This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I have spent some number of years doing system trading development and I have coded 100’s of systems, all which eventually went bust, or I threw them aside and tried something else. As a result, I have been trading using charts, with my own custom indicators along with the indicators provided with the charting packages. I have always thought a systematic approach would be best, however, in my attempts to develop the ultimate system, I ended up with none. The purpose of this article is to show that you can get good results with commonly available technical indicators.

The truth is, given the current development platforms and technology, there is no magic indicator or system. You have to use a system that implements a core idea well, is not curve fitted, and can handle the market edge cases.

A few weeks ago I found Teresa Lo’s http://www.powerswings.com/ site. She is an experienced trader, who came out of the industry. I looked at her system, and bought her ultimate trading course. She uses a system that is solid, but is not rocket science. It’s a well-implemented trend following system. It works because she knows how to use it. Her swing trading is based on feeding it trending stocks, or she uses it to trade futures at times when they are trending. It is not meant to handle choppy markets, and it is not used for that purpose.

Using ideas from her system and her trading course, I created my own version, and I was amazed by the performance if it is pointed at the right trading instrument. Mine isn’t for sale and hers is, and hers likely better. The point is you are can create a solid system using common building blocks, or by purchasing a realistic system like hers. I don’t know her, I’m just commenting on what I learned at her site and reading her materials.

Here is a snap shot of my system below. It is really simple and consists of the following:

1. A WMA which acts as a trend filter.
2. An Oscillator (Pick almost any like PPO, Trix, etc. I am using my own RSI, but it really does not matter, trust me)
3. Stop Logic (I am using my own modified version of Elder’s Safe Zone, but you can just use a multiple of ATR of price as your stops, like 2.5 or 3)
4. Why does it work? Because it catches the trend and it doesn’t get stopped out on a little noise.
5. Is it Magic? No. It will only work on something that trends,
6. Was it optimized? No. I just picked values that looked correct on the SPY, and applied the exact same values to DIA, QQQQ, and IWM.

Performance

The system was run on the last 5 days of data, 5 minute bars for SPY, QQQQ, IWM and DIA, set with a timer to trigger trades only between 1:50 PM and 4:00 PM eastern, as Teresa Lo suggests with her system. This is because there is too much chop intraday.

The Tradestation reports are below. Using 2000 share lots (Equivalent to 4 mini’s) the system made $17,766 in the last 5 days. This time was picked at random. Will it make this in the next 5 days? Who knows. Do I think a good trend following system will work? Yes, if used to trade trending financial instruments.

What will this system do next week? Probably lose $100,000.

Update: Performance 8-8-2007

4 Trades, 100% profitable. SPY $1,559, IWM $ 1,889, QQQQ $459, DIA $989, Total $4,896.

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

On market days like today, where you have a strong trend that remains intact, I use a method I call “mid-point scalping”. The method is simple, and it provides a structured method for scalping. Exit on a cyan bar, or profit stop. Set the stop loss 2 ticks above the last cyan bar. I chose the SPY, because volume was solid. Reverse the rules in an uptrend.

 The method is based on a cyan or magenta dot placed on a 5 minute bar, cyan if the mid-point is higher, and magenta if the midpoint is lower.

{ Calculations }

 PrevMid = (High[1] + Low[1]) / 2; 
 CurMid = (High + Low) / 2; 
 CurEnd = CurMid;

if CurMid > PrevMid then
 plot2( CurMid, “CurMid”, Cyan, default, 3)
else if CurMid < PrevMid then
 plot2( CurMid, “CurMid”, Magenta, default, 3);

In a downtrend, wait for a magenta to cyan switch, and then short the cyan to magenta switch, 2 ticks below the candle body of the magenta candle that was just painted.

Thats it.

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I downloaded a trial version of Button Trader, installed it, read the manuals, and today was my first day using it, (in simulation mode) but you can still use it to trigger entries for real trades, which is what I did. I went 3 for 3 on the SPY and DIA using the signals from Button Trader.

Button Trader (www.buttontrader.com) is a front end to Interactive Brokers that allows you to invoke trades with button clicks through Interactive Brokers, though the features are much more rich than that. I’ll explain further, but this is just a small fraction of what it can do.

 One common problem I have is getting an alert from Trade Ideas, where a resistance level or support level has been penetrated, but the stock has not moved enough to know how to trade it. The volume is usually below normal, and this might be tradeable, but I don’t know.

 With Button Trader, I can set an entry above and below with 2 mouse clicks, with a time out, and forget it. If the price level is hit, Button Trader will initiate the position with IB. It then will use a set strategy for managing the trade, like a break even stop and profit trail. With a click I can also move my profit stop and move my loss stop up or down to make my potential loss as low as possible, or take profit early.

 On a breakout or breakdown, I’m in the move when it happened. My loss stop and profit stop are automatically set. I usually have a problem triggering into fast moving breakouts, This handles that problem for me. This also makes managing mutiple positions much easier.

 I’m running this as a trial, and obviously just new with it. I was looking for a software solution to improve my trade execution and management once I decided I had a tradeable signal. So far, it lools pretty good. Below is a screen shot:

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Sorry for not posting much lately. I now use Trade Ideas for my intraday trading, so I felt like there was not that much interesting to discuss, though I will explain my methods, as this may be some help to others.

I use Trade Ideas integrated into Quote Tracker, and also use the integrated Interactive Brokers interface for placing trades, limit, with bracket orders. I maintain two long and two short Trade Idea alert generators running during the U.S. market timeframes to generate signals. The Trade Ideas alerts are developed using the Odds Maker add on. The best alerts are based on following block trades. I have used variations of this method for 15 years or so.

The Trade Idea’s alerts are about 50 - 60% winners, with loss stops at .15 and profit stops at .45. Trades are held no more than 30 minutes. I try to maintain at least a .10 profit net per trade, so that if I trade 10 times a day, I can expect $1.00 net, or $1000 day using 2000 share lots. By net, I mean (amount won/amount lost) per trade, averaged.

 A note on the stops.

Loss Stops: Every system will have bad days. A day of 5 losers in a row, at a .15 loss stop, only puts me down .75, an amount that can be made up in one or two trades, potentially. Make your loss stops as small as possible. I run them at either .15 or .20.

 Profit stops: Even though my profits stops are at .45, if I get a “flyer” I will ride it and not exit. But, I do not want my system performance to depend on this. Test the initial system with a loss stop, but no profit stop, then add the profit stop. If the performance is significantly worse, the system is too dependant on a few big trades, and needs further review.

Use Trade Ideas alerts that are not inter dependant. For instance, a breakout long alert, and a counter trend long would not have the same performance under the same market conditions. Review daily performance and try to have a system that will be ahead on the same day another may not be.

I try to trade as much as possible, as more trades help maintain the average winners at 50% and net win per trade at .10. Trading as much as possible is the goal. If there are 20 trades per day, that is what is traded.

This method has become the least stressful way of trading for me for three of reasons:

1. I take almost all the the signals, with only a quick look to verify. I don’t over think it.
2. I think in terms of profit per trade, the same as if I were making widgets. At only 10 cents net per trade, that may seem small. At the end of a trading day, it adds up and it is consistent.
3. I use bracket orders (Stop Loss, Profit Target), and I am either stopped out, or I hit the profit, or exit after 30 minutes. I do exit early if the trade is not moving, or it gets weaker as I am holding a profit. I do move the stop loss up. TWS from Interactive Brokers makes this very easy. The bracket orders get placed with the initial order, so everthing is set at entry.

It is not very complicated, and could be automated.

I am working on a new swing trading system using Tradestation that is looking promising. I’ll most more on that later.

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I had written a post yesterday about an addition of a trade profit indicator that made no sense to Zoomie. I have learned to listen to criticism, as usually it has some value. The value wasn’t obvious about later today.

I don’t trade the first 30 to 45 minutes of the market open, and on a day like today, I would be attempting to short a pullback from the early lows, or to go long on stocks showing strength. What happened today was the market dropped, and then went fairly flat. Volume dried up, and I got alot of worthless signals, though some would have been good trades. I lost money on two trades, and I wasn’t in any of the ones that went positive. When the market moves strongly in a direction, and you don’t make a profit, you have to question what you are doing. The flat market created too many signals to wade through, as minor moves would trigger signals. My system is meant to trade volatility or trends, and doesn’t work well when there are none, and is at its worse when range bound counter trend trades will rule the day. When you have volatility day after day, sometimes you don’t notice where your methods have weakness. With the recent market strength I had been anticipating that these types of days would start to show up (lack of participation after down drafts). Professional traders must adapt to changing markets.

While I was wading through alerts, it occurred to me that I could turn a trade signal into a trigger, and then not turn it into a trade signal until it went positive. If the trigger did not go positive in 3 bars, throw it away. This change eliminated flat or bad signals, and looks like it really doesn’t give back all the much in profit by waiting (Just a bar). In the bigger picture it improves profit greatly because signals can be taken as is, and trades are not missed and less work is required. It also looks like it improves % winners up to around 66% from 50%. Loss stops are also hit less, and you exit with a profit, or an amount less than the loss stop.

This has by pointed out by others, but Tushar Chande observed in “Beyond Technical Analysis” that big winners usually go positive immediately. This observation stuck with me, but didn’t at the time seem like something to add to a trading system.

Zoomie’s questions prompted me to think through what I was doing and led me to a better way.

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

My primary method of trading is based on an adaptive moving average crossover. The method attempts to catch intraday moves of .75 cents or more on equities, limiting losing trades to around .20 cents and maintaining about 50% profitables trades. The system works well, but many false signals are generated that are difficult to filter out, without also filtering out the type of moves I am looking to catch. Some filtering can be done, but the system is still left with too many false signals that need visual confirmation to ignore or act on.

Some signals are generated that are neither false or positive, and are neutral with an undetermined direction, that later become profitable. Because I have signals coming from TradeStation, and Trade Ideas, a neutral signal can be easily lost, as another signal is generated, and another chart needs to be reviewed. Discovering later that the neutral signal became positive, and generated considerable profit can be frustrating. It was a move I should have been in on, and I was not.

I have solved this problem by creating an indictator that tracks positive profit on a position, and creates an alert and a visual per bar profit indicator that allows for subsequent entry as a trade becomes profitable. An additional benefit is that a neutral signal can be dismissed, knowing that an alert will be generated if it does become profitable. This simple method has allowed me to eliminate missing strong moves where the signal was generated early.

In the attached screen shot, a short is generated, and a red cross is created, The next two bars, the trade was negative, and yellow bars were created. On the fouth bar, the trade became profitable (green), and gained profitablity as the trade continued until its signal exit.

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Trade Ideas printed 3 new high alerts on TIE, a stock that popped up on my daily scan, that I wasn’t really familar with. I quickly checked the chart and it looked like a break out on 2X average volume. It ended up being a quick .20 scalp ($400) because it faded just as fast, but still, it was like free money.

Of course its not always that easy, but without Trade Ideas these kinds of trades would be hard to find. The alerts need to be filtered, but at least I get the chance to know what is moving.

When I first started using it, I didn’t get it. Now it makes up a big part of my trading day.

Another use is to give me a general feel of the market. If I’m getting alot of prints up or down, out of the blue, I know a market change is happening, that I would not pick up any other way for 5 mins, or sometimes later, or never, as tunnel vision on a few stocks sometimes hides the overall market action from me.

It often acts as a whack in the head.

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I created Quotetracker paintbars for the HMA/PPO/SMI set up I blogged about yesterday. The setup waits for alignment of the HMA, PPO and SMI in the same direction. The paintbars are added to allow better visual identification. You have to wait for this setup to develop, so you will not get whipped sawed on HMA changes.

The paintbar code is provided below.

The example attached catches a $2.00 move on TSO this morning. The way I normally trade this is on a change, in the direction of the market bias. If the market would not have been weak, the first daily change short would have been ignored, waiting the the next change up. You can see this also caught a move in the same stock yesterday afternoon. TSO is one of the stocks from the scan I posted yesterday, run this morning.

The stocks this morning where AL, AMZN, BNI, FSLR, FWLT, MRO, NYX, PBR, SPWR, TSO, UBB, UTHR, VLO. I assume people can run the scan, or modify as they wish, so I will not be posting it anymore.

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This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Every day I create a small list of stocks that are moving with enough range that create both long and short opportunities. The list is small enough that it can be the primary focus, with plenty of potential trades.

I use StockScans from StockCharts to create it:

Day Trade Stocks
• For the last market close:
[type = stock] and [country = us] and [daily sma(20,daily volume) > 750,000] and [ATR(14) > 1] and [Close < 120 ] and [Close > 15.0] and [High - Open > .50] and [ Open - Low > .50] and [Yesterday High - Yesterday Open > .50] and [Yesterday Open - Yesterday Low > .50]

Today’s List:

AMZN, UNP, CSC, FSLR, SU, SPWR, VLO, WCG, MRO, AL, NOV, RVBD, LM, RTI.

- TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

My trading is driven from Trade Ideas alerts, and so I need to be able to decide quickly on whether to take or reject a trade, and how to manage the trade once I am in it. Sometimes a signal from Trade Ideas comes a little early to trade, but may be tradeable in a few bars. I need to manage this, and react if the trade does become viable.

To meets these needs, I developed a set of visual and auditory indicators within Tradestation to help manage trade events. To provide good visual clues, I have a color coded Hull Moving Average laid over the price bars. When it is green, the bias is long, and when red the bias short. Just below is a second panel which is also color coded green or red to re-enforce the trend direction. Above and below this are trade entry and exit markers (Enter long, short below, and exit long, short above).

The next lower panel is a forward normalized moving average histogram, which is not effected by gap openings common when trading intraday. Strength changes are color coded, weak going to strong and strong going to weak, to prevent going the wrong way even through the trend still showing a bias up or down.

The final panel is a SMI used to trigger trades or exits.

For auditory alerts, I have added ringtones specific to the event: Enter Long, Enter Short, Exit Long Exit Short. When I am not in front of the system, I still know what needs to be done by the type of ring type generated.

This setup allows me to manage multiple active positions, or pending positions without using broker based rules which I do not like to use except for stop loss triggers.

Ideas for improvements would be great, or other methods that have been successful.

-TraderD

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This is a follow up on Tapeworm’s PMA post from yesterday. This is a short term trading technique that combines PMA’s with a pattern that LBR calls the “anti” in “Street Smarts”. The lower indicator is a 7 period %K smoothed with 4, and a 10 period %D. You will find this pattern occurs quite often, but it does have some subtleties to it.

Mainly, do not countertrend trade this pattern, always go in the direction of the current trend, using the slope of the %D for the direction of the trade.

In Tradestation I set alerts when this pattern occurs. The list posted on this site called “Top Stocks to Daytrade” will normally work well on this setup.

The PMA’s help to maintain the trade. Once you are in, use the PMA’s as an exit, though the %K can alert you to an early need to exit.

If you look at the previous day, this would not have worked as well, though there were two 25 cents moves even though there was chop, as long as you used the %D slope and the PMA’s.

The best one I caught today was on UTX:

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com