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Technical Analysis

Special Report Week: The Big Picture

special report world viewVolatility in global markets is at the lowest level since 1993.

And one thing I've learnt over the last 32-years is that high levels of volatility tend to follow.

Which means something big could be brewing.

But the question is, where?

And how do we profit from it?

We're going to try to answer these questions for you...

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Trading With Divergence

ASX share prices 2The world of Technical Analysis is saturated with indicators, oscillators, lines and other weird and wonderful esoteric attempts at finding the Holy Grail. There are a couple of absolutes; price and volume. Together, with time, patience and a level head, these tend to be all we need to be successful in the markets.

There is however one indicator, or method of using certain indicators, that has an extremely powerful edge. This method is divergence.

Divergence is where price moves in one direction and the indicator starts moving in the opposite direction.

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Liquidity & Position Sizing

Position sizing

The following conversation was conducted on the old Chartist Traders Forum. This type of conversation is now run through The Chartist Community. Traders share ideas and help each other solve problems they are experiencing with their trading and, in this case, coding their trading system.

Question: I am trying to design a liquidity filter / position size algorithm that will give me a good chance of getting filled with minimal effect on market price. These are my current thoughts:

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Fibonacci Time & Price

Fibonacci snail shellFibonacci analysis is used to monitor the extension or retracement of price in a chart pattern or the extension of time based on the prior period.

About Fibonacci
‘Named after Fibonacci, also known as Leonardo of Pisa or Leonardo Pisano, Fibonacci numbers were first introduced in his Liber abaci in 1202. The son of a Pisan merchant, Fibonacci traveled widely and traded extensively. Math was incredibly important to those in the trading industry, and his passion for numbers was cultivated in his youth.’ LiveScience

If you would like to learn about Fibonacci time & price for trading then consider reading:

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The Oops! Pattern - In Sample / Out of Sample

Percentage manThe terms In Sample and Out of Sample refer to a technique for backtesting trading strategies where there is some kind of optimisation or data mining taking place, i.e. finding the ideal parameters to trade with. It's common to use two sets of data, however, I was always taught to use three. Here's how it works...

  1. Take a data set, let's use 2000 through 2015.
  2. Divide that set into three, so we'll use 2000-2005, 2005-2010 and 2010-2015
  3. Next, take the middle set 2005-2010, which is known as the In-Sample data, and do all testing, data mining and wanted optimisation on it.
  4. Then take the parameters and rules from that and apply it to the other two sets of data, which are both considered the Out of Sample data.

If the results appear consistent across the entire data series then you may be on to something.

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Survivorship Bias

chart guyLast weeks Double 7's Strategy article proved to be a very popular topic - thanks for all the feedback. In the article I stated, "...we'll use historical constituents to remove survivorship bias" and this has created a few questions, namely what the heck does it mean?

According to Wikipedia, "Survivorship Bias is the logical error of concentrating on the people or things that "survived" some process and inadvertently overlooking those that did not because of their lack of visibility. This can lead to false conclusions..."

When it comes to the stockmarket, investing and systematic trading, Survivorship Bias is not only prolific, but can greatly exaggerate reality going forward. The following chart shows the rise and fall of Regis Resources (RRL), a current member of the ASX-100.

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Turnkey Trading Systems

BOOKS    → E-BOOKS    → TRADING SYSTEMS  AMIBROKER CODING

Important Information and System Requirements:

  1. All code provided is in Amibroker Formula Language (AFL) for Amibroker v5.0 of higher.
  2. All code is sold 'as is' and a working knowledge of Amibroker is suggested.
  3. Purchase includes Operating Code, Monte Carlo Simulation Code and Instructions.
  4. No refund is available on this product after the code has been provided.
  5. All purchasers will be required to sign a Sale Agreement that conatins a non-disclosure clause.

AUD$660 each

"Just finished my first full year running the Flipper strategy; we had a great year. +38.77% after fees. Thanks a ton!" - JW, Lexington, KY, USA

Bollinger Band Breakout (Original)
This is the exact strategy outlined in Unholy Grails (pg 118) and closely aligned to the strategy that Nick Radge has personally used over the last decade to follow mid-term trends in the stock market. User friendly for daily or weekly timeframes and can be easily adjusted to accomodate most global stock markets. Index Filter and all other attributes discussed in the book come as standard features.

buy now flat

"I purchased the BBO Modified system in June... Here’s a quick snapshot of the results: Return:+18.7% #Trades:34 Winners:76%... I couldn't be happier with the system" - Bob O.; Long Valley, NJ, USA

Bollinger Band Breakout (Modified)
This is a Modified version of the Original strategy and was not highlighted in Unholy Grails. The major difference lies in the Index Filter that, when signals a bearish trend, will immediately exit all existing open positions. This increases trade frequency, lowers holding times and lowers maximum drawdown. Can be used on daily or weekly times frames with easy adjustment to most global stock markets.

buy now flat

20% Flipper
This strategy highlighted on page 109 of Unholy Grails, including Index Filter, volume and turnover filters, price limiters and various position sizing options. Based on the Martin Zwieg 4% Rule it is a unique and original way to trade momentum and trends over extended periods of time. This code provides the unique ability to use an adjustable trailing stop when the trend changes.

buy now flat

20% Flipper (Modified)
The 20% Flipper (Modified) strategy was not disclosed in Unholy Grails. Like the BBO Modified (above) this strategy will exit all positions immediately when the Index Filter signals a bearish trend. This mechanism was designed to reduce drawdown but will generate a higher level of trade frequency. Because of the nature of the coding this trigger cannot be switched off.

buy now flat

Weekend Trend Trader
Based on the exact strategy outlined in the globally popular Weekend Trend Trader e-Book. This is a mid-term trend following strategy specifically designed for the US stock market and for weekly timeframes. User friendly interface allows you to adjust various settings to create a more personalised strategy. Robust enough to operate on US and Australian stock markets and should offer opportunities elsewhere (not validated).

buy now flat

Mean Reversion Strategy
This higher frequency mean reversion strategy is based on the exact strategy outlined in our 'Learn To Earn A Second Income'series of emails. Specifically designed to trade the US stock market on a short term basis, it can be adapted to trade both long and short, or long only. The higher frequency of trading allows strong returns, lower drawdowns and fast recovery from drawdowns. This is the perfect strategy to compliment a trend following strategy.

buy now flat

100-Day High
This is a weekly version of the strategy highlighted on page 68 of Unholy Grails, including Index Filter, volume and turnover filters, price limiters and various position sizing options. Based on the classic Donchian Channel Breakout with default lookback set to 20-weeks. This can be easily adjusted to suit the user with many input paremeters settings easily adjustable.

buy now flat

Past performance is not indicative of future results. Any results shown are considered to be Hypothetical unless otherwise specified.  Hypothetical performance results have many inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity.

This page may contain advice that has been prepared by Reef Capital Coaching (AFSL 288200). Being general advice it does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.

 

Technical Analysis – Indicators

stock chart manOne of the early decisions a new trader needs to make is what sort of trading they wish to undertake. Usually following on from that answer, the question as to whether some type of stock market analysis tool (i.e. trading software) is required, then presents itself.

As the budding trader embarks on the due diligence of purchasing a trading software package they can be subjected to the amount of indicators the package has or can be created, as a selling point. Once the decision is made and software downloaded, a potential problem begins to manifest itself, unbeknown at this point to the trader. Within the indicator section of the software is a plethora of indicators, each with adjustable parameters, styles and colours.

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Free E-book: Successful Stock Trading – A Guide to Profitability

successful stock trading by Nick RadgeNick Radge’s book Adaptive Analysis for Australian Stocks has been a huge success with some readers claiming the first 50 pages to be the 'stock trader’s bible'. As only a few copies of Adaptive Analysis are still available from The Chartist, we have decided to update and release those crucial pages as a free eBook.

Successful Stock Trading by Nick Radge will show you the maths behind profitability. It really is simple and is something that ALL traders, no matter the market being traded, must understand.

About Nick Radge has been trading and investing for 30 years. He is Head of Trading and Research at The Chartist. Nick and his wife, Trish Radge, established Reef Capital Coaching t/as The Chartist in 1998 and continue to work full time on the business. They also trade the same strategies alongside their clients.

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Short Term Trading – Trailing Stops

trailing stopsTrailing stop losses are a valuable tool when short term trading using technical analysis. Once a breakeven stop is reached, the trailing stop helps lock in profits as the trade progresses. The trailing stop removes angst and decision making during the trade as it provides a definitive answer as to when to close a position. They can be part of a computerised trading system to trigger exits or as part of a discretionary trader’s arsenal.

As with profit targets, the exit criteria is known and planned for before the trade is initiated. The exact level at which the trailing stop triggers is not known, but the conditions which are to trigger an exit certainly are. Such stops can be left in the market so they are triggered on an intraday basis for the end of day trader, negating the need to constantly watch the market, and allow the user to let profits run and cut losses short.

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