QQQ Gapped Above its 252-Daily Bar High on 5/25/2023 in Rare and Dramatic Fashion. Possibly Bullish for Friday’s Open. [Article] (Point-and-Click TradeStation® Strategy)

Trading Strategy Article

Summary: QQQ’s daily bar on Thursday, May 25, 2023 gapped above its prior 252-daily bar high in rare and dramatic fashion. This has only happened one other time in the last 23 years, namely on October 27, 2017. Going long on the open of the daily bar after the October 27, 2017 bar and exiting on the open four bars later would have been a profitable trade.

This chart pattern can be seen at the right edge of QQQ’s daily bar chart ending on May 25, 2023:

The aforementioned chart pattern has the following characteristics:

1. The May 25, 2023 bar gapped above the prior 252-daily bar high and closed above its open.
2. The open and close prices of the daily bar prior to the May 25, 2023 bar (the May 24, 2023 bar) were both below the open and close prices of the daily bar that preceded it (the May 23, 2023 bar), and the open and close prices of the May 23, 2023 bar were both below the open and close prices of the daily bar that preceded it (the May 22, 2023 bar).
3. None of the previous 252 daily bars met the above criteria.

So the May 25, 2023 bar rejected the market direction of the prior two bars and opened above the prior 252-daily bar high.

To determine if this chart pattern had ever occurred on QQQ’s daily bars in the past, and if so, what would have happened if a long position had been taken on the open of the next trading day and exited on the open of the bar four bars later, we created a Quagensia T Edition strategy using point-and-click, generated its TradeStation® EasyLanguage® strategy code, and backtested the strategy in TradeStation® 10.

We were hoping that this chart pattern would have occurred many times in QQQ’s daily bar price history so that the results of the backtest would have been more statistically significant, but unfortunately our backtest showed that it only happened one other time in the last 23 years of QQQ’s price history, on October 27, 2017. Going long on the open of the daily bar after the October 27, 2017 bar and exiting on the open of the bar four bars later would have been a profitable trade, as can be seen in the chart below:

While this is clearly not a statistically significant finding and we were hoping that there would have been more times in the last 23 years when this pattern occurred on QQQ’s daily bars, we decided to publish this Quagensia T Edition strategy and our findings anyway so that:

1. Traders could see the other time in the last 23 years when this specific chart pattern occurred on QQQ’s daily bars in case it informed their trading decisions for Friday’s open. 
2. Traders would have another example of how to test their trading ideas before they trade them instead of assuming that a testable chart pattern is bullish or bearish. 
3. This specific Quagensia T Edition strategy will be useful to traders in the future on other instruments and not just on daily price charts. Traders can change the strategy’s input parameters from within the TradeStation® 10 user interface to change various aspects of the strategy such as:
   • The number of previous bars whose maximum high price must be gapped above.
   • The number of bars to stay in the trade. We chose four bars for our backtest since the last four bars of the chart formed the final part of the chart pattern that was 253 bars in the making.

Traders can then run backtests to determine if the similar pattern based on their customizations is bullish or bearish looking out a customizable number of bars.

We invite you to download the Quagensia T Edition strategy on this page, open it in Quagensia T Edition, generate its TradeStation® EasyLanguage® strategy code and test it in TradeStation® 10 where you should be able to verify our results. You can then explore the effects of changing the strategy’s aforementioned input parameters. Finally, if you have a valid paid license for Quagensia T Edition you can change the Quagensia T Edition strategy’s logic without code so you can modify the entry criteria to better match the chart pattern that you are interested in and you can add more interesting exit logic than a simple time stop such as adding a trailing stop or a profit target.

Special instructions: You must set the “Maximum number of bars study will reference” for this strategy to be large enough so that it doesn’t try to calculate the prior X-bar high before there are at least X bars before the first bar being checked for the entry criteria. If you backtest this strategy with the default of 252 for the X-bar high it would be safe to use 252 for this number. You can edit the “Maximum number of bars study will reference” field from the screen that appears when you click on the “Properties for All…” button from the dialog box where you add the strategy to the chart. If you do not do this, the backtest will fail with an error message.

This article is an example of algorithmic journalism. We invite content creators to use a Quagensia Desktop Application to create their own articles based on tested trading ideas. And we invite traders to use a Quagensia Desktop Application to test their ideas before they trade them.

This trading idea is subject to the disclaimers in our Terms of Service.