New Low Trading Strategy
Today, we look at something we have called the new low trading strategy.
Markets spend most of their time making noise. Prices move up, down, and sideways, and most traders are tempted to react to every small fluctuation. But some of the most useful signals are surprisingly simple.
One of them is the new low strategy.
The idea is based on a basic observation: when a market, stock, or trading instrument makes a new low, it often attracts attention. For some traders, a new low signals weakness and further downside. For others, it may suggest panic, capitulation, or a potential reversal.
The edge comes from studying what actually tends to happen next, rather than relying on intuition. We backtest.
New Low Trading Strategy
We quantified some trading rules (see rules at the bottom), and we got the following equity curve:
Strategy type: Mean reversion strategy.
Market: Tech stocks (QQQ).
Performance
No. of trades: 384
Average gain per trade: 0.8%
Win ratio: 70%
Profit factor: 2
Annual returns (CAGR): 10.9%
Exposure/time in the market: 22%
Risk-adjusted return: 48% (CAGR divided by time spent in the market (0.22))
Max drawdown: 23%
Trading Rules
We backtested the following trading rules: