- o, h, l, c :: open, high, low, close
- x(n) :: where x is in [o, h, l, c], n=0 is today, -1 is yesterday, and so on.
- TR :: True Range. It is max(abs(h(0)-l(0)), abs(h(0)-c(-1)), abs(l(0)-c(-1)))
- ATR(n): Average True Range. Moving Average of TR over a period of time n.
What should the portfolio constitute?
It does not matter what constitutes the portfolio. It is important that they are as less correlated as possible. Also, a combination of longs and shorts is better than all longs or all shorts.
What percentage of the portfolio should be associated with each trade?
Not more than 2%. Wrong calls on large trades will erode capital much faster than wrong calls on small trades. 2% on each trade gives a chance to have at least 50 trades.
What are the entry and exit points for the trade?
Enter and exit during breakouts.
There are two strategies:
Entry :: Buy or sell short a market if it made a new twenty-day high or low.
Exit :: Sell or cover short if the market made a new ten-day low or high.
Longer-term trading strategy.
Entry :: 55-day breakout
Exit :: 20-day breakout