Post Tagged with: "trading system"

Simple Shorting Strategy

October 17, 2016 5:00 am9 comments

Over the years I’ve looked at several very simple long strategies that were published in the book, “Short Term Trading Strategies That Work” by Larry Connors and Cesar Alvarez. Those articles include the following long strategies: Double Seven Strategy RSI(2) Strategy VIX Stretch Strategy RSI And VIX Strategy Buried within Connors and Alvarez’s book you will find one simple shorting strategy which can be used on the major market indices. In this article I will review this strategy and also combine it with the Double Shorting strategy we explored last week. Simple Shorting Strategy The rules of this system are very simple. The instrument must be below its 200 day moving average. If the instrument closes up for four or more days in […]

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World’s Simplest Trading System

June 6, 2016 5:00 am3 comments

Here’s the system: At the end of every month, if the index is above its 10-month simple moving average: the portfolio is 100% in the market if the index is below its 10-month simple moving average: the portfolio is 100% in cash  And that’s it. So, if we take the FTSE 100 Index as an example, if at the end of a month the FTSE 100 is above its 10-month simple moving average then either, the portfolio moves into the market by buying, say FTSE 100 ETFs, (these will be the easiest instrument for most investors, but equally futures, CFDs or spread bets could be used), or nothing needs to be done if the portfolio is ready in the market. Conversely, […]

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Avoiding Stock Market Crashes with the Hi-Lo Index of the S&P500

November 23, 2015 5:00 am2 comments

This daily indicator is calculated as the ratio of the number of S&P500 stocks that have reached new 3-month-highs minus those that have reached new 3-month-lows, divided 500. Exiting and entering the stock market according the indicator’s signals would have avoided major drawdowns of the market during the backtest period from Jan-2000 to Aug-2015. Switching according to the signals between stock ETFs and the Intermediate Treasury Bond ETF IEF would have produced much higher returns and lower drawdowns than buy-and-hold of the stock ETFs. The Hi-Lo Index The index, expressed as a percentage, can vary from +100% to -100%. Over the backtest period it ranged from a minimum of -93% to a maximum of 62%, with the August 24, 2015 value being the third lowest at -77%, […]

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Dual Momentum – The Famous 5 Portfolio

November 2, 2015 5:00 am28 comments

This article describes a Dual Momentum study over a multi-asset ETFs basket with a new attempt to improve this well-known investing style. Dual Momentum strategies rely on two different very simple filters: absolute momentum and relative momentum. Absolute momentum (rule 1) is a trend following filter used to switch any selected assets that have a negative excess return over the risk-free rate to cash while relative momentum (rule 2) criteria compares returns of a basket different assets through a ranking list to highlight those assets with the highest return. I considered a time window of three months in my backtest, as it has shown the strongest results. Rule 1: If the asset shows that the last three months return is […]

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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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The Death Cross – What You Need To Know

September 7, 2015 5:00 am0 comments

How well does the Death Cross or the Golden Cross predict future market behavior? One way to see is to create a simple trading system based upon the the Death Cross and Golden Cross signals. Using EasyLanguage it’s simple to create a trading system that is always in the market switching between a long position and short position based upon a moving average crossover. Check out the performance summary. You might be surprised!

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The Top Three Pitfalls of Stock And ETF System Development

August 24, 2015 5:00 am0 comments

During my nearly 25 years of experience in the trading business, I have talked to many traders about system development. Futures trading systems and back-adjusted contacts are fairly well understood. Recent issues with the pits closing and markets being only electronic have created some issues but it’s still relatively straight forward to design a trading system which can beat, for example, the Barclay Systematic Traders Index. I have found the same to not be true for stock and ETF systems, even though both security types are more accessible to the general public. This seems to be for several reasons. First, the standard split-adjusted data series used by itself in backtesting has severe limitations when testing on a portfolio. I’ll detail […]

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Backtesting A Basic ETF Rotation System in Excel – Free Download

February 16, 2015 5:00 am5 comments

Some Background: Let’s face it, technology has made it possible to access a wide range of tools for developing, backtesting, and optimizing systems. However, a simple (but powerful) tool like Excel is a great way to validate a trading system. In this example we’re going to be keeping things really simple and backtesting a monthly ETF rotation system using 5 symbols that significantly outperforms buy and hold. All you need is Excel and an Internet connection. If you’re reading this, I’m guessing you have the Internet connection. This post assumes you have a basic understanding of Excel, but you don’t need to be an expert. You can either build the Excel file yourself by following the steps below or download […]

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Improving The Simple Gap Strategy Part 2

December 8, 2014 5:00 am10 comments

In the previous article, “Testing A Simple Gap Strategy“, we were looking at two other filters in an attempt to improve the Gap #1 strategy. The first filter was a day-of-the-week filter while the other filter was based upon the size of the gaps. These filters were tested on our in-sample data segment and appeared to help our trading performance. In this article, let’s see how these filters perform on the out-of-sample (OOS) data segment. Baseline OOS Performance We’ll need a metric to compare our new filters against, and the original baseline system will be perfect. The baseline system will be applied to the OOS and the results will be used as our benchmark. We can see the baseline performance is […]

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Backtesting the MAC-System – How Long is Long Enough?

October 6, 2014 5:00 am5 comments

Most of us entrust our savings to financial organizations in the belief that this will provide us with better investment results than we could have achieved ourselves. These companies advocate a buy-and-hold strategy of bond- and stock funds, charge fees, and usually perform poorly. A convenient way to improve on buy-and-hold and to do better than financial organizations is to periodically switch one’s investment from stocks to bonds and vice versa as indicated by the Moving Average Crossover MAC-system. The MAC-system (described in Beyond the Ultimate Death Cross) uses cross-overs of moving averages of the S&P 500 to determine investment periods for the stock- and bond market. The key to this model was finding moving averages whose cross-overs have the […]

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