2009-05-30

Thirty Minute Rule (Opening Range Play) Analysis

Allan's TMR - Analysis of Profit Objective and Performance
TMR CAN WORK with 5pt stop and 2-5pt profit objective. But returns may not be spectacular. 

Oscar's premium chat room provides worthy company of some of the world's smartest traders who trade with their own capital. Allan, a fellow trader, has once introduced the mythical TMR - Thirty Minute Rule to that room. Not a day goes by when someone does not ask "what is TMR?" so much so that Allan has started asking them to Google it instead. I would suggest you do the same as well, but in very brief, to trade TMR, you watch the first 30 mins of regular trading session (08:30 CST - 9:00 CST) for S&P500 futures. The high and low for first 30 minutes would give you the opening range (TMR Range). Now you wait for breakout from this opening range and place trades in the direction of the breakout. I.e. if price falls below the low of TMR Range, you sell, if price rises above TMR range, you buy. You take profit X points away from the breakout OR you are stop loss if the trade does not go in your direction. Simple! 

Anyways, we recently ended up discussing what sort of stop loss and profit objectives (risk: reward) can applied to maximise the outcome from trading TMR. The issue is to set right level of profit objectives and stop loss level so that the winning trade % (Wining Probability - W) generates sufficient profits to overcome the loss generated from stopped out trades. P&L from 20 days (1 month) of trading can be expressed as

PNL = 20 * W * PO - 20 * (1-W) * ST

Where W = Winning Trades %
PO = Profit Objective
ST = STOP Loss level.

We should also remember that W is dependent upon ST as well as PO or in other words W = f(ST, PO). Typically higher the PO lower the W, i.e. more greedy you are less likely you are to win. Also higher the ST, higher the W, i.e. bigger risk you are taking on a trade, more room you are allowing for the trade to be profitable, however after a certain point, increasing the stop level does not increase the winning trade % sufficiently.

I have done a non scientific data collection and analysis of TMR for last 20 days. Ideally one should do the analysis with 200 days or more. I have used the granularity of 15 min bar and I have collected Max Profit which could have been achieved on a particular day before a 15 min bar broke through the required stop loss level. I have analysed the results based uopn two ST levels. A fixed 5 pt stop and also using TMR Range + 2 pt stop. I have assumed no slippage on the stop entry orders used to enter TMR trades. Some of the observations are:

a) For a given Profit Objective, Wining trade % increases if TMR Range +2 stop level is used at least until 10 pt Profit Objective. 

b) 80% - 90% of TMR trades show some profit before soem of them stopping out. However since one cannot predict the top or bottom of the market, one needs to decide in the trade plan the profit objective to be used.

Results:
--------
i) It appears that a trade plan with 5 pt profit objective and 5 st stop loss would produce about 10 pts profit at the end of month (20 days). This is not great but it is still a profit and a 4 lot trader can expect to earn $2000 per month trading TMR with discipline.

ii) With a slightly lower profit objective of only 2.5 pt and 5 pt stop loss you can expect to earn about 12.5 pt per month (20 day).

commission cost and slippage is not included in these results and it can severely affect profitability. Commission + slippage greater than 0.5 pt could render the profitability to zero.

Conclusion:
------------
i) TMR performance could possibly be improved by using TMR Range + 2 stop loss level. However I could not confirm this analysis on my simple excel based model. I wish to paper trade TMR seriously next 20 days and record performance if we get different result.

ii) In my model, I have assumed that all TMR trades eventually get stopped out. That is not true on a trending day where price closes in the direction of TMR trade without ever touching the stop. This can improve the performance of TMR further. In this aspect, my analysis is slightly more conservative. 

iii) TMR trade entered on pullback after initial breakout from range can also increase the performance significantly. So multiple lot traders can actually plan to scale their entry into TMR trades. However I can only speculate on this line as the results should be actually analysed scientifically.

iv) I have only analysed by going through 20 day 15 min chart - a tedious effort, in TOS and therefore my analysis is subject to Human Error. A better and scientific analysis can be done by using back testing applications where you can submit your trade strategy (in the form of script or set or rules to trade) and then run is past previous data to see what results are achieved. If back testing is possible of TOS charts, I am happy to give it a go. Better results can also be achieved by back testing as you can vary the STOP level and see the impact on P&L. 

v) I wish to paper trade TMR on live data so I would have better data to work with next month.

 

 

 

 

 

 

Max P&L

Date

Open

30 Min High

30 Min Low

30 Min Range

TMR

5 PT

RANGE +2

01-May

869.75

870

864.75

5.25

S

2.25

2.25

04-May

880.75

887.25

879

8.25

L

14.50

14.75

05-May

900.75

904.75

899

5.75

S

5.50

5.50

06-May

912

912.5

907.5

5

S

6.25

6.25

07-May

925.25

927

918.5

8.5

S

20.50

20.50

08-May

916

923.75

915

8.75

S

5.25

5.25

11-May

910.5

912

905.75

6.25

L

4.50

4.50

12-May

911.75

913.5

903.5

10

S

7.50

7.50

13-May

892.75

892.75

886.75

6

L

2.75

2.75

14-May

883

885.25

880.5

4.75

L

11.50

11.50

15-May

889

893.75

886.5

7.25

S

-5.00

9.75

18-May

891

894.25

889.5

4.75

S

-5.00

-6.75

19-May

907

907.75

904

3.75

S

-5.00

-5.75

20-May

915

920.75

914

6.75

L

2.75

2.75

21-May

889.5

893.25

887.75

5.5

S

10.00

10.00

22-May

890

890.75

882

8.75

L

4.75

4.75

26-May

878.75

888.75

878.25

10.5

L

22.25

22.25

27-May

909.75

910.5

905.75

4.75

L

-5.00

2.25

28-May

899.75

902.5

896.75

5.75

S

10.50

10.50

29-May

909.75

912.25

902.25

10

L

15.50

15.50

 

 

 

 

 

 

 

 

Notes

 

 

 

 

 

 

 

1

The granularity is at 15 Min Bar level for the purpose of past data. I.e. the Max which could have been achieved before future 15 Min bar take the stop level

2

It is assumed that the stop entry order is placed at the top and bottom of range. Slippage of .25 pt is not accounted.


WIN% 5 PT

Profit Obj

P&L 20 D 5 PT

0%

30

-100.0

0%

25

-100.0

10%

20

-50.0

15%

15

-40.0

30%

10

-10.0

55%

5

10.0

75%

2.5

12.5

80%

2

12.0

80%

1

-4.0

15 comments:

  1. we are now collecting real trade data for TMR. VS is taking 5/5(st) trade and Allan 2.5/5(st) trade.

    Lets us see how June Data changes the TMR stats.

    In addition, Dee is coming out with her own 43 day effort on modified DeeTMR. And Allan has already started talking about PTMR (Penultimate Thirty Minute Rule).

    Quinn even suggested ETMR (Every T.M.R.)

    Looks like we are going crazy with TMR.

    ReplyDelete
  2. Nice work VS. I've been looking into doing some serious backtesting on this but my Easylanguage skills need some work first, rain forcast this weekend might speed things up.

    BTW just for anyone reading this that doesn't know myself or Allan, my tongue was firmly in my cheek with the ETMR. Now Chris999 rarely talks to us I have taken up Allan baiting duties.

    ReplyDelete
  3. what platform you use for back test.

    Of course, E-TMR is a tongue in cheek and no one should take that seriously. But thanks for pointing that out. I understand that many people read internet and some may not appreciate or even understand English humour, especially our brethren across the pond (the big one and even the little one), notably the one good friend who is from the north of the land across the big pond and now south across the little pond.

    ReplyDelete
  4. I use MultiCharts, it can run strategies written in EasyLanguage for Tradestation. I just don't have any experience in doing so and Google has drawn a blank so far. I'll probably end up buying a book as it's something I have an interest in learning.

    ReplyDelete
  5. Here is the famous DeeTMR. She put the entry in the homework page. I am copying the content here. Original comment is here http://tinyurl.com/lmhdsn

    "deeinthejungle said...
    so my TMR is slightly different. i start timing at 9:20 (EST) and after the 30 mins establishes the range, i wait for on of the ranges to be crossed and confirm with a 5/10 min bar and then I trade.

    So I have data for 46 days. I have tested the data with min pts gained to consider a winning day is 2 points. 5 pt stop. Worked 32 days. Failed 5 days (out of these days it then worked on a second trigger 4 days). The trade did not trigger 9 days.

    Out of the 32 days the max points achieved(out of 10pts) were:
    10pts: 10 days; 8pts: 3; 6 pts:6; 4 pts: 7; 2 pts: 6

    please ask me additional questions or clarifications. At the end of this week will have 50 days data which is a proper statistic :)

    Happy Sunday and a great trading week to all.

    08-JUN-2009 04:47:00"

    ReplyDelete
  6. How have the paper trades been going? I would be curious to see how DeeTMR 50 day test ended up. Seems to me just on the surface that 4pt target and 5pt stop loss is the best combo. Is that true Dee?

    Best Regards,
    CK

    ReplyDelete
  7. the data collection trade (some paper some real) are going good. Allan does 2.5/5 and I do 5/5 strategy.

    As per the data collected so far:

    2/5 is best so far with 9/10 success rate giving 26 pt per month.

    2.5/5 has 8/10 success rate giving 20 pt per month
    5/5 has 6/10 success rate giving 20 pt per month

    For all data so far (May/June 2009) results are same/similar

    Dee TMR stats are with Dee. Not yet mastered that trade plan.

    Another sidekick is that NTMR (News TMR) worked 100% on 2/5 basis for all trades in June 2009.

    Remeber that Brokerage costs are important for TMR as this is like picking nickels in front of steam roller. Also You need a platform which supports strategy orders (like One Cancel Other OCA) etc. Esp for N-TMR it is not practical to enter orders while the action is taking place. I place my OCO order 30 seconds before the news event and collect my nickels within few seconds of the news coming out.

    ReplyDelete
  8. VS, Are you putting in your orders at either the Low or High, not a tick past it. Wanted to make sure I had that correct.

    thanks,
    CK

    ReplyDelete
  9. I put two sets of OCO (once cancel other) order.

    OCO1 - Sell STOP at Range Low (not a tick below), Sell MIT Range High + 5

    OCO2 - Buy STOP at Range High (not a tick high), Buy MIT Range Low + 5

    Say sell stop is triggered first, I will adjust the Buy STOP to Low Range + 5.

    I hope this is clear!

    ReplyDelete
  10. Traders, here is a mid month performance chart (for monthly expected points) on TMR strategy.

    TMR performance chart

    This is based on 32 days of trading data (real trades in June, chart analysis in May 2009). The graphs shows the expected points per month for a given profit objective with a 5 pt stop. So far 2/5 works the best with 26.9 monthly points.

    Please note this does not include commission and slippage and of course past performance is no guarantee of future results.

    I will upload detailed analysis after month end.

    ReplyDelete
  11. TMR Performance Chart
    Considering I have 35 day TMR data on ES now, I have modified my strategy to the following.

    a) Every day based upon my collected data, my model suggests which Profit Objective have best success rate for 5 PT stop level instead of blindly going with 5/5. I go with that profit objective for my TMR trade for that day. As you can see in the link above, 3.5 PO for 5 Stop has max outcome for today.

    b) I record as usual the max P&L for the day and record that in my data. e.g. at the time of writing the MAX P&L on today ES TMR would have been 4.75. This way as the data accumulates, my model takes into account probabilities of various Profit Objectives for 5 pt stop and every day gives me the best Profit Objective to go for.

    ReplyDelete
  12. deeinthejungle22 Jun 2009, 07:31:00

    DEETMR Update:

    I have data for 57 days now:

    Basic Premises: 5pt Stop Loss, 2pts Target

    Win 38, Loss 8, No Trigger 11
    Win 83%

    On Win days TMR would have reached point targets:

    2 pts: 38 times
    4 pts: 30 (stop loss of -3.25 needed from b/e to get all)
    6 pts: 21 (stop loss of -2.25 needed from b/e)
    If stop loss moved to -2, lose 4
    8 pts: 14 (stop loss of -3.50 needed from breakeven)
    If stop loss moved to b/e lose and extra 1
    10 pts: 11

    I am experimenting with 3 contracts, going for 2pts, 4pts and 6 pts. Initial stop loss at -4, moved to -2 after gaining 2 pts and then moving it b/e.

    I have to redo stats cuz just realized i forgot to count additional losses from changing my stop loss. Will provide later.

    What is STMR?

    Am very much enjoying this experiment. Happy profitable trading all.

    Am collecting stats on NQ, so far its not as consistent. Will share soon.

    ReplyDelete
  13. Hi guys, I am very interested in learning more about the TMR, I would love to help out, I know some programming and im sure I could help with the backtesting and keep data and such...

    By the way, I am netcam or Jonathan from the premium room.

    ReplyDelete
  14. TY netcam, look forward to discussing this with you and thank you for your help.

    If you have good back testing software, can you please run the following scenario

    a) For each day, max profit achieved for stop loss level of 2 pt and TMR Range STOP. If your analysis can produce the Equity Curve for following this strategy it would be great. Assume 1 lot position.

    b) Also if you can, please run the analysis for MAX profit achieved/Equity Curve if the stop is moved to break even after 5 pt in profit.

    Thank you.

    ReplyDelete
  15. Netcam / Jonathan,

    Thanks for offering to help, I have back testing software but no idea how to use it so we've been forward testing everything by hand. Please drop me a line @ http://twitter.com/TraderQuin and we can discuss.

    ReplyDelete

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-VS