trading system for daytrading index futures

Goal is to catch the main moves of the day, Elephant Hunting as Mike Bruns would say. Trade with the trend using entries off the NQ 15m chart and exits off the 5m chart. Losses strictly managed. Trailing stops wide enough to stay in the trend until it ends. Increase position size once trend is established.

Rules

Entry rules:
1. If flat, enter with the trend on breakout of the current 15m bar any time between 9:45 and 3:45 EST.
2. After a 5m and/or 15m reversal pattern, enter a trade in the new direction on breakout of the current 15m bar (If a previous position has not been closed out, exit it at the same price).
3. If in a position that's already profitable, add to the position on a 5m continuation signal.
4. If stopped out of a trade, wait for the next 15m bar breakout entry.
5. If stopped out twice in a row in the same trading range, stand aside until 5m breakout of range, trendline, or triangle. Use 15m bar breakout entry in whatever direction emerges.

Exit rules:
1. Enter an initial stop-loss order of 5 points on all trades as soon as a new position is opened.
2. Move the stop-loss order after each new 5m swing is formed to 1 tic outside the most recent 5m swing extreme.
3. Tighten stop on 5m reversal patterns.
4. Exit all positions 15 minutes before the close.

Definitions of Retro-Trader terms
Bar Breakout entry: Retro-Trader positions are opened by stop-limit order placed 1 tic outside the current bar as soon as it's completed.
Trend: For Retro-Trader purposes, an uptrend will be defined as a series of higher lows and higher highs on the 5 minute chart and vice versa for downtrend.
Continuation signals:
1. breakout from a retracement bar in the direction of the previous trend
2. breakout from an inside bar in the direction of the previous trend
Downbar: a price bar with a lower high and lower low than the previous bar
Inside bar: a price bar with a higher low and lower high than the previous bar
Retracement bar: For Retro-Trader a retracement bar is a downbar in an uptrend, or an upbar in a downtrend. There may be several retracement bars in a row before the trend resumes, but for Retro-Trader purposes if the trend hasn't resumed after the 6 retracement bars in a row, cancel any continuation order and start looking for a reversal signal.
Reversal patterns:
1. Failure of prices to post a new high during an uptrend, vice versa during downtrend. If this occurs after a trend it usually takes the form of a 1-2-3 top or bottom. For Retro-Trader purposes a lower swing high on the 5m chart will trigger an exit from a long trade, and a higher swing low on the 5m chart will trigger an exit from a short trade, with stop placement as in the 1-2-3 example. Trend will be considered to have reversed.
2. Failure of prices to hold above a previous swing level after penetration thereof during an uptrend, or vice versa during a downtrend. If this failure occurs after a trend it is called a 2B top or bottom. For Retro-Trader purposes the same principle applies on a test with penetration of any important swing level, like high of day, low of day, triangle or channel boundary, or previous swing high or low. Stops will be placed as in the 2B example. Trend will be considered to have reversed.
3. Failure of prices to hold above the bottom of an inside bar in an uptrend, or vice versa in a downtrend.
Stop order: a conditional order that is triggered only if prices trade past a certain price. When the stop price is hit, the order is executed at the next available price, usually at, or close to, the stop price. If prices never reach the stop price, the order is not activated. A buy stop order is placed above the current market price. A sell stop order is placed below the current market price.
Stop-loss order: a stop order which is placed for the purpose of limiting losses if prices move against an open position.
Stop-limit order: an order with 2 conditions which must be met. The stop price is the price which must be reached before the order is activated. Once the order is activated the order can only be filled at the limit price or better. For Retro-Trader purposes the stop price and the limit price will be the same. Sometimes a stop-limit order can be triggered but not filled if prices jump past the limit price in fast action. For this reason Retro-Trader uses stop-limit orders to open a position, but never to exit. Some brokers don't accept stop-limit orders, in which case stop orders may be substituted.
Swing: a price turning point. A swing high is the high of a bar whose high is higher than the bars on either side of it. A swing low is the low of a price bar that is lower than the bars on either side of it.
Trading range: an area of price congestion or consolidation between overhead resistance and support below. Retro-Trader doesn't do very well when prices are stuck in a narrow range.
Upbar: a price bar with a higher low and higher high than the previous bar

Notes

Initial results have been encouraging (understatement).
The system seems to need a daily range of 40 points or more. It does not fare well on narrow range days.
More testing is needed using different time frames, different initial stop-loss values, etc. Might be interesting to test it on S&P futures too.
When faster markets return, switching to 9m/3m timeframes or other combination might be desirable, or the system might not work at all!
I'm not worried about sharing the system, because more people buying a breakout will just make the breakout stronger. If getting filled becomes a problem, I'll just change the entry rules to make sure I'm the first one filled ;-)
If other people in the trading room are following the system, that benefits me because it might keep me from snoozing and missing a trade or an exit signal.
If other people are following the system it helps to keep me honest in following and evaluating the rules. A system can only be evaluated if there are rules that can be followed objectively, and if other people can follow my rules and get the same results that proves to me that the entry and exit criteria are empirically sound and not tainted by some subconscious bias.

History

Retro-Trader began in July 2001 as a study of longer time frame intra-day trades in the e-Mini Nasdaq futures. My goal was to find a trading system or style that suited my personality and trading abilities. I wanted to be able to evaluate the system before trading it to be sure it was worthwhile. The system had to be simple. I wanted to make 2-6 trades per day. I needed it to be consistently profitable, yielding 75% or so winning trades with a healthy profit/loss ratio. I tried different time frames before settling on 15 minute charts for entries and 5 minute charts for exits. I've gradually refined trading rules to make them work for me, at least during these slow summer markets. The trading rules will probably continue to evolve. I began posting charts of the entries and exits on this website in August 2001. The name, Retro-Trader, was coined when the trades were being identified retrospectively, in hindsight at the end of the day. The name kinda stuck, so Iguess I'll have to change the rationale for the name to "it's as if you were trading yesterdays chart." The level of interest shown by fellow traders inspired me to provide more documentation on my research. I hope that familiarity with my experimental system will enable my friends to help me finish it, and I hope some of the ideas used here may help some of you to come up with a system that's right for you. So here it is.

Warning: Retro-Trader is posted for its educational value only. Historical results have not been fully backtested or evaluated. Trading rules may be subject to interpretation, and may need to be changed or even discarded after further research. Planned risk levels may be exceeded drastically in extreme market conditions that are not uncommon. Feel free to use the Retro-Trader rules and/or modify them to suit your style, but only at your own risk.