Verizon alignment, seasonality and divergence 04-15-2013

Apr 16, 2013 | Uncategorized

MACD divergence is a tried and tested technical tool. If you look at the daily price chart of Verizon below, you can clearly see the recent high on 4-12-2013. Note the MACD is well below the indicator peak back in the middle of March.

 
Looking at the hourly real-time chart of Verizon at the close on 4-15-2013, the same MCAD divergence characteristics are apparent.
 
 
Another report that aligns nicely with this divergence is Seasonality – 5 day. Here’s a list of tickers that have exhibited down moves for this week in April for each of the last 7 years. Verizon is highlighted.
 
 
 

Market Update Thursday April 4, 2013

Apr 4, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’
AIQ extends its congratulations to Hank for presenting a really excellent seminar on Saturday March 9, 2013. if you attended and have some additional feedback please e-mail Steve Hill

 
The markets appear to be marking time, waiting for tomorrow’s jobs report.
 
I started buying shares of DXD when the Dow popped this early morning. Given that I believe the top of wave ‘a’ is somewhere near the 14,650 level, I believe the risk-reward is favorable for shorts at or near these levels.
 
Here’s the deal: If tomorrow’s jobs report turns out to be poor, it could trigger an impulse wave in wave ‘b’ down. On the other hand, If the jobs report turns out to be positive, I believe the pop will just give me another opportunity to add to my shorts. That’s what I mean by a favorable risk-reward ratio.
 
Right now there is no trend going on. The Dean is still positive, and Emeritus is still silent. The Professor is mixed with an equal number of Buys as Shorts (4). It’s starting to look like today’s retracement is part of a wave 2 in the ‘b’ wave.
 
I don’t expect my algorithms to become active until the DIA starts to trade below 145.
So for the rest of the day, I plan to continue to look for and accumulate a few short positions. I’m NOT getting aggressive yet. I’ll only do that when the DMI on the Dow turns negative. However, because I believe the upside potential is limited now that we have reached my targets, I will start holding my short positions overnight.
 
I’m now long DXD and short ORCL.
TWID,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

Low Frequency Trading

Mar 14, 2013 | Uncategorized

The AIQ code based on Ron McEwan’s article in the March issue of Stocks & Commodities, “Low-Frequency Trading,” is provided at the following website: www.TradersEdgeSystems.com/traderstips.htm.

The cumulative indicators on the advances and declines for the NYSE are provided in the first section of code that follows. However, I have never liked cumulative indicators because results can vary depending on where the accumulation is started. I do not recommend using the first code set below that replicates the author’s indicator because it runs so slowly that you will think your computer is frozen. Thus, I coded an alternative that uses the built-in advance-decline (A/D) line and then takes a moving average of the built-in A/D line. This version runs quickly and probably gives similar results.

I did not test the first coded version. I tested my second code set as a timing system on the S&P 500 ETF (SPY) from 1981 to 2/12/2013 (Figure 7). As with most timing systems, the risk was reduced based on a lower sigma than that of the markets and the return was also less than just buying and holding the SPY for the test period.

FIGURE 7: AIQ. Here is a sample equity curve for the alternative system trading the SPY from 1/5/1981 to 2/12/2013 compared to the S&P 500 (SPX).

The code and EDS file can be downloaded from
www.TradersEdgeSystems.com/traderstips.htm.
The code is also shown below.

!LOW-FREQUENCY TRADING !Author: Ron McEwan, TASC April 2013 !Coded by: Richard Denning !www.TradersEdgeSystems.com !INPUT: advMAlen is 252. !ABBREVIATIONS: C is [close]. OSD is offSetToDate(month(),day(),year()). !AUTHORS INDICATOR AND SYSTEM (processes very slowly-see alternate below): DaysToStart is min(advMAlen,scanany(month()=02 and day()=05
and year()=1980,252*50) then OSD). NYadv is TickerUDF(“DJIA”,[Adv Issues]). NYdec is TickerUDF(“DJIA”,[Dec Issues]). ADVpctTot is (NYadv-NYdec) / (NYadv+NYdec) * 1000. ADVcumPct is sum(ADVpctTot,^DaysToStart). ADVcumPctMA is simpleavg(ADVcumPct,252). HD if hasdatafor(advMAlen +10) > advMAlen. Buy if ADVcumPct > ADVcumPctMA and HD. Sell if ADVcumPct < ADVcumPctMA. !ALTERNATE TO ABOVE (due to processing speed recommend that this one is used): ADline is tickerUDF(“DJIA”,[AD Line]). ADlineMA is simpleavg(ADline,252). BuyAlt if ADline > ADlineMA and HD. SellAlt if ADline < ADlineMA.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Market update 03/13/2013 and kudos

Mar 14, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’
AIQ extends its congratulations to Hank for presenting a really excellent seminar on Saturday March 9, 2013. if you attended and have some additional feedback please e-mail Steve Hill
 
The Dow rose 2 points, closing at 14,450. The Dow got as high as 14,478 before pulling back. Volume was low again, coming in at 90 percent of its 10 day average. There were 244 new highs and only 17 new lows.
The A-D oscillator fell to 14.9 during yesterday’s trading. If we get a down day today, it’s likely that the oscillator will turn negative, meaning that most stocks on the NYSE are starting down trends. Coming at this point in the pattern, there is a good chance that wave ‘b’ down could be starting.
There is also a possibility that a pullback today could be part of a small corrective wave before one final push higher completes the ‘a’wave. At this point it’s hard to tell. And that’s why we will need to keep an eye on the Dean’s List. A small pullback today could turn out to be a false alarm. I don’t want to get too negative until I see a few of those positive ETFs start moving down or dropping off the Dean’s List.
The List remains very strong and the indicators on the cockpit remain positive. However the P-volume, which is one of our three PT indicators remains negative. It has been diverging from price ever since this leg of the current rally started on 25 February. It’s warning us not to get to comfortable.
If you get a chance today, take a look at the P-volume on the DIA, and while you’re at it check it on the Nasdaq (QQQ) as well. It’s actually pretty scary. This negative divergence is also evident on all of the indicators I use to measure market breadth, like the Summation Index, Hi/Lo Oscillator, Advance Decline Indicator, and VA Percent Indicator. They’re all diverging negatively, which is a warning. The Hi/Lo oscillator is actually lower now than it was on 1 February, when the Dow was at 14,009. It’s telling us that fewer and fewer stocks are participating in this rally. Always be careful when the Generals lead and the troops don’t follow.
We still have a ‘relatively’ small change (13.78 points) from the A-D oscillator on the board from two days ago. And because of this we’ll need to pay attention to any decline. There is still a possibility of a Big Move.
Emeritus was pretty quiet again last night, with only one stock being highlighted, and that was a short. This is the second day in a row that he hasn’t had much to say. I would expect that IF the market starts to turn negative, he will start to highlight a few more shorts for the Honor Roll. But right now, he’s silent…both on the long and short side.
Once again, with weak internals, I’m just watching for the markets to start to roll over. I believe the upside potential is limited at this point, so I’m not initiating any new long positions now. If we start out negative today, I will be looking to scalp a few shorts as I’m waiting. I will also be posting the Dean’s List after 1pm today to see if there are any changes. And if the market starts to trade lower, I will also be running Emeritus to see what he has to say as well. If he kicks out 1-2 shorts, I’ll continue to watch. But IF he starts to highlight 6 or more shorts, that will get my attention.
I’m on the sidelines.
That’s what I’m doing,
h
PT Class at UNF tonight.
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

Market Update March 1, 2013

Mar 1, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’. AIQ will be hosting a full day seminar with ‘The Professor’, March 9, 2013 in Orlando, FL. More info CLICK HERE
The Dow rallied up to 14,149, then fell into the close, finishing down 20 points at 14,054. Volume was low again, coming in at 92 percent of its 10 day average. There were 214 new highs and 28 new lows.
The combination of low volume and a late day sell-off is not something you want to see if you’re short term Bullish. Institutions are usually the ones that trade late the day, and when the market sells-off in the last hour, it’s usually because the smart money knows something. If the market starts moving higher in the weeks ahead, watch how the market trades during the last hour. If we start to see more late day sell offs, it will be another warning sign that a we could be approaching a top.
There was a small change in the A-D oscillator yesterday, so we need to be on the lookout for a Big Move in price within the next 1-2 days.
It appears that yesterday’s early rally was the completion of wave 1 up of 5 up. If this is the case, then yesterday’s late day decline was the start of wave 2 down. This wave should have an a-b-c pattern to it, and it should complete within the next few days. After that, I would expect the markets to put together enough strength to test the June 07 high of 14,198.
I posted the Dean’s List two times yesterday to show how the List was changing by dropping QID and RWM, the two inverse ETFs that were on the List. But yesterday’s late day decline change all that, and both ETFs stayed on the List, producing mixed signals. So once again, I would call the List a cautionary yellow. The Dean is likely telling us that a wave 2 down is starting.
Yesterday I mentioned that I was only going to scalp trade, and that’s what I did during the rally. Five of the six stocks highlighted by Emeritus produced winning trades on the 5s. HAL and HP were both up over a point intra day.
The DMI on the Dow(DIA) and Nasdaq (QQQ) remains positive. However the Coach, my main Money Flow indicator, remains negative. The P-volume is also negative and diverging on both indexes. So we have mixed signals from the cockpit. In other words, we need to be cautious again with any trades we make today. BTW, after the wave 2 completes, we will need to watch the volume indicators during the wave 3 rally. If they don’t turn positive, it will be another major sign that the rally will be met with stiff resistance.
If you get a chance today, you might want to look at the P-volume on a Daily Chart of the DIA. Note how during the past year, as the Dow (DIA) made each successive rally high, the P-volume did not. Look at the rally going into last March, then into October, and finally how the indicator continues to diverge into the current rally. The P-volume is warning us that each new high is being supported by less and less volume. It’s warning us that the tank could be getting close to empty. It’s not a major problem now, but it could be in the future.
I won’t be doing a lot today. I really want to see how this likely wave 2 develops. If I see something that I want to scalp, I’ll post it during the day,. But otherwise I’ll be on the sidelines.
One thing we need to remember is that we have a small change in the A-D oscillator on the Board. So we could see a move of 100+ points within the next 1-2 days. I don’t believe we will see the Big Move today. But IF we do, I don’t want to be holding a lot of stock IF that move is down. On the other hand, IF the market does move a bit lower today, in preparation for a Big move up early next week, I want to have a few candidate stocks at the ready so I can get into them IF the market starts to move up. Remember, the next move up should be an impulse wave. And if the wave has enough strength to push through 14,198, we could easily see 14,500. on the Dow, possibly higher.
So today, I will be trying to identifying stocks for the next rally leg. Remember, when we see a retracement wave coming, we always plan so we can take advantage of the next move higher.
That’s what I’m doing,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

Weekend Strategy Review Part II – Feb 16th, 2013

Feb 19, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’.
AIQ will be hosting a full day seminar with ‘The Professor’, March 9, 2013 in Orlando, FL. More info CLICK HERE

 
The Dow started the week at 13,992. On Friday, it closed at 13,981 for a weekly gain of 11 points. Three weeks ago, the Dow was trading at 13,895. So for the past three weeks, the Dow has been in a trading range of about 100 points. This won’t last!
 
Trading ranges are consolidation areas, where the market takes a breather. When the market breaks out of a trading range, it usually does so in the direction it enters the trading range. And in this case, the direction was up. Trading ranges form the Blades of our Hockey Stick Pattern and act as compressed springs to propel prices higher. They give stocks the energy to hit their targets.
 
During its three-week consolidation, the Dow has remained in an Up trend. All of the PT indicators remain positive.
 
The Dean’s List remains long, strong and positive. And the Coach (Money Flow) was especially strong on Friday.
 
But there is one thing that happened on Friday that should be noted. The 2-period RSI Wilder on the Dow (DIA) finally became oversold. It finished the day with a reading of 14.91. Hmmm?
 
As you learned in Class, whenever a stock is in an Up trend, with all of the PT indicators positive, and the 2-period RSI Wilder pulls back into oversold territory (below 30) it’s time to get out the rifle and go hunting. In this case, because it’s the Dow (DIA) it’s more like time to bring out the shotgun…or a cannon!. There could be lots of things to shoot!
The same conditions exist on the Nasdaq, where the 2-period RSI Wilder on the QQQ finished the week with an oversold reading of 26.28. The SPY did not finish oversold as it remains in a strong up trend.
 
So what to do?
 
Assuming that what we have been seeing for the past 3 weeks is the development of a wave 4 consolidation Blade, there is a good chance that the market will start to move higher next week. And given that both the Dow and Nasdaq are currently oversold, they might be the best places to look for bargains. So that’s where I’m gonna start with my shopping list.
 
One obvious place to look is the indexes themselves, with DIA (hand grenade) and DDM (atom bomb). If the Dow starts to move higher, both should do nicely. Same for the QQQ and QLD if the Nasdaq comes to life.
 
Right now, Emeritus is only highlighting two stocks for the Honor Roll, PFE and AGN. From the feedback I received during the week, some of his stocks were very good to many of you. However as we have seen in the past, Honor Roll stocks not only tend to give us an initial pop, especially when they have tight Bands, but they tend to perform well even after being triggered. Remember, CNI caught my eye back in early January by being an Honor Roll stock. So all of the stocks that were listed this past week remain in play. Stocks like GE and HPQ are Dow components. CVX and XOM are the two energy components of the Dow. PFE, one of the stocks currently being highlighted by Emeritus, is also a Dow component.
 
IBM is another Dow component with an interesting Pattern. The stock popped 8.6 points reaching a high of 208.58 on 20 January, and has been pulling back ever since. The January pop was a ‘rope jump’, meaning that the current pullback could be a wave 2. IBM is currently RED on the 60s. It should be watched IF it turns GREEN, especially if it starts to move above 202.09.
 
Many of you had a lot of fun with SLB on Thursday, but as expected, the stock pulled back on Friday. It’s not a rifle trade yet, because the 2-period RSI is still not oversold. But IF SLB continues to pull back early next week; you know what I’m doing.
 
Anyhow, I’m seeing a lot of stocks with attractive patterns. And now, the major indexes appear to be finishing their three-week corrective pattern and have now become oversold.
Big Picture Strategy: It’s time to go hunting. If I’m right, wave 5 up should be starting very soon. If one of your favorite stocks on the MWL has pulled back during the past week or so, you might want to think about adding a few shares. Or IF your favorite stock has moved up during the rally, and you decided to take some or all of your position off the table, this might be a time to re-establish a new position.
 
The Dean’s List is telling us that a lot of sectors are very strong now. But the energy sector appears to be the strongest. Energy related ETFs currently represent 4 out of the top 7 on the List. So I need to be thinking about energy. But I’m not interested in all energy stocks now. Just the ones with nice Blades. I’m looking for stocks that have risen with the market, and have taken a breather. Stocks with low RSIs like HERO (29.09), MRO (31.94) and ATW (34.18).
 
All are rifle trades on the 60s.
 
On a different energy tack, you might consider something like uranium miner, CCJ, which has a beautiful HS Pattern in place. China alone has 16 nuclear power reactors in operation, with 30 more under construction. They currently plan a 5-6-fold increase in nuclear capacity by 2020. And even though construction of new plants in the US has been on a 30-year hold, 45 new countries are either constructing or have plans to construct nuclear power plants in the near future. They are going to have to get their uranium from somewhere. CCJ is on MWL, and has quietly started an Up trend three days ago when the 50 moved above the 200. It has a recent Blade high of 22.05. On Friday, it closed at 21.61. If it moves above 22.05, I’m a buyer.
 
Have a great weekend and remember to polish up that rifle.
 
That’s what I’m doing,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

Weekend Strategy Review Part II – Sun, Feb 10th, 2013

Feb 11, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’.
AIQ will be hosting a full day seminar with ‘The Professor’, March 9, 2013 in Orlando, FL. More info CLICK HERE

Earlier this morning, I had some time to run a few algorithms that I don’t ordinarily check on a daily basis. With the Dow looking like it wants to test the all-time high this week, I was searching for clues that might tell me how high it could go IF the October 2007 highs were broken.

That’s pretty tough to tell at the moment, but I did notice something that could shed some light on the issue.
The past two weeks of sideways trading has served to develop all sorts of Blades on most of the stocks I watch. As a matter of fact, most of the stocks on the Member’s Watch List have this Pattern. But there’s something missing from most of them: Narrow Bollinger Bands.

There’s no toothpaste to squeeze out of the tube. As you recall from Class, one of the things that I like to see when I buy a stock is a Band Squeeze. When I see a stock pull back and develop the Blade of a Hockey Stick, I always look for a nice tight set of Bollinger Bands to form around the Blade.

Right now, I’m seeing a lot of positive Hockey Stick Patterns, but the Bands are anything but tight.

To give you an example of what I mean about ‘tight bands’, take a look at Wyndham Worldwide, WYN, last week’s Big winner. Notice how the Bollinger Bands tightened for 4 days just before the earnings announcement. That squeeze enabled the stock to pop 4 points. It was an easy trade if you placed a Buy Stop just above the recent high.

Same for CNI in early January. Look at the Band Squeeze. This is what enabled the stock pop and propel it to its target of 97.

But now, although I’m seeing a lot of stocks with HS Patterns, the Bands are a lot wider. This doesn’t mean that stock prices can’t push higher …they can, and most likely will. But they probably won’t pop higher. And pops are always a good sign for even higher prices.

Last week I told you how I plan to trade during the next few weeks as the market tests its old highs. I’m doing it mostly with stocks from the Honor Roll that have developed nice HS Patterns with tight bands.

On Friday, I highlighted a few of them for you. They included HERO, VALE, VRTX and SLV. I also added HPQ this weekend. On Friday, HERO moved past its recent high of 7 and triggered an entry.

The Bands on VALE, VRTX and HPQ remain tight as the HS Pattern continues to develop. If any of these stocks start to move above their recent ‘Blade Highs’,they could see a nice moves.

Same for the silver stocks and ETFs. This week, I will be watching SLV for a move above 31.41. IF SLV starts to pop, I’ll look to see if my favorite silver rabbit, Silver Wheaton, SLW, trades above 37.58. IF it does, I’ll do some initial buying, to be followed with additional Buy stops on the rest of the colony. Remember, we need to see silver pop here. With a BANG, not a whimper. If I’m correct about the wave count, silver should be ready to start a Major Wave 3 up. Wave 3s are impulse waves. They start with a BANG!!! And the tight Bollinger Bands could certainly help produce that initial BANG.

That’s what I’m doing,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

IF a correction has started, I know that it should have multiple legs – The Professor’s perspective

Feb 5, 2013 | Uncategorized

by Hank Swiencinski, AIQ TradingExpert Pro client for over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’.
AIQ will be hosting a full day seminar with ‘The Professor’, March 9, 2013 in Orlando, FL. More info CLICK HERE
The Dow fell 129 points, closing at 13,880. Volume on the NYSE was relatively low on the decline, coming in at only 94 percent of its 10 day average. There were 128 new highs and 11 new lows.
So now we wait. Yesterday’s decline was expected, but now we need to be patient to see how the correction will develop. Chances are that the markets will rally today, forming some type of retracement wave. I wouldn’t get too excited about trying to figure out which wave this is in the wave count. That’s because there is no way to tell.
All we know for sure is that the Dean’s List remains positive and all of the PT indicators are positive. The only cockpit indicator that is negative now is the Coach, our Money Flow indicator.
Also, all four of our breadth indicators are currently negative. The A-D oscillator came in with a reading of -73 last night, telling us that most stocks on the NYSE have started short term declines. In addition, the Summation Index, Hi-Lo Oscillator and the Up-Down oscillator are also negative. So some type of correction is underway. Once these indicators start to turn positive again, they will get my attention.
The question of where the correction will stop and where to re-enter a few trades is now on the table. Hmmm? What to do, what to do?
OK, here’s what I’m looking at. First of all, as I said before, I’m not worried about wave count at this point. That will come later. Right now there is only one wave to count. Yesterday’s decline.
My breadth indicators are telling me that the Dow has started to correct. But the Dean’s List and all of the PT indicators remain positive. Also, the 2-period RSI Wilder is not in oversold territory yet (only -35) so I can’t be looking for Eating Cake.
And IF a correction has started, I know that it should have multiple legs. As a minimum, a wave 2 needs to have three legs. So it’s likely that yesterday’s decline was only the first leg down of any corrective sequence. There needs to be at least one more down wave if it’s a wave 2, and several more if it’s a wave 4.
The other thing I know is that each one of the corrective waves should take the shape of an a-b-c pattern. Yesterday’s decline was almost straight down. So IF we retrace today, the move could be a small ‘b’ wave to be followed by another decline for wave ‘c’. If this happened, I would label it Wave A.
If you’re confused, don’t be. My point in discussing the above is not to confuse, but to help you understand that we will likely see all sorts of choppy trading during the next 1-2 weeks as the market forms the small a-b-c waves. Just be patient and realize that the market needs to do this to move higher. BTW, IF a wave 4 is forming, we’ll see even more a-b-c corrections develop, because we know that most of the time, wave 4s form triangles. And triangles have 5 waves.
Anyhow, be patient. I’m going to watch to see IF we rally today. IF we do, I will be looking at my volume and breadth indicators to measure the strength of the rally. If they lag, chances are the rally is a small ‘b’ wave that would set-up another decline later this week.
That will be the first place where I will look to re-enter a few trades…on the second decline, especially if volume dries up.
BTW, speaking of volume, it was a good sign that yesterday’s decline took place on relatively light volume. Low volume declines after the market hits a target are always nice to see. They tell me that the rally is not over, and to expect more upside once the market takes a breather.
I should also mention that there is a small possibility that the rally from early January is not over, and yesterday’s decline was the wave 4 correction of the first wave up. I don’t believe that it was, but there is a very small possibility that it could be. If this is the case, then the rally that I expect today should exceed Friday’s highs. But don’t get too excited…IF this happens it would only increase the odds that we’ll see another downside correction start next week.
Watching.
That’s what I’m doing,
h
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.

The DMI Stochastic

Jan 29, 2013 | Uncategorized

The AIQ code based on Barbara Star’s article in January issue of Stocks & Commodities, “The DMI Stochastic,” is provided at www.TradersEdgeSystems.com/traderstips.htm.

To test the author’s DMI stochastic indicator, I used the NASDAQ 100 list of stocks and AIQ’s Portfolio Manager. A long-only trading simulation was run with the following capitalization, cost, and exit settings:

  • Maximum of 10 open positions
  • Size each position at 10 % of mark-to-market total capital
  • Take no more than three new positions per day
  • Compute the mark-to-market capital each day
  • Three cents per share was deducted for each round-turn trade
  • Select trades based on the highest ADX reading
  • Exit trades only with a system exit; no loss-stop or profit target stop used.

I coded three similar test systems. The first is the basic system that uses the author’s parameters of 10 (buy signal) and 90 (sell signal) on the DMI stochastic indicator. A stock has a buy signal when it has both a positive DMI oscillator and the DMI stochastic is below the buy level.
In Figure 6, I show the resulting long-only equity curve compared to the S&P 500 index for the basic system with the 10 buy-level parameter. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 11.6% with a maximum drawdown of 68.7% on 2/6/2003 and a Sharpe ratio of 0.50.

FIGURE 6: AIQ, BASIC SYSTEM VS. S&P 500. Here is the long-only equity curve (blue) for the basic system compared to the S&P 500 (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

I also tried increasing the buy-level parameter up to 70, which improved the return somewhat. I added a trend filter using the 50-bar moving average of the S&P 500 index, but it resulted in a reduced return without improving the maximum drawdown very much. The equity curve for this test is not shown. For the period 12/30/1994 to 11/9/2012, this system returned an average internal rate of return of 8.5% with a maximum drawdown of 46.1% on 10/2/1998 and a Sharpe ratio of 0.46.
Finally, I tried adding an ADX filter such that the ADX level had to be above 30 to allow a signal. However, I also left the buy level at the high value of 70. In Figure 7, I show the resulting long-only equity curve for the basic system versus this modified ADX system. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 12.1% with a maximum drawdown of 56.1% on 2/6/2003 and a Sharpe ratio of 0.46.

FIGURE 7: AIQ, BASIC SYSTEM VS. MODIFIED SYSTEM. Here, the long-only equity curves are compared for the modified ADX system (blue) versus the basic system (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm, and is shown below.

!THE DMI STOCHASTIC
!Author: Barbara Star, TASC January 2013
!Coded by: Richard Denning 11/05/12
!www.TradersEdgeSystems.com
!INPUTS:
wLen is 10.
sLen is 3.
buyLvl is 70.
exitBuyLvl is 0.
sellLvl is 55.
exitSellLvl is 0.
!CODING ABREVIATIONS:
H is [high].
L is [low].
C is [close].
C1 is valresult(C,1).
H1 is valresult(H,1).
L1 is valresult(L,1).
! NOTE: Wilder to expontential averaging the formula is:
!  Wilder length * 2 - 1 = exponential averaging length
eLen is wLen * 2 - 1.
!AVERAGE TRUE RANGE: 
TR  is Max(H-L,max(abs(C1-L),abs(C1-H))).
ATR  is expAvg(TR,eLen).
!+DM -DM CODE:
rhigh is (H-H1).
rlow is (L1-L).
DMplus is iff(rhigh > 0 and rhigh > rlow, rhigh, 0).
DMminus is iff(rlow > 0 and rlow >= rhigh, rlow, 0).
AvgPlusDM is expAvg(DMplus,eLen).
AvgMinusDM is expavg(DMminus,eLen).
!DMI CODE:
PlusDMI is (AvgPlusDM/ATR)*100.  
MinusDMI is AvgMinusDM/ATR*100.
!DMI OSCILATOR:
DMIosc is PlusDMI - MinusDMI.   !Plot as historigram
!STOCHASTIC OF DMI:
HH is highresult(DMIosc,wLen).
LL is lowresult(DMIosc,wLen).
DMI_STOCH is (DMIosc - LL) / (HH - LL) * 100.
DMI_STO_SK is simpleavg(DMI_STOCH,sLen).
DMI_STO_SD is simpleavg(DMI_STO_SK,sLen).  !Plot with 90/10 lines   
!SYSTEM TO TEST INDICATOR:
!BASIC SYSTEM WITH AUTHOR'S SUGGESTED PARAMETERS:
Buy if DMIosc > 0 and DMI_STO_SD <= 10.
ExitBuy if DMIosc < 0.
Sell if DMIosc < 0 and DMI_STO_SD <= 90.
ExitSell if DMIosc > 0.
!SYSTEM WITH TREND FILTER AND MODIFIED PARAMETERS (LONG ONLY):  
SPXc is tickerUDF("SPX",C).
SPXma is simpleavg(SPXc,50).
BuyT if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and SPXma > valresult(SPXma,10).
ExitBuyT if DMIosc < exitBuyLvl or SPXma < valresult(SPXma,10).
!SYSTEM WITH TREND STRENGTH FILTER AND MODIFIED PARAMETERS (LONG ONLY):
BuyADX if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and ADX > 30.
ExitBuyADX if DMIosc < exitBuyLvl.
!SIGNAL RANKING( use ADX):  
ZERO if PlusDMI = 0 and MinusDMI = 0.
DIsum is PlusDMI + MinusDMI.
DX is iff(ZERO,100,abs(DMIosc)/DIsum*100).
ADX is expavg(DX,eLen).
List if C > 0.
 
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

The DMI Stochastic

Jan 29, 2013 | Uncategorized

The AIQ code based on Barbara Star’s article in January issue of Stocks & Commodities, “The DMI Stochastic,” is provided at www.TradersEdgeSystems.com/traderstips.htm.

To test the author’s DMI stochastic indicator, I used the NASDAQ 100 list of stocks and AIQ’s Portfolio Manager. A long-only trading simulation was run with the following capitalization, cost, and exit settings:

  • Maximum of 10 open positions
  • Size each position at 10 % of mark-to-market total capital
  • Take no more than three new positions per day
  • Compute the mark-to-market capital each day
  • Three cents per share was deducted for each round-turn trade
  • Select trades based on the highest ADX reading
  • Exit trades only with a system exit; no loss-stop or profit target stop used.

I coded three similar test systems. The first is the basic system that uses the author’s parameters of 10 (buy signal) and 90 (sell signal) on the DMI stochastic indicator. A stock has a buy signal when it has both a positive DMI oscillator and the DMI stochastic is below the buy level.
In Figure 6, I show the resulting long-only equity curve compared to the S&P 500 index for the basic system with the 10 buy-level parameter. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 11.6% with a maximum drawdown of 68.7% on 2/6/2003 and a Sharpe ratio of 0.50.

FIGURE 6: AIQ, BASIC SYSTEM VS. S&P 500. Here is the long-only equity curve (blue) for the basic system compared to the S&P 500 (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

I also tried increasing the buy-level parameter up to 70, which improved the return somewhat. I added a trend filter using the 50-bar moving average of the S&P 500 index, but it resulted in a reduced return without improving the maximum drawdown very much. The equity curve for this test is not shown. For the period 12/30/1994 to 11/9/2012, this system returned an average internal rate of return of 8.5% with a maximum drawdown of 46.1% on 10/2/1998 and a Sharpe ratio of 0.46.
Finally, I tried adding an ADX filter such that the ADX level had to be above 30 to allow a signal. However, I also left the buy level at the high value of 70. In Figure 7, I show the resulting long-only equity curve for the basic system versus this modified ADX system. For the period 12/30/1994 to 11/9/2012, the system returned an average internal rate of return of 12.1% with a maximum drawdown of 56.1% on 2/6/2003 and a Sharpe ratio of 0.46.

FIGURE 7: AIQ, BASIC SYSTEM VS. MODIFIED SYSTEM. Here, the long-only equity curves are compared for the modified ADX system (blue) versus the basic system (red) for the test period 12/30/1994 to 11/9/2012 trading the NASDAQ 100 list of stocks.

The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm, and is shown below.

!THE DMI STOCHASTIC
!Author: Barbara Star, TASC January 2013
!Coded by: Richard Denning 11/05/12
!www.TradersEdgeSystems.com
!INPUTS:
wLen is 10.
sLen is 3.
buyLvl is 70.
exitBuyLvl is 0.
sellLvl is 55.
exitSellLvl is 0.
!CODING ABREVIATIONS:
H is [high].
L is [low].
C is [close].
C1 is valresult(C,1).
H1 is valresult(H,1).
L1 is valresult(L,1).
! NOTE: Wilder to expontential averaging the formula is:
!  Wilder length * 2 - 1 = exponential averaging length
eLen is wLen * 2 - 1.
!AVERAGE TRUE RANGE: 
TR  is Max(H-L,max(abs(C1-L),abs(C1-H))).
ATR  is expAvg(TR,eLen).
!+DM -DM CODE:
rhigh is (H-H1).
rlow is (L1-L).
DMplus is iff(rhigh > 0 and rhigh > rlow, rhigh, 0).
DMminus is iff(rlow > 0 and rlow >= rhigh, rlow, 0).
AvgPlusDM is expAvg(DMplus,eLen).
AvgMinusDM is expavg(DMminus,eLen).
!DMI CODE:
PlusDMI is (AvgPlusDM/ATR)*100.  
MinusDMI is AvgMinusDM/ATR*100.
!DMI OSCILATOR:
DMIosc is PlusDMI - MinusDMI.   !Plot as historigram
!STOCHASTIC OF DMI:
HH is highresult(DMIosc,wLen).
LL is lowresult(DMIosc,wLen).
DMI_STOCH is (DMIosc - LL) / (HH - LL) * 100.
DMI_STO_SK is simpleavg(DMI_STOCH,sLen).
DMI_STO_SD is simpleavg(DMI_STO_SK,sLen).  !Plot with 90/10 lines   
!SYSTEM TO TEST INDICATOR:
!BASIC SYSTEM WITH AUTHOR'S SUGGESTED PARAMETERS:
Buy if DMIosc > 0 and DMI_STO_SD <= 10.
ExitBuy if DMIosc < 0.
Sell if DMIosc < 0 and DMI_STO_SD <= 90.
ExitSell if DMIosc > 0.
!SYSTEM WITH TREND FILTER AND MODIFIED PARAMETERS (LONG ONLY):  
SPXc is tickerUDF("SPX",C).
SPXma is simpleavg(SPXc,50).
BuyT if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and SPXma > valresult(SPXma,10).
ExitBuyT if DMIosc < exitBuyLvl or SPXma < valresult(SPXma,10).
!SYSTEM WITH TREND STRENGTH FILTER AND MODIFIED PARAMETERS (LONG ONLY):
BuyADX if DMIosc > exitBuyLvl 
and DMI_STO_SD <= buyLvl 
and ADX > 30.
ExitBuyADX if DMIosc < exitBuyLvl.
!SIGNAL RANKING( use ADX):  
ZERO if PlusDMI = 0 and MinusDMI = 0.
DIsum is PlusDMI + MinusDMI.
DX is iff(ZERO,100,abs(DMIosc)/DIsum*100).
ADX is expavg(DX,eLen).
List if C > 0.
 
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems
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