Optimization of Intraday Trading Strategy Based on ACD Rules and Pivot Point System in Chinese Market

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egy, the pivot point system can derivate various com-

plicate technique analysis [12,13], including prevail 5

points system, 7 points system and 13 points system. Now

we only care about the pivot range in this system to com-

bine with the ACD rules to forecast the formation of pri-

ce trend as well as mood and atmosphere of the market,

providing investors with reference entry and exit points.

In ACD rules, we usually choose the high and low

price of the first 5 - 20 minutes as the upper and lower

bounds of opening range. Aup or Adown point is on or

below the bounds of opening range for a specific distance.

When the price stays above Aup point for half of the time

domain of opening range, the Aup point is established

successfully and the stop-loss point B is the lower bound

of opening range in this case. After Aup point has been

established, the reverse entry point is C. It is the turning

point of the market atmosphere, from bullish to bearish

or from bearish to bullish. It indicates a strong change in

market trends, providing investors with signal about how

to trade. It is away from the bounds of opening range for

some larger distance than that of A. After Aup point has

been established, if the price falls strongly instead of

increasing, reaching Cdown point, then investors should

establish a clear preference for short at this time, seizing

the market downward trend to get profits as much as

possible. In this case, the stop-loss point, D, is one tick

above the upper bound of opening rang. Situation on the

other side of the market is symmetric.

The other part of this trading strategy, pivot point sys-

tem, is mainly used to determine the price support or

resistance zone. The relative places of these zones and

the last close price forecast the market mood of next day.

Combining both in trading, double signals from them

increase investors’ confidence to maximize positions to

get more profits. It is also helpful to refine the stop-loss

point B and D to minimize loss.

However, In the process of implementing this trading

strategy, the most crucial and difficult problem for each

investor is how to determine the right place of entry point

A and C. In 2010, a report from Guosen applied the

trading strategy that based on ACD rules and pivot point

system into stock index futures in Chinese market and

realized substantial excess profits [14]. However, it fails

to talk about methods for calculating the place of A and

C, which is unique for each future in different market. In

this paper, we focus on improving this strategy, discuss-

ing how to determine the place of these two important

entry points, which are determined by two important pa-

rameters. We program this trading strategy to find the

optimal combination of parameters. In empirical study,

we apply this auto-trading system into stock index and

commodity futures market in China to prove its effec-

tiveness.

2. An Empirical Example

We choose a commodity future, SR1209, to show how to

apply this method to intraday trading in details. Take the

commodity futures SR1209, on Jan 5th, for example. We

take the average of the previous 4 transaction days’ range

(high-low), and use 12% of this value as the distance

between Aup/Adown and the upper/lower bound of the

opening range. On Jan 5th, the highest and lowest prices

of the first 20 minutes are 6202 and 6102 respectively.

So the opening range of this transaction day is 6102 -

6202, r2 - r1 in Figure 1(a).

The pivot range (not present in figures) in pivot point

system is calculated by the high(H), low(L) and close

price(C) of the previous one transaction day, namely Jan

4th.

Specific formulas are as follows: (PP: pivot price; SV:

the second value; PD: pivot difference; PR: pivot range)

PPH+L+C 3

SVH+L 2

PPSV = PD

PP / PDPR

Figure 1(a) shows that the price breaks Aup level at

9:57. From then on, the program starts to calculate time.

Once the price stays above Aup level for more than 10

minutes, it will prompt to open long positions.

Then the time goes to 10:06 and the price has stayed

above Aup level for just 10 minutes. It will prompt

investors to open long positions (“upa” point in Figure

1(a)). The price of this moment is 6228. Since then, the

program will judge the point where to close the long

positions. If the price rises continually, then investors can

sell them after 10 ticks rise. According to history data of

sugar trading, we set tick as 1. Of course, the amount of

tick may not be fixed. It varies in accordance with price

range of certain futures and investors preference How-

ever, if price falls. Instead of increasing, investors should

close the long position at stop-loss point. Combing ACD

rules and the pivot point system, the stop-loss point B in

this case is the higher one between the lower bound of

opening range, 6028 and that of pivot range, 6102. So B

is 6102 in this example. If neither of these above two

situations occurs, then close them at the closing time, 15:

00.

From Figure 1(a), we see that price rises continually,

reaching 6243, more than 10 ticks, at 10:17. Then inve-

stors can close the long positions at this moment. Calcu-

lating profits by formula: (sell price-buy price)/sell price,

we get 0.241% gains.

Later, the price stays above A up level for the remain-

ing time of this day, the program will not prompt to open

long positions or short positions, for it is unlikely for

price to have another significant rise. However, if price

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