlier from a support or resistance level on the weekly chart.
Which timeframe is best for weekly trading?
If you want to trade a weekly swing trading strategy, your best timeframes for analysis could be the weekly timeframe and the H4 timeframe — you find the right levels on the weekly timeframe and look for your trade setups on the H4 timeframe.
On the other hand, if you want to use a position trading strategy, you may want to focus on the weekly and daily timeframes. In this case, you can use the weekly timeframe to get a broad view of the market structure and step down to the daily timeframe to look for your trade setups.
However, depending on your strategy, other timeframes may be better, but you won’t know. The only way to know is to backtest your strategy to determine the best timeframes. It is often necessary to backtest your strategy on different timeframes to know which works best.
Can you trade stocks weekly?
Yes, you can. It depends on your trading methods. If you are a day trader or swing trader, you can trade stocks weekly. As a day trader, you can trade stocks every day, but if you are trading the US stock market, you must meet the pattern day trading rule requirements from FINRA (the Financial Industry Regulatory Authority). At the end of the article we show you a weekly backtested trading strategy.
According to FINRA rules, you’re considered a pattern day trader if you execute four or more “day trades” within five business days—provided that the number of day trades represents more than 6 percent of your total trades in the margin account for that same five business day period. In that case, you must maintain at least $25,000 in your trading account. If not, you are limited to only three day trades per week. As a swing trader who looks for one or two trades each week, you are not affected by that rule and won’t need to keep to that huge maintenance margin.
Can you swing trade stocks weekly?
Yes, you can swing trade stocks weekly if you have a strategy that gives you good setups every week. Swing trading is not bound by the $25,000 maintenance margin rule in day trading, so you can trade with a much lower amount. Just look for stocks that are well within your account limit and risk appetite.
It is not always easy to get good setups each passing week. But depending on your strategy, you can use stock screeners to look for the right stocks to trade. Note that stocks often form price gaps, and you should plan for it in your risk management.
How to trade weekly highs and lows
The weekly highs and lows are often important resistance and support levels on intraday timeframes such as the H4, H1, M30, and M15 timeframes. As a result, you can create some swing trading or day trading strategies around such levels. You can use both breakout and reversal strategies.
For a swing trading strategy, you use the H4 chart to look for breakouts of the previous week’s high or low, as we showed above. A reversal candlestick around such levels can also present a good swing trade setup. Different exit strategies can be employed, including a channel boundary or the weekly close, as shown above. The opposite end (low/high) can be a profit target for the reversal trade.
A day trader can also look for breakouts or reversals around the weekly highs and lows. The exit strategy can be the daily close or a local support/resistance level.
Weekly trading strategy backtest
Let’s show you an example of a backtested weekly trading strategy. If you are uncertain about what backtesting is, we recommend our comprehensive backtesting guide.
The strategy we are going to show you is a sector rotation strategy. At the end of the week we rank four different ETFs:
- US stocks: S&P 500 (SPY)
- EX. US stocks (EFA)
- Gold (GLD)
- Bonds (TLT)
The relevant ETF is in the brackets.
We don’t want to reveal the trading rules because we believe the system is sound and we have been monitoring it since 2018 (strategy no. 69). The trading rules are something like this:
Trading Rules
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The equity curve of the strategy looks like this:
This is a long only strategy and thus it’s hard to avoid any significant drawdowns. Max drawdown is 43% in 2008, but the annual returns are still a high 15.1%. There are 728 trades, and about 20% of the time we keep the ETF that we already held for one week. The average gain per trade is 0.4% without considering slippage and commission.
Alternatively, this strategy could be traded monthly, but the CAGR is slightly lower:
The monthly version has 166 trades, annual returns of 12.1%, and max drawdown of 21%.
Are weekly charts better than daily?
Both weekly and daily charts have their advantages and are suitable for different trading styles and strategies. Here’s a summary of the key points:
- Weekly Chart:
- Offers a broader view of the market structure.
- Suitable for long-term position trading and swing trading.
- Provides fewer trading opportunities but potentially bigger gains.
- Commonly used for range trading setups.
- Can help identify support and resistance levels for trend-following strategies on daily charts.
- Daily Chart:
- Preferred for intraday trading and short-term swing trading.
- Provides more frequent trading opportunities.
- Suitable for trend-following strategies and identifying shorter-term price movements.
- May require more frequent monitoring compared to weekly charts.
What are some common approaches to trading based on the weekly chart?
Traders using the weekly chart often engage in long-term position trading, with a focus on identifying range-bound markets and looking for trade setups at support and resistance levels.
How do I trade weekly highs and lows, and what timeframes are suitable for such strategies?
Weekly highs and lows can be traded on the H4 timeframe, offering opportunities for both breakout and reversal strategies. The strategy can be employed for swing trading or day trading.
Is the weekly chart better than the daily chart for trading, and why?
The choice between the weekly and daily charts depends on the trader’s style and strategy. Both charts are valuable, and backtesting is essential to determine which works best for a specific trading approach.
How do you read weekly charts?
To read weekly charts, focus on identifying long-term trends, range-bound markets, and key support/resistance levels. Consider employing swing trading strategies based on weekly highs and lows, particularly on lower timeframes like H4. Backtest your chosen strategy to determine its effectiveness on the weekly chart.