Quill's 'Simon Says' Trading System


If I haven’t gotten the details right, please post the correct version.

Wikipedia says that

‘Simon Says’ is a children’s game for three or more players. One player takes the role of “Simon” and issues instructions to the other players, which should be followed only when prefaced with the phrase “Simon says”. Players are eliminated from the game by either following instructions that are not immediately preceded by the phrase, or by failing to follow an instruction which does include the phrase “Simon says”. It is the ability to distinguish between genuine and fake commands, rather than physical ability, that usually matters in the game.

The object for the player acting as Simon is to get all the other players out as quickly as possible. The winner of the game is usually the last player who has successfully followed all of the given commands. Occasionally, however, two or more of the last players may all be eliminated at the same time, thus resulting in Simon winning the game.

Quill’s ‘Simon Says’ is a mechanical --i.e., non-discretionary-- trading system whose embedded assumption is this. “Follow the rules, and you’ll make money. Don’t follow the follows, and you’ll lose.”

Backtesting can suggest --but never really “prove”-- whether that assumption is correct. But it’s my opinion that his rule set is better than anything a would-be, non-coding investor/trader would ever come up with by him or herself, and his system needs to be considered, especially if one considered oneself an “investor”, for this reason. Everyone and his cousin will tell you What to buy? But not a one of them has a clue as to When to sell? Thus, ‘Simon Says’ is meant to be a no-brainer, long or short, end-of-day, risk-reducing trading system that buys ‘breakouts’ and sells ‘break downs’. In short, you want to buy stocks (or ETFs) that are likely to go up, and you want to sell them when they start to go down (or sideways, which is a post for another time).

There are lots of ways to distinguish ‘trend’ from ‘chop’. But Quill lets the chart decide what’s ‘a trend’ by cuing off the ‘lookback low’ or the ‘lookback high’, which BarChart marks with an arc above the price bar, thusly. https://www.barchart.com/shared-chart/ATIP?chart_url=i_16572…

So, what are Simon’s rules?

When a ‘lookback low’ appears at the hard, right-hand-edge of the chart, the ticker is noted and put on a watchlist. That’s Step One, which triggers the ‘Wait One Rule’, which is this. If the next day’s price action leaves the arc in place, confirming that the trend has reversed, then a ‘Buy’ signal is created. That’s Step Two.

Step Three is to put the trade on, which is where things fall apart and get decidedly unclear. “Do you buy the next day’s open at market?” “Do you buy on a limit order?” “Having bought, what do you do if prices retrace and retest the low?” “How much do you buy?” "If the market confirms your entry was correct, do you average up? (aka, scale in.) Each of those questions needs to be answered, as well as about a dozen more, all of which are Step Four, ‘Trade Management’, which are rules that need to be decided ahead of time, not on the fly during market hours.

Step Five is to exit the trade, which Quill does on a reverse of his entry conditions. I.e., if a new lookback high is marked, the 'Wait One" Rule kicks in. If the next day’s price action confirms the high --by prices closing lower-- then, the trade is exited the following day, as would have been done in that chart of ATIP.