Seasonality is bullish with my two end of month systems is triggering, together with another seasonal system, my %rank one, my bollinger band system and six patterns all of them bullish. I will enter long on close to exploit night reaction to the crash…
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This mathematical effect goes back to its discoverer Claude Shannon:
Markowitz portfolio theory is entirely based on the Shannon's Demon Effect: a portfolio of financial instruments or trading systems can beat the average return of all its components only if their correlation is low or, even better, is negative.
These computational effects are also stronger the often the portfolio is rebalanced.
This incredible edge coming from diversification can even transform a two systems portfolio with negative returns in one single low correlated and frequently rebalanced porfolio with a positive average return.
In this file:
I show how overall results are boosted by Shannon's Demon with 3 simple strategies that are rebalanced daily. One buys long each night from close to next day's open, one from close to next day's close and one from open to close (intraday). It is clearly evident how much overnight trading has a low correlation with other time frame strategy proxies and why it should be included in a trader's portfolio.
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Marco Simioni
NIGHTLY PATTERNS - Overnight Trading
Thanks, Marco.
Could you tell me if you use profit targets as you suggest in your “Trading Rules” section above? Do you think that profit targets increase profitability in the long run?
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I’m referring to Hanna’s value for stops, the answer is yes. They improve profitability in the long run. But I prefer to let profits run without take profits order. It’s only about me. Sometimes one approach works best, sometimes the other one. The main thing is to never move or forget your stop loss. Profits are always welcome… What do you think about it?
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Hanna has two sets of profit targets. The normal one is .3X5ATR. His X target (used on days when the odds are particularly stroing) is .75X5ATR.
Hanna says that stop losses don’t appreciably affect performance; they’re there simply to prevent a catastrophic loss. I’m not sure if profit targets make much of a difference either. I imagine that statistically they improve profits, but I’d like to see statistics rather than work on intuition (my intuition being notoriously prone to error).
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Everything you wrote is right. The only meaning of stop loss orders is that they can prevent us from blowing up all our profits in only one black swan event. I don’t know why he doesn’t show the statistics. How he sets up take profit orders does make sense. Just a little bit more than stop loss amount in strongest nights and a highs probability quick exit in the weakest ones. How are you managing your trades then? Take a look at my trailing exit ideas, those are useful, despite they are a bit subjective. As I discover new good approach with experience I add new ones to the list. I would like to test inside night behaviour but I lack futures historical data…
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