ADX Breakouts

The TradingExpert code based on Ken Calhoun’s article in the March 2016 issue of Stocks and Commodities, “ADX Breakouts,” is provided at below.

Since I mainly work with daily bar strategies, I wanted to test the ADX concept from the article on a daily bar trading system. So I set up a system that buys after a stock has based around the 200-day simple moving average (Basing200). Basing200 is coded in the system as:

  • The stock closing above the 200-SMA only 19 bars or less out of the last 100 bars, and
  • The stock closing greater than two bars above the 200-SMA in the last 10 bars.
For exits, I used the following built-in exits: a capital-protect exit set at 80% and a profit-protect exit set at 80% once profit reaches 5% or more.
I ran this system on the NASDAQ 100 list of stocks in the EDS backtester over the period 12/31/1999 to 1/11/2016. I then ran a second test on the system using the ADX filter (ADX must be greater than 40 at the time of the signal to buy). I used the same list of stocks, exits, and test period.
Figure 8 shows the first test without the filter: 883 trades, 1.84% average profit per trade, 1.51 reward/risk. Figure 9 shows the second test with the filter: 151 trades, 2.12% average profit per trade, 1.66 reward/risk.
Sample Chart
FIGURE 8: WITHOUT FILTER. Here are the EDS test results for the example system without the ADX filter.
Sample Chart

FIGURE 9: AIQ, WITH FILTER. Here are the EDS test results for the example system with the ADX filter.

Although all of the key metrics are better with the filter, there is a significant reduction in the number of trades. In fact, 151 trades would not be sufficient for a trading system over this long test period. If one wanted to use the filter, then the list of stocks would need to be increased to about 2,000 stocks.

!ADX BREAKOUTS
!Author: Ken Calhoun, TASC March 2016
!Coded by: Richard Denning, 1/11/2016
!www.TradersEdgeSystems.com

!NOTE; THIS SAMPLE SYSTEM IS FOR 
           !DAILY BAR TESTING OF ADX FILTER ONLY

SMA200 is simpleavg([close],200).
HD is hasdatafor(250).
Above200 if ( [close] > SMA200 ) .
Basing200 if CountOf(Above200,10) >2
 and CountOf(Above200,100) <20 .="" and="" basing200="" buy="" hd="" if="">200. 
ADXhi if [ADX] >= 40.
BuyADX if Buy and ADXhi.
—Richard Denning
info@TradersEdgeSystems.com

The RSI 3 Strikes and You’re Out Play (Part II)

The RSI 3 Strikes and You’re Out Play (Part II)

In my last article (http://tinyurl.com/mzhstm2) I wrote about a simple entry method I have dubbed “The RSI 3 Strikes and You’re Out Play” or TSYO, for short.

The RSI 3 Strikes and You’re Out Method is a good candidate for option traders as it offers the potential to “make a few bucks” when the market experiences a pullback.  So this week I want to offer a few examples.
In the interest of full disclosure I had planned to do it last week, but once my family and I arrived in Aruba I quickly settled into the “Sleep Late, Run on the Beach, Lay on the Beach, Swim in the Ocean and the Pool, Shower, Go to Dinner, Repeat” routine.  And in the midst of that “busy” schedule I found little time to write.

TSYO Examples
I have a list of stocks and ETFs that I follow for option trading purposes.  Not necessarily the “definitive” list but a good mix of tickers that trade lots of option volume.  The list in Figure 1 displays some recent TSYO signals for some of the stocks on my list. 

*The first column shows the stock ticker. 
*The second column shows the date of the “Alert” signal (i.e., the 2nd non confirmation by RSI). 
*The third column shows the date that the stock or ETF takes out the low of the previous three days. 

Ticker
Alert
3-Day Low
AMGN
7/3
7/8
AMZN
7/22
7/25
EEM
7/28
7/30
F
7/24
7/25
GM
7/3
7/17
IBM
7/18
7/21
IBM
7/24
7/30
IWM
7/1
7/7
JPM
7/28
7/29
SLV
7/2
7/7
SMH
7/22
7/24
TXN
7/11
7/17

Figure 1 – TSYO Alerts and Triggers

For the purposes of this article we will assume that a put option is bought at the close of the “3-Day Low” day.  For deciding which put option to buy we will use the “Percent to Double” routine found at www.Optionsanlysis.com.

One note, while I will highlight the profit potential for each trade reviewed, I will not detail any specific “exit criteria”.  My goal is to highlight the entry signal and not necessarily create a mechanical “system”.  I also think that each trader should do some thinking and consider their own criteria for when to take a profit or cut a loss.

Ticker AMGN
As you can see in Figures 1 and 2, AMGN triggered an “Alert” on 7/3 and made a new 3-day low on 7/8.

amgn tsyo bc

 Figure 2 – AMGN (Courtesy: AIQ TradingExpert)

What followed was little more than a modest short-term pullback.  Still, as you can see in Figure 3, if a trader bought the October 120 put option on 7/8, by 7/17 he or she would have had an open profit of +40.5%.

amgn tsyo

Figure 3 – AMGN Sep Oct 120 put option (Courtesy: www.OptionsAnalysis.com)


Ticker AMZN
In this example waiting for a 3-day low before entering actually worked against a trader because on 7/25 AMZN gapped significantly lower as you can see in Figure 4.

amzntsyo bc 
Figure 4 – AMZN (Courtesy: AIQ TradingExpert)

Nevertheless, if a trader had bought the September 320 put option at the close on 7/25, by 8/1 he or she would have had an open profit of +69.4%.

amzn tsyo

Figure 5 – AMZN September 320 put option (Courtesy: www.OptionsAnalysis.com)


Ticker F
The example that follows for Ford (ticker F) highlights two things:
1. The ability to essentially “bet” on a short-term pullback while risking a relatively small amount of capital
2. The above average profit potential associated with trading options.
Ticker F triggered an “Alert” on 7/24 and made a new 3-day low on 7/25.

f tysobc

Figure 6 – F (Courtesy: AIQ TradingExpert)

If a trader had bought the September 17 put option at the close on 7/25, by 8/1 he or she would have had an open profit of +103.6%.

f tsyo 
Figure 7 – F September 17 put option (Courtesy: www.OptionsAnalysis.com)


Summary
So once again, the point of all of this is not to attempt to promote the “be all, end all” of trading.  Because the TSYO method is most certainly not that.  But it can do a pretty decent job of identifying opportunities (especially after the overall market has experienced an extended run up and may be running out of team near term).  For traders who are willing to consider alternative (though simple) strategies such as buying put options, a method such as this can offer the potential to make money even as the overall market pulls back.
No one should go out and start making trades using the method I have detailed here without doing some further study/analysis/etc.  But the real point of all of this is that it is possible to use relatively simple ideas and relatively little capital to achieve trading success.

Jay Kaeppel  
Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiq.com) client

Jay has published four books on futures, option and stock trading. He was Head Trader for a CTA from 1995 through 2003. As a computer programmer, he co-developed trading software that was voted “Best Option Trading System” six consecutive years by readers of Technical Analysis of Stocks and Commodities magazine. A featured speaker and instructor at live and on-line trading seminars, he has authored over 30 articles in Technical Analysis of Stocks and Commodities magazine, Active Trader magazine, Futures & Options magazine and on-line at www.Investopedia.com.
Seasonality – monthly patterns for August 2014

Seasonality – monthly patterns for August 2014

It’s the beginning of the month and time to check the seasonal patterns for August 2014. First off some background.

Our study looks at 7 years of historical data and looks at the returns for all optionable stocks for the month of August from 2006 to 2013.

We filter to find two sets of criteria

 – Stocks with gains in all 7 years during August
 – Stocks with losses in all 7 years in August

We do make an assumption that the month is 21 trading days and work our way back from the last day of the month. If the last day of the month falls on a weekend, then we use the first trading day prior to that date.

We make no assumptions for drawdown, nor do we look at the fundamentals behind such a pattern. We do compare the stock to the market during the same period and look at the average SPY gain/loss vs. the average stock gain/loss. This helps filter out market influence. We are now including group information to identify particular segments that might display a seasonal bias.

Finally we look at the median gain/loss and look for statistical anomalies, like meteoric gains/loss in one year.

So here are the tickers that met the scan on the loss side, There was only 1 stock on the gainers side. So we’ll look at the down plays only.

Figure 1 shows the stocks that have had losses in August, 7 years in row.
It’s almost immediately apparent that 4 of the 6 losers are in the Oil & Gas sector, one in the Drilling group, and 3 in Exploration and Production (2 US) groups. Not looking like a good month to be long this sector. The biggest loser is UPL, UltraPete Corp with an average -9.66% in August. A couple of years have seen significant losses in August, but the median is still -7.42%. Not being one to speculate on why the Oil & Gas sector has so many stocks taking a hit in August, but there it is. Here’s the seasonal chart of UPL through 8/31/2013, the prominent black line is the average of the 7 years in the study.
Figure 2 seasonal for UPL for last 7 years, average line in black
During the same period the market, as measured by SPY declined an average of -0.06, so there was no overriding market influence during this period. 

Figure 3 shows SPY for the same period.


Interestingly a quick check of the Oil & Gas US Explorations and Production group for the same period revealed an average decline of -3.67% in August. The entire group was down 6 of the last 7 years in August. I have 38 stocks in this group in my database.

Figure 4 seasonal average for Oil & Gas US Explorations and Production group
We’ll keep track of the top 2 stocks in the August analysis. UPL and DNR and let you know how they preform.
In July, GLNG was the seasonal star with an average of +8.41% for the 7 years through July 30, 2013. Tracking how it performed this July, GLNG opened at 60.73 on July 1, 2014 and reached a high of 65 on July 30, 2014. Some pullback occurring on July 31, 2014 with the entire market down, but still a gain for the month.
Figure 5 shows the stocks that have had gains in July, 7 years in row.
With seasonality you have to figure out what timeframe you want to analyze before anything else. Logic would seem to dictate that one week; comparing this week to the same period over X years would be the smallest time period you might consider. However there are events that seem to be seasonally predictable that occur at the end of a month or the beginning of the month. We’ll look at some these in a future article. 
 We don’t draw conclusions here, just mine for information.
The RSI 3 Strikes and You’re Out Play

The RSI 3 Strikes and You’re Out Play

Please note the use of the word “Play” in the title.  Note also that it does NOT say “System” or “Method”, nor does it include anywhere the words “you”, “can’t” or “lose.”  So what is the distinction in all of this?

The use of the word “Play” is meant to denote that this should not be considered an “investment strategy”, nor even as a “trading method”.  In all candor it should basically be considered as a potential trigger or alert for traders who are willing to speculate in the market.  A few relevant notes:

1. Contrary to what many will tell you, there is nothing wrong with “speculating” in the financial markets.  There is a lot of money that can be made by doing so.

2. The key is in limiting the amount – and/or percentage – of capital allocated to each such trade.

3. Call and put options offer a great way to engage in this type of trading, because by their nature they allow you to “play” while using only limited sums of money. If you’re looking for other ways to accumulate wealth, sites like 케이카지노 might be worth a visit.

Think about it this way.  Let’s say you “get a hankerin” to take flyer on say a rally in the bond market.  Sure you could go out and buy t-bond futures contracts.  As I write they are presently trading north of 138.  At $1,000 a point, that means that the contract value is roughly $138,000.  You only need to put up margin money of about $3,000 in order to enter the trade.  Of course, if t-bonds decline from 138 to 135 then you have lost $3,000.  Good times, good times.

As an alternative you might have bought a call option on the ETF ticker TLT, which tracks the long-term bond.  As I write TLT is trading at $115.51, so to buy 100 shares would cost $11,551.  However, a trader looking to “play” could buy say a September 115 call option for all of $182.  If TLT rallied to say $118 by September expiration the 115 call would be worth $300, which would represent roughly a 65% gain.  And just as importantly, on the flip side, if TLT falls apart the most the option trader could lose would be $182.

Which reminds me of:

Jay’s Trading Maxim #312: If losing $182 on a trade is too much for you to bear – or will cause you great angst or to lose sleep or to beat yourself up – the “trading thing” might not be for you.

The RSI Three Strikes and You’re Out Play

So we will use the 3-day RSI indicator as a trigger to alert of a potential top.  Note the use of the phrase “potential top.”  Note also that nowhere do the words, “pinpoint”, “market” or “timing” appear.  So here is how it works:

1. (Day x) Price and 3-day RSI make a new high for a given move.
2. (Day y) After at least one intervening down day, price makes a higher close than on Day x BUT 3-day RSI stands below its level on Day x.
3. (Day z) After at least one intervening down, price makes a higher close than on Day y, BUT 3-day RSI stands below its level on Day y.
4. After Day z the entry trigger occurs the next time price drops below the 3 day low.

To put it another way, after Day x price makes to higher closing peaks (with at least one down day between these peaks), while RSI on Day y is below RSI on Day x and RSI on Day z is below RSI on Day y.  OK, that’s as clear as mud.  So let’s go the “a picture is worth 1,000 words” route.

In Figure 1 you can see two examples of this “play” using ticker IWM, the ETF that tracks the Russell 2000 small cap index.

iwm rsi3

 

Figure 1 – The RSI 3 Strikes and You’re Out Play using IWM (Source: AIQ TradingExpert)

In both cases the same scenario plays out.  Price makes two subsequent higher highs while RSI registers two subsequent lower highs.  The signal to buy put options comes when price takes out the three day low.

In the second example a trader could have bought a September 116 IWM put for $2.96 (or $296).  Eight trading days later that put was trading at $5.43 for a profit of $83%.

iwm out

 

Figure 2 – IWM put option using the RSI 3 Strikes and You’re Out play on IWM (Courtesy: www.OptionsAnalysis.com)


Summary

No one should get the idea that this simple “play” is the “be all, end all” of trading.  I specifically have not included any dies on when to exit this type of trade so that no one gets the idea of trying to use this as a mechanical trading system.  Some traders may use a profit target, some may use an indicator, some may adjust the trade or take partial profits if a certain level of profit is reached, etc.
Like virtually any other trading idea, sometimes things will work out as hoped and sometimes they won’t.  The bigger lesson is that it is OK to speculate in the markets provided you do not expose yourself to large risks.  Which seems like good time to invoke:

Jay’s Trading Maxim #1: Your most important job as a trader is to make sure you are able to come back and be a trader again tomorrow.

Jay Kaeppel  
Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiq.com) client

Jay has published four books on futures, option and stock trading. He was Head Trader for a CTA from 1995 through 2003. As a computer programmer, he co-developed trading software that was voted “Best Option Trading System” six consecutive years by readers of Technical Analysis of Stocks and Commodities magazine. A featured speaker and instructor at live and on-line trading seminars, he has authored over 30 articles in Technical Analysis of Stocks and Commodities magazine, Active Trader magazine, Futures & Options magazine and on-line at www.Investopedia.com.
Wilder’s RSI: Extending the Time Horizon (substitute for Exploring Charting Technique)

Wilder’s RSI: Extending the Time Horizon (substitute for Exploring Charting Technique)

Original article by Mike B. Siroky
 
For this June’s Stocks & Commodities Tips, I substituted the article by Mike B. Siroky, “Wilder’s RSI: Extending the Time Horizon” for the article by Sylvain Vervoort.

I provide a system that uses the author’s adjustable RSI bands that automatically adjust to the appropriate level for the input RSI length. The system is very simple:

  • Buy next bar at market open when the RSI is less than the lower confidence interval band (RSI_CILOW).
  • Exit the long position next bar at market open when the RSI is greater than the upper confidence interval band (RSI_CIUP).
  • Reverse rules for shorting.
  • I have a parameter that allows testing long only, short only or both long and short.
  • The system lost when the short side was allowed to trade.

Figure 1 shows the AIQ EDS Summary long only back-test report using the NASDAQ 100 list of stocks over the period 5/11/2000 to 5/12/2014. Neither commission nor slippage have been subtracted from these results. In running this test, I used a capital protect of 98% which is equivalent to a 2% stop loss using the close. All entries and exits are at the next open. I could not get the short side to show a profit even with added market timing filters for trend on the NASDAQ 100 index.

       

AIQ EDS Summary long only back-test report using the NASDAQ 100 list of stocks over the period 5/11/2000 to 5/12/2014.
 
 
 
!WILDER’S RSI: EXTENDING THE TIME HORIZON
!Author: Mike B. Siroky, TASC May 2014
!Coded by: Richard Denning 5/10/2014
!www.TradersEdgeSystems.com
!INPUTS:
W1 is 55. !RSI length for going long
W2 is 5. !RSI length for going short
numSD is 1.645.
!CONSTANT:
EXPECTED_VALUE is 50.
!USER DEFINED FUNCTIONS
!RSI BANDS:
RSI_CIUP1 is (EXPECTED_VALUE/100 + Sqrt(EXPECTED_VALUE/100/2/W1)*numSD)*100.
RSI_CILOW1 is (EXPECTED_VALUE/100 – Sqrt(EXPECTED_VALUE/100/2/W1)*numSD)*100.
RSI_CIUP2 is (EXPECTED_VALUE/100 + Sqrt(EXPECTED_VALUE/100/2/W2)*numSD)*100.
RSI_CILOW2 is (EXPECTED_VALUE/100 – Sqrt(EXPECTED_VALUE/100/2/W2)*numSD)*100.
!RSI WILDER:
U is [close]-val([close],1).
D is val([close],1)-[close].
rsiLen1 is 2 * W1 – 1.
AvgU  is ExpAvg(iff(U>0,U,0),rsiLen1).
AvgD  is ExpAvg(iff(D>=0,D,0),rsiLen1).
RSI_1  is 100-(100/(1+(AvgU/AvgD))).
rsiLen2 is 2 * W2 – 1.
AvgU2  is ExpAvg(iff(U>0,U,0),rsiLen2).
AvgD2  is ExpAvg(iff(D>=0,D,0),rsiLen2).
RSI_2  is 100-(100/(1+(AvgU2/AvgD2))).
!RULES:
HD if hasdatafor(210) >= 200.
Buy if RSI_1 < RSI_CILOW1 and HD.
Exit if RSI_1 > RSI_CIUP1 and HD.
NDXc is TickerUDF(“NDX”,[close]).
Sell if RSI_2 > RSI_CIUP2 and NDXc < simpleavg(NDXc,200) and HD.
Cover if RSI_2 < RSI_CILOW2 and HD.
 
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Everything You Need To Know About the Stock Market in 2 Charts

Everything You Need To Know About the Stock Market in 2 Charts

I have been a little “quiet” lately.  Kind of unusual for me, granted.  But what can I say really that’s new?  The stock market’s moving higher – blah, blah, blah.  The bond market keeps trying to creep higher – sure, interest rates are basically 0%, so why not?  Gold stocks keep trying to grind their way higher after putting in an apparent base.  But who the heck ever knows about something as flighty as gold stocks?

So like I said, not much new to report. 

So for the record – one more time – let me repeat where I am at:

  • As a trend-follower there isn’t much choice but to say that the trend of the stock market is still “up”.  So as a result, I have continued to grit my teeth and “ride”.  And let’s give trend-following its due – it’s been a good ride. 
  • As a market “veteran” I have to say that this entire multi-year rally has just never felt “right”.  In my “early years” in the market (also known as the “Hair Era” of my life) when the stock market would start to rally in the face of bad economic times I would think, “Ha, stupid market, that can’t be right.”  Eventually I came to learn that the stock market knows way more than I do.  And so for many years I forced myself to accept that if the stock market is moving higher in a meaningful way, then a pickup in the economy is 6 to 12 months off.  As difficult as that was at times to accept, it sure worked. 

Today, things seem “different”.  By my calculation the stock market has now been advancing for roughly 5 years and 4 months.  And the economy?  Well, depending on your political leanings it is somewhere between “awful” and “doing just fine.”  But in no way has the “old calculus” of “high market, booming economy 6-12 months later” applied.

Again depending on your politics leanings the reason for this lies somewhere between “it is entirely Barack Obama’s fault” to “it is entirely George Bush’s fault.” (I warned you there was nothing new to report).

From my perspective, I think that the charts below – the second one of which I first saw presented by Tom McClellan, Editor of “The McClellan Oscillator” (which he presciently labeled at the time, “The only chart that matters right now”) – explains just about everything we need to know about the stock market actions vis a vis any economic numbers.

So take a look at the two charts below and see if anything at all jumps out at you.

 
spx mnthly
 
Figure 1 – S&P 500 Monthly (Source: AIQ TradingExpert)
 

qe

Figure 2 – Fed Pumping (Quantitiatve Easing “to Infinity and Beyond”) propelling the stock market


I am not a fan of using the word “manipulation” when it comes to the stock market.  But I am a strong believer in the phrase “money moves the market.”  The unprecedented printing of – I don’t know, is it billions of trillions of dollars – has clearly (at least in my mind) overwhelmed any “economic realities” and allowed the stock market to march endlessly – if not necessarily happily – to higher ground.

Thus my rhetorical questions for the day are:

“What would the stock market have looked like the past 5 years without this orgy of money?”
“What happens to the stock market when the Fed cannot or will not print money in this fashion?”

Because this is all unprecedented in my lifetime (as far as I can tell) I don’t have any pat answers to these questions.  But I some pretty strong hunches.

My bottom line: Err on the side of caution at this time.

Jay Kaeppel  
Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiq.com) client

Jay has published four books on futures, option and stock trading. He was Head Trader for a CTA from 1995 through 2003. As a computer programmer, he co-developed trading software that was voted “Best Option Trading System” six consecutive years by readers of Technical Analysis of Stocks and Commodities magazine. A featured speaker and instructor at live and on-line trading seminars, he has authored over 30 articles in Technical Analysis of Stocks and Commodities magazine, Active Trader magazine, Futures & Options magazine and on-line at www.Investopedia.com.

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