I often critique other traders and investors on the collective2 platform. Since this is done via the interenet it rarely results in them actually listening. But I hope you listen. If you disagree show me why I’m wrong in the data below.
One user SeanKelly11 has stated on their blog that they have a “simple system for outsmarting the markets (and yourself)”.
In that post they state the rules of the system, but do the rules work in backtests? I don’t think so.
Below are the basics quoted from the blog post they made.
- Price above the 200 SMA? You only take longs, my friend. That’s your direction. If it’s below, you’re looking at shorts. No flip-flopping here — stick to your lane.
- Market opens above the 9 EMA? Well, that’s your signal to go long, cowboy.
- Stops and targets are determined by the ATR (14). You’ll set your stop loss at 2 ATR and aim for a profit target of 3 ATR. Not complicated math here, just risk and reward — served up plain.
My Backtesting Results
I used daily SPY data from Tradingview to run my calcs. I calculated the SMA, EMA, and ATR at the close of each day. Then at open on the next day I checked if the buy criteria were met. If so the strategy entered at the open and held until close unless the profit target or stop loss was triggered. Because I was using simple daily Open, High, Low, Close data I couldn’t determine easily if the high or the low of the day occurred first on days when both the stop and profit target were hit. So I ran the backtest with the generous though not realistic approach of assuming the profit target would have been hit first on days where both were hit.
The results….not great.
The main reason this strategy did poorly is because it doesn’t hold overnight. Take a look at this overlay of a blind buy at open and sell at close. Notice its quite similar.
Many traders don’t realize how much overnight returns tend to contribute to total returns.
Perhaps Sean knows something that I have missed, but at first glance this doesn’t look like a winning strategy to me. But I had fun fact checking it. Do you want to fact check me? Well download this excel sheet and check it.
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