When I read The Logical Trader, written by Mark Fisher, I thought that the ACD system was worth paying attention to, and decided to backtest it. This section presents the test results and my own research related to the ACD methodology. It is assumed that you have read The Logical Trader or at least its first three chapters or a summary of them in the ACD basics menu, otherwise it will be impossible to understand what is at stake. You can read the first chapter of the book and buy the book at mbfcc.com .
The author of The Logical Trader noted that he is not going to share how ACD values are determined (see page 14). I will describe in detail how they can be determined, and try to answer the following questions:
- Do Points A and C exist and how can they be calculated?
- How duration of the opening range affects profit?
- Does time exit of the trade help when the market stalls after setting Point A?
- Is it better to wait than to open a trade immediately after reaching A value?
- Whether the pivot range is strong support or resistance?
- Does Points A and C through the pivot approach bring more profit than when the pivot is not taken into account?
- What period of time is sufficient for calculating and updating A values?
- How A and C values change over time?
- Do A and C values depend on volatility?
- Is the opening range more often the high or the low than any other time interval of the same length during the trading day, and how much this manifests itself depending on the opening range time frame?
- Is the first trading day of the month more often the high or the low than other trading days of the month?
- Do plus and minus days repeat most often in the 30-day cycle?
I developed several computer programs and backtested various stocks and futures to answer these and other questions. Since I live and trade in Russia, I used most liquid and volatile Russian stocks and futures. Another reason to use only Russian securities for backtesting is that I have a rather long history of 1 minute bars for them - about 10 years, starting in January 2009. The test results are described in the following chapters and presented in the Appendix.
Now I will briefly describe what each chapter contains.
- Chapter 1 describes the securities used for testing.
- Chapter 2 backtests the trading results from Point A.
- Chapter 3 backtests the trading results from failed Point A.
- Chapter 4 backtests the trading results from Point C, compares them with those from Point A and failed Point A.
- Chapter 5 discusses the pivot range and describes a method for evaluating it as support or resistance.
- Chapter 6 describes an alternative pivot range of my own design to overcome some of the drawbacks of Fisher's pivot.
- Chapter 7 combines Points A and C with the pivot and tests trading results with this strategy.
- Chapter 8 describes a new closing method and tests the trading results using this strategy.
- Chapter 9 discusses the period of time to be used to calculate and update Points A and C, change of A and C values in time, and dependence of Point A on volatility.
- Chapter 10 analyzes significance of the opening range, the 1st trading day of the month, and the 30-day trading cycle.
- Chapter 11 examines the time factor for exit, the effect of stop loss and early entry into a trade.
I checked the most complex programs manually for a month period, to be sure that they work correctly. I checked the time and price of entry and exit from trades, compared them with historical data and concluded whether there were openings and closures at the right moments.