Professional Documents
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Moon Rocket
To the moon & beyond 8
Volatility: What
They Don’t Teach
You In Grad School
Theory vs. reality 16
Double Bottom
Patterns
Increasing the odds 22
Inverse ETFs
For bear markets and
market downturns 28
INTERVIEW
David Stendahl on
seasonal patterns 32
review
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The editors of S&C invite readers to submit their opinions and information on subjects understand it and don’t have any mistakes
relating to technical analysis and this magazine. This column is our means of communi- in my code. I am getting results close to
cation with our readers. Is there something you would like to know more (or less) about? what you presented in the article.
Tell us about it. Without a source of new ideas and subjects coming from our readers, this
magazine would not exist.
Email your correspondence to Editor@Traders.com or address your correspondence STIFFNESS INDICATOR
to: Editor, Stocks & Commodities, 4757 California Ave. SW, Seattle, WA 98116-4499. All Editor,
letters become the property of Technical Analysis, Inc. Letter-writers must include their full I read Markos Katsa-
name and address for verification. Letters may be edited for length or clarity. The opinions nos’s article about the
expressed in this column do not necessarily represent those of the magazine.—Editor stiffness indicator/strat-
egy (S&C, November
2018), which I found
STIFFNESS INDICATOR Position size = $10,000 very interesting.
Editor, Max open positions = 500 Could you let me know about the
I found the article “The Stiffness In- Portfolio size = $200,000 position sizing method he used in the
dicator” by Markos Katsanos in the Commissions: $0.01 per share backtest mentioned? It would be very
November 2018 issue interesting and Min position value = $100 no margin and helpful for me. Thank you.
wish to thank the author for sharing this no compounding David
insight with the trading community. It Data provider : TC2000
is a new way to look at trading. It was Author Markos Katsanos replies:
great that your magazine also offered Here are some questions that have come The position size was $10,000 per stock
the associated code for major trading up as I try to replicate his results: and no margin.
platforms and for Excel. I downloaded • What does he use for Position- If you want to replicate the test, the
the latter as a way to explore the stiffness Score? rest of the settings are:
indicator some more. • It appears that he has “AllowPo-
M. O’Neill sitionShrinking” unchecked. Is Max open positions=500
that correct? Portfolio size=$200,000 with no
Readers can find the code for Katsanos’ • What is he using for the round profit compounding
stiffness indicator in a sidebar to the lot size? It appears it’s 10. Is that Commissions: $0.01 per share
article for the AmiBroker platform, correct? Min position value=$100
and for other platforms in the Traders’
Tips section of our magazine and at our I understand that this is not a complete
website, Traders.com, in the Traders’ strategy. I will first try and replicate his
Tips area.—Editor results and then add some additional
2019 READERS’ CHOICE AWARDS:
rules to see if I can improve on them to
VOTING CLOSes SOON!
make a strategy. Thank you.
Cesar Alvarez Voting is underway for
www.AlvarezQuantTrading.com our 2019 Readers’ Choice
Awards! If you haven’t yet
voted, please take a minute
Author Markos Katsanos replies:
to visit traders.com and
I am not sure about all of the set- vote for your favorite prod-
tings because it was a while back ucts and services. We want to hear from
that I ran the tests. I am sure that I you! Voting ends December 31, 2018. The
didn’t use the positionscore function Readers’ Choice ballot at our website offers
and the AllowPositionShrinking was a list of products, services, websites, and
unchecked, but I am not sure about articles to choose from (or write in your own
STIFFNESS INDICATOR the round lot size. choices!) and later, you can see how your
Editor, Do let me know if you develop a viable picks compared with other readers’ choices.
I like what Markos Katsanos is conceptu- strategy and perhaps I can offer my tips Results of the voting will be featured in an
upcoming issue.
ally trying to capture in his November for improving the results.
2018 Stocks & Commodities article, Categories include: data • brokerages •
“The Stiffness Indicator.” I have been Reader replies: trading platforms • AI software • educational
trying to replicate the results. I am close Thank you for your response. I will test services • technical analysis websites •
but would like to know a little more about a couple of different values. My first favorite Stocks & Commodities article •
the difference I got in my results. Here is step when using a new indicator is to try and more!
the information I am going on: and replicate the results to make sure I
6 • January 2019 • Technical Analysis of Stocks & Commodities
TRADING ON MOMENTUM
2018 WINNER
Worth The Weight AI TRADING SOFTWARE
Breakouts
16 years
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Adding in a volume component to your to minimize stops or lock in profits Build powerful
moving average calculation can help you correctly.
know when momentum may be slowing, This month’s strategy is designed to
trading systems in
which may improve your trade timing. help you let your winning trade work MINUTES
Here’s how. out long enough to capture most of the
price action, and then exit at the first sign
without coding
If
by Ken Calhoun of weakness. By using a VWMA, this
technique gives you a visual, technical
you have ever struggled with exit signal that is easy to follow.
knowing when to exit an ®
Figure 1: Volume-Weighted Moving Average Breakout (IPG). Here you see an example of a trade where you use the VWMA to help define intraday entries
and exits.
There’re No Limits
Moon Rocket
First it was to the stratospheres. Now we’re off to the “Through The Stratosphere On The @NQ.” It trades
moon, and maybe even further. the technology emini, @NQ, on the 30-minute chart,
seven days a week, 24 hours a day.
I
am a mathematician. Fifty years ago, I Moon rocket is its successor. As a way to compare
started studying supersonic flows and some of these strategies’ unusual features, I’ll present
shock waves. I worked on the same ma- this allegorically as a trip through the planets of our
chine as was featured in Hidden Figures, solar system.
except mine was more powerful. Their Moon rocket gets a fuel boost from the 15-minute
machine was owned by NASA; mine, by chart that enables it to fly past the moon toward other
the Atomic Energy Commission. planets in our solar system.
Since then, my research has carried me through many The Leavitt convolution (which I introduced in my
fields, including chronobiology, linguistics, differential November 2017 S&C article “Trading The Tech Emini
equations, and most recently, prehistoric migrations. With The Leavitt Convolution”) was my response to
All of these studies have involved waves. the Hull challenge.
Challenges capture my attention. Two in the past To counter the economists winning the Nobel Prize,
decade or so have motivated my market analysis. I developed the riding the waves strategy (which I
In 2005, Tom Hull claimed his moving average had described in my August 2017 S&C article “Riding
the shortest lag of all moving averages. The Waves With The Leavitt Convolution”). It traded
In 2013, three Americans won the Nobel Prize in the SPX and the QQQ with bull put spreads relying
Economics. They were working independently, using on the Leavitt convolution and probabilities that
different principles, and came to the same conclu- options offer. It performed very well, showing that
sion. consistent and significant profits could be made over
This is my interpretation of the conclusion reached the short term.
by the three winners of the Nobel Prize: It makes I gave a presentation about the riding the waves
no difference if you are using technical analysis or strategy to a trading club. Someone suggested I try and
fundamentals; relying on spiritualists or gurus or apply the Leavitt convolution to futures on intraday
analysts or Jim Cramer; investing in stocks, indexes, charts—areas in which I had no prior experience. That
mutual funds, currencies, property, or collectibles. If resulted in a set of articles in this magazine, the last
it relies on its price, the chance of a short-term win- one being the March 2018 article on my stratosphere
ning trade is only 50/50. strategy.
Each strategy was an improvement on its predeces-
Above the stratosphere sor. Essentially, I threw out the book and started from
Stratosphere is an exceptional terrestrial trading scratch when I started working with futures. Many
strategy. It’s a strategy I developed and presented new concepts were developed, such as partitioning
JOSE CRUZ
• Stratosphere
The wave is the area between the fast and slow Leavitt convo-
lutions. Partitioning the wave into expansion and contraction FIGURE 3: LINEAR GROWTH IN NET PROFIT
areas had a dramatic effect (Figure 2). It moved the signal back
several bars from the crossover. Stratosphere has all sorts of
stops including a stop-loss based on the number of eminis
being traded and the entry price. Some of the other stops are
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Moon Rocket (Gains) Statistics
# @NQ
Assumed
Required
Account
Net Profit Rate of
RINA
Profit
Fac-
Percent
Time in
Number Percent
Ratio Avg
Win over The data in the two spreadsheets (Figures 5 & 6) is from
a two-year backtest of each of these strategies ending
Risk [AR] [NP] Return of Trades Wins
Size [RAS] tor Market Avg Loss
1
2
$100,000
$200,000
$4,415
$7,530
$70,200
$158,810
27%
29%
637.17
747.39
1.73
1.87
47.69%
47.29%
978
983
33.95%
37.33%
3.25
3.07
4/30/2018. I used the information in the spreadsheet with
5 $500,000 $17,925 $427,690 31% 813.45 1.99 46.73% 983 40.90% 2.87 11 columns to analyze the gains. The other corresponds
10 $1,000,000 $35,250 $879,540 32% 856.00 2.03 46.60% 988 41.80% 2.83 to the losses. Each is divided with the moon rocket data
on the top and stratosphere’s below.
25 $2,500,000 $83,080 $2,184,360 32% 868.22 2.02 46.90% 982 39.71% 3.06
50 $5,000,000 $165,580 $4,387,360 32% 873.64 2.02 46.91% 982 39.61% 3.08
100 $10,000,000 $330,580 $8,794,360 32% 876.60 2.03 46.91% 982 39.61% 3.09 Column 1 has the number of @NQ being traded. Col-
200 $20,000,000 $660,580 $17,608,360 32% 878.08 2.03 48.09% 982 39.61% 3.09 umn 2, labeled “Assumed risk [AR],” equals column 1 *
$100,000. Column 3, “Required account size [RAS],” is
Stratosphere (Gains)
Required Profit Percent Ratio Avg
# @NQ
Assumed
Risk [AR]
Account
Net Profit
[NP]
Rate of
Return
RINA Fac- Time in
Number
of Trades
Percent
Wins
Win over the minimal deposit to cover the drawdown in column 2
in the other spreadsheet.
Size [RAS] tor Market Avg Loss
1 $100,000 $6,460 $39,020 17% 299.40 1.45 49.65% 700 40.29% 2.01
2 $200,000 $9,930 $88,050 18% 324.58 1.52 42.94% 720 42.56% 1.95 Traditional analysis uses only a single row because if
5 $500,000 $13,945 $233,650 19% 348.55 1.60 44.95% 807 48.95% 1.67 it is assumed, the other rows are simply scale versions
of the initial row. Here, it is not the case. This analysis
10 $1,000,000 $29,360 $459,130 19% 355.78 1.61 42.47% 871 48.56% 1.70
25 $2,500,000 $81,250 $1,108,795 18% 365.94 1.59 40.33% 929 46.18% 1.85
50 $5,000,000 $155,250 $2,202,250 18% 374.63 1.59 39.60% 950 45.68% 1.89 will start by looking at the columns.
100 $10,000,000 $327,900 $4,339,720 18% 365.95 1.57 39.43% 964 45.02% 1.92
Rates of return
We will assume the amount of
money deposited in an account
is the amount you are willing
to risk. TradeStation calculates
the rate of return based on the
size of this deposit. The larger
the difference between the de-
FIGURE 8: HOW LONG IN THE MARKET? Moon rocket FIGURE 10: RATIO OF AVERAGE TRADE WINS OVER LOSSES. posit and observed drawdown,
spends more time with equity at risk than strato- Stratosphere’s ratios are around 2 while moon rocket’s values the more conservative the
sphere does. However, its RINA is substantially higher, are almost all over 3. investment. Thus, the column
beginning with an index over 600.
of assumed risk represents an
extremely conservative invest-
ment. Similarly, the column
of required account sizes is
extremely optimistic. It as-
sumes drawdown in the future
won’t exceed the maximum
drawdown observed in the
backtest.
With either assumption,
moon rocket performs signifi-
cantly better than stratosphere
FIGURE 9: EQUITY AT RISK. Both strategies have high RINA FIGURE 11: HIGHER NET PROFIT. These values are almost
does. In the “assumed risk”
indexes. Stratosphere’s scores are above 299 and most indexes uniformly more than 50% higher for moon rocket. chart in Figure 12, it is 50%
of moon rocket are all above 600. higher. Its performance in the
January 2019 • Technical Analysis of Stocks & Commodities • 13
required account size in Figure 13 is investment groups. The group trading
astronomical. one @NQ, the technology emini, both
Its actual ROR is somewhere be- long and short, for two years yielded
tween these two superlative values. In a phenomenal net profit of $70,000.
both charts, moon rocket appears to I used TradeStation to calculate the
level off at around 10 shares. None of ROR. For the extremely conservative
the four curves are linear. Only one is assumption of AR, $100K, it came up
nondecreasing. with a ROR of 27%. With the optimistic
assumption that the drawdown in the
Dealing with the future won’t exceed the maximum
consequences FIGURE 12: ASSUMED RISK ROR drawdown realized in the backtest of
Whether you go to the moon or to Mars, about $4,400, it calculated an extrater-
the nice thing is all spaceships have restrial ROR of 142%. Even doubling
toilets. The issue is: Do the strategy’s this risk yields a return of 110%. These
losses drive you to the toilet? are returns you would expect for a
trader living on the moon.
Maximum drawdown During this period, earthbound buy
Maximum drawdown is calculated & hold traders of @NQ had an ROR
as the maximum difference from a of 51.48% while the RAS traders’
trade close to a subsequent lower trade annualized return was almost three
close. times higher.
There isn’t a big difference between This singular alien report applies to
them in terms of magnitude (Figure 14). FIGURE 13: REQUIRED ACCOUNT SIZE ROR group 2. The net profit of $158,000 is
Most of their drawdowns as a percent more than double the $70,000 of group
of assumed risk are in the -3.5% range 1. The RORs continue to grow.
(Figure 15). The net profit for group 5 is more
than $17,000 ahead of what you would
Monthly excursions expect from five times the net profit
Most traders I know would love it if for group 1. Its ROR of 31% AR only
their monthly reports looked like the grows to 32% for the remainder of the
ones in Figure 16. They have small destinations.
drawdowns—less than 2% of the The rocket ship earned handsomely
maximum scale on their chart. Those for group 10. It was fueled with $1 mil-
are few in number and they have large lion in its “assumed risk” account. Its
average monthly returns. The biggest required account size has a deposit of
difference between these histograms is FIGURE 14: SIMILAR DRAWDOWNS. $35,000. With this new fuel, it bypassed
only their scaling. the moon and headed for Mars. The
Martian net profit is almost $880,000.
Trip through the planets Its gain of $170,000 from 1 to 10 is
Choices for various initial deposits and notable, especially when compared
corresponding reward are displayed to the $17,000 gain from 1 to 5. So,
in Figure 17 on the image of the view assuming a cash deposit that doubles,
through the planets. Each shows three the $35,000 of required account size
initial deposits, labeled AR, 2*RAS, results in an ROR of 131%. Effectively,
and RAS. They carry different levels this number is maintained throughout
of risk. A deposit is required to cover the rest of our solar system.
the risk, which is shown on the chart. The net profit for group 25 is ap-
There is a reward for completing the proximately two and a half times the
trip. It is shown on the next line in the FIGURE 15: DRAWDOWNS AS PERCENT OF ASSUMED RISK. net profit for trading 10. The AR of
column labeled “net profit.” Next on Most drawdowns are around -3.5%, which isn’t so bad. $2.5 million resulted in the net profit
that row are the RORs associated with exceeding $1,000,000 per year.
that deposit. This consistency of growth in net profit is maintained for
Only one chart is displayed of net profit (Figure 18) because group 50. Other statistics show little or no change with desti-
they all look virtually the same. Obviously, their scales are nation 25.
different. The data for group 100 is as expected. Neither value for AR
I’ll refer to the number of contracts being traded as different or RAS has changed. We waved through the portholes as we
14 • January 2019 • Technical Analysis of Stocks & Commodities
Monthly Net Profit - @NQ 30 min (5/1/16 18:30 – 4/30/18 17:00) Monthly Net Profit - @NQ 30 min (5/1/16 18:30 – 4/30/18 17:00)
1 @NQ 2 @NQ
13000 30000
12000
Monthly Net Profit - @NQ 30 min (5/1/16 18:30 – 4/30/18 17:00) Monthly Net Profit - @NQ 30 min (5/1/16 18:30 – 4/30/18 17:00)
10 @NQ 100 @NQ
130000 1300000
120000 1200000
110000 1100000
100000 1000000
90000 900000
70000 700000
Further reading
Leavitt, Jay A. [2017]. “Beyond The Hull With Leavitt Projec-
tions,” Technical Analysis of Stocks & Commodities,
FIGURE 17: A VIEW FROM SPACE
Volume 35: February.
[2017]. “Riding The Waves With The Leavitt Convo-
lution,” Technical Analysis of Stocks & Commodities,
Volume 35: August.
[2017]. “Trading The Tech Emini With The Leavitt
Convolution,” Technical Analysis of Stocks & Commodi-
ties, Volume 35: November.
[2018]. “Through The Stratosphere On The @NQ,”
Technical Analysis of Stocks & Commodities, Volume
36: March.
• RINA index: http://signaltradinggroup.com/wp-content/
DCSArticles/TSperform.pdf
• RINA index: Slaff, Tad [2015]. “Evaluating Your Trading
Strategy,” https://inovancetech.com/strategyEvaluation.
html.
FIGURE 18: ON TO MARS
G
new revelation. So it’s puzzling that it would still be taught
by Perry J Kaufman the same old way.
would like to think that what is taught is always used to determine risk and often your position size. If you
correct. Take the concept of modern portfolio measure volatility incorrectly, then you don’t get the right
theory, that is, optimizing the assets to find the balance of diversification and you have more risk than you
best portfolio in terms of reward to risk. Over the thought.
years we have learned two important facts: Most literature on volatility in the stock market says there is
16 • January 2019 • Technical Analysis of Stocks & Commodities
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a lognormal relationship between price and volatility. That’s positions in stocks with lower prices. I’ll show how to do
the same as saying volatility increases as price increases, both that in the next section.
in a percentage relationship. You would then expect that when
the stock price of Bank of America (BAC) doubles in price Where did the idea of lognormal
from $10 to $20 that the volatility, measured as the daily come from?
percentage change, would increase in proportion, or at least First, you may be interested in how the analysts arrived at their
it would increase noticeably. That’s not the case. lognormal concept. I’m going to speculate that it was adopted
Figure 1 shows a scatter diagram of price versus price from the futures markets, as were many other techniques. In
changes for BAC. The price changes stay about the same and Figure 5 is a scattergram of cash corn prices and daily returns.
possibly even decline, as prices move between $5 and $48 per The dotted line is a log curve showing that as prices increase,
share. Figure 2 shows the price versus the daily returns, or volatility increases at a slowing rate. This is what stock analysts
percentage changes. Daily returns clearly get more volatile think happens in the equity markets, but it doesn’t.
at low prices.
Sizing positions in a
Looking abroad futures portfolio
I chose BAC because it had a wide price range, but you may I’ll start with futures because position
feel that it’s a poor example. Figures 3 & 4 show the same sizing is done with volatility parity, a
relationships for one of China’s largest companies, Tencent sensible process that doesn’t depend
(TCTZF). Here, the price differences are somewhat larger on an overarching theory. It simply
when prices are higher. But on a percentage basis, it’s still not measures the current volatility of each
enough. Figure 4 shows a relationship similar to BAC. You market and assigns position size in
can prove this for yourself using Excel by creating a column proportion. As an example, the table in
of daily price returns and applying a scatter diagram of the Figure 6 shows the allocations of five
price column and the return column. futures markets based on an investment
The conclusion is that there should be smaller relative of $100,000.
Figure 1: price vs. price changes. Price changes are relatively stable in FIGURE 3: PRICE VS. PRICE CHANGES IN TENCENT
Bank of America stock.
Figure 2: price vs. daily percentage change. As prices decline, daily FIGURE 4: PRICE VS. DAILY PERCENTAGE CHANGE IN TENCENT
returns become more volatile in BAC.
Sizing positions in a
stock portfolio
FIGURE 5: DAILY RETURNS IN CORN PRICES. As prices increase, volatility Stocks are not as easy. In futures, you
increases at a slowing rate.
trade only about 25% of your total
investment, leaving reserves to absorb
the equity fluctuations that come with
high leverage. That means in the table
in Figure 6, the actual investment
was $400,000, and $100,000 was
designated for margin. But in stocks
you will want to use the entire investment. That will require
FIGURE 6: SIZING POSITIONS IN FIVE FUTURES MARKETS. Here you see the
allocation of crude oil, eurobobl, copper, Nasdaq, and two-year Treasury notes.
some arithmetic using Excel.
The allocation is based on a $100,000 investment. You will want to compare the use of the ATR method with
the common practice of deriving the position size by divid-
ing an equal allocation ($20,000) by the current stock price.
This is shown in the table in Figure 7. You’ll see that Visa
(V) has the lowest price and largest allocation, while Ama-
zon (AMZN) has the highest price and smallest allocation.
FIGURE 7: sizing positions in a stock portfolio. Here you equally al-
locate the entire investment across five stocks. So if your investment is $100,000 According to our charts, that will put too much on V and too
you allocate $20,000 to each stock. Then you divide the $20,000 by current stock little on AMZN.
price to get the position size. The table in Figure 8 goes through the process of using
ATR and rescaling to the investment size. You start with the
same method as futures by calculating the 20-day ATR for
each stock. When you divide the $20,000 allocation by the
ATR you get very large positions. The row “Value” shows
the value of each position. Note they are far greater than the
$20,000 allocated and the total investment. This is why you
need to find the ratio of the total $100,000 investment to the
sum of the “Value” line, which is 0.0179, and scale the posi-
tion size by that ratio. That gives the correct position sizes on
FIGURE 8: Position size using ATR and rescaling to the investment the line “Adj Share Size.” The total value of those positions
size. You first calculate the 20-day ATR for each stock. When you divide the $20,000
allocation by the ATR the positions are very large. So you find the ratio of the total will be $100,000.
$100,000 investment to the sum of the “value” line, which is 0.0179, and scale the The last row in Figure 8 shows the ratio of the allocation
position size by that ratio. That results in the adjusted share size. using only price (Figure 7) and the ATR allocation. AMZN
is smaller, NFLX is bigger, but this depends on the current
volatility. V and BAC have similar position sizes, indicating
• First, divide the investment equally for the five markets, similar volatility and risk, although the BAC price is nearly
giving them each $20,000. twice the price of V.
• Calculate the 20-day average true range (ATR) for each
(line 3). Avoid low-priced stocks
Even with a method of allocating based on current volatility,
• The number of contracts will be the allocation divided low-priced stocks can be unpredictable. You might enter a
by the (ATR × conversion × currency value). trade when volatility is low but within a few days it increases
by four times that amount. Figure 1 shows that BAC was 10
The results are on the last line. The largest position goes to times more volatile at $5 than it was at $50. It’s safest to avoid
January 2019 • Technical Analysis of Stocks & Commodities • 19
trading stocks that are below $10. There are many others to
choose from.
If you measure volatility
Sizing positions correctly incorrectly, then you don’t
While it may be extra work, equalizing the risk of each stock
in your portfolio maximizes your diversification and, in doing get the right balance of
that, minimizes your risk. It is sometimes necessary to look diversification and you have
beyond what is taught in school and prove it for yourself. That more risk than you thought.
is the way all good analysts should operate.
tRaDIng on momentUm
TRADING ON MOMENTUM
calhOun in the position as long as price stays approach allows traders to capitalize on
Continued from page 7 above the red VWMA line. longer intraday trends than the classic
less-than-10-minute open range daytrad-
Step 4: Once price touches or breaks ing breakout scalping does.
a variety of minor gap charts, so that down under the red line, you close As usual, with this technique, most
you can see this pattern in action before the position. daytrading should be done between 9:30
you trade. and 10:30 am, before price action slows
This strategy can also be used for inSightS: Why thiS down. When you’re looking to capital-
intraday swing trading, in which your techniQue WorkS ize on strong breakouts like these, it is
goal is to enter your trade early in the This technique is helpful mainly to visu- important to be decisive and exit your
morning and exit toward the end of the ally tell you when to close out an open, trades as soon as a breakdown under the
session, as long as price continues up- long daytrade. The underlying technical red VWMA line occurs.
ward and holds over the VWMA. You analysis simply uses a classic moving
may wish to test values other than the average breakdown to signal uncertainty
default 50-period setting, depending on or reversal of a directional uptrend. the vWMa approach
the chart you are trading. The reason I use a VWMA instead allows traders to
of a simple moving average (SMA) is
Step-by-Step action pLan because the addition of volume in the
capitalize on longer
Here’s how you can start using the moving average calculation helps you to intraday trends.
VWMA breakout strategy: know when momentum is slowing down
due to a change in trading volume. This
Step 1: Scan for charts, premarket, generates a signal line that is more ac- Ken Calhoun is a producer of trading
that have small (less than $1) gaps curate for identifying correct exits. courses, a live trading room, and video-
up, as seen in Figure 1. based training systems for active traders.
trade management tipS He is founder of TradeMastery.com,
Step 2: Enter your position at $0.20 Both initial and trailing stops for intraday an educational resource site for active
above the opening 9:30 am price. trades in the $20–70 per share range is a traders, and is a UCLA alumnus.
maximum of $0.40, often as tight as $0.10
Step 3: Once you get an order fill, stay for fast-moving charts. The VWMA
20 • January 2019 • Technical Analysis of Stocks & Commodities
How is futures margin different
from equities margin?
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Change Things Up!
In
In my previous article, I tested the performance of the double
my September 2018 S&C article, “Double Bot- bottom chart pattern for the case where higher volume occurred
toms Revisited,” I showed some backtesting at the right or left bottom. But what if we approach it a bit
results of the double bottom chart pattern. In this differently and look for very high volume on any day within
article, I would like to continue the discussion the entire pattern? This may indicate institutional buying
and show how a trader can make this pattern somewhere in the pattern, not necessarily at the bottoms. In
even more profitable. As in the previous article, Figure 2, note the high-volume day during the double bottom
NAPHAPOL HPS/SHUTTERSTOCK
I used software I created for recognizing the double bottom formation. On such a day, I state that trading volume must
pattern and used it for backtesting. be at least twice the average volume of the previous 14 days.
I had a look at stocks from the S&P 500 and Russell 3000 In addition, this volume had to be the highest of the past 60
indexes from 2001 until the beginning of 2018. The rules trading days. Of course, you can also try other combinations,
are similar to those in my previous article so I won’t repeat although I don’t think it will change the conclusions.
22 • January 2019 • Technical Analysis of Stocks & Commodities
charting
Stock It To Me:
Income-Based Investing
Putting some of your investment dollars to work in securities focused investor can buy stock in a company, becoming
that offer payouts can be a good tradeoff between risk and part owner. With this, certain ownership rights within
reward. Here’s how to go about it. the issuing company may be granted.
• How can the investor gauge the riskiness of a chosen
by Gabriel Gonzalez
investment or security? One way is to look at credit rat-
L
ings on the security or issuing entity. Financial entities,
ast time, in my October 2018 article, I wrote about
including governments, are given credit ratings to measure
safety-based investing, which focuses on relatively
credit worthiness. These credit ratings are issued by vari-
stable and established investment vehicles including
ous financial institutions, each of which implements their
notes & bonds, CDs, and commercial papers. This
own method of analysis to determine ratings.
time, I’ll take a step beyond that and look at what
could deliver a little more return but that still won’t
keep you awake at night. Income-based investing in a nutshell
As a middle ground between risk and return, income-based As we drift away from the calm, relatively safe shores of safety-
investing forfeits some of the certainty of safety-based invest- based investing, we find ourselves heading into the deeper, less
ing, but it is still more certain than capital-based investing. With certain waters of income-based investing. Here, the proverbial
WILLIAM POTTER/SHUTTERSTOCK
this increase in risk comes a greater potential for reward. fish are bigger, as bonds are no longer the primary investment
Here is some of what could be involved in income-based vehicles. Instead, they have been replaced by securities com-
investing: monly known as stocks. Though stocks come in a variety of
forms and functions, they center around a company’s profits
• Instead of purchasing debt from a company, the income-
and assets, rather than their debt and interest.
26 • January 2019 • Technical Analysis of Stocks & Commodities
INVESTING
T
in all market conditions. As traders and as readers of this
by Leslie N. Masonson magazine, we know that technical analysis provides a time-
tested, nonemotional approach to profitably participating in
he current bull market has had a terrific run both bull and bear markets, while employing risk-management
since its launch on March 9, 2009. Since then, strategies to limit losses. Technical analysis isn’t perfect, but
through October 12, 2018, the major market if you can capture 80% of the downtrend, and then 80% of
averages have risen between 283% (DJIA) to the uptrend, your asset base will grow nicely.
477% (Nasdaq Composite), with the S&P 500 Since the topic of this regular column of mine is ETFs, I
advancing 303%. Inevitably, a bear market will occur, since will review a number of inverse, that is, bear, ETFs that are
stock markets always experience boom and bust cycles. The suitable trading vehicles during market declines. Of course,
key to profitable investing is to be ready beforehand with a you can also short individual stocks or ETFs, or buy put op-
defensive strategy when the market trend starts to turn down. tions on stocks or ETFs, or use other combinations of finan-
No one wants to sit through a 50%+ drawdown, something cial instruments to accomplish the same objective, but those
that occurred once in each of the 2000–2002 and 2007–2008 options will not be covered here. A few worthwhile books
bear markets. But how do you know when to switch from that provide insight into shorting equities in bear markets or
offense to defense? investing in bear markets are listed in the “Further reading”
You probably have heard financial gurus, financial advisors, section at the end of this article.
and well-known personalities like Jack Bogle of Vanguard
fame claim that no one can time the market. That is pure Inverse ETFs
rubbish based on research that has been done by Meb Faber One of the simplest ways to profit from a correction (defined
as well as by academicians and timers tracked for years by as a decline of 10%) or a bear market (a decline of 20% or
Timer Digest and TimerTrac. By using one or more of the more) is to buy inverse ETFs, which rise in price as the market
LIGHTSPRING/SHUTTERSTOCK
basic technical tools such as moving averages, MACD, RSI, falls. One major advantage of using these ETFs is that they
and stochastics with weekly charts, you can observe the mar- can be purchased through a regular brokerage account and
ket peaking, then stalling out, and then declining. It is just a in retirement accounts. Since the ETF itself goes short, you
matter of looking at a chart right in front of you instead of are buying the ETF long. Retirement accounts do not permit
listening to all the talking heads on the business networks or margin or borrowing, so the only way to go short is to use
reading useless daily blogs. inverse ETFs or buy put options.
28 • January 2019 • Technical Analysis of Stocks & Commodities
WHY TRADE ETFS?
ProShares
ProShares introduced the
first inverse ETFs on June
21, 2006. They offered the
Stockcharts.com
Short S&P 500 (SH), Short
Dow 30 (DOG), Short QQQ
(PSQ) and Short Mid-cap
400. Six months later on FIGURE 1: INVERSE ETF PERFORMANCE IN BULL MARKET. Holding inverse ETFs in a bull market is suicide. Losses over
January 23, 2007, a Short 85% occurred in the last bull market.
Small-Cap 600 (SBB) and
Short Russell 2000 (RWM) ETF were added. These ETFs were
Bear Market Short Duration Declines
set up to return -1x of the underlying benchmark on a single Symbol
5/30/07 to 3/9/09 12/23/15 to 2/9/16 1/25/18 to 3/23/18
day. That means if the S&P 500 declines 1% today, the SH
ETF will rise by 1% and vice versa. Due to day-to-day com- SH 90.92% 10.44% 6.64%
pounding, an exact opposite price performance to the ETF’s DOG 79.11% 9.03% 11.11%
underlying index won’t be seen, as will be illustrated later. PSQ 55.34% 15.84% 5.36%
According to xtf.com, these ETFs are passively managed,
nonleveraged, and listed on the NYSE Arca. By far, SH has SPX -53.90% -8.99% -8.84%
the most assets at $1 billion with PSQ coming in second at BTAL N.A. 14.05% 2.56%
$394 million, and DOG third at $234 million. RWM has $271 FIGURE 2: INVERSE ETF PERFORMANCE IN BEAR MARKET. SH, PSQ, and
million is assets, while SBB only has $3 million. SH trades DOG all had solid performance during this period with gains exceeding 55% while
3 million shares daily compared to 1.2 million for PSQ, and
the S&P 500 declined 54%.
David Stendahl
On Seasonal Patterns
With over 25 years of experience in trading and designing pattern and momentum-
style trading systems, David Stendahl understands risk management. Stendahl
is founder and president of Signal Trading Group (SignalTradingGroup.com)
and focuses on trading the global futures markets. He follows a systematic,
low-leveraged, highly diversified trading regimen. He co-created various
financial software that centers on evaluating trading systems, position sizing
application, and portfolio construction. You can follow him on Twitter at @
David_Stendahl.
Stocks & Commodities Editor Jayanthi Gopalakrishnan communicated with
David Stendahl by phone and email in November 2018 about his company’s
latest developments in using seasonal charts for trading.
decisions. When it comes to seasonal very well save you a lot of money if you consider trading more aggressively. If,
charts, they too can be controlled. I find yourself fighting a seasonal trend. however, our system conflicts with the
basically have an on/off switch for my People say the trend is your friend; well, seasonal outlook, we might consider
seasonal charts. First, I evaluate whether I’d add that a seasonal trend is your trading more conservatively. The bottom
a market has seasonal consistence over best friend. line is we respect the seasonal trends
32 • January 2019 • Technical Analysis of Stocks & Commodities
Chart
Scan
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Swenlin Bowley Schnell
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Figure 1: seasonal accuracy chart. Periods highlighted in gray offer strong direc- Figure 2: seasonal depth chart. Markets high on the list
tional bias. offer greater seasonal consistency over time.
Got a question about options? Jay Kaeppel has over three decades of experi-
ence in the options markets. He was a head trader for a CTA firm, an options
trading software developer, and is a portfolio manager for an investment
management firm. He also spent several years writing a weekly column titled
“Kaeppel’s Corner” and now publishes a blog, “Jay On The Markets” (http://
jayonthemarkets.com). He is the author of several books, including The Four
Biggest Mistakes In Option Trading; The Option Trader’s Guide To Probability,
Volatility, And Timing; and Seasonal Stock Market Trends. Send your ques-
tions or topic suggestions to Jay Kaeppel at jaykaeppel@gmail.com. Selected Jay Kaeppel
questions will appear in a future issue of S&C.
HOW TO POSITION A TRADE USING A tance of support & resistance levels and a calendar spread.
CALENDAR SPREAD (Part 2) of implied volatility levels. These are key Regarding implied volatility, remem-
Last month, I addressed the question of considerations when contemplating any ber first from my column last month that
using calendar spreads to take advantage calendar spread, neutral or directional. a rise in IV typically helps a calendar
of time decay and/or trading ranges. I In a neutral play, we would like to see spread (as the longer-term “long” option
went over a lot of the basics of calendar resistance above the current price and gains more time premium from a rise in
spreads and discussed the key factors in- support below the current price. With IV than does the shorter-term “short” op-
volved when considering entering into a a directional play, however, we might tion) and vice versa. So ideally, a trader
neutral calendar spread. I mentioned that look to use support & resistance in a will enter a calendar spread when IV is
there are any number of ways to position different way. One possibility is to look relatively low and, in a perfect world,
a trade using this strategy, and I would for a failed breakout above resistance IV will subsequently rise after the trade
therefore continue with this topic this is entered.
month. Here, I’ll continue the discussion To illustrate these principles, let’s con-
and address the question: Is it possible After an upside sider an example. In August 2018, Kohls
or practical to use a calendar spread to breakout fails and price Inc. (KSS) attempted to break out above
make a directional trade? falls back below a key a major level of resistance. Figure 1 dis-
In most reference material, the cal- plays the significant multiyear resistance
endar spread is covered as a “neutral”
support level, a trader level that KSS was trying to clear. In late
strategy, that is, one that allows a trader may look to play the August, KSS broke above resistance and
to make money if the underlying secu- bearish side using a then quickly fell back below. This type of
rity remains relatively unchanged over calendar spread. failure is often followed by sideways-to-
a given period of time. But this strat- lower price action (as the security either
egy also lends itself well to directional tries to muster for another test or sells off
plays—often with a relatively low dollar (or below support). For example, after as the bulls bail out). If implied volatility
risk. Let’s look at how a calendar spread an upside breakout fails and price falls is low when this happens, it can be an
can be used as a directional play. back below a key support level, a trader excellent setup for a directional calendar
Last month I mentioned the impor- may look to play the bearish side using spread for three reasons:
• The security may break lower in price
following the failed breakout.
• If the security does break down in
price, there is a good chance that
implied volatility will rise as fear
kicks in.
• There is an obvious “I was wrong,
it’s time to cut bait” point (that is, if
price turns around and confirms a
breakout to the upside).
aiq trading expert
www.OptionsAnalysis.com
calendar spread.
So let’s consider an actual example
trade that involves:
• Buying 10 Jan2019 KSS 65 puts
FIGURE 2: WHERE’S IMPLIED VOLATILITY? KSS implied volatility is relatively low.
• Selling 10 Oct2018 KSS 65 puts
StockCharts.com
STOCKCHARTS.COM large portion from the US, UK, India, and daily, weekly, monthly, quarterly, and
11241 Willows Rd., NE Suite 140 Canada. Given its considerable content yearly price charts in various styles
Redmond, WA 98052-1009 and ongoing enhancements, it not only such as candlestick, bar charts, solid
Phone: 425 881-2606 was the winner of this magazine’s 2018 lines; point & figure charts; seasonality
Email: support@StockCharts.com Readers’ Choice Awards in the category charts: Relative Rotation Graphs (RRG),
Internet: www.StockCharts.com of technical analysis websites but it was interactive PerfCharts, plus others. The
Product: Technical analysis charting also the winner in that category in many chart price information provided is up-
website prior years. to-the-minute with a few-second delay.
Data updates: Real-time with five- to Over the past several years, I’ve applied
15-second refresh rates depending on data from this service to my trading rules, Members dashboard
plan selected; or end-of-day. first as a free member, then for three years Figure 1 provides a snapshot of a portion
Requirements: Works with most as a paying subscriber at the “Extra” level, of the Members Dashboard, which is the
browsers. Mobile-friendly on all and currently as a member at the “Basic” first page shown after you sign in. It has
web-enabled devices including smart level. I have never experienced a problem a new customizable layout permitting
phones. with the software, received bad data, or users to change the screen layout to meet
Price: Three monthly subscription been knocked off due to capacity issues. their visual preferences. The homepage
plans are offered with prices ranging Over the past two years, there has been for free users of the site is much different
from $14.95 to $39.95 per month (plus a full-site redesign producing a cleaner and will not be covered here.
a free level); paying annually provides homepage look. In addition, it is now
one free month. A free one-month trial more user-friendly, incorporating mo- Control Center and DP Scoreboard
of the paid service option is available bile device access. The more advanced The PRO Control Center tab on the upper
to new members. plans provide more enhanced features left highlights six choices of ChartLists,
as well as real-time
by Leslie N. Masonson data from the NYSE/
S
N A S DAQ / T S X,
tockCharts.com is a compre- compared to BATS
hensive, easy-to-navigate and real-time data in
highly subscribed-to technical the two lower-priced
analysis and charting website plans. Only paying
designed for self-directed investors and members have ac-
traders. The website offers comprehen- cess to the advanced
sive charts combined with a slate of well- chart features and
known technical indicators, and with an analysis including
impressive chart annotation capability. real-time intraday
Charts types include SharpCharts (in prices, full-screen
candlestick, line, renko, ichimoku, charts, and auto-
heikin-ashi and OHLC bar formats), matically refreshed
point & figure (P&F) charts, gallery prices.
charts showing multiple timeframes, In this review I’ll
CandleGlance groups displaying mini- look at the “Pro”
charts side by side, and performance member subscription
charts (called PerfCharts) comparing level, which includes
up to 10 tickers and showing percent all the website’s fea-
performance. tures. I’ll focus on the
This charting software and site has recent enhancements
been reviewed in this magazine on as well as a number
three occasions since 2009. My last of the more useful ca-
review covering its essential features pabilities. The chart-
was published in the July 2016 issue. It’s ing software offers
not surprising that there are hundreds multiple chart types FIGURE 1: STOCKCHARTS PRO MEMBERS HOMEPAGE. The various sections
of thousands of worldwide users with a including intraday, are clearly displayed in six boxes, some with additional tabs.
38 • January 2019 • Technical Analysis of Stocks & Commodities
scans, and alerts. The other two major ticker symbol, a chart pops up on the has been enriched, allowing a user to
categories hidden in that tab are Chart- screen. A full explanation of the SCTR view saved charts in various formats:
ing Tools with nine subcategories, and is provided at the website. summary; 10 per page; ChartBook; gal-
finally, Reports and Analysis, which lery view, CandleGlance; RRG, magic
contains 11 choices. A current Market Alerts and ChartLists carpet, seasonality; and correlation. In
Overview is provided in the center of the The daily Predefined Alerts section pro- the CandleGlance view, for example, a
screen with real-time numbers during vides information on key market levels candlestick chart automatically opens
the day for the major markets. achieved by the major indexes such as of every ticker symbol in your saved
Next, on the upper-right side, the DP a new all-time high, the crossing of key list for the selected time period (either
Scoreboard shows the DecisionPoint market levels (for example, the DJIA for two days, two months, six months,
Signals on any one of three major in- crossing above 26,000 or below 25,000), or one year).
dexes and the S&P 100, including the any of the 10 major sectors having a bull- There is also a choice of over 20 indica-
short-, mid-, and long-term trend and ish percent crossover of 70 or 30, or a tors (one indicator can be shown on the
PMO signals (a DecisionPoint indicator bullish or bearish crossover of the 50/200 chart at a time since these are thumbnail
explained on the website). That table moving averages of an index or sector. size) that can be used. Another option
shows the data for the S&P 500 index. Other security alerts also automatically is to open point & figure charts. The
By clicking on the DP Signals down ar- included are for gold, oil, TSX, the US benefit of using the list option is that you
row, the ticker cloud appears. It shows dollar, and the euro. The alert feature can look at all the saved chart patterns
the most popular 200 ticker symbols does not include any specific securities, in minutes by scrolling down pages of
accessed by StockCharts users during only the previously mentioned items. multiple snapshot charts. You can then
the day; the more popular they are, the Moreover, past daily alerts are available save the most promising chart patterns
larger and bolder the symbol. by specific dates back to October 4, for further tracking and review.
2011. Predefined alerts can also be ac- The public ChartLists section of
Market Movers and cessed on the StockCharts Twitter feed the website has been redesigned and
Technical Rankings and are updated in real time during the upgraded with new features so that site
Down one level on the left side of the day on the website. Keep in mind that members are able to share their commen-
screen is the Market Movers group- a specific alert only triggers once each tary with others. This very informative
ing, which displays the 10 most active day, even though it may hit that criteria free service contains the commentary
issues or the Top 10 performers either again during the day. of 163 members who post their highly
up or down for multiple indexes of your The three other sections of the home annotated charts and analysis, mostly
choice, including the Dow 30, S&P 500, page that can’t be seen in Figure 1 are daily. The highest-ranked contributions
NYSE, NASDAQ, TSX, London, and for your personally developed scans, are displayed in order based on the com-
India. By checking this information a alerts, and ChartLists. The member pilation of user votes.
few times a day, the user can get a feel ChartList Views with nine options The current top-ranked contribution
for the market leaders and whether there
is a concentration or price momentum
in any sectors or groups.
The Technical Rankings section pro-
vides analysis on multiple data points and
multiple security types including large-,
mid-, and small-caps, ETFs, as well as
Toronto, London, and India securities.
This screen contains the SCTR (Stock-
Charts Technical Rank) tool, in this case
ranking large-cap stocks. Each stock
listed has a SCTR numerical score. The
SCTR score is calculated based on six
technical indicators (moving averages,
rate of change, and RSI, among others)
over different timeframes—short-, me-
dium-, and long-term, and then ranked
from high to low (99.9 to zero). The
top-10 stocks are shown. The top 10%
of stocks will be ranked between 90 and
100, and conversely, the bottom 10% will FIGURE 2: PUBLIC CHARTLISTS EXAMPLE. Above The Green Line is the top-ranked service in this instance, some-
be ranked zero to 10. By clicking on any thing that is updated daily. This sample chart shows the three rules used to select high-quality candidates.
LEVERAGED ETFS VS. FUTURES: brokerage, or another platform. From a ing leveraged is an artificially derived
A GOOD SUBSTITUTE? marketing standpoint, this was a genius financial instrument intended to mirror
Why do some speculators opt to trade development but from a practical view, changes in that particular commodity
leveraged ETFs rather than futures it is undesirable. in the futures market. You might find
contracts? These products conveniently brought the fund summary for such ETFs refer
This is a great question. One for which leveraged commodity trading to the to the product as being a hypothetical
I do not have a logical answer. The truth masses, in my estimation much to their futures position or the investment seeks
is, beyond the argument of convenience, peril. These ETFs are inefficient vehicles to replicate one. In short, the underlying
there is no reasonable reason to trade for commodity speculation; they often asset of a leveraged ETF is not a thousand
leveraged ETFs in lieu of futures trad- fail to follow the underlying commodity barrels of crude oil or 100 ounces of
ing. That said, not everybody should be effectively. They are not viable candi- gold; the leveraged ETF value is based
speculating with leverage. Thus, the first dates for buy & hold positions; they are on a synthetic asset. Bluntly, traders
decision a trader should make is whether are speculating using hypercharged de-
to utilize leverage. rivatives based on the value of another
Only those with the risk tolerance and
Unlike leveraged ETFs derivative. I think we can all agree this
capital to trade on margin will then need that must be rebalanced is an extremely inefficient means.
to decide which venue to participate in. constantly to keep Futures contracts, on the other hand,
For full disclosure, I am a futures and the derivative product represent a delivery obligation of the
options broker who makes a living from underlying commodity. Thus, a trader
commissions generated in the commod-
behaving similarly to the holding a long corn futures contract
ity markets; of course, my opinion is bi- associated commodity, opting to hold to expiration would then
ased. Nevertheless, I’ve yet to encounter futures contracts are actually take delivery of 5,000 bushels of
a compelling argument in favor of using naturally tied to the corn! In the futures market, derivatives
leveraged ETFs over futures. of derivatives are not changing hands—
The primary skill of the financial
underlying commodity derivatives of the actual commodity are.
industry is to identify the demand for price. This is an imperative difference that
speculative products and then meet enhances efficiency. Further, because
that demand, regardless of the potential intended for daytrading—which is great futures contracts are naturally leveraged
impact on unsophisticated investors. for brokerages and funds because it keeps and tied to the underlying commodity,
In my opinion, leveraged commodity “transaction revenue generation” flow- they can be used effectively for buy &
ETFs are the epitome of this practice. ing. There also might be counterparty hold trading. Unlike leveraged ETFs
Knowing that far more investors have risk when trading certain ETFs. This that must be rebalanced constantly to
stock and bond investment accounts than means that under extreme volatility, the keep the derivative product behaving
futures accounts, the industry developed original investor capital and any paper similarly to the associated commodity,
products intended to mimic the futures returns rely on the ability of the coun- futures contracts are naturally tied to the
markets but are accessible through a terparty (often a bank) to pay. I admit, underlying commodity price.
traditional investment account. The the odds of a situation in which the fund In addition to efficiency, commodity
result was leveraged commodity ETFs (ETF) goes belly up isn’t substantial but futures contracts are available to trade
that could be traded side-by-side with it isn’t impossible. Why take the risk? nearly 24-hours per day. Most futures,
traditional investments such as mutual Leveraged ETFs effectively double or such as gold and crude oil, close for one
funds, stocks, bonds, and sector index triple exposure to a certain commodity hour per day but are otherwise liquid
ETFs. Suddenly, trading commodities such as gold or crude oil. However, it is
didn’t require a separate account, another important to note that the product be- Continued on page 45
January 2019 • Technical Analysis of Stocks & Commodities • 43
Algo Q&A
ALGORITHMIC TRADING
Have a question about system or algo trading? Kevin J. Davey has over 25 years of
system trading experience. Davey is a full-time trader, and he also teaches and con-
sults via his Strategy Factory online workshop (http://kjtradingsystems.com). He is the
author of several bestselling trading books, including Building Winning Algorithmic
Trading Systems and Introduction To Algo Trading. Send your questions or topic sug-
gestions to Kevin Davey at kdavey@kjtradingsystems.com. Selected questions will
appear in a future issue of S&C.
Kevin J. Davey
DISCRETIONARY VS. ALGORITHMIC exception. There is no discretion in pure Strategy A has 10 years of profitable
TRADING algorithmic trading. trading history. Strategy B, on the
I currently trade in a discretionary man- Why would you want to trade algorith- other hand, has 10 years of consistently
ner using price action and trendlines. I mically according to rigid rules? Three losing performance. Which would you
find it very difficult. I have heard a lot primary reasons come to mind. First, choose? Of course, most of us would
about systematic and algorithmic trad- algorithmic strategies can be historically choose strategy A, even though there
ing. Can you tell me more about it? tested. This is important, even though as is no guarantee it will generate profits
Certainly, but first of all, you should traders we are continually taught “past going forward.
realize that any type of trading is dif- performance is not indicative of future Historical testing can therefore be im-
ficult, no matter what kind of trading, or results.” Imagine you had this choice: portant for an algorithmic trader. Having
what kind of instrument, you trade. As a the confidence in knowing your approach
retail trader, you are up against profes- has been profitable in the historical long
sional traders, and they enjoy profiting
Simply put, algorithmic run helps you weather the short-term
from your misfortune. Be skeptical of trading can be defined drawdowns that all strategies experience
anyone who tells you trading is easy. They as “rules to trade by.” from time to time.
usually have an ulterior motive, which Once you have those A second reason to trade algorithmi-
typically involves money coming out of cally is for diversification. Imagine a
your pocket and going into theirs!
rules, you always follow discretionary price-action trader who
Systematic trading, which over the them, without exception. trades the mini S&P. He might do
years has also been called mechanical There is no discretion in well, but what if the market suddenly
trading, rule-based trading, and most pure algorithmic trading. changes, and most of his market “tells”
recently, algorithmic trading, is different and setups no longer work? What does
from discretionary trading. Dis- he do then?
cretionary traders usually make An algorithmic trader, on the
buy/sell decisions based on charts, other hand, typically has dozens
order flow, indicators, market con- or even hundreds of strategies to
text, news, and a myriad of other trade, in many different markets.
inputs. Intuition is a big part of This helps the trader diversify the
discretionary trading, and today’s trading portfolio, which produces
buy based on certain conditions a smoother equity curve. An ex-
might be tomorrow’s sell for those ample of this is shown in Figure
same conditions. 1. And, if an algo strategy starts
System trading, or algorithmic to fail or underperform, it can be
trading as I’ll refer to it, is quite turned off or replaced without a
a bit different. The buy/sell deci- major impact on overall results.
sions are based on rules, and those Traders fantasize about the trad-
rules, once formulated and tested, ing “holy grail,” and while I don’t
do not change. So if your rules tell believe one exists, the diversified
you to buy a hanging man candle- trading available via algorithms
stick pattern, five years from now certainly comes close.
those rules would also tell you to A third and final reason to
buy a hanging man pattern. consider algorithmic trading is
Simply put, algorithmic trading automation. Discretionary chart
can be defined as “rules to trade watchers can miss trades, or are
by.” Once you have those rules, Figure 1: EXAMPLE EQUITY CURVEs. Trading multiple diversified limited in the number of markets
you always follow them, without strategies can significantly smooth the overall equity curve. they can trade. Algorithmic trad-
44 • January 2019 • Technical Analysis of Stocks & Commodities
Algo Q&A
ers, on the other hand, can have their be automated, freeing up the trader to in various markets, and placing orders
trading platform execute trades for as monitor strategies, develop new strate- automatically, you certainly should con-
many markets as they desire, and do it gies, and so on. sider this approach to trading.
automatically. Now, that doesn’t mean Algorithmic trading is not for every-
algorithmic trading is “set and forget,” one, but if you favor having profitable
but the burden of placing trades can historical results, trading many strategies
GARNER of management fees, potential interest 3 to 1. For this reason, I strongly rec-
Continued from page 43 charges, large account size requirements, ommend traders overfund their futures
and more. Futures market participants account (deposit more than the minimum
and accessible via a trading platform or are offered leverage without interest margin required) to delever trading, and
mobile phone app around the clock. This charges or a need for special permis- I recommend utilizing a combination of
is an obvious advantage in a globalized sions. A futures trader can speculate with long and short options to manage risk and
economy; overnight news of Chinese tar- leverage in an account with few thousand slow down profit and loss volatility.
iffs or a European banking crisis can be dollars on deposit, much less than the six- In summary, those looking beyond
reacted to in real time, rather than being figure accounts a stock brokerage might daytrading and capable of maintaining
forced to wait for the US stock exchanges require for leveraged trading. However, trading discipline will likely find the
to open at 9:30 am Eastern Time. leverage isn’t always an advantage. It can efficiency and mechanics of the futures
The futures markets also offer traders be a painful disadvantage to those who markets superior to that of leveraged
built-in and cost-free leverage. Leveraged underestimate its power. For instance, ETF products.
ETFs are something that involves incre- futures contracts are often leveraged at
mental costs and burdens in the form 20 to 1, while a 3X ETF is leveraged at
January 2019 • Technical Analysis of Stocks & Commodities • 45
Trading Perspectives
2019: The Year of the familiar technical patterns emerg- tom performers within a peer
Pair Trader! ing. The pair trader could profit from group).
It’s a new year, a new day, and time to the favorable move of the spread
know how to trade up, down, and side- while remaining insulated against Note that the goal for the portfolio
ways. That is to say, hedged. the overall market. style would be to have a reduction
As I’ve mentioned previously in my • Fundamental mean-reversion op- of cross-correlations, like evaluating
columns in this magazine, markets don’t portunity. You have identified fun- selections for a long-only portfolio.
and won’t go up forever. Sometimes damental differences between two You can accomplish this through
they fall, and there are many periods of stocks and are looking for them to various strategies within your
range-bound, sideways markets through- become more similar in time. overall holdings. It is fine to select
out history. As the entire foundation of • Statistical anomalies. You have some value vs. growth, but allocate
public equity markets is the buy-side, it is gathered or rely on statistical data a portion of your total capital to this
understandable that the focus is always on and take trades based on what your rather than all of it. Throughout
buying strong stocks, buying pullbacks, data tells you to do in order to history, we have seen sentiment
and investing for the long term. capture small and perhaps frequent oscillate between value and growth
My definition of a pair is the relation- anomalies. but perhaps less frequently than you
ship of any two stocks. It is the trader’s see the oscillations with risk-on/
choices that create good or bad pairs. It The rule of thumb is risk-off.
is the market variables, news, and other The purpose behind creating pairs and
forces that change a good pair into a bad
to act quickly when then developing trading strategies for
pair. Occasionally, we witness a bad pair parameters are met. In these instruments is obviously to make
changing its tune and we acknowledge other words, respond money. What you do is not a hobby.
that we were lucky rather than smart. quickly to opportunity, Don’t spend all your time researching,
There are many ways to trade a pair. designing plans, or building widgets. You
To list a few:
signals, and your need to trade as if you will only “eat from
parameters. what you kill,” all the while maintaining
• One-time catalyst opportunity. a balance in these other areas. I have
You believe there is a driving force • Intraday only. This is really a func- seen traders allowing themselves to be
behind one stock and you are using tion of volatility. The greater the distracted when markets are tough, or
the other stock as a hedge against the VIX, the greater the oscillation of their holdings are giving them trouble,
market, so you can hold it overnight supply and demand influencing the spending time on the trivial, nonessential
with less risk or concern. spread prices. The more the spread items, instead of rolling up sleeves and
• Compounded trading from an ob- moves, the greater the probability of attending to their trading business. The
servation of a range-bound pair. being able to put it on, take it off, or core is to have performing pairs and
The two stocks are comparable and trade some of your core position. bring on new ones that you believe will
should maintain that market-neutral • Portfolio style. This involves hold- perform (through the eyes of probability,
protection. ing a quantity of pairs. There is not assumption), and then fire the non-
• Trading around a core position. This a risk of cross-correlations being performers as your plans dictate. This
could be a stationary pair, or one that quite high if you utilize the same implies that you are disciplined enough
is oscillating back and forth or even procedures to select the pairs. to follow your detailed plans.
one that is trending. The key is that In the portfolio approach, you When you trade pairs:
you are trading some and holding could be impacted by:
some for the bigger picture. {{ Value vs. growth • You close profits (we refer to this as
• Technical swing trades. There are {{ Risk-on vs. risk-off production)
multiple ways to chart the spread {{ Picking worst in breed vs. best • You carry open profits (to reach your
of the two stocks and there can be in breed (such as the top/bot- targets or stretch out your profits past
46 • January 2019 • Technical Analysis of Stocks & Commodities
Trading Perspectives
your original targets) When you fly in a plane, what is your that, if it’s a substantial loss, I will first
• You carry open losses confidence that the jet engine will work consider whether there is anything else I
• You close losses (yes, you must have based on? can do with the position. Could two good
parameters that you will follow to Let’s carry these thoughts over and pairs be made from one bad pair?
protect your major tool, which is consider that you have a pair with open If you have a mentor or coach, get a
your capital) losses in. Ask yourself these questions: second opinion before closing out the
• As you close profits and hold losses, pair with a significant loss. For retail
your pair, or portfolio, will drift to • Why did I get into this pair? investors and traders, consider the tax
extra short dollars • What was the initial reason, inspira- consequences of closing positions.
• This means your long dollar hold- tion, or validity to put it on? Please seek tax advice from your profes-
ings will decline relative to your • From that perspective, is this pair sional advisor. Consider any dividend
short dollar holdings. still valid? implications. Long positions can collect
• Is there any new information? dividends if the stock is held over record
Open losses • Or, was I wrong in my determina- date, while short positions are obligated
Carrying open losses while trading tion that this would be a good pair to pay the dividend.
pairs is a bit like the concept of having to trade? The rule of thumb is to act quickly
religious faith or confidence and trust when parameters are met. In other words,
in anything that is unknown or not inti- Or if I was right that this is a good pair respond quickly to opportunity, signals,
mately understood. An example would to trade and it is still a valid pair, then and your parameters.
be that most people have no idea how a go back to the trading plan for the pair. Then, if you discover you have made
jet engine really works, but anyone who Review with yourself: mistakes, been undisciplined, and caused
gets on a plane has some trust that the a significant loss, add some reflective
engines will perform their job and carry • Did I change my timeline? time and brainstorm all possible solu-
the passenger to the destination without • What was my plan for a loss on tions without reacting from a center of
failing at the task. that pair? frustration and anger.
Traders and investors operate by belief • Did I exceed that designated loss
daily. Within media venues, individuals for the pair?
use the word “believe” concerning mar-
kets, valuations, and intentions. It goes
back to, why would someone have faith
If my original reasons were valid, and
are still valid, and I would put it on today
submit an article!
or confidence in something, someone, without hesitation, then this current pair
or some company? price is still a good opportunity.
What principle do you stand on to Yes, I have lost some, but am I still
establish a confident pose? Could the within my predetermined boundaries?
principle be misunderstood? If it were a I now require confidence to continue
“truth,” it cannot be an “untruth” at the working my plan.
same time, but the truth can be viewed As the song popularized by Dinah
through different filters and lenses, so it Washington goes, “What a difference
is a matter of interpretation. a day makes.” This confidence can be
rewarded slowly or quickly, or even
Are you knowledgeable about technical
Presume or assume? suddenly!
indicators, charting, trading systems, and
Using the meaning of “to suppose,” the Or on the other hand, maybe your money management? Or do you have a solid
word presume is usually used when you answer was: background with intraday trading, trading
suppose based on probability, while as- psychology, options and cycles? If so, we’d
sume is used when you suppose without • I was wrong on my original re- like to hear from you!
any evidence. search. To write for any of our publications or
What is your probability view based • I assumed things that I had no evi- obtain more information, please click on
on? dence for. Contact Us at www.Traders.com.
• I did not operate with a probabilistic
• History through other eyes or ex- mindset.
periences? • I broke my rules.
• Your personal experience? • The pair has exceeded my param-
• Knowledge and understanding? eters.
• A thorough analysis of the prob-
abilities? If that is the case, then I need to deal
with this loss situation. But before I do
January 2019 • Technical Analysis of Stocks & Commodities • 47
For this month’s Traders’ Tips, the focus is At Traders.com you can also right-click on
mainly Sylvain Vervoort’s article in the July any chart to open it in a new tab or window
2018 issue, “The V-Trade, Part 5: Techni- and view the chart at a much larger size.
cal Analysis—Moving Average Support & The Traders’ Tips section is provided to
Resistance And Volatility Bands.” Here, help readers implement a selected tech-
we present the January 2019 Traders’ Tips nique from an article in this issue or an-
code with possible implementations in var- other recent issue. The entries here are
ious software. contributed by software developers or pro-
The code for the following Traders’ Tips grammers for software that is capable of
selections is posted here: customization.
• Traders.com S&C Magazine
Traders’ Tips
BandsDeviation( 2.4 ),
LowBandAdjust( .9 ),
MidLineLength( 20 ) ;
F TRADESTATION: JANUARY 2019 TRADERS’ TIPS CODE
In “The V-Trade, Part 5: Technical Analysis—Moving Average variables:
HighBand( 0 ),
Support & Resistance And Volatility Bands” in the July 2018 LowBand( 0 ),
Stocks & Commodities, author Sylvain Vervoort introduced MidLine( 0 ),
a new type of price band that he calls the SVEVolatilityBand. ATRVal( 0 ),
WtdAvgVal( 0 ) ;
He created this new type of band to better highlight volatility
changes when using non-time-related charts. According to the ATRVal = AvgTrueRange( BandsPeriod * 2 - 1 )
author, when using charts such as renko, traditional bands may * BandsDeviation ;
WtdAvgVal = WAverage( Price, BandsPeriod ) ;
fail to effectively highlight these changes. HighBand = WtdAvgVal + WtdAvgVal
The TradeStation EasyLanguage code for the SVEVola- * ( AtrVal / Price ) ;
tilityBands indicator based on the author’s work is presented LowBand = WtdAvgVal - WtdAvgVal
* ( AtrVal * LowBandAdjust / Price ) ;
here. MidLine = WAverage( TypicalPrice, MidLineLength ) ;
Indicator: SVEVolatilityBands Plot1( HighBand, "Upper Band" ) ;
// SVEVolatilityBands Plot2( LowBand, "Lower Band" ) ;
// Sylvain Vervoort Plot3( MidLine, "Mid Line" ) ;
// TASC Jan 2019
Figure 5: quantacula. The equity curve for the SVE smoothed volatility band
lower trading model in Quantacula Studio is shown.
F Quantacula Studio: JANUARY 2019 TRADERS’ TIPS
CODE
using QuantaculaIndicators;
The smoothed volatility bands indicator described by author using TASCIndicators;
Sylvain Vervoort in his July 2018 article, “The V-Trade, Part
5: Technical Analysis—Moving Average Support & Resistance namespace Quantacula
{
And Volatility Bands,” is available in Quantacula’s open-source public class MyModel : UserModelBase
TASC Extensions library. The sourcecode for all 100+ indica- {
tors is available in the following GitHub repository, which is //constructor
public MyModel() : base()
a treasure trove of Quantacula programming knowledge: {
}
https://github.com/LucidDion/TASC-Extensions
//Initialize is called once prior to backtest
The SVESmoothedVolatilityBandUpper and Lower were public override void Initialize(BarHistory bars)
recently added to the repository by a Quantacula user and {
vb = new SVESmoothedVolatilityBandLower(bars, 20, 20,
have since been included in the latest builds of the Quantac- 3.0, 0.90);
ula.com website and the Quantacula Studio desktop back- Plot(vb);
testing platform. }
We noticed that the bands identify extreme price excur- //Execute is called once for every bar of data in the history
sions when the deviation parameter is set to 3.0. The follow- public override void Execute(BarHistory bars, int idx)
ing trading model uses simulated limit orders to try and buy {
PlaceTrade(bars, TransactionType.Buy, OrderType.Limit,
Nasdaq 100 stocks that penetrate the lower band. The model vb[idx]);
then sells the next day at market open. It uses the following foreach (Position pos in OpenPositions)
settings: ClosePosition(pos, OrderType.Market);
}
public SVESmoothedVolatilityBands()
{
paramBandAvg = CreateParameter("Band
FIGURE 8: WEALTH-LAB. This sample chart demonstrates the characteristic volatility expansion
average", 20, 2, 100, 1);
trade in AAPL (Apple Inc). paramMiddleLine = CreateParameter("Middle
line period", 20, 2, 100, 1);
paramDevFact = CreateParameter("Deviation
Since this indicator does not come with a trading system, factor", 2.4, 0.2, 5.0, 0.2);
we decided that a good illustration of its application may be paramLowBAdj = CreateParameter("Low Band Adj.",
through the concept of volatility contraction and expansion. 0.9, 0.1, 3.0, 0.1);
paramSqueezeLookback = CreateParameter("Squeeze
Price breakout following a volatility contraction implies an lookback", 200, 5, 150, 1 );
expansion in volatility of the price range, which acts as cata- }
lyst to longer-term trends. The opposite phase, that is, when
protected override void Execute()
the bands’ volatility reaches its longer-term high, signifies {
considerable price changes and a potential end of the trend. int average = paramBandAvg.ValueInt;
The width percentage of the smoothed volatility bands is int middleperiod = paramMiddleLine.ValueInt;
double devfact = paramDevFact.Value;
measured over desired lookback (here, 200 days). double lowbandadjust = paramLowBAdj.Value;
int squeezelen = paramSqueezeLookback.ValueInt;
System rules:
// Smoothed Volatility Bands
• Buy at stop at the highest 20-day high when the percent var TypicalPrice = AveragePriceC.Series( Bars );
width of the SveVolatilityBands contracts to its lowest var MedianAverage = WMA.Series(TypicalPrice, middlep-
200-day value, and there’s a bullish trend (close price eriod);
var HighChannel = SVESmoothedVolatilityBandUpper.
above 200-day SMA). Series( Bars, average, middleperiod, devfact, lowbandadjust );
• Sell at market when the percent width of the SveVola- var LowChannel = SVESmoothedVolatilityBandLower.
tilityBands widens to its highest 200-day value, and to- Series( Bars, average, middleperiod, devfact, lowbandadjust );
day’s low drops below the 20-day lowest low. SolidBrush shadowBrush = new SolidBrush(Color.Fro-
mArgb(50, Color.Violet));
The system may be risky in its current barebone state PlotSeriesFillBand(PricePane, HighChannel, Low-
Channel, Color.Blue, shadowBrush, LineStyle.Solid, 2);
so motivated traders might want to use a stop-loss and/or a PlotSeries(PricePane, MedianAverage, Color.Blue,
trend filter to liquidate the position if the trend has changed LineStyle.Solid, 1);
from bullish. HideVolume();
A sample chart is shown in Figure 8. // Squeeze and expansion in SveVolatilityBands
For extra flexibility in configuring various parameters, var PctWidth = ( ( HighChannel - LowChannel ) / Me-
drag “sliders” at the bottom of the screen interactively. The dianAverage ) * 100; PctWidth.Description = «% Width»;
var PctWidthMax = Highest.Series( PctWidth, squee-
strategy’s code is downloadable and can be found under the zelen );
“breakouts” folder in the “open strategy” dialog (Ctrl-O, var PctWidthMin = Lowest.Series( PctWidth, squeezelen
then click download and begin download). );
To execute successfully in Wealth-Lab, the system re- ChartPane PctWPane = CreatePane( 20, true, true );
quires the latest version of the TASCIndicators library. PlotSeries( PctWPane, PctWidth, Color.Blue, WealthLab.
Please install (or update if you haven’t done so already) the LineStyle.Solid, 2 );
PlotSeries( PctWPane, Lowest.Series( PctWidth,
library from our Wealth-Lab.com site to its latest version. squeezelen ), Color.DarkGreen, LineStyle.Dashed, 2 );
PlotSeries( PctWPane, Highest.Series( PctWidth,
Wealth-Lab strategy code (C#):
squeezelen ), Color.DarkRed, LineStyle.Dashed, 2 );
using System;
for(int bar = GetTradingLoopStartBar(average); bar <
using System.Collections.Generic;
Bars.Count; bar++)
using System.Text;
{
using System.Drawing;
if (IsLastPositionActive)
using WealthLab;
{
using WealthLab.Indicators;
if( PctWidth[bar] >= PctWidthMax[bar] )
using TASCIndicators;
{
SveVolatiltyBands:
Upper Band: Mul2( LinWgtAvg(Close,20), Add2(1,
Divide( Mul2( Avg( Sub( Max2( High, Lag(Close,1)),
Min2( Low, Lag(Close,1))), 20), 2.4), Close)))
Lower Band: Mul2( LinWgtAvg(Close,20), Sub(1,
Divide( Mul3( Avg( Sub( Max2( High, Lag(Close,1)),
Min2( Low, Lag(Close,1))), 20), 2.4, 0.9), Close)))
Middle: LinWgtAvg(Avg3(High,Low,Close),20)
Bollinger Bands:
Upper Band: BB High(Close,20,2.4)
Lower Band: BB Low(Close,20,2.4)
Middle: LinWgtAvg(Avg3(High,Low,Close),20)
sma1 is simpleavg(C,smaLen1).
sma2 is simpleavg(C,smaLen2).
sma3 is simpleavg(C,smaLen3).
!LINEAR WEIGHTED
LWMA is (C*20+C1*19+C2*18+C3*17+C4*16
+C5*15+C6*14+C7*13+C8*12+C9*11
+C10*10+C11*9+C12*8+C13*7+C14*6
+C15*5+C16*4+C17*3+C18*2+C19*1)/210.
!ESA BANDS:
esa is expavg(C,esaLen).
upperESA is esa*(1+esaBandPct/100).
lowerESA is esa*(1-esaBandPct/100).
!BOLLINGER BANDS:
!SET PARAMETERS FOR BANDS:
BBlen is 20.!Default is 20
Mult1 is 2. !Default is 2
Mult2 is 2. !Default is 2
Variance is Variance([close],BBlen).
StdDev is Sqrt(Variance).
SMA is simpleavg([close],BBlen).
Figure 10: AIQ. This shows a sample trade from the squeeze system. UpperBB is SMA + StdDev * Mult1.
LowerBB is SMA - StdDev * Mult2.
ShowValues if 1.
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems
—Richard Denning
info@TradersEdgeSystems.com
for TradersStudio
Figure 12: TRADERSSTUDIO. This shows a sample equity curve trading the list of
the NASDAQ 100 stocks from 2000–2014 using the SQUEEZE_MKT code.
T
rading liquidity is often over- very high volumes. The greatest number three-year period. Thus, all numbers in
looked as a key technical of dots indicates the greatest activity; this column have an equal dollar value.
measurement in the analysis futures with one or no dots show little Columns indicating percent margin
and selection of commodity activity and are therefore less desirable and effective percent margin provide
futures. The following explains how to for speculators. a helpful comparison for traders who
read the futures liquidity chart pub- Courtesy of CBOT wish to place their margin money ef-
lished by Technical Analysis of Stocks ficiently. The effective percent margin
& Commodities every month. is determined by dividing the margin
value ($) by the three-year price range of
Commodity futures contract dollar value, and then multiply-
The futures liquidity chart shown be- ing by one hundred.
low is intended to rank publicly traded
futures contracts in order of liquidity. Stocks
Relative contract liquidity is indicated Trading liquidity has a significant ef-
by the number of dots on the right-hand fect on the change in price of a secu-
side of the chart. rity. Theoretically, trading activity can
This liquidity ranking is produced by serve as a proxy for trading liquidity
multiplying contract point value times All futures listed are weighted equally and equals the total volume for a given
the maximum conceivable price motion under “contracts to trade for equal dol- period expressed as a percentage of the
(based on the past three years’ historical lar profit.” This is done by multiplying total number of shares outstanding. This
data) times the contract’s open interest contract value times the maximum pos- value can be thought of as the turnover
times a factor (usually 1 to 4) for low or sible change in price observed in the last rate of a firm’s shares outstanding.
Back to Basics, if you can pass 6th grade arithmetic To Advertise here contact:
you can win big in commodities. Trader since 1984. I
am presenting a seminar on Nov 19–20 in Ann Arbor Mi.
For an application Write to:
Chartistllc@yahoo.com byline TUTOR
Bring your own lap top, we will be trading live. You must
Advertising
have data fed, order entry platform. Also my special op- Advert@traders.com • (206) 938 0570
tion system. What does it matter Nov. elections as long
as you are on the correct side of any trade.
Sincerely Arnold Shenkman “I put the art in chart”
TRADERS'
RESOURCE
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The information in Traders’ Resource is the most accurate at the time of posting and is subject to change. Because the vendors posting to Traders’ Resource are responsible for their own listing, Technical Analysis, Inc. declines any and all liability
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W
by Claudio Demb to recognize that you have entered an impulsive trade, closing
it as soon as you can, end of story.
hat is impulsive trading and what does it look How do you know that the trade you have put on is an
like? Let’s begin with defining impulsivity. impulsive one? That has an easy answer. Every trade has
As the word implies, it is something we do to fall within a specific strategy. Therefore, any trade that
fast without much forethought, mostly with a is outside your strategy is classified as impulsive. How do
negative outcome where regret reigns supreme. you address this problem? Many people, including traders,
Bplanet/SHUTTERSTOCK
We all know this, but why is it that knowing it might say it’s about a lack of discipline. That is partially
is not enough to stop this behavior from hap- correct, but it misses a key ingredient: the feelings behind
pening in ourselves? the impulsive behavior.
Impulsive trades are more common than
60 • January 2019 • Technical Analysis of Stocks & Commodities
trading psychology
price stopped falling. For this particular trade, the strategy Claudio Demb is a psychiatrist, private trader and investor,
used could either be playing an oversold bounce or fading an and the author of the blog “Trading Your A Game” at www.
extreme. I have defined a minimum of three weekly bars and claudiodemb.com. He is also the author of the new book
ticking up of the MACD for this strategy. In this case, none Trading Your A Game: Are Feelings Expensive? He lives in
of that was in place and as soon as I entered the trade, I took a Brookline, MA and can be reached at claudiodemb@gmail.
screenshot of it, as I always do, and sent it to my trading buddy. com.
Without hesitation, he told me it was bottom-picking—that
is, an impulsive trade. I sat on the trade and by the next day Further reading
I started feeling uneasy, realizing that he was right and that I Demb, Claudio [2017]. “The Pernicious Effect Of The Loss
was sitting on an impulsive trade. With my hard stop in place, Of Opportunity,” Technical Analysis of Stocks & Com-
I let it be for a little longer and then closed out the trade at the modities, Volume 35: May.
first evidence of weakness. The outcome? A small loss and a [2018]. “Decision-Making: Why Is It So Difficult?”
bitter taste for having made a mistake. Technical Analysis of Stocks & Commodities, Volume
36: November.
A better way [2017]. “Successful Trader Must-Haves,” Technical
What would I have needed to see to have it qualify for a proper Analysis of Stocks & Commodities, Volume 35: March.
setup? Let’s look next at the chart in Figure 2. Here, we have a ‡TradeStation
very different picture. I marked on the weekly chart the fourth ‡See Editorial Resource Index
bar that passes the minimum of three weekly bars requirement
and coincides with the ticking up of the MACD histogram.
The daily is much clearer. I marked the trigger bar that shows
a beautiful false breakdown—also known as a spring using the
language of the classic Wyckoff method—of the recent low,
closing on a firm note. The MACD lines are already crossing
KOSINSKI/DOUBLE BOTTOM PATTERNS financial markets. He was the principal founder of the site
Continued from page 24 LookIntoTrade.com, which offers backtesting of various strate-
gies. He may be reached at pawel.kosinski@uib.no.
and/or a candle with a short upper shadow. Look for them Further reading
before you place an order entry. More experienced traders Kosinski, Pawel [2018]. “Double Bottoms Revisited,” Tech-
may try to enter before the pattern has been confirmed but nical Analysis of StockS & commoditieS, Volume 36:
that may lower the probability of success, even though the September.
potential reward/risk ratio is superior.
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Dear Friends:
There is a famous story I have heard a time ago: On a beautiful late spring
afternoon, twenty-five years ago, two young men graduated from the same college.
They were very much alike, these two young men. Both had been better than
average students, both were personable and both – as young college graduates are
– were filled with ambitious dreams for the future.
Recently, these two men returned to college for their 25th reunion.
They were still very much alike. Both were happily married. Both had two
children. And both, it turned out, had gone to work for the same international
manufacturing company after graduation, and were still there.
But there was a difference. One of the men was manager of a small department of
that company. The other was its president.
Have you ever wondered, as I have, what makes this kind of difference in people’s
lives? It isn’t always a native intelligence, talent, or dedication. It isn’t that one
person wants success and the other doesn’t.
The difference lies in what each person knows and how he or she makes use of that
knowledge.
And that is why I am writing to you and to people like you about LibTA, the
Technical Analysis Library. For that is the whole purpose of our Library: To give
its members knowledge – knowledge that they can use in trading and life.
Each day, The Library’s posts include a broad range of information of interest and
significance to business-minded people, no matter where it comes from. Not just
markets and finance, but anything and everything in the whole, fast-moving world
of trading. The LibTA gives you all the resources you need — when you need it.
Knowledge Is Power
From Technical Analysis and cryptos to options and stock markets, from investing
to Forex, there are almost 1000 books and dozens of hours in audio and video-
courses at your fingertips.
Our goal is to share knowledge and help investors and traders to become proficient
and succeed in the market.
If you have never heard about the LibTA, you cannot imagine how useful it can be
to you. You will want to find out immediately if it can do for you what it is doing
for its thousands of members. Just access it here: https://t.me/libTA
A Money-Saving Channel
Everything in our channel is free and it will always be. Our courses & books are
meant for those who seek knowledge but cannot afford to buy on the author's
website or on Amazon. However, if you like the course or book, and can afford it,
please support the Author by purchasing it.
About those two college classmates I mention at the beginning of this letter: they
were graduated from college together and together got started in the business
world. So what made their lives in business different?
An Investment In Success
I can't promise you that success will be instantly yours if you start reading and
watching our courses and books. But I can guarantee that you will find our Library
always interesting, always reliable, and always useful.
Sincerely,
~ LibTA Team
PS: If you feel, as we do, that this is a fair and reasonable proposition, and you
share our ideals, help LibTA. For as little as 0.003 BTC you can support the project
and make a difference – and it only takes a minute. Thank you.