Market Timing and Trend Following

Rob said...

Allan,

Interesting & informative blog. Always curious as to others' methodology regarding market timing. After trying to get myself up to speed over the past 12 months in terms of a market timing strategy, I've come to the conclusion that I need an established mechanical trading system to follow to remove the human emotion aspects from the trading equation. Bailed last year on our regional CFA's 'buy & hold' mantra and took control of the reins myself, but still trying to nail down a system.

In some of your site's previous posts/comments, it was mentioned that you combine Market Trade scans with the BWT trading platform. If this correct, was wondering if you could elaborate how the two are combined?

And is it safe to say that between the two systems, that BWT is your platform of choice in terms of actual trading buy/sell signals? Both suitable for all trading time frames (scalping-investing)?

Thanks for sharing your insights with the public. P.S. 77 degrees & sunny on another perfect Inland Northwest spring day. (Almost) nice enough to make I guy think winter isn't so bad here.

There is nothing as powerful as a rule-based trend following system for capturing consistent profits in all kinds of markets and is suitable for trading all time frames. The treatise of record for this kind of strategy is Michael Covel's Trend Following.

Through the archives of this blog I have introduced two models that are well suited for trend following, Market Club's Triangles and Blue Wave Trading Software. As best I can remember, I have never disclosed exactly what I use and how I use it, although Rob is right, I rely heavily upon Blue Wave in my trend following model. Here is a screen shot of three different time frames for this model, all of which are excellent and any one of which is a system in and of itself.

SPX - 60 Minute



SPX - 90 Minute


SPX - 120 Minute

You can see the BW works much like a parabolic stop and reverse system, only without the whipsaws. If the above time periods don't provide enough action for you, here is a screen shot of the five-minute chart:

SPX - 5 Minute

The rules are embedded in the algorithim and if you can distinguish blue from red, you can trade this system. You can also tweak parameters and combine time frames, which is basically how I adapted the system to my liking. There are many ways to use a model like this and my way isn't necessarily the best way, its just one way and it works for me.

A much less expensive alternative is Market Club and it's Triangle Model.


A cursory review of these signals show a SHORT Sept. 2, 2008 @ 1281 (S&P) followed by a LONG December 8, 2008 @ 896, a SHORT January 12 @ 857 and a LONG March 16 @ 780. That's about 550 S&P points in less then a year.

Simple, effective and rule-based, all for less then $500 a year for a subscription. This too can be modified and combined in different time frames to suit the individual trader.

As for what I use and how I use it, I run a successful business trading for myself, managed accounts and a private fund. I would prefer not to give the keys to my vault out on the Internet, but I have disclosed my primary trend following tool, Blue Wave, and have on occasion provided strong inferences as to how I use my tools in combination's that are weighted very heavily toward those few high-confidence trades that come my way each month. Every once in a while I hear from a fan who has stumbled upon my methods, so I know its out there, spread across five years and 786, now 787 blogs.

One last word. I was not a successful trader until I stopped following others and started thinking for myself. That's about 15 years of subscribing to every guru and method with a flashy ad and a dear price. Even the two guys I still listen to, Robert Prechter and Glenn Neely are unique in their approaches to market analysis, original and often brilliant thinkers who have much to share with other open minds.

Worthy models for whom yours truly humbly aspires.


A