Advanced Trading Methods

[gloe]

Having stayed up til midnight looking back 6 months on intra-day charts (signed up for a free trial at prophet; the Gold service has 120 days of intra-day data):

Well, there's chop and there's CHOP. GIPS is a short term trend following method that would have worked well in a trading range market like 2004: The range was wide enough that GIPS would have caught all the swings. So you need to define your time frame. (I remember 2004 very well. I had a subscription service that used weekly charts for intermediate term trade set ups: Every time they got a signal to switch direction, the market switched back on them and every set up failed. There WAS no IT trend in 2004.)

It looks like GIPS operates in the same time frame as NERS. During the short term trends when GIPS excels, NERS fails: For example, you try to short the Overbought CCI and the CCI diverges from the price, as price keeps going up while the CCI goes down. During the short term trading ranges when NERS excels, the only good way to catch the change to a trending market again (that I could see) is to catch trend line breaks on the price. I was using a 30 min chart, trying to watch the CCI as well, but the 60 min would probably be very good.

In backtesting GIPS on my QT charts, with only 10 days to work with, I came up with a signal to signal gain of just over 400 ticks in ER. But the gain was much larger using my method of trading against the support/resistance of the previous day's high or low. For example, if GIPS is short, and we test the previous day's low and hold it, then use NERS to go long. This several times caught a change in the GIPS trend back to Long. (The RUT, of course, has been in an uptrend on the daily charts, so this ends up being a pretty good method of catching the short term bottoms. Watching the daily charts for Sling Shot set ups would help here as well, as would watching the major MAs on the daily chart - the 20 and 50, for example.)

The opposite, shorting when the RUT cannot stay above the previous day's high, often was good, too, to get out of a GIPS trade when the RUT got too overbought, but often just brought the RUT back down to an area of support that held, and the GIPS signal either held its long signal or switched right back to Long. Again, note that the RUT has been in an uptrend on the daily charts since late last summer. (How do I define this trend? The same way I define the "trend" for sling shot set ups: The price has been persistenly above the 50 day MA, and just about every "sling shot" long set up since late August has been a winner: Every short term dip has been bought. Another way to look at this [whihc amounts to the SAME THING] is with a 3-day chart and a 20 CCI. When the CCI stays above the zero line, the trend is up. Below the zero line, the trend is down.)

I am very tired and need to do more work on this. But one thing is certain - it is really necessary to use GIPS on a market that, when it trends, has huge gains -- like the RUT. You need those gains to cushion your account for when the market swtiches from a short term trend to a trading range. In the language of the "Market Profile" method, the market does cycle back and forth from "vertical development" (large moves in one direction) to " balance" (short term consolidation-trading range). Perhaps the best method of catching these shifts will turn out to be the 60 min chart with RSI 5 for OB/OS, and the ADX, for determining when the market is in a "mini trend" that should not be traded against. (Thank you, LC.)

One more note: on a "micro" level, I often tell my daytrading friends, do not trade against breadth extremes (Very high or low TRIN/TRINQ; very high or low AD indicator). Yes, those extremes can often mark short term tops or bottoms, but usually not that very day.

YAWN.