In this post I am going to demonstrate how I use the Ditto Navigator™️ to identify high probability profitable trades.
The first thing I do is pick a study under the Screener I am going to choose Streak as I am looking for a strategy that is mean reverting. This means that if a symbol is oversold then I want to buy it. In the case of a streak when the symbol goes down 5 days (you can choose any time interval) in a row it will trigger and then I want to measure the performance of the symbol over the next 2 day checkpoint (you can choose any checkpoint period).
Be sure to check that you have the right time frame for the study. Note I am using a daily timeframe below, the one above was H1 (hourly).
We click on the calculate button and in seconds we have our first bit of intel. The lookback period starts from 2010 you can always click on F7 or right click and open the properties of the DittoNavigatorEA and change the start date. I have ticked 3 symbols to save for later as I will use this study to create a signal. I have chosen to focus my analysis on XNGUSD which I have marked on the screenshot.
I can see that since 2010 there have been 24 instances where Natural Gas (XNGUSD) has fallen 5 days in a row. The first time was 2013-05-28 and last time it happened was 2021-11-04 where the performance over the next 2 days was a further drop of -2.4%. This last time it was not a good trading result, however when we look at the mean performance over 2 days, Natural Gas on average climbs 2.55% when it has gone down for 5 days. We also see that the median performance of the 2 day checkpoint is 1.62%. We like to include median as it tends to strip out rare events that can distort the mean calculation. I always start with median and use it as my main metric.
In summary I want to say that this is a really good trade setup to follow but I worry that a count of only 24 is not that statistically significant. Stats 101 suggests a minimum of 30 samples before drawing any meaningful conclusions. Lets just say that this is pretty rare as you can see by the number of counts for all the symbols.
Before I sign off I think it is always useful to see whether you have a robust trade signal on both the buy and sell side. So in our case let us look at the results when the market goes up 5 days in a row. We should expect to see a lot of red below.
As expected there is a lot of red, which means it is clearly rare for the market to go up 5 days in a row which means the market has become overbought and therefore drops. If we zoom in to Natural Gas it has happened only 11 times during the period under consideration i.e. 2010 until now. The median performance over the next 2 days is a drop of -2.09%.
From the study analysis we have done this is a good enough result for me, so the next step is to set a Signal so that I know when the next time this setup occurs. I will do a separate post where I walk you through the setup of the Signals.