On Quora Bruno Matos asked the question:
Considering that prices zigzag, could this trading strategy be profitable in the long-term? Target 1 to 4 ticks, Buy if a 5m candle closes negative, and sell if 5m candle closes. If the candle closes against you, you average the position.
Interesting idea. It might work in more with an HFT system.
On a system that is looking at 5-minute bars with Profit/Loss checks every minute to determine if it is working this strategy most likely won’t work too well.
This is why:
I coded the strategy into CloudQuant Lite and ran a simulation of buying/selling 100 shares on your proposed signals. This simulation for January through June of 2017.
The target profit was 2¢ for each trade. If the 5-minute bar closed against us I reversed the position to achieve an average. That may not be what you meant. This simulation was on all of the DOW 30 stocks.
Should you want to modify the simulation or have access to the source code you can find the full code at https://github.com/cloudquantai/ZigZag
It is free to register, and use CloudQuant. Your trading strategies remain your proprietary information.