A lot of traders are watching and acting Daily SMA 100 and treat that as a resistance level. We wanted to measure how useful that signal is and backtested the strategy on intraday data since 2018.
Why a Moving Average
People say that a moving average helps cut down the amount of “noise” on a chart. Just look at the direction of the moving average to get a basic idea of which way the price is moving. We wish it was that easy…
Another way to use a moving average is to find support or resistance levels. In an uptrend, a 50-day, 100-day or 200-day moving average tend to act as a support level. In a downtrend, a moving average tend to act as resistance.
The Strategy: shorting a bounce off SMA 100
The thesis is pretty simple: bears win the control over stocks that bounce off SMA 100. Such stocks are more likely to go down, at least short term.
Screening Criteria
- Semiconductor Equities (I’m using iShares Semiconductor ETF $SOXX as a list)
- Are trading near SMA 100 on daily (97–103% range)
Enter Criteria (when the Algo opens a position)
- Stock price bounces off SMA 100 on Daily
- Price is going down for 3 bars after at least
- If there are multiple candidates buy the one with the highest relative volume comparing to the average market volume so far (10min average volume)
Exit Criteria(when the Algo closes a position)
- Price crosses above EMA 50 and stays there for 5 bars or price crosses above SMA 100 on Daily
- End of the same day
- Or by a loss at 1.0% from the fill price
Conditions
- $10,000 initial capital
- All gains are reinvested the following day
- Losses reduce overall buying power
- Do not trade early close days
- If no equities meet the screening or entry criteria, do not trade
The Results: green every year since 2018
- 2022: +9.8%
- 2021: +34.23%
- 2020: +0.96%
- 2019: +13.61%
- 2018: +21.18%
Postface: future of retail trading
Active investing, and active financial management will be an increasing portion of everyone’s portfolio. Retail traders are becoming significantly more sophisticated in their approach to trading, and understanding investing strategies that can maximize their returns while mitigating risk are going to be integral to the active trader’s arsenal. Tools, data, and market access previously unavailable to retail will become more democratized. A proliferation of financial education and tools will be made available to further empower trading at the retail level. Automated investing is the future.
