Backtested Trading Guru's Strategy : Opening Range Breakout
9:30 a.m. Trading Strategies: Do They Really Work?
Introduction to the 9:30 a.m. Strategy
- The speaker introduces the concept of the 9:30 a.m. trading strategy, also known as the opening range breakout (ORB) strategy, and questions its effectiveness.
- A claim is made about discovering a setup that yielded a 531% return over five years, suggesting that common beliefs about this strategy may be incorrect.
Understanding the Basic Strategy
- At 9:30 a.m. EST, traders mark the high and low of an initial candle (e.g., 15-minute), defining what is called the "opening range."
- Traders watch for price breakouts from this range; entering trades in the direction of the breakout with specific stop-loss and take-profit settings.
Critique of Guru Variations
- Many trading gurus propose variations on this basic strategy, claiming their methods are necessary for profitability.
- The speaker backtests one guru's method (Casper's retest candle approach), which suggests waiting for price to retest before entering trades.
Backtesting Results
- Backtesting results reveal poor performance across various assets using Casper’s method—ES down 66%, NQ up only 14%, gold down 50%, and euro down 97%.
- Although Casper showed short-term profitability in his video, extending beyond that period revealed significant losses.
Patterns in Guru Claims
- The speaker identifies a pattern where gurus cherry-pick profitable setups from short time frames to validate their strategies.
- Another guru's method (Scarface's shape-based entry criteria) was tested but similarly failed when accounting for transaction costs over ten years.
Exploring Alternative Strategies
- J Dub Trades' ambiguous entry rules were tested but did not yield profitable results either.
- Questions arise regarding whether simpler versions or different parameters could lead to better outcomes than those proposed by gurus.
Testing Variables for Profitability
- The speaker tests multiple variables including entry setups, time frames for defining ranges, stop-loss placements, risk-reward ratios, and cutoff times.
- A total of 90K combinations were analyzed to find optimal parameters tailored to each asset class.
Key Findings from Backtesting
- Best-performing strategies varied significantly between assets; Euro returned 630% while ES only returned 77%.
- Surprisingly, the simplest version of the strategy without additional complexities outperformed all guru recommendations.
Conclusion on Strategy Effectiveness
- Key insights include:
- Basic ORB strategy works best without added complexity.
- Risk-reward ratios lower than commonly suggested can be more effective.
- Higher time frames often yield better results than lower ones for defining ranges.
Final Thoughts on Trading Strategies
- Most traders fail to conduct thorough backtests or account for transaction costs leading to ineffective strategies being adopted blindly.
- Emphasis is placed on proper verification methods and ongoing education through shared resources like Telegram channels.