SPDR S&P 500 (SPY)

[leftyg]

be, Fox, anyone else intrested in Trend Trading. This is not for most trading here. I guesstimate that only 1 in 10 has the patience to follow it..and maybe only 1 in 100 who will stick with it and make money. If you "simply love" trading the 5 min or 15 min charts this is not for you. If you are impatient at the time it takes for a 3 minute egg, or for the toast to pop up..this is not for you. This is more like watching a road crew fix potholes.

There was some discussion of Renko charts today. Great! I have plotted the price reversals using P&F charts for years...I never knew about Renko charts. Charlie Dow was credited with developing the "filling the price box" concept that became P&F..but I now think he was a piker, and borrowed from the older Japanese Renko charts. Whatever. Renko charts are perfect for trend trading.

There were some Renko charts published today. In case you are not familiar with them, please look now at the linked chart on the 2X MID. There is a force chart below, but the meat is in the price chart. Spend a couple minutes with it...note that there is a box size choice. In general, smaller box sizes can improve returns, but increase whipsaws...contrarily, bigger box sizes do not necessarily reduce whipsaws, as you will see if you spend time playing with box sizes. See you back after you look at the linked chart:

http://stockcharts.com/h-sc/ui?s=MVV&p=D&yr=0&mn=7&dy=0&id=p81962077944&a=137225579

The concept is simple. You decide what box size you want depending on your aversion to whipsaws. You decide at what price level you want to conclude a trend reversal has occurred.
You enter a buy or sell order for the long and the short etf at the appropriate level. You sit back and let the market put you in the new trend at the price you selected. That's it.

This is how I do it...you can probably adapt to something better.

1. I selected the 2X MID etfs, MVV and MZZ...obviously the inverse of one another.

2. I use a box size of 1.5 for the MVV and 1.1 for MZZ. You select the appropriate size for whatever you want to trend trade, and by simple algebraic ratios..set both to trigger a trend change at about the same time.

3. I use the daily chart. You can fool around with different times, and see what you decide.

4. After the market closes, I adjust the GTC orders I have placed with my broker..if they need changing..often they do not every day.

5. I use a 2 box reversal to indicate a trend change. You decide for yourself what reversal sign you want to use. The 2 box reversal means if MVV is in a downtrend, like now, and is filling new red boxes..a 2 box reversal will be when a white box appears..which means the price has reversed upward 2 boxes.

6. The GTC orders I referenced in #4, are set at the price to buy MVV at the price which would indicate a reversal. The present GTC order is set to buy at $73.50. I also have a GTC order to sell my present MZZ holdings at the price which will trigger a reversal signal. When this works seamlessly, you are selling one position as you are buying the inverse position.

7. One thing you will find if you set the box size too small, is that intraday you can get a false reversal signal. Let's say the trend is down like now..Monday there is a big spike up at the opening for an hour or more, which triggers the smaller boxes to show a reversal and triggers the GTC orders you have placed..but then about lunch, the market reverses down hard, and ends up continuing the downward trend. If you had placed a GTC order at the price of a small box size, you would be in the wrong vehicle, and whip-sawed.

That's it.....you can count the boxes for the last months on the MVV chart linked, and calculate the return. Don't forget to subtract the loss at a trend change...because you are in the "wrong or losing" vehicle for 2 boxes, in my example.

Also don't forget to multiply the box size times the number of boxes in order to calculate the entire price movement.

I use the force chart to guage the stength of the reversal....a sharp strength reversal generally has a ways to run..a weak one, maybe not. Also, after a long trend, you can sometimes see a weakening in the trend by looking at the force chart.

Adios.