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October 8, 2014
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| InterChart Tools 21 Offers More Options for Rising and Falling Price Changes
by Marge Sherald, CEO |
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Robert Cocchiola, the author of the InterChart Tools indicator sets for NeuroShell Trader is scheduled to have an article in an upcoming issue of Technical Analysis of Stocks and Commodities magazine. One of the discussion points in the article is that your trading algorithm (rules) and bar types need to be coordinated in order to maximize your equity curve. He recently introduced the concept of optimizable Renko Bars that can vary the amount of dollars that change hands in up moves versus down moves before a new virtual Renko Bar is created. In his new version of InterChart Tools 2, he extends that concept to consolidated bars in order to only trade meaningful price movement. (Consolidated Bars indicators compute the price of a virtual bar which is formed from the combination of the most recent number of bars identified in the “Bar Count” parameter.) |
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We created a simple Trading Strategy using Exponential Moving Average crossovers that shows the power of the Adaptive Consolidated Bars. Adaptive Consolidated Bars indicators also combine the information from the most recent bars on a chart, but unlike the regular Consolidated Bars the Adaptive Consolidated Bars treat rising bars and falling bars independently. The Adaptive Consolidated Bars offer the option of consolidating a different number of bars for rising prices as contrasted to the number of bars for falling prices. Since the function of a consolidated bar is to absorb noise and rising price jitter is often different from falling price jitter, the Adaptive Consolidated Bars permit an asymmetrical definition to accommodate this. In the Trading Strategy at the top of the chart we used an Exponential Moving Average crossover of the original Consolidated Bars. Buy Long Conditions: Cross Above (ExpAvg (Consolidated Bar Low), ExpAvg (Consolidated Bar Close)) Sell Short Conditions: Cross Below (ExpAvg (Consolidated Bar High), ExpAvg (Consolidated Bar Close)) We set up the system to trade 75% of the account balance, which started out as $60,000, and used a margin of $8,500 and a Point Value of $100. The out-of-sample Return on Trades was 30.4% compared to a percent change in price of -0.7 for buy and hold during the same period. Trading Strategy #2 used the same account settings and substituted Adaptive Consolidated Bars in the Exponential Moving Averages. The out-of-sample Return on Trades showed was 82.8% compared to the percent change in price of -0.7 for buy and hold. Trading Strategy #2 used the same date ranges as the first Trading Strategy. |
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Relative Value Strategies
by Philippe Lonjoux, Noxa Analytics, Inc.
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| Relative-Value strategies have worked very well for us so I thought I would share our own spin on the topic and I am sure it will get the creative juices flowing. The idea is embarrassingly simple, and yet so effective; the relationship between two assets may be more appropriate than the assets taken individually.
Let’s give an illustration. Say we derive a value for Google, Inc. (GOOGL) against Apple, Inc. (AAPL). Their relationship can be expressed in the form of a linear combination: GOOGL = Beta x AAPL + Residual Beta measures the volatility for GOOGL in relation to AAPL – it gives a sense of the stock’s risk compared to AAPL or the level of risk GOOGL possesses that depends on how correlated it is with AAPL. In contrast, the Residual is the part that cannot be explained by Beta or the amount of risk GOOGL possesses that is not correlated with AAPL. For those of us who think in terms of equity curves, we can now adjust our exposure to Beta, effectively exposing ourselves more to the portion of the returns based on the stock specific profile. We can now safely make a bet on a security without betting on the direction of the market. NeuroShell makes it very easy to implement; by simply applying the Adaptive mixture AME to the LinXYReg Slope indicator, we optimize the level of Beta-exposure for maximum returns. As long as the exposure to Beta is under control, the strategy should not lose its effectiveness because of a change in market regime. Shameless self-promotion: click to see how the Relative-Value strategy has been doing. Happy trading! Philippe Lonjoux Noxa Analytics, Inc E-mail: |