Trend Pullback Strategies

In the previous chapters, we explained how the financial market moves in trends and that every trend eventually ends, leading to a market reversal. We then wrote the algorithms for these two aspects of the market separately: trend in Chapters 3 and 4 and reversal in Chapter 5. However, in reality, these two phenomena often occur simultaneously, giving rise to the typical market pattern in waves.

The objective of this chapter is to understand the trend pullback dynamics, how to build some algorithm components suitable for these market phases, and how to use TradeStation and Excel to assemble such components into diversified approaches to trade pullbacks.

In this chapter, we are going to delve into the following:

• The market rationale behind a trend pullback strategy
• Writing trend pullback components
• Assembling trend pullback components
• Conducting sensitivity analysis
• Conducting out-of-sample analysis

Note

For educational...