IB and RTH Range Correlation Study

I was going through FuturesTrader71’s website the other day and came across a couple research studies he had done on the Initial Balance. One of his uses was that a day with a relatively low IB Range for the ES (< 4 points) could produce a good breakout trading opportunity. So I wanted to test and see if there was a correlation between the IB range and the RTH range for the ES.

To do this study, I utilized my PrintInstrumentInfo Strategy that outputs an Excel spreadsheet of a bunch of information for the instrument, including: range information, market type, day type and harmonic rotations. Using that information, I generated a scatter graph of the IB Range compared to the RTH Range and then plotted a Regression Line to see if there was some sort of relation.

As the chart shows, the greater the IB Range is, the greater the RTH Range is. However also looking the first 3 columns of dots (Corresponding to an IB of 2, 3 and 4 points respectively), we can see that the RTH range is indeed significantly larger than the IB, so this could be a decent breakout system, even though it doesn’t happen that often.

To test this theory further, I developed a simple strategy to check the IB range at the end of 1 hour. If it was 4 points or lower, I place OCO Limit orders 1 tick above and below the IB High and Low and then do a simple entry test exit (Exit after 1 to 5 hour bars) to test the entries effectiveness.

 Instrument Performance Num Bars to Exit Total Net Profit Gross Profit Gross Loss Profit Factor Cumulative Profit Max. Drawdown Total # of Trades Percent Profitable ES ##-##/ES ##-## 1.3 1 1872 8202.5 -6330.5 1.295711239 0.023945969 -0.021309302 83 42% ES ##-##/ES ##-## 1.26 2 1647 7893.5 -6246.5 1.263667654 0.020413602 -0.023508672 83 41% ES ##-##/ES ##-## 1.27 3 1734.5 8193.5 -6459 1.268540022 0.021571587 -0.021450613 83 41% ES ##-##/ES ##-## 1.23 4 1372 7377.5 -6005.5 1.228457248 0.017314723 -0.019504106 83 42% ES ##-##/ES ##-## 1.2 5 1234.5 7497 -6262.5 1.197125749 0.013632519 -0.024523649 83 40%

Looking at the Percent Profitable  column, we see that the Win/Loss percentage is worse than a coin flip for all 5 exits. However taking a look at Net Profit, we see that the strategy still makes money despite the simple stop strategy and the Win/Loss percentage. Thus we know that the winning trades are bigger than the losing trades, so a good stop and exit strategy could make this entry strategy a winner.