Automated Trading Strategy: 39
Strategy 39 made $64K in the last 12 months. It has a Profit Factor of 1.52 and an annual drawdown of 3.24%
There is no guarantee that these strategies will have the same performance in the future. Some may perform worse and some may perform better. We use backtests to compare historical strategy performance. Backtests are based on historical data, not live data. There are no guarantees that this performance will continue in the future. Trading futures is extremely risky. If you trade futures live, be prepared to lose your entire account. We recommend using our strategies in simulated trading until you/we find the holy grail of trade strategy.
For a link to all strategies and the most recent chart, click here.
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Our next five strategies are the product of a royal hunt around the nature of divergence strategy and how it relates to market structure. The two complement each other in a way that is proving to be more reliable than when studied apart, which makes sense because divergence is a betrayal of the underlying structure. To learn more about the intersection of market structure and trade strategy, check out the following post:
In a nutshell, the post shows that the structure of the market is not random, but rather created through auction mechanics — this is also why we tell you not to use NinjaTrader’s simulated data feed.
From candlesticks to the Wyckoff method, the best trading strategies (read: the ones they’re still teaching on Wall St.) tend to revolve around market structure. Divergence theory is based on the fact that what’s true about this structure now may not be true tomorrow, or even in a few minutes, and it is the change in structure that can give you a reliable clue about where to hunt for high profit trades.
So what drives the structure of the market?
High volume or block trades drive changes in market structure. In some cases the structure will return to normal. In other cases a new structure will emerge. Again, both are driven by auction mechanics and marked by a price movement that diverges from the indicator. This is why traders use divergence as a signal that the trend or market structure is about to change. This is also a good place to look for breakouts along trend lines as a confirmation.
To be clear, a divergence is simply when the direction of the indicator diverges from the price trend.
In the next section we’ll illustrate how we used divergence theory to create Strategy 39 and explain how to recreate the strategy for yourself.