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This video covers @Scot1landT's slingshot trading strategy, which is one of the setups he uses to trounce the market with multiple triple-digit annual returns.
I cover what the slingshot setup is, and I backtest the performance to see if it's really that good -- spoiler alert: it is.
To check out the results, download the TradingView slingshot indicator code, or learn how I backed the trading setup, check out the following blog post:
āļø Learn the secrets of legendary traders and investors:
https://bit.ly/4aCna7i
š Follow along:
https://analyzingalpha.com/blog/slingshot-trading-strategy
#trading
#technical-analysis
#stocks
#backtest
00:00 Introduction
00:12 Who is Scot1land?
01:00 Hi, I'm Leo
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0:00
wouldn't it be great if you could buy a
0:01
powerful stock after a pullback just as
0:04
the downward momentum stops and the
0:05
stock begins to move back up in your
0:07
favor holy heck yes it would well these
0:10
aren't my words well the holy heck yes
0:11
was but these are scotlands and if
0:13
you're not familiar with this irishman
0:15
that trashes the market you should be
0:17
after all he's had multiple triple digit
0:19
year returns and his highest being 302
0:22
percent in one year and this year he's
0:23
already up 150 percent although i guess
0:25
this year is about ready to close but
0:27
the point being this man's a monster now
0:30
scotland developed the indicator that
0:32
uses a four ema of the highs instead of
0:34
the closing price this is called the
0:35
slingshot the idea is to find stocks
0:38
powerful enough to break the short-term
0:41
downward pressure and when the selling
0:43
pressure is done the stock starts to run
0:45
at least that's the idea but how do we
0:47
trust this we know that we have
0:49
anecdotal evidence with the top trader
0:50
hitting triple digit returns publicly
0:52
sharing his often highly successful
0:54
slingshot trades but me i thirst for
0:57
more if we haven't met yet my name is
0:59
leo smiggle i'm an algorithmic trader
1:02
and have another channel where i analyze
1:03
what works in the market using computer
1:05
code i discuss how to trade
1:06
algorithmically and all sorts of fun
1:08
stuff like artificial intelligence
1:10
and this channel is where i deliver the
1:12
goods without all the nerdy stuff
1:15
so let's get back to that setup i tested
1:18
3186
1:20
trades starting on january 1st 2020
1:22
until the date of this publishing which
1:23
is december 22nd and let me tell you
1:26
it's good news but before i interrupt
1:28
this present early let's talk about the
1:30
characteristics of the slingshot setup
1:33
first what's the universe the universe
1:35
is just a fancy term we algorithmic
1:37
traders use for saying you know what are
1:39
our potential investment opportunities
1:41
in this case it was the qqq or nasdaq
1:43
constituents so now that we've covered
1:45
the universe let's talk about the setup
1:47
and the setup in essence is quite simple
1:50
to understand conceptually right let's
1:52
think about what we're trying to do
1:53
we're trying to find a strong stock that
1:55
has a pullback we're and we're hoping
1:57
that that pullback is temporary and
1:59
we're looking for a low risk entry to
2:01
hopefully get in on the move of the
2:03
continuation up into the right that's it
2:05
it's a pullback strategy so let's talk
2:08
about this a little bit more in depth so
2:09
you can have a better understanding of
2:12
what was tested and then we're also
2:13
going to look at some charts so we say a
2:15
strong stock if the stock is in the qqq
2:18
which also means it's liquid that is
2:19
above the 50-day moving average on the
2:22
daily okay
2:23
and a pullback occurs in multiple ways
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but for our case for the back test was
2:29
if the close of them daily was below the
2:32
five-day ema
2:34
now the next thing we have to think
2:35
about is now we've identified a strong
2:37
stock that's in a pullback where do we
2:39
enter well the first thing we need to
2:41
think about is risk and whenever a stock
2:44
pulls back what do we want to see we
2:45
want to see a consolidation period
2:47
ideally right and the reason for that is
2:50
twofold it shows that buyers are coming
2:52
in and secondly
2:53
the action gets tighter so you can set a
2:55
tighter stop loss for better risk reward
2:57
dynamics
2:59
and basically what we look for is a
3:02
break of the four ema of the highs on
3:06
the hourly and how i tested it so when
3:09
the close of the current bar is above
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the
3:12
four hour ema
3:14
the hourly ema four period hopefully
3:17
that makes sense it breaks above that
3:19
that's where you enter
3:20
and i put on the model the close at the
3:24
low of the day in fact what i've noticed
3:26
is that whether you're doing the
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slingshot on the daily or the hourly
3:30
both of them come up with the same
3:32
roughly risk reward dynamics the issue
3:34
is if you're doing it on the hourly you
3:36
get a lot more trades so anyways
3:38
hopefully that makes sense we'll dig
3:39
more into some of the data after this
3:41
but the first thing i'm going to do is
3:42
show you some charts so you can get a
3:44
better understanding to see if we can
3:45
make this a little more lucid and we'll
3:47
start with lucid see what i did there so
3:50
here you'll see the daily chart on the
3:53
left for lucid and then the hourly chart
3:55
on the right you'll also notice i have
3:57
these yellow bars here these yellow bars
3:59
mean that this bar the close of this bar
4:02
is higher than the four period ema of
4:06
the highs for that time period so in
4:08
other words the four period daily high
4:11
ema versus that bars close right so
4:14
that's part of the entry signal for a
4:15
slingshot but remember the slingshot
4:18
just doesn't fire if it's a fourier
4:20
cross right and we're going to see
4:22
some more examples of this but basically
4:24
remember what we're trying to do we're
4:25
trying to find a stock that's you know
4:27
in an uptrend or that we want to enter
4:29
in on right typically from an uptrend
4:31
that has a temporary pullback and it's
4:32
going to continue in the same direction
4:34
so we can see here that
4:36
lucid makes a pretty strong move roughly
4:38
a 76 percent move it starts to
4:41
consolidate it comes down to the 50 ema
4:44
reclaims that's that's obviously a
4:46
signal in itself there and then breaks
4:49
out of this range on across of the four
4:51
ema highs and moves up into the right
4:53
now we can see that obviously this was a
4:55
profitable trade but one thing i've
4:57
noticed during back testing is if you
4:58
use the hourly you can actually get in
5:01
just a little bit earlier so we can see
5:02
here that we could have entered around
5:05
23.30
5:06
right so 23.30 instead of waiting for
5:09
the close of that bar just to get a
5:10
little bit of a better entry and not
5:12
only is it just a better entry it's a
5:14
better risk reward because remember
5:15
we're putting our stop at the lower the
5:17
day or the low of this bar here
5:20
and in this case
5:22
they are essentially the same thing so
5:24
this is also an opening range break so
5:26
not only does it qualify as a slingshot
5:29
it's also a breakout so this is uh
5:32
definitely a good trade to take and we
5:33
can see
5:34
you know how it runs up and to the right
5:37
so that's a good example of a slingshot
5:39
we see some confluence right we see
5:41
undercut reclaim and then
5:43
on the 50 day and then pushing up into
5:46
the right after a consolidation period
5:48
right and some
5:49
tightness here so we get a little bit
5:51
better reward but now we're going to
5:53
actually go to scotland's twitter feed
5:56
and see example from the man the myth
5:58
the legend himself
5:59
and we can see here scotland's charting
6:01
platform if you're not familiar with
6:03
this look this is tc2000 tc2000 is one
6:06
of the best if not the best stock
6:09
charting platforms out there and the
6:11
reason really is twofold one it has
6:13
tremendous scanning capabilities and two
6:15
you can do some cool stuff with uh some
6:17
of the indicators so you can see here
6:19
that the blue when it changes to blue
6:21
that shows that a slingshot or not a
6:23
slingshot but a cross of the four emas
6:25
occurred so it can be a visual guide for
6:28
you when trading that this you know
6:31
slingshot could potentially have
6:33
occurred well and we'll see what are the
6:34
other requirements here right so let's
6:36
dig into the chart as i digress
6:38
first this is not a slingshot y even
6:41
though it's a cross of the ema highs we
6:43
don't see any uh consolidation you're
6:45
just following in that's
6:47
it gives you a terrible risk reward
6:49
dynamic so obviously not a slingshot
6:51
same thing here no real consolidation
6:53
right uh now when we start to see a
6:56
pullback it starts to get a little bit
6:57
more interesting number four we don't
7:00
see a blue highlight so it didn't cross
7:02
the four emas
7:03
number three
7:05
it does look like it was a range break
7:07
and when we talk about a range break
7:09
we're typically talking about a break of
7:11
the recent highs i mean obviously
7:13
there's multiple ways to think of a
7:14
range and as you get a little more
7:16
sophisticated you should use volume
7:17
profile
7:18
for you know kind of range areas and
7:21
breaks but
7:22
anyways point is
7:24
it breaks above the high so that's a
7:25
range break this is not a
7:28
daily apparently uh not a slingshot just
7:31
a range break would have been on the
7:32
hourly but i didn't notice during the
7:33
back testing that the hourly slingshots
7:36
were incredibly profitable whenever you
7:38
were uh you know taking profits a little
7:40
bit earlier and you get a lot of
7:42
opportunities the challenges you just
7:43
have to you know take i mean it's just
7:45
managing all of this potential slingshot
7:47
opportunities but again
7:50
i'm digressing i will talk a little bit
7:51
more about the results in a minute
7:54
number four not a slingshot right
7:56
there's no real range break to the
7:57
upside and number five uh excellent
8:00
slingshot as you can see and this was
8:02
not planned we see an undercut and
8:03
reclaim of the key moving averages uh
8:06
you know that's obviously something
8:07
you'll see in
8:08
kuala magi's techniques uh frequently
8:11
too but basically you know that you just
8:13
have to think of the rationale behind it
8:15
obviously lots of algos and traders are
8:17
looking at these things right and
8:20
a lot of the execution uh for buying
8:22
from big institutions is algorithmic too
8:24
so they see it comes back and pull back
8:27
well now we can potentially buy so we
8:29
see the undercut and reclaim stating
8:31
that there's some
8:32
ins you know potential interest here and
8:34
then range break
8:37
out of this thing and to the right so
8:38
that's a fantastic slingshot again with
8:40
the confluence of factors and we see how
8:43
that turned out pretty well
8:46
it's finally time to look at the
8:47
backtest data we'll focus on the
8:49
slingshot data for the hourly time frame
8:51
but i'll speak on the daily slingshot
8:53
when i summarize the findings we'll
8:55
start off by looking at the edge and
8:57
we'll follow that up with a number of
8:58
potential opportunities to exploit that
9:01
edge
9:02
with this in mind we need to cover what
9:03
exactly i mean when i say edge
9:06
let's think about it this way if we flip
9:08
a fair coin the chance of it landing on
9:10
heads or tails is 50 assuming there's no
9:13
remote possibility of it landing on its
9:15
side due to a sticky floor or something
9:17
crazy if we get a dollar when it lands
9:19
on heads but lose a dollar if it lands
9:21
on tails we have no edge because the
9:23
expectancy is zero however if we get two
9:26
dollars if it lands on heads and we lose
9:28
one dollar if it lands on tails now
9:30
there's a positive expectancy and you
9:32
can bet i'm flipping that coin all day
9:34
long we can see here that there's
9:35
definitely an edge when looking at the
9:37
hourly slingshot and what's interesting
9:39
is that it does appear to get you into
9:40
some big winners early so what's the
9:43
challenge well there's an inverse
9:45
relationship to the risk reward to the
9:47
number of trades and being able to spot
9:49
all of the trades unless you're trading
9:50
algorithmically is near possible but
9:53
what about the daily well the daily
9:54
results were just as good and in some
9:56
cases were even better but there's less
9:58
trading opportunities for the sake of
10:00
this video i'm not going to exhaust all
10:02
those results here however if you're
10:03
interested let me know in the comments
10:05
and i'll add the data the associated
10:07
blog post but basically the story is the
10:09
same the slingshot is a good setup am i
10:11
surprised not really
10:13
when you have a consistent triple digit
10:15
trader the setups that they're using
10:17
must be pretty good right
10:19
so hopefully this information excites
10:21
you and maybe you'll have a new setup to
10:23
potentially add to your repertoire so
10:25
what are the next steps well i think the
10:27
answer is obvious you should stop
10:28
thinking immediately follow scotland on
10:30
twitter and copy everything he does and
10:32
retire in a few years
10:34
just kidding well minus the following
10:36
scotland on twitter that's definitely
10:37
something you should do but the real
10:39
answer isn't to stop thinking is to
10:41
start thinking start thinking deeply
10:43
about what moves the market and if you
10:45
believe in a certain setup then study it
10:48
develop an intuition around it and
10:50
understand why stocks move the way they
10:52
do in fact i'm a big believer that if
10:54
you once you really studied market
10:56
dynamics and understands your setups
10:59
deeply that a lot of the mental
11:01
challenges that we have as traders fomo
11:03
and things like that actually just
11:05
basically evaporate and this even
11:07
applies to algorithmic traders so if you
11:09
study your setup study the way markets
11:11
move and do a deep dive maybe one day
11:13
you'll become a market master with
11:15
multiple triple digit years under your
11:17
belt and if that's your goal here's my
11:19
plug to find out what really works in
11:21
the market backed by hard data please
11:23
like and subscribe and i'd also want to
11:25
say one more thing hey scotland thank
11:27
you so much for taking time out of your
11:29
trading days to give me the answers i
11:31
need to get to create this video you're
11:34
awesome keep up the great work thanks
11:36
everyone bye
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