Saturday, March 27, 2010

Trend Models - Tutorial

This morning I want to explain my Trend Models and how they work, especially in conjunction with the email subscription service. 

I started the service on January 2, 2010 and just a few days later the first stock trade idea was sent to the list:

Thursday Morning, January 7, 2010 7:53 AM:
 Trade Idea : Short GOOG


As you can see from the above chart, GOOG closed Wednesday below it's trend line (solid navy line) and generated a SHORT signal @ 608.  The previous signal was a LONG generated November 9, 2009 @ 562.  

The early January SHORT was closed out on March 3rd at 545, for a gain on the trade of about 63 points:



That is pretty much the entire system, LONG above the trend lines and SHORT below them.  The system works on all time periods, below is the GOOG Weekly chart:


You can see from the interaction of prices and the trend line how effective the Weekly trend is on being on the right side of GOOG.  After the close each day I update the status of trends on Daily and Weekly charts for about 50 different stocks and ETF's.  They all are not as effective as the GOOG trends, but most are and even if you only traded GOOG (some subscribers do just that), you should be able see the benefit of knowing where the trend line is, either above or below prices, for any tradable.

The service also uses the same approach to trade the 60 and 240 minute trends of SPX and QQQQ, as well as their Daily and Weekly trends. 

How does this system fit into macro-trading, i.e. Wave 3 of 3 Down? 

It doesn't, not exactly. 

The system only cares about where the trend line is in relation to prices.  There are no other considerations.  Simple and elegant.  Yet, if there were to be a "third of third wave" decline this year, the trends can't help but catch such a decline early enough to profit handsomely from it.  By its very nature, it will identify the current trend and get on board.  That's what trend following does and this algorithm does it as well as any I have seen.

In addition to the trend models I occasionally include added value ideas for subscribers, for example, the Biotechnology Basket from last weekends, "Weekend Update."  Things I use to post on my blog I will usually post first to the email list, then to Blog, trying to make it worthwhile for subscribers to stay subscribers.  So far, my renewal rate is up over 90%, so I must be doing something right.

I hope this answers a lot of questions about what these trend models and the email list are all about.  I know it's pretty basic stuff, but, as we should all know by know, the complicated stuff doesn't work all that great.  As my mantra suggests, find something that works, then trade it.


A

11 comments:

Anonymous said...

Great looking charts! I see the exit on the GOOG Daily chart but don't see the LONG. Are you always long or short or do you sit on the sidelines some of the time?

Thanks

Anonymous said...

Do you actually buy GOOG at $500-600 when you make these trades? If so, doesn't seem as though enough shares can be bought to make money. Am I off base here?

Garrett said...

What software is that that you use for that trend following model. From what I could gather it was Advanced GET coupled with something else... Just wondering so I could check various stocks of my choosing.

Anonymous said...

How do you short Google? Is there a different symbol for that?

Allan said...

EXIT = LONG on the chart, the graphics for some reason only will do LONG/EXIT or SHORT/EXIT, not SHORT/LONG;

I use eSignal for the charts;

You short GOOG like any other stock, or buy Calls/Puts as per each signal;

As for buying/selling a high priced stock like GOOG or BIDU, what matters in percentage return on the capital invested, not the high or low price of the tradable.

lic of india said...

I am Rhea S. I have visited your website and I would like to congratulate you on building such a valuable online resource. I am sure your visitors find your site as useful as I did.

Have a great day.

Thanks and regards,

Allan said...

lic,

always makes my day to read comments like you just posted, thanks for stopping by and posting,

a

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JAPO said...

Just a question Allan,

Do you have a single and global system or instead a optimized system for each chart?

I mean...are you using the same parameters in your algorithm for all charts?

Keep up with your great work ;)

Regards.

Allan said...

RE: settings

They are the same for every tradable and every time period.

Allan said...

RE: settings

They are the same for every tradable and every time period.