Intermarket Divergence – A Robust Method for Signal Generation

May 2, 2016 5:00 am21 comments

Many markets are interrelated. These interrelationships can offer predictive capabilities for many markets. The study of these interrelationships is called intermarket analysis. In this article I will briefly explain a robust method for generating robust signals for a wide range of markets. I will also offer a free TradeStation tool to help you explore intermarket relationships. Standard correlations between markets are not useful if our goal is to either predict future prices or generate profitable signals because current correlation does not tell us anything about future prices. A methodology we originally developed in the mid 1990s called intermarket divergence allows us to gauge the predictive power of an intermarket relationship and produce 100% objective signals. During the past 17 years […]

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Improving The Summing Strategy

April 4, 2016 5:00 am2 comments

In a recent series of articles by Kevin Davey, a method of combining multiple trading strategies into one single strategy was presented. Kevin’s concept is a great way to tackle the issues of trading multiple systems on the same instrument. Kevin’s technique is to create a “summing” strategy where there is one single buy or sell signal and the number of contracts are based upon which strategy has been triggered. Traditionally, I code systems together into one single strategy where the system will have multiple entry and exit points. My technique has its own unique set of problems and I think Kevin’s “summing” concept is better. If you’ve not read Kevin’s articles you can find the links below. Trading Multiple Strategies With The Same Instrument – Part […]

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When To Go Short: S&P Intraday Price Study

March 14, 2016 5:00 am0 comments

This article is going to be an extension of a previous article where we performed an intraday price study. We do this by exploring different market sessions to determine if we can find an edge for a possible intraday trading system. If you have not read the previous article, When To Go Long, I urge you to read this because we are going to jump right in and explore the same concept on the short side. As a reminder here are the five different market sessions we will be looking at. Six Market Sessions Pre-Market, 06:20 – 08:30 The Open, 08:30 to 10:40 Midday, 10:40 to 13:50 The Close, 13:50 to 15:00 Post-Market, 15:00 to 17:10 We will be using the […]

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Statistical Analysis For Exits

February 15, 2016 5:00 am0 comments

As system designers, we hit the problem that whilst it seems relatively straightforward to develop entries and then test them against arbitrary exits, the reverse is a lot trickier. I have found out that doing some very simple statistical analysis can help in exit rule development. Over the years it has appeared to me that some markets seem far choppier than others in their intraday price action and I use that observation here to do one of those analyses. What I am looking at in this piece is the tendency of markets to finish the day within a certain percentage of the high or low for the day. To ‘close at the close’ The time of day can be a […]

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When To Go Long: S&P Intraday Price Study

February 8, 2016 5:00 am6 comments

In this article I would like to perform an intraday price study to explore the intraday action of the market to determine if we can find an edge. I’m going to be using the S&P E-mini futures market, but the principles here could be applied to any market. In particular, I’m interested how different times of the day affect different trading strategies. The trading day, as defined by the U.S. open and close, for the S&P is six and a half hours. That translates to 390 minutes. We can then break the day up into three 130-minute periods. Let’s also explore the times before and after the regular day session. To do this we can add a 130-minute period before the market open (Pre-Market) and a 130-minute […]

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The Anatomy Of A Breakout Automated Trading Strategy: Markets, Timeframes, Exits, Strategies

January 25, 2016 5:00 am1 comment

In the previous two parts, we went through the anatomy of the breakout ATS. I explained all the components of the model I’ve been successfully using for many years, and I went into each component more in detail. In this final part, I would like to show you some examples of what you can realistically expect from my breakout model and I’ll also add some more information which are quite important. Markets, Timeframes, Exits One of the usual questions is what markets and timeframes should be the model applied to. I personally trade only futures markets and I’ve found that this model can be applied to any market. Most of my breakout ATSs have been developed for index markets, however, […]

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The Anatomy Of A Breakout Automated Trading Strategy: The Components

January 18, 2016 5:00 am0 comments

In the previous part of this 3-part article, I explained the concept of my breakout ATS model that I’ve been successfully using for about seven years. We’ve learned about four crucial components of the model: POI, distance, time filter, and a regular filter. In this part, we’ll explore each filter more in detail. POI When it comes to scouting for the best Point Of Initiation (POI), you must be as creative as possible. Your POI can be basically anything. When I started constructing my first breakout ATS strategies, I used pretty simple methods of getting a POI. It usually was: Yesterday’s Close Today’s Open Today’s Low (for longs) Today’s High (for shorts) Lowest O/H/L/C X-days back Highest O/H/L/C X-days back […]

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The Anatomy Of A Breakout Automated Trading Strategy: The Concept

January 11, 2016 5:00 am0 comments

By being an automated full-time trader for 7 years, I came pretty early in my trading career to the conclusion that a well-constructed trading breakout model is by far the best way to aim for stable returns in automated trading. During all those years, I’ve been experimenting with many different approaches – most probably with all you know or can imagine. But from my experience, breakout models are timeless and very universal. In the following three articles I’d like to share some of my concepts and the most crucial components behind them. A Breakout Automated Trading System (ATS) modeI use: 4 crucial components There is no reason for looking for (over) complexity in automated trading. In fact, over the years […]

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Equity Curve Money Management

December 28, 2015 5:00 am6 comments

Amongst a wide variety of money management methods that have evolved over the years, a perennial favorite is the use of the equity curve to guide position sizing. The most common version of this technique is to add to the existing position (whether long or short) depending on the relationship between the current value of the account equity (realized + unrealized PL) and its moving average. According to whether you believe that the equity curve is momentum driven, or mean reverting, you will add to your existing position when the equity move above (or, on the case of mean-reverting, below) the long term moving average. In this article I want to discuss a  slightly different version of equity curve money […]

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A Complementary Approach To Trading Technical Indicators

October 26, 2015 5:00 am5 comments

In the October issue of Futures magazine author Jean Folger discusses an important aspect when selecting two or more indicators when developing a trading system. While I don’t recommend simply combining indicators to create a trading system, and I don’t think that’s what Folger is suggesting either, when there comes a time to introduce two or more technical indicators to a trading system, this is when Folger’s advice is relevant. The author highlights a common mistake when selecting two or more indicators that could really hinder the performance of your system. By following Folder’s advice you can multiply the effectiveness of your system by selecting two or more indicators when done properly. Types of Indicators When it comes to technical indicators we are talking about mathematical formulas that are applied to price or volume. These technical indicators include MACD, Moving Averages, […]

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