Jan 19, 2013 | Uncategorized
The AIQ code based on Ron McEwan’s article in February issue of Stocks & Commodities, “The Volatility (Regime) Switch Indicator,” is provided at the website www.TradersEdgeSystems.com/traderstips.htm.
To test the author’s volatility switch 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 lowest three-bar RSI reading
- Exit trades only with a system exit; no stop-loss or profit target stop used.
I coded four similar test systems. All systems enter & exit on the next bar at open after the respective entry or exit rule becomes true at the close of the bar:
System 1: A basic trend-following system that buys when the close of a stock is above its moving average and the moving average is higher than it was 10 bars ago. Exit when the close is below the moving average.
System 2: The same as System 1 with the volatility switch filter added to the entry and exit rules for the stock.
System 3: The same as System 2 with System 2 rules also added to the market using the NASDAQ 100 index (NDX) to represent the market conditions.
System 4: The same as System 1 but with the volatility switch filter and the trend-following rules added to the market index (NDX).
I used the author’s parameters of 21 days for the volatility length and 50 for the volatility switch level. Note that my coding of the indicator is multiplied by 100. To determine the trend, I used a 50-bar moving average. For the period 12/30/1994 to 12/12/2012, the systems returned the results shown in the table in Figure 7.
Figure 7: AIQ, SYSTEM BACKTEST RESULTS. For the period 12/30/1994 to 12/12/2012, the four system variations returned these results.
In Figure 8, I show the equity curves for all four systems, with the largest graph showing the equity curve for System 4, which is the one I prefer due to the relatively low drawdown and the highest Sharpe ratio. Adding the volatility switch filter only to the stocks (System 2) did not reduce the drawdown but the return increased very slightly and the Sharpe ratio was one of the highest. Adding the filter to both the stock and the market (System 3) dramatically reduced the drawdown, but the return and Sharpe ratio also were significantly reduced. Adding the filter only to the market index thus seems the best compromise. The tests tend to show that the filter can be used to reduce drawdown and increase reward-to-risk ratios.
FIGURE 8: AIQ. Long-only equity curves (blue) compared to the S&P 500 (red) for the test period 12/30/1994 to 12/12/2012 trading the NASDAQ 100 list of stocks.
The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm. The code is also shown below.
!THE VOLATILITY (REGIME) SWITCH INDICATOR
!Author: Ron McEwan
!Coded by: Richard Denning 12/7/12
!www.TradersEdgeSystems.com
!INPUTS:
volaLen is 21.
maLen is 50.
volaLvl is 50.
rsiExitLvl is 90.
!ABREVIATIONS:
C is [close].
C1 is valresult(C,1).
!INDICATOR FUNCTIONS:
MA is simpleavg(C,maLen).
RC1 is (C-C1)/((C+C1)/2).
SD is sqrt(variance(RC1,volaLen)).
Count is countof(SD <= ∧SD,volaLen).
VolaSwitch is Count / volaLen * 100.
!TRADING SYSTEM RULES:
!SYSTEM 1: TREND FOLLOWING WITHOUT VOLASWITCH FILTER:
Buy if C > MA and MA > valresult(MA,10).
ExitBuy if C < MA.
!SYSTEM 2: TREND FOLLOWING WITH VOLASWITCH FILTER:
BuyVS if VolaSwitch < volaLvl and C > MA and MA > valresult(MA,10).
ExitBuyVS if (VolaSwitch > volaLvl and C < MA)
or (VolaSwitch > volaLvl and rsi3 > rsiExitLvl).
!SYSTEM 3: TREND FOLLOWING WITH VOLASWITCH & MARKET TIMING:
BuyVSM if BuyVS and TickerRule("NDX",BuyVS).
ExitBuyVSM if ExitBuyVS or TickerRule("NDX",ExitBuyVS).
!SYSTEM 4: TREND FOLLOWING WITH VOLASWITCH MARKET TIMING APPLIED ONLY TO NDX:
BuyMvs if Buy and TickerRule("NDX",BuyVS).
ExitBuyMvs if ExitBuy or TickerRule("NDX",ExitBuyVS).
!RSI WILDER (FOR SYSTEM 2 EXIT):
U is [close]-val([close],1).
D is val([close],1)-[close].
W1 is 3.
rsiLen1 is 2 * W1 - 1.
AvgU is ExpAvg(iff(U>0,U,0),rsiLen1).
AvgD is ExpAvg(iff(D>=0,D,0),rsiLen1).
rsi3 is 100-(100/(1+(AvgU/AvgD))).
Jan 15, 2013 | Uncategorized
by Hank Swiencinski, AIQ TradingExpert Pro client fro over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’. Later this month Hank will be presenting an AIQ webinar covering some of the techniques he teaches, like cycles and stick patterns. Hank will be presenting this free AIQ webinar entitled The Professor’s One Minute Guide: The Basics, January 24th, 2013, 4:30 – 5:15pm eastern,
Click on this link to register. Here’s a sample of his analysis
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The Dow rose 17 points on Friday, closing at 13,488. It was up 53 points on the week. The Nasdaq was up 3 points on Friday and up 23 points on the week. The rally continues.
The Dean’s List remains strong, and all of the cockpit indicators remain positive.
Big Picture Strategy: I’m Bullish and will remain so until the Dean’s List starts to weaken. I’m expecting the ride to end near the 14,000 level, possibly higher. When the ride ends this time, it will be time to change the strategy. Not now.
CNI was up 0.75 points on Friday, closing at 94.25. It reached a high of 94.65 during the day. Earlier in the week, I mentioned that the first target for CNI was ‘just under 95’, so we got very close. My next target is 97, then 105. The reason I’m focusing on CNI today is because I want you to have an idea about what to expect next. CNI is currently in a trend mode. It has moved higher as a result of the Band squeeze….just like we expected. Money Flow remains strong, pushing prices higher.
If you bought CNI after it was highlighted by Emeritus and placed on the Honor Roll, you’re probably up close to 3 points now. And 3 points times 300 shares is $900, a nice profit. I bet that many of you are starting to get antsy, thinking it might be time to take some money off the table. Hmmm? So what are you going to do with your CNI?
Are you going to hang on for the higher prices projected by the smaller Hockey Stick pattern? Or are you going to wait to see if CNI reaches the projected target of 105 suggested by the larger Hockey Stick pattern? What to do, what to do???
I mention this today because this question comes up all the time. And it’s important that you think about what to do in situations like this.
Here’s the deal: Remember last summer, when we were having fun with Royal Gold? Remember how we saw a Hockey Stick pattern form between May and August, and how we saw the Bands start to narrow? If you don’t remember, I suggest that you take a quick look at Royal’s chart. Remember too how we measured the stick, and made projections to the 94-96 level? We did this when the stock was trading in the mid-70s.
OK, now I want you to think back and remember how you felt when the stock started to advance. It was pretty cool, wasn’t it? I remember all the emails I received when the stock hit 85. Many of you were starting to get nervous. You had 10 points of profit.
But the pattern said Royal still had another 10 points to go…at least. A lot of you sold at 85. But then a few days later, many of you were wondering why you sold. The indicators were still positive. Remember my story about checking the roots? You planted the seeds, you gave the plant plenty of fertilizer and water, but as soon as the plant started to shows signs of blooming, you sold. You had to check the roots even though the flower was telling you that it was OK. Hmmm?
No. In the Professor’s Methodology, we don’t check the roots! We let the plants grow to become flowers. We only sell IF there is something obviously wrong with the plant. Then we might do a little pruning. There needs to be a reason.
So now after reading this, and looking at how Royal Gold went on to move 5 points ABOVE its target, reaching the 100 level….now I want you to take a closer look at CNI.
Is the stock doing what you expected? Is it healthy? Do we need to check the roots?
Now I want you to go back and look at Royal again. But now I want you to take a close look at the stock on 10 October. That’s when both the DMI and P-vol turned negative. Hmmm? That was the time to check the roots. The stock closed at 95.26 that day. Two months later, on 20 December, the stock hit a low of 76.17.
So let me see if any of this hits home? You spend all sorts of time doing research on a stock, and then finally get the nerve to pull the trigger. But then as soon as it starts to move up, doing exactly what you expected it to do, you sell. Hmmm? Or if you did have the discipline to hang on until the stock reached its projected target, you failed to sell when the indicators told you the move was over. And for the past 3 months you’ve either given back all your profit or worse…are now experiencing a loss.
So now go take another look at the chart of CNI. Then think about Royal Gold. Knowing what to do and having the discipline to do it is what trading is all about.
Have a great weekend.
That’s what I’m doing.
h
BTW, several gold and silver stocks have re-appeared on the Dean’s List. Royal Gold was among them. So once again, we have DL and Pattern. And 2 of the 3 PT indicators are now positive, at a time when the Bands have really tightened. What to do, what to do?
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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.
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Jan 11, 2013 | Uncategorized
Thursday January 24, 2013 4:30 – 5:15pm eastern
Hank Swiencinski has 30+ years trading experience, 6 years as a professional. He was also Director Marine Corps Research & Development and Technical Director Navy International Policy.
The Professor, as he is known to his clients, has educated hundreds of individual traders and investors in his hallmark strategies; strategies that encompass using moving averages, Wells Wilder’s DMI and what The Professor calls his ‘Hockey Stick’ patterns together with wave and trend analysis.
We encourage you to join us in welcoming Hank for a 45 minute FREE webinar on January 24th from 4:30 – 5:15pm eastern. During this session, The Professor will reveal some of his hallmark strategies that have helped create many successful traders and investors.
“Hank has been an AIQ client for over 25 years. We met over lunch late last year, and I was immediately struck by his erudite approach to trading and investing.
His knowledge of technical analysis and the practical application of wave theory, moving averages, and DMI is impressive.” Stephen Hill, President ,AIQ Systems
limited seats!
Jan 9, 2013 | Uncategorized
For those of you that are interested to hear my market update, I will be presenting the Iinvestors Business Daily monthly online meetup this coming Thursday January 10th at 7pm London time, 2pm eastern.
To attend use the link below
http://connectpro39608568.adobeconnect.com/ibdlondon/
I will also use the AIQ Expert Ratings analysis on the overall market to see which buy or sell signals are active, and where to next the market might be going.
Regards
Richard Muller
AIQ TradingExpert Pro user and Senior Instructor, The Trading Prism
Jan 8, 2013 | Uncategorized
by Hank Swiencinski, AIQ TradingExpert Pro client fro over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’. Later this month Hank will be presenting an AIQ webinar covering some of the techniques he teaches, like cycles and stick patterns. Here’s a taster of his depth of analysis on GLD
During the week, we saw gold (GLD) fall in response to the release of the Fed minutes. I know that many of you are following gold, so I thought it would be a good idea to check the charts to see if it everything was still on track with my gold scenario.
I know that a lot of my subscribers were involved in gold last summer when GLD moved from the 150 level to near 175. That’s when stocks like Royal Gold (RGLD) were leading the Dean’s List and making nice moves almost every day as it rose from the low 60s to over 100.
Then in early October, things started to change and gold stocks started to decline. And as I write this, gold stocks are still pulling back. So I thought it would be a good idea to do an update on gold, mostly because I don’t talk about it a lot now in my Daily Updates. That’s because I’m usually NOT interested in things that have negative DMIs.
But let’s take a closer look at gold. The thing we need to determine is “Is gold behaving normally, or is it doing something strange? Something we don’t expect.
If it’s behaving normally, then we shouldn’t be concerned about the pullback. On the other hand, if its doing something that we don’t expect, then we need to change our outlook on gold, and any scenarios associated with it.
OK, now I want you to look the attached chart for GLD, which is the ETF for physical gold. What do you see? Hmmm? I want you to think about all the things you learned in Class, because almost EVERYTHING we talk about in class is on the chart.
Now I don’t want you to read any further until you actually look at the chart. Remember, this is a learning process, and not a Lou letter where he just tells you to buy something.
I want you to understand what’s happening with gold, so stop reading and go look at the chart.
OK, here’s what I see. First of all I see a stock that is in an Uptrend with its 50 > 200. However, the DMI is negative now and has been negative for the past 3 months. This is why I’m on the sidelines.
As for the pattern, I see a stock that has just finished a Major Wave 4 triangle after a Major impulse wave 3 UP. Is this normal? Do we expect a triangle to form AFTER a Major Wave 3 up? Yes.
During the formation of the triangle, did it have 5 waves? Yes.
Did the 5 waves form a Three Lows to a Bottom Pattern? Yes.
Is this what we expect for wave 4s? Yes.
OK, so now after answering Yes to all of the questions, there appears to be a high probability that the triangle that took a full year to form was a correction of the Major Wave 3 up. So once it completes, the Major Wave 5 up should start.
Before we get into wave 5, let’s ask ourselves…How do we expect wave 5 up will develop? What should it look like? How many waves will it have? How far up should it go. All of these questions should be thoroughly understood in your mind BEFORE you make a commitment to trade gold in the future. Otherwise, minor setbacks, like the release of the Fed minutes will get you confused as to what is really going on.
So let’s move on.
OK, I would expect wave 5 up to develop in 5 waves. After a TLB Pattern, I look for two things in a wave 1. The first is a‘Rope Jump”, or to see the price cross back above the 50 and the 200. Remember, IF we’re going to move back into a long term Uptrend for Major Wave 5 Up, we need to have the 50 move above the 200. And the only way this can happen is IF the price gets back above the ‘ropes’. Did this happen with GLD? Yes.
The second thing I want to see is the power of the move. In other words, IF GLD is going to enter a Major Wave 5 up, then it should start to hit specific targets as it moves up. Well, what was my first target for wave 1 up? Where did the target come from? Hmmm?
That’s right…from the Three Lows to a Bottom Pattern that formed as the Wave 4 triangle developed. The target is the interim high between the first two lows. Remember? So, did GLD hit it first target? Yes. (See the magenta line on the chart.)
OK, so now after hitting that first target, what would we expect? Hmmm? Here’s the part that most of you don’t like to hear. Right. We expect to see a wave 2 pullback. It’s perfectly normal to see a pullback. As a matter of fact, the pullback MUST happen for GLD to go higher.
How do we expect the pullback to form? Will it be 5 waves or three? Correct, it should be three-wave a-b-c pullback. Wave 2s are almost always a-b-c- pullbacks. Is GLD forming an a-b-c pullback? Yes. So the probability is high that the current pullback is a normal wave 2 that is correcting the gains of wave 1.
Ok, so now let’s look at a few projections. When I make projections using the Professor’s Methodology, I use Hockey Sticks. So let’s take a look at a few.
The first HS is the big one formed using the stick of Major Wave 3 and the Blade of the triangle, or Major Wave 4. How big is this? Go measure. It’s BIG. This is why I’m interested in gold stocks in the first place. But for now, let’s just concentrate on the smaller Hockey Stick; the one that developed for waves 1 and 2 of Major Wave 5.
The‘Stick’ of wave 1 up of Major Wave 5 up was about 28 points. So if wave 2 down stops near where we are now, the minimum for wave 3 UP of 5 should be close to the 188 area. GLD closed at 160 on Friday. The old Wave 3 high for GLD made on 26 August 2011 was 184.82. So If GLD moves above the old high on the next move up, it will enter the ‘Free Willy Mode’ and once this happens, there is no telling how high it can go after that. Once a stock enters the ‘Free Willy Mode’ everyone who owns gold will have a profit. That’s when you will hear the folks on CNBC talking about gold stocks every day.
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