2/97 and 9/26/97(no stop loss).
should be at least 50 percent or more away from the current marketprice. In other words, you must be willing to give back 50 percent ormore of your open profit on a given trade. I have included a statisti-cal record of the 30MBO for two different time frames (Figures 4-11and 4-13). Figure 4-12 shows the 30MBO in chart form. What do youconclude?52
WU RSPH6 «30m C= 60630 ~-220
6236062170 —
fatBl Typ
pcm h
ot ;on
e foS&
 
SCROLL
Figure 4-5. 30 MBO signals in S&Pfutures.
Analysis of Test Results
The historical test results shown in Figure 4-11 are impressive.Given the relatively large number of trades in my sample, it isreasonable to conclude that the system is a viable one. But testresults, in and of themselves, may not tell the entire story of atrading system, good or bad. An accuracy rate of 65 percentmight seem impressive, but this is just a surface impression thatmay not hold up under closer scrutiny. Closer examination showsthat the results are consistent across buy and sell signals in termsof accuracy. Sell signals were 66 percent correct, while buy signalswere 65 percent correct. The average trade after slippage andcommission was $386.50, with long trades showing an average$312.50 profit per trade and short trades at $470.90 average profitper trade.
As in the case of all systems, the dollar amount of drawdown isThe 30-Minute Breakout 53
 
Figure 4-6. Buy signal and reverse to sell sig-nal in S&P futures.
important. And in this case the drawdown of $9775 is veryacceptable for S&P futures. The largest losing trade of $2125 isalso reasonable for S&P. In addition, with a maximum string ofonly five losing trades, this speaks strongly in favor of the30MBO system.
In testing systems, it is always a good idea to examine anothertime frame. Figure 4-13 shows another test of the 30MBO for thetime frame from 1/11/96 through 11/27/96. This test covered 208trades. Although the overall percentage of profitable trades wasonly 55 percent, long trades remains above 60 percent and themaximum successive losers remained at 5. Maximum drawdownwas still reasonable, and the largest lowing trade was also reason-able for S&P at $2875. Even though accuracy was only 55 percentfor this time frame, the average trade at $241.83 after slippage andcommission was good.54 = Chapter Four
FutareSource Copyright (C) 19%-19%. Hl rights reserved.‘U2 Nour Breakents ‘UY ssfS7 14:43
asses1945aysie4475ameMesam49335wm49265wa49195anise491251019085antdarts1980ansaaaseussoe47annesens148635lo
 
Figure 4-7. Two successive days of buy signals in London FTSE 100futures.
Which Markets Are Best?
As with almost all systems, there are some markets in which the30MBO performs better. Specifically, these are markets that havehigher volatility and fairly large trading ranges. These are alsomarkets that are more actively traded. For many years the marketsThe 30-Minute Breakout 55
FutureSource Copyright (C) 1986-1995. All rights reserved.1/2 RS
TUM 16:12
 
Figure 4-8. Buy signal in Swiss franc reversed to asell signal and sell signal in Japanese yen, both on12/2/96.
most suitable for use of the 30MBO have been the major curren-cies, stock indices, Treasury bonds, the more active European mar-kets (ie., Italian Bond, Bund, DAX, FTSE 100, Notionnel), coffee,heating oil, crude oil, soybeans, and wheat (when trading volumeis reasonably large).
In time, there will be new markets to trade with the 30MBO,and some of the current markets may cease to be tradable becauseof changes in trading activity. In some instances, special situationsmay result in a previously inactive market becoming very active.Should this be the case, the 30MBO will likely prove to be a viablemethod in such situations.56 = Chapter Four
FutureSource
Copyright (C) 1986-1995. €11 rights reserved.30 HINBTE BRERKOUTS 5/31/96 13:57
RSFM6 «30m H= 6036 L= 7944 C= 8013 + 67
 
Figure 4-9. Three successive days of 30MBO signals in Swiss franc.
Risk and Reward: Reality and
Rationality
No system, method, or indicator can be effective at all times. The30MBO in its present state of refinement is not different than othermethods in that it is not a panacea or the Holy Grail. It is merely away of interpreting and dealing with the reality of the markets.And that reality is that systems take losses when they’re wrong.The further reality is that systems can and will be wrong a succes-sive number of trades on occasion. This reality is inescapable.However, it is not something that leaves us without an alternative.Here are some suggestions for dealing with the natural drawdownand inaccuracies of the 30MBO:.
= When is the 30MBO best used? The reply here is similar to whatapplies to all trading systems. The best time to begin using the30MBO is after it has experienced a series of losses. I recom-mend you find a market in which you wish to use the methodand track its performance. After it has been wrong at least threeThe 30-Minute Breakout
FotoreSoarce Coppright (C) 1984-1995. All rights reserved.Sr 14:39
RCLNG Sie C= 2005 +1htDhity ceube ote 30 Minne CRVOE
pilige
| “pel \
 
Figure 4-10. 30MBO signals tend to be more reliable onlarge-range and gap up or down days. Shown above is thevery large-range day in crude oil on 5/20/96 (left) with agap lower open, and the 30MBO buy signal (right) thesame day.
57
times in succession, begin using the method. This will likelyincrease your odds of success, inasmuch as several losing trades
tend to be followed by a fairly large winning trade.
= Be rigid with your stop loss procedure. Whether you have optedto use a dollar risk stop or to use the reversing method I havesuggested, be consistent and rigid in applying your rules. Onlyby limiting your risk will the bottom line of your efforts with
the 30MBO be successful.
= Attempt to trade the same markets consistently. Don’t jumpfrom one market to another. If, for example, you decide to tradejb.30min BreakOut #3
Total net profitGross profit
Total # of tradesNumber winning trades
Largest winning tradeAverage winning tradeRatio avg win/avg loss
Max consec. winnersAvg # bars in winners
Max intraday drawdownProfit factorAccount size required
Total net profitGross profit
Total # of tradesNumber winning trades
Largest winning tradeAverage winning tradeRatio avg win/avg loss
Max consec. winnersAvg # bars in winners
Max intraday drawdownProfit factorAccount size required
Total net profitGross profit
Total # of tradesNumber winning trades
Largest winning tradeAverage winning tradeRatio avg win/avg loss
Max consec. winnersAvg # bars in winners
Max intraday drawdownProfit factorAccount size required
SP_E99.ASC-30 min
Performance$ 105900.00$ 246850.00
274
178$ 10025.00$ 1386.800.94
17
4$ -9775.001.75$ 9775.00Performance$ 45625.00$ 131525.00
146
93$ 6325.00$ 1414.250.87
8
4$ -9800.001.53$ 9800.00
Performance$ 60275.00§$ 115325.00
128
85$ 10025.00§ 1356.761.06
9
4$ -6625.002.09$ 6625.00
Summary: Alli TradesOpen position P/LGross loss
Percent profitableNumber losing trades
Largest losing tradeAverage losing tradeAvg trade(win & loss)
Max consec. losersAvg # bars in losers
Max # contracts heldReturn on account
Summary: Long TradesOpen position P/LGross loss
Percent profitableNumber losing trades
Largest losing tradeAverage losing tradeAvg trade(win & loss)
Max consec. losersAvg # bars in losers
Max # contracts heldReturn on account
Summary: Short TradesOpen position P/LGross loss
Percent profitableNumber losing trades
Largest losing tradeAverage losing tradeAvg trade(win & loss)
Max consec. losersAvg # bars in losers
Max # contracts heldReturn on account
01/03/97 - 11/28/97
$ 0.00$-140950.00
65%96
-2125.00-1468.23386.50
Win
$ 0.00§ -85900.00
64%53
-2125.00-1620.75312.50
Ur
$ 0.00§ -55050.00
66%43
~2125.00-1280.23470.90
TAU
43
1910%
Figure 4-11. 30MBO—back-test system results for 1/3/97 through 11/28/97.Parameters: Buy signal penetration 12 ticks. Sell signal penetration 12 ticks. Initial stoploss $2050. Floor amount $1100; 50 percent trailing stop. Five possible reverses daily.
Exit at stop, reverse, or MOC. 
 
 
 
 
 
 
 6O Chapter Four
jb.30min BreakOut #2
Total net profitGross profit
Total # of tradesNumber winning trades
Largest winning tradeAverage winning tradeRatio avg win/avg loss
Max consec. winnersAvg # bars in winners
Max intraday drawdownProfit factorAccount size required
Total net profitGross profit
Total # of tradesNumber winning trades
Largest winning tradeAverage winning tradeRatio avg win/avg loss
Max consec. winnersAvg # bars in winners
Max intraday drawdownProfit factorAccount size required
Total net profitGross profit
Total # of tradesNumber winning trades
Largest winning tradeAverage winning tradeRatio avg win/avg loss
Max consec. winnersAvg # bars in winners
Max intraday drawdownProfit factorAccount size required
SP_E99.ASC-30 min
01/11/96 - 11/27/96
Performance Summary: All Trades
$ 50300.00 Open position P/L$ 136825.00 Gross loss208 Percent profitable114 Number losing trades$ 5700.00 Largest losing trade$ 1200.22 Average losing trade1.30 Avg trade(win & loss)9 Max consec. losers6 Avg # bars in losers$ -10425.001.58 Max # contracts held$ 10425.00 Return on account
Performance Summary: Long Trades
$ 45475.00 Open position P/L$ 80700.00 Gross loss117 Percent profitable71 Number losing trades$ 5425.00 Largest losing trade$ 1136.62 Average losing trade1.48 Avg trade(win & loss)8 Max consec. losers7 Avg # bars in losers$ -4375.002.29 Max # contracts held$ 4375.00 Return on account
Performance Summary: Short Trades
$ 4825.00 Open position P/L$ 56125.00 Gross loss91 Percent profitable43 Number losing trades$ 5700.00 Largest losing trade$ 1305.23 Average losing trade1.22 Avg trade(win & loss)7 Max consec. losers6 Avg # bars in losers
$ -13775.001.09$ 13775.00
Max # contracts heldReturn on account
§§
dh
$$
the
nin
Ure
0.00-86525.00
55%94
-2875.00-920.48241.83
0.00-35225.00
61%46
-2875.00-765.76388.68
0.00-51300.00
47%48
-2875.00-1068.7553.02
55
135%
Figure 4-13. 30MBO historical test on S&P futures for 1/11/96 through 11/27/96.Summary
The 30-Minute Breakout 61
the Swiss franc, T-bonds, and crude oil, then do so consistently,attempting to take signals every day. Should you be unable totrade every day, then attempt to trade on the same day or daysof the week in the event that there may be a day-of-week pat-tern biasing the results.
= Don’t trade markets in which the risk is too high. In otherwords, if trading in S&P 500 futures entails more risk than yourcapital and/or temperament will allow, then simply avoid thismarket. The good thing about using my 30MBO method is thatit allows you to pick the markets you want to trade and to avoidthe markets that are too risky for you.
This chapter presented the 30-minute breakout system (30MBO). Idiscussed the specifics of the method as well as the rules of appli-cation, limitations, assets, liabilities, uses, and abuses of thisapproach. I also gave you specifics as to which markets are besttraded using the 30MBO. It should be noted that the 30MBO is nota static method in terms of indicator lengths. It is a method thatmust be adapted to existing market conditions. The adaptive andastute day trader will be able to readily discern when changes inmarket conditions require adjustments in the 30MBO. The 30MBOworks best in active markets.Day of the WeekPatterns
It is not only fine feathers that make finebirds. AESOP
Traders have long suspected that there are certain days of theweek that are more apt to be bullish or bearish. Such myths as“turnaround Tuesday” or “trouble Thursday” have circulatedamong traders for many years. Some traders believe that if a mar-ket closes near its high on Friday, then it will likely move higheron Monday, or vice versa if it closes near its low on Friday. Butthere have been few definitive studies to either support or negatethese market myths. Among the valid studies are those that havebeen conducted by Yale Hirsch in his excellent book Don’t SellStocks on Monday (Facts on File, 1986) and Art Merrill in his classicbook The Behavior of Prices on Wall Street (Analysis Press, 1984). Iconsider these two books to be among the best ever written onday-of-week or date patterns. Oddly enough, as outstanding asthese books are, they seem to have been ignored by many traders.If you don’t believe me, then try buying them!
We know that markets also tend to exhibit certain reliable behav-iors on given dates that are not necessarily major holidays. Thethinking trader will always be asking why certain patterns repeat.While I am certain that there are good answers to this question, Ibelieve that it is beyond the area that is studied by a market techni-cian. Hence, I spend little timing thinking “why thoughts.”
6364 = Chapter Five
Examples of Key DateSeasonals
In order to demonstrate the validity of key date seasonals to youmore clearly, I have included herein several examples. Let's firstconsider the daily seasonal tendency of T-bond futures prices fromthe start of futures trading in this market (Figure 5-1).
   
€
"0, oe
v a tPte Dae peje fe ea ol pepecb ee Tears eee eee epee epee oe
  
Figure 5-1. Daily seasonal tendencies in December T-bonds.Day of the Week Patterns 65
As shown in the illustration, there are three line plots on thechart. The most important of the three plots is the solid line. Itshows the average direction of December T-bond futures on a day-by-day basis. Note the bottom row. This row shows the percentageof time that the market has closed higher or lower on the day. Youwill note that although the percentages are not particularly highon all days, some days stand out as significantly high-probabilitydays for higher or lower closing prices (compared to the previousday). .
‘August 9, for example, shows a reading of + 72 percent, whileAugust 22 shows a reading of —71 percent. (I have not preselectedmy sample in order to show the best probabilities. I have merelyselected an active market that is traded by many traders.) Thearrows up and down denote the highest probability moves of themonth and their probable direction. While I am not saying thatthese patterns will always be valid, I do believe that there is some-thing happening here—something that deserves the attention ofall short-term and day traders.
As another example, consider Figure 5-2, the daily seasonalcomposite chart of S&P futures. Without a doubt, this is one of themost active and most volatile markets. The daily seasonal tenden-cy chart shows the month of October for December S&P futures.
Note the numerous up and down arrows. There have beenmany days in the history of S&P futures that have shown a high-percentage reading for up or down closes (compared to the previ-ous day). In examining the chart you will find a number of dayswith particularly high-percentage readings. I must point out thatthese statistics are somewhat questionable, since they are based onhistory dating back to 1982. Examining a longer history for thispattern would derive a more valid result.
Figure 5-3 shows the daily seasonal tendency for July soybeanfutures during the month of June. While the soybean market isnot a market currently recommended for day trading, I chose itfor inclusion, since the data history here dates back to the 1960s.As you can see from the chart, there are a number of high-per-centage moves, as well as two pronounced seasonal tendenciesduring the month (denoted by heavy black lines on the “allyears” line plot).
Further studies on key date seasonals can be performed byexamining the data in a variety of different ways. We could com-pare the opening and closing price each day in given markets inorder to determine if there has been a tendency for the close to be66 = Chapter Five
iOCTOBER
      
01 111}12/13}14115}16}17118} 2 31
      
iOCTO! iooo el fli eeeCE eTocs ey
Figure 5-2. Daily seasonal tendencies in December S&P.
less than or greater than the open on certain calendar dates. Whenwe perform such an examination of the data, this is exactly whatwe find. Again, the main consideration here is not whether we canisolate such tendencies, but rather, whether these tendencies aremerely artifacts of the data (i.e., random events) or underlyingcharacteristics of the markets themselves. I’m inclined to think     
oun outecho A OES SDERLPPE EEE SEPT
Figure 5-3. Daily seasonal tendencies in July soybeans.
    
 
Day of the Week Patterns 67
that they do indeed represent patterns that are innate to each mar-ket; however, more research is required.
One way of improving the probability of key date patterns is tocombine them with timing. In so doing we can hopefully capture thebest of both worlds, allowing a timing indicator to validate or negatea pattern. This is discussed in greater detail later in this chapter.68
Chapter Five
Using Day-of-Week andSpecific Date Price Patternsfor Day Trading
Let’s take a look at some day-of-week and specific date price pat-terns with an emphasis on their applicability to day trading. We'llbegin with preholiday behavior. The premier researcher on specif-ic date patterns in price behavior was Art Merrill. His claim thatthe price of the Dow Jones Industrial Average tends to close high-er on the day before certain major holidays was supported withhistorical data back to the late 1800s. Merrill found an astonishingtendency for the Dow Jones Industrial Average to close the dayhigher than the previous day on the day before Christmas, LaborDay, Independence Day, Thanksgiving Day, and New Year’s Day.His statistical analyses firmly supported his claim that preholidaybehavior was not a random event. In other words, the probabilityof such patterns occurring by chance is about one in ten thousand!Although the Merrill work was updated only through 1984, thepattern has remained valid. Consider the list shown in Figure 5-4.How can the day trader take advantage of these statistics? Thereare two possibilities. First, a long position could be entered on theclose of trading the day prior to the target day. The position wouldbe closed out the next day. This, however, would not be a true daytrade, since the position would need to be carried overnight.Another way would be to buy on the opening of the target day andexit on the close. While this would be a true day trade, it would notbe a trade made exactly in accordance with the Merrill research;
Good Friday 60.9Memorial Day 74.1Independence Day 76.7Labor Day 81.2Thanksgiving Day 58.8Christmas 72.4New Year’s Day 72.1Total (all holidays) 68.1
 
Figure 5-4. Preholiday Behavior of the Dow Jones Industrial Average,showing percentage of time the market closed higher on the day preced-ing the holiday. (After Merrill, 1984.)Day of the Week Patterns 69
 
 
Christmas New Year’s Independence DayYear A B A B A B1982 + + - - - -1983 + - + + + -1984 + + - - + -1985 - - - - - -1986 + + - - - -1987 - - - ~ + +1988 + + - - - -1989 + + + + + +1990 - - - - + _1991 + + + + + +1992 - + - - - -1993 - - - - - -1994 + + = - + -1995 + + + - + +1996 + + - - - -1997 - - - + + +
62.5% up 62.5%up 75%down 75% down 56% up 68% down
Figure 5-5. (A) Higher (+) or lower (—) close on the trading day beforeindicated holiday. (B) Close higher than open (+) or close lower than
open (—) on day before indicated holiday, in S&P futures.
however, it would be fairly close in most cases. I have updatedthese findings for S&P 500 futures in tabular form (Figure 5-5) forthe Christmas, New Year’s, and Independence Day holidays from1984 to 1997. What do you conclude?
I believe that there are other days that have shown a high proba-bility of closing up or down. The task of finding such dates is not adifficult one provided you have the data as well as a computer toanalyze it. My work has pinpointed many dates across all activemarkets that have shown a high probability of closing higher orlower than the opening price. In this case, these are pure day trades,since they would be entered on the open and exited on the close. Asample of such dates in several markets appears in Figure 5-6.70 _— ‘Chapter Five
 
 
No. years inMarket Date % of time back testS&P 1/5 72.73 uS&P 1/14 81.82 11S&P 2/2 72.73 llS&P 4/12 81.82 11S&P 4/16 80.00 10S&P 5/19 80.00 10S&P 6/1 80.00 10S&P 7/14 81.82 11S&P 8/27 72.73 11S&P 11/24 87.5 8S&P 12/13 75.00 12Soybeans 1/5 71.43 21Soybeans 3/18 66.67 21Soybeans 5/14 68.18 22Soybeans 7/3 72.22 18Soybeans 8/21 72.73 22Soybeans 11/7 70.00 20T-bonds 2/17 75.00 12T-bonds 3/29 69.00 13T-bonds 6/3 85.71 14T-bonds 7/2 78.57 14T-bonds 11/23 72.73 11Yen 1/8 73.33 11Yen 2/2 75.00 16Yen 3/19 71.43 14Yen 5/6 80.00 15Yen 6/21 86.67 15Yen 8/27 78.57 14Yen 11/21 75.00 16Yen 12/23 68.75 16
 
Figure 5-6. High probability of close higher than open: dates in severalmarkets.Day of the Week Patterns 71
Day of Week, Date, or Day
in Month?
Some market analysts contend that date or day of week are notnearly as important as the position of the day during the month.For example, it might be more reliable to compare the openingversus closing price behavior on the first Monday of each monththan to compare the opening versus closing price behavior oneach April 7 in our data history. And this could very well prove tobe a more valid approach. More research should be done in thisarea inasmuch as it is still one that has been minimally investigat-ed and could, therefore, yield very profitable results.
The Monday Pattern
Yale Hirsch has amassed a vast amount of data to support his con-tention that Mondays are usually up days in the U.S. Dow JonesIndustrial Average. Hence, his book Don’t Sell Stocks on Mondayadmonishes traders not to be sellers on Mondays. My work sup-ports this contention. My studies also show that since 1982, thestart of futures trading in S&P, the closing price of S&P has beengreater than (ie., larger than) the opening price almost 50 percentof the time on Mondays (see Figure 5-7). One note of caution,however, is in order before I give you some suggestions for usingthe Monday tendency in S&P in futures 500.
There is no pattern, relationship, or indicator in themarket that will always be correct. The best we can do isto approach a high degree of accuracy as a limit. Allindicators and patterns will have their losing times.
When this happens, the disciplined trader will take hisor her loss and exit the trade. There is no other way to dothings if you want to be successful in the long run.
 
Now, getting back to the Monday pattern. One way to take advan-tage of this pattern in S&P 500 or Dow futures is to filter your sys-tem for buy signals only. In other words, assuming this pattern iscorrect, your best bet would be to follow buy signals only onMondays, since the day has an upside bias. Consider this filter as72 =~ Chapter Five
an adjunct to the systems I have presented in this book and in mybook The Compleat Day Trader.
Yet another way to take advantage of the Monday pattern is tobuy on the close Friday and exit on the close Monday. This wouldnot, of course, be a day trade strategy, since it requires holding theposition overnight. However, it is very likely that buying on theopening on Mondays and exiting on the close on Mondays wouldhave the same effect.
Are There Other Day-of-Week
Patterns?
Based on my extensive work with a lengthy data history in allactive U.S. futures markets, I find that there are indeed day-of-week patterns but not in the traditional sense. By “traditionalsense” I mean in the “simplistic sense.” Figure 5-7 shows theopen/close relationships for selected markets based on day ofweek. This is a variation on the theme of the data presented inFigure 5-6, which shows open/close relationships on a calendardate basis. As you can see, the basic open versus close relationshipin markets other than S&P futures is often little better (and attimes worse) than a 50/50 event. However, with a small but signif-icant change, the day of the week becomes important.
Day-of-Week Patterns with Timing
Yet another approach that I feel has great potential and applicabili-ty for the day trader is to use a day-of-week pattern with a timingtechnique. I have developed a specific method for doing so. I call
Monday Tuesday Wednesday Thursday Friday
 
S&P 500 55.92 49.64 53.65 50.43 51.06T-bonds 49.34 52.27 44.35 49.76 49.13Swiss franc 49.69 48.16 49.83, 48.42 50.60British pound 52.56 50.50 54.26 50.81 51.24Japanese yen 48.08 47.72 46.97 47.1