Sunday, October 6, 2013

Volume-Range analysis and pinbars

I've spent this weekend backtesting some ideas on volume-range analysis. I made a few systems that seemed nominally profitable, but ended up being killed by transaction costs. On the 5M timeframe, I just cannot find a way of beating transaction costs. They eat too much of your profit, and significantly add to your losses.

I've had better luck on the 1H chart, however, especially with pinbars. A pinbar that has a smaller range and greater volume looks to be a strong reversal signal, especially on the hourly chart. Here's an example.

In the above chart, we can see that the range of each marked pinbar is smaller than the preceding candle (indicated by the falling black line in the bottom indicator) and greater volume (the green bar in the bottom indicator). They usually herald a change in price direction as the big money moves in.

My sample size is only 25, but so far the results are looking good. I hope to post my findings later this week. 

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