Wednesday, June 03, 2009

Market Timing and Trend Following

Rob said...

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.



Anonymous said...

I'm so glad to have discovered this blog!

Ironically, I've been looking into both Market Club and Blue Wave.

I look forward to reading your posts in the future!

ROB G said...

i started using market club and its trade triangles,im still trying to understand how to correctly use it. from watching the training videos is it best to open a position from the monthly triangles and use the weekly as the exit point. in your example you show a short sept 2,2008 @1281 , followed by a long dec 8 2008 @ 896 , but isnt that with weekly triangles? im trying to understand the best way to use the triangle , please give me some advice.
thanks rob g

Anonymous said...

Your first chart looks like its from AGET ?. Can you use Blue wave with AGET

Rob said...

Thanks for the info, did not mean to pry too deeply into any proprietary trade secrets. I'm going to give Market Club a spin for 90 days and see how things go. Looks to be a relatively inexpensive way to get started with a mehanical trading system, albeit it appears that for signals shorter than 1 day BWT might have to be the way to go. I'm sure MC will provide a decent basis from which to get started, though. Looks like their scan setup is worth the price for that alone, too.

On a separate note, curious to get your and fellow blog visitors' thoughts on 'reflation' trade investment strategies going forward with regards to potential USD inflation, ie. precious metals, commodities, natural resources, etc., and the best way to trade that theme. Like many others, I feel that severe USD inflation is only a matter of when - not if - and at a very basic level making money in the 'market' (whatever market that might be) may not be enough to overcome crushing USD devaluation. If we as a nation get to that point, is the primary play then truly only gold, silver, the junior mining stocks, oil, etc.?

Kudos on the blog, Allan. Glad to see there are those willing to help others take it to the next level.

Allan said...

Rob G - I think you need to use all three, giving different weights to each. Always be on the same side of the Weekly. If all three are together, an all clear. If two are together, go with the Weekly. Experiment. They hae hourly charts but they don't generate automatic arrows. You would have to do that yourself, a three-hour high is a Buy and a three-hour low is a Sell. Try integrating that hourly system with the Daily and Weekly. Again, experiment, find something that works for your style and personality. The keys are there, just learn how to unlock the door.

Jim said...

Hello Allan,

Would you feel that Market Club and Triangle signals would be appropriate timing tool for an end of day only trader using Rydex index mutual funds?

I am interested in next day only likely direction, frequent signals are not a problem. from your experience with Triangle signals, would these be appropriate for trading open ended mutual funds end od day?

Thanks for sharing your thoughts.

Regards, Jim

Allan said...

Jim: Yes, Triangles would work well with end of day trading.

Singlengle said...


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