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4O TH OCTOBER 2022
AN
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SA
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RECURRING PHASE
OF CYCLE ANALYSIS
Using phasor analysis to
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TRADING STRATEGY
DEVELOPMENT
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CONTENTS OCTOBER 2022, VOLUME 40 NUMBER 11
6 Explore Your Options 31 Algo Q&A

by Jay Kaeppel by Kevin J. Davey
The Traders’ MagazineTM Got a question about options? Got a question about system or algo
trading?
FEATURE ARTICLE
EDITORIAL
[email protected] 8 Recurring Phase Of Cycle Analysis INTERVIEW
by John F. Ehlers 32 Perry Kaufman: Still Dancing
Editor in Chief Jack K. Hutson
On this occasion of the 40-year by Barbara Diamond-Kaufman
Production Manager Karen E. Wasserman
anniversary of this magazine, S&C Perry J. Kaufman began his career
Art Director Christine Morrison
Contributing Editor John Ehlers in technical trading in 1969. As
Graphic Designer Wayne Shaw
takes a look back at technical the markets grew up and market
Webmaster Han J. Kim
analysis history and reviews what products grew, he grew with them.
Contributing Editors John Ehlers,
Anthony W. Warren, PhD. we’ve come to understand about His company, Kaufman Signals,
Contributing Writers Thomas Bulkowski, Martin Pring, cycles in the financial markets. offers subscribers daily trading
Barbara Star, Markos Katsanos, Leslie N. Masonson, signals before the opening bell.
Karl Montevirgen 15 Market Rap On the occasion of this magazine’s
by Emilio Tomasini 40-year anniversary, we take a look
OFFICE OF THE PUBLISHER “Unserious” thoughts on serious back at market history and how
Publisher Jack K. Hutson topics in finance. that has informed (and continues
Industrial Engineer Jason K. Hutson
Project Engineer Sean M. Moore
to inform) his views on how to
16 Developing And Testing A Trading successfully trade today’s markets.
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Explore Your Options
GOT A QUESTION ABOUT OPTIONS?
Jay Kaeppel has over three decades of experience in the options markets. He
was a head trader for a CTA firm, an options trading software developer,
and was a portfolio manager for an investment management firm. He is
presently Senior Research Analyst for Sentimentrader.com. He is the author
of several books, including The Four Biggest Mistakes In Option Trading;
The Option Trader’s Guide To Probability, Volatility, And Timing; and
Seasonal Stock Market Trends. Send your questions or topic suggestions
to Jay Kaeppel at [email protected]. Selected questions will appear
in a future issue of S&C.
Jay Kaeppel
THE “OPEN COLLAR” STRATEGY Buying the put option limits the the shares held long
I read your column on the collar amount of downside risk. Selling the • But, a lesser number of call options
strategy with interest. I like the hedg- call option helps to pay for some (or are sold than puts bought
ing aspect of the strategy but find the all) of the cost of the put option. In
limited profit nature of the strategy other words, selling the call option Let’s start with a quick example
to be quite unappealing. Is there any pays some portion of the cost of the of a standard collar and then look
way to hedge with a collar without hedge. The catch is that when done at how to implement the open collar
limiting profit potential? on a 1×1 basis, this strategy limits instead.
Yes, in some cases, there are ways. upside potential as long as the short
There is a little-known option trading call is held. For some examples, see Standard collar: AMC
strategy that I refer to as the “open last month’s column. On August 3, AMC is trading at
collar.” Whether or not it makes sense $18.21, and a trader holding 500
to use this strategy will vary from The “open collar” shares believes the stock may be at a
situation to situation and depends strategy resistance level and due for a pullback.
heavily on the pricing of the call op- This strategy is essentially the same In this case, the trader may:
tions relative to the pricing of the put as a regular collar, however:
options. First, a quick review: • Hold their 500 shares of AMC
A collar is typically used as a • Enough puts are bought to hedge @ $18.21
temporary hedge and involves: • Sell 5 Sep16 2022 19 Call @
$2.40
• Holding shares of stock A collar is typically • Buy 5 Sep16 2022 16 Put @
• Selling a call option used as a temporary $1.79
• Buying a put option hedge.
In this example, the trader takes in
OPTIONSANALYSIS.COM
FIGURE 1: TRADE DETAILS, STANDARD COLLAR, AMC. In this example, the trader takes in $1,200 of premium for selling the call options and pays
out $895 to buy the put options.
Whether or not it
makes sense to use
this strategy will
vary from situation to
situation and depends
heavily on the pricing
of the call options
relative to the pricing
of the put options.
FIGURE 2: RISK CURVES, STANDARD COLLAR, AMC. As long as both options are held, the
maximum profit is limited to $700 and the maximum risk is limited to −$800.
FIGURE 3: TRADE DETAILS, OPEN COLLAR, AMC. In this “open collar” example trade, the trader takes in $960 of premium for selling four call op-
tions and pays out $895 to buy five put options (a “4×5” configuration).
$1,200 of premium for selling the call

options and pays out $895 to buy the
put options. The particulars for this
position appear in Figure 1 and the
risk curves in Figure 2.
Things to note:
• As long as both options are held,

the maximum profit is limited
to $700
• As long as both options are held,
the maximum risk is also limited
to −$800
FIGURE 4: RISK CURVES, OPEN COLLAR, AMC. In this “4×5” open collar trade, where the trader
Open collar: AMC sells four calls and buys five puts, the maximum risk is higher than in the standard collar (−$1,040
versus −$800) and the maximum profit potential is unlimited (versus being limited to $700 in the
This trade is entered as follows: standard collar example).
• Hold 500 shares of AMC @ • Buy 5 Sep16 2022 16 Put @ in $960 of premium for selling only
$18.21 $1.79 four call options and pays out $895 to
• Sell 4 Sep16 2022 19 Call @
$2.40 In this example, the trader takes Continued on page 14
October 2022 • Technical Analysis of Stocks & Commodities • 7
CYCLE ANALYSIS
Using Phasor Analysis To Identify Market Trend
Recurring Phase Of
Cycle Analysis
On this occasion of the 40-year anniversary of this (FFT) were the technical rage back then, but turned
magazine, S&C Contributing Editor John Ehlers takes out to be just not the right tool for technical analysis
a look back at technical analysis history and reviews because of their resolution.
what we’ve come to understand about cycles in the
financial markets. His years of technical research on Some evolution of technical analysis
this topic has led to insights and advancements that Maximum entropy spectral analysis (MESA) was
he has shared with us in many articles, and continues developed in 1976 for use in the exploration of oil. It
to share here. could provide a high-resolution display from short-
C
burst seismic echoes. Recognizing that the high-
ycle analysis for technical analysis has come resolution capability had merit, I started using it in
a long way since the launch of this magazine my personal futures trading. Encouraged by Hutson,
in 1982. Cycle analysis was pretty primitive I wrote several articles for this magazine describing
back then. J.M. Hurst had established that how MESA worked and what kind of performance
patterns such as double tops, head & shoulders, and it could deliver. As a result, MESA became popular
even Elliott waves could be synthesized with just a among a few early adaptors. Consequently, I wrote
few harmonics of a fundamental sine wave. Anthony more articles as PCs became more available and
Warren wrote some seminal articles in Stocks & more capable.
Commodities about Fourier analysis, demonstrating In retrospect, I recall a funny footnote. MESA is
the duality between events in the time domain and computationally intensive. When programmed in BA-
their representation in the frequency domain. Engi- SIC on an Apple II computer, a single analysis would
neer Jack Hutson, publisher and founder of Stocks & take a very long time. Just to ensure the computer
Commodities magazine, recognized the importance had not locked up, I mapped the computing registers
of cycle analysis and Fourier transforms and encour- to the display registers so you could watch the Apple
aged research in this area. II do its work. It was actually kind of cool. Today’s
computers can handle the MESA algorithm without
In the beginning even breaking a sweat.
In those earlier days, resolution in the frequency So MESA raised the bar for performance with
domain was relatively poor, but the peaks in the spec- regard to swing trading. The evolution through the
trum shapes could discern between long-wavelength years involved improved displays and improved timing
seasonal periods, intermediate-length periods for signals for swing trading. The one constant throughout
trading, and short-period random variations from the the evolution was the concept that happenings in the
peaks in the spectrum shapes. So the basic use of cycle time domain are expressly tied to happenings in the
analysis was to determine whether it was best to do frequency domain. Either description was a full and
trend trading or swing trading. Fast fourier transforms complete description of market activity. That relation-
JOSE CRUZ
by John F. Ehlers
y(t)
We can now use cycle
analytics to know when
to trade the trend.
phase angle of the phasor is −90 degrees, the cycle is at its

valley in the time domain. When the phase of the phasor is
+90 degrees, the cycle is at its peak in the time domain.
FIGURE 1: TIME DOMAIN VS. FREQUENCY DOMAIN. Happenings in
the time domain are expressly tied to happenings in the frequency domain. A current approach
The time domain and the frequency domain both represent events equally, We can create the real and imaginary components of market
so that either description provides a full and complete description of market
activity. Expressed graphically here, the time waveform is represented by a data by correlating the market data with cosine and sine,
pure sine wave in the left-hand side of the chart. The time waveform is also respectively, of fixed cycle period. The wavelength of the
represented as a phasor (a two-dimensional vector pinned at the origin) in fixed cycle period should be about midrange of the spec-
the right-hand side of the chart. trum components in the market data. The phase angle of
the phasor is then easily computed as the arctangent of the
ship can be better understood with reference to Figure 1. ratio of the imaginary component to the real component.
In simplest terms, the time waveform is represented by The computation is repeated for each bar in the data set. I
a pure sine wave in the left-hand side of the chart. It is show the precise computation using EasyLanguage in the
also represented as a phasor in the right-hand side of the sidebar, “Phasor Analysis, In EasyLanguage.”
chart. When the indicator in the code listing is applied to daily
A phasor is a two-dimensional vector, pinned at the data for the stock symbol RTX (Raytheon Technologies
origin. Its rate of rotation is the frequency of the sine wave Corp.) we get the display shown in Figure 2. The phasor
in the time domain. Its rotation starts at −180 degrees and is the red line in the first subgraph. The phasor starts at
advances to +180 degrees throughout the cycle period, −180 degrees and advances through the cycle period until
whereupon the next cycle begins. (Note: The graphic in it reaches +180 degrees, whereupon it repeats with time.
Figure 1 is static for the printed page, but it can be viewed The valleys of the computed waveform are easily identified
at my website as an animated graphic.) The projection of at −90 degrees, and the timing of the phase angle crossing
the tip of the phasor onto the vertical axis as a function −90 degrees can be compared to the valleys in the price
of time traces out the sine wave in the left side of the waveform. Correspondingly, the peaks of the computed
graphic. The projection of the phasor onto the horizontal waveform are easily identified at +90 degrees, and the
axis as a function of time
traces a cosine wave at
the same time the projec-
tion onto the vertical axis
produces a sine wave.
The horizontal axis is
called the real axis and
the vertical axis is called
the imaginary axis. It
can be shown that the
activity on the two axes
are orthogonal. That
is, they are statistically
independent over the
TRADESTATION
period of the cycle. The

activity on the real and FIGURE 2: IDENTIFYING PEAKS AND VALLEYS IN PRICE. This displays the phasor indicator in the code listing ap-
imaginary axes defines plied to RTX using daily data. The phasor is the red line in the first subgraph. The phase angle crossings of −90 and +90
the phasor. When the degrees basically constitute buy and sell signals of a trading algorithm, albeit trimmed in the real world.
timing of the phase angle crossing +90 degrees can be
compared to the peaks in the price waveform. Thus, the
phase angle crossings of −90 and +90 degrees basically It is much more preferable
constitute buy and sell signals of a trading algorithm. Of to perform analyses in terms
course, these need to be trimmed in the real world. You of phase angle rather than in
want to hold a long position when the phase angle is be- terms of cycle period.
tween −90 degrees and +90 degrees. You want to hold a
short position (or be out) when the phase angle is greater
than +90 degrees or less than −90 degrees. You want the fact, there are times when the phase is not advanced at all.
phase angle to be less than −90 degrees when you are When the cycle phase is not advancing, the waveform is
swing trading. not cycling. If it is not cycling, it must be trending. Since
Note that the period of the phasor is not the period of the slope of the phasor is changing, the frequency of the
the fixed cycle period used in the correlation process. In spectrum must not be constant. Frequency is the rate-
PHASOR ANALYSIS, IN EASYLANGUAGE

{ Y = -Sine(360*(count - 1) / Period);
Phasor Analysis Sx = Sx + X;
(C) 2013-2022 John F. Ehlers Sy = Sy + Y;
} Sxx = Sxx + X*X;
Sxy = Sxy + X*Y;
Inputs: Syy = Syy + Y*Y;
Period(28); End;
If (Period*Sxx - Sx*Sx > 0) and (Period*Syy - Sy*Sy > 0) Then
Vars: Imag = (Period*Sxy - Sx*Sy) / SquareRoot((Period*Sxx -
Signal(0), Sx*Sx)*(Period*Syy - Sy*Sy));
count(0),
Sx(0), //Compute the angle as an arctangent function and resolve ambi-
Sy(0), guity
Sxx(0), If Real <> 0 Then Angle = 90 - Arctangent(Imag / Real);
Sxy(0), If Real < 0 Then Angle = Angle - 180;
Syy(0),
X(0), //compensate for angle wraparound
Y(0), If AbsValue(Angle[1]) - AbsValue(Angle - 360) < Angle - Angle[1]
Real(0), and Angle > 90 and Angle[1] < -90 Then Angle = Angle - 360;
Imag(0),
Angle(0), //angle cannot go backwards
DerivedPeriod(0); If Angle < Angle[1] and ((Angle > -135 and Angle[1] < 135) or (Angle
< -90 and Angle[1] < -90)) Then Angle = Angle[1];
Signal = Close;

//Correlate with Cosine wave having a fixed period //Phasor Indicator
Sx = 0; Plot1(Angle, "Angle", red, 4, 4);
Sy = 0; Plot2(0, "Ref", white, 1, 1);
Sxx = 0; Plot4(90, "", cyan, 2, 2);
Sxy = 0; Plot8(-90, "", cyan, 2, 2);
Syy = 0;
For count = 1 to Period Begin {
X = Signal[count - 1]; //Frequency derived from rate-change of phase
Y = Cosine(360*(count - 1) / Period); Vars: DeltaAngle(0), AvgPeriod(0);
Sx = Sx + X; DeltaAngle = Angle - Angle[1];
Sy = Sy + Y; If DeltaAngle <= 0 Then DeltaAngle = DeltaAngle[1];
Sxx = Sxx + X*X; If DeltaAngle <> 0 Then DerivedPeriod = 360 / DeltaAngle;
Sxy = Sxy + X*Y; If DerivedPeriod > 60 Then DerivedPeriod = 60;
Syy = Syy + Y*Y; Plot9(DerivedPeriod, "", red, 4, 4);
End; }
If (Period*Sxx - Sx*Sx > 0) and (Period*Syy - Sy*Sy > 0) Then
Real = (Period*Sxy - Sx*Sy) / SquareRoot((Period*Sxx - {
Sx*Sx)*(Period*Syy - Sy*Sy)); //Trend State Variable
Vars: State(0);
//Correlate with a Negative Sine wave having a fixed period State = 0;
Sx = 0; If Angle - Angle[1] <= 6 Then Begin
Sy = 0; If Angle >= 90 or Angle <= -90 Then State = 1;
Sxx = 0; If Angle > -90 and Angle < 90 Then State = -1;
Sxy = 0; End;
Syy = 0; Plot10(State, "", red, 4, 4);
For count = 1 to Period Begin }
X = Signal[count - 1];

rate-change of phase.”
So when is the data
trending? It is trending
when it is not cycling.
I have defined trending
as occurring when the
instantaneous period
is longer that 60 days
(about three months).
This is also when the
rate-change of angle is 6
degrees per bar or less.
Trend rules are the
opposite of swing rules.
When trending, you
FIGURE 3: CYCLE PERIODS. We can express the computed instantaneous period of the data as 360 divided by the
rate-change of angle. The resulting derived period is shown here. As you can see, instantaneous derived cycle periods want to be long when
are all over the place. It is preferable to perform analyses in terms of phase angle rather than in terms of cycle period. the phase angle is greater
than +90 degrees or less
than −90 degrees. You
want to be short or out
when the phase angle
is between −90 degrees
and +90 degrees.
These rules can be
used to create a state
variable that is +1 for
long positions, 0 for
cycling, and −1 for short
positions (or out). This
state variable is shown
in Figure 4. You can
compare the timing of
FIGURE 4: TREND STATE IS LONG (+1) OR SHORT (−1). We can use the rules to create a state variable that is +1 for the +1 and −1 states with
long positions, 0 for cycling, and −1 for short positions (or out). This state variable is shown here. You can compare the the short-term trends in
timing of the +1 and −1 states with the short-term trends in the price data. the price data.
With reference to the
change of angle. For example, the dimension of cycles sidebar’s code listing for phasor analysis, you can replicate
per second can also be expressed in terms of angles as the state variable display by removing the curly brackets
360 × rotations per second, Therefore, we can express around the code segment titled “Trend state variable”
the computed instantaneous period of the data as 360 and ensuring curly brackets are placed around the other
divided by the rate-change of angle. The resulting derived display code segments.
period is shown in Figure 3. Instantaneous cycle periods
are all over the place, which demonstrates the difficulties The cycle is complete
in cycle analysis. It is much more preferable to perform In the beginning, we used cycle analysis to determine
analyses in terms of phase angle rather than in terms of whether the market was trending or whether it was suitable
cycle period. for swing trading. Evolution has occurred. Our computers
With reference to the code listing in the sidebar on phasor are far more capable than they were 40 years ago. Our
analysis, you can replicate the results show in Figure 3 by continued research and application of the science of DSP
commenting out the code block plotting the phase indica- to the art of trading has brought us full circle. We can now
tor (with curly brackets) and removing the curly brackets use cycle analytics to know when to trade the trend.
around the code block titled “Frequency derived from Congratulations to S&C for 40 years of successfully
It takes confidence
to trade options.
(And some pretty powerful tools.)
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a click of a button. Log in to thinkorswim® and get immersive education, award-winning technology, and
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read Characteristics and Risks of Standardized Options. Contact TD Ameritrade at 800-669-3900 for a copy. Supporting documentation for any claims,
comparison, statistics, or other technical data will be supplied upon request. All investing involves risks, including loss of principal. TD Ameritrade, Inc., member
FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. © 2022 Charles Schwab & Co., Inc. All rights reserved.
bringing new technical concepts to traders. It has been articles on cycle analysis, phasor display, and other
a wonderful journey. Thanks to S&C for letting me be topics related to market analysis and digital signal pro-
a part of it. cessing.
John Ehlers, a Contributing Editor to Stocks & Com- The code given in this article is available in the Article
modities, is a pioneer in the use of cycles and DSP (digital Code section of our website, Traders.com.
signal processing) technical analysis. This article is his
100th article to appear in this magazine, with his first Further reading
article appearing in the December 1985 issue. Ehlers is Hurst, J.M. [1970]. The Profit Magic of Stock Transac-
president of MESA Software and can be reached through tion Timing.
his website at MESAsoftware.com. Warren, Anthony W., PhD, and Jack K. Hutson [1984].
Ehlers will hold his annual workshop online October “Maximum Entropy Optimization,” Technical Analysis
10–14, 2022, during which he will teach and discuss of Stocks & Commodities, Volume 2: July.
concepts and trading methods from his years of work in ‡TradeStation
digital signal processing. More information can be found ‡See Editorial Resource Index
at MESAsoftware.com.
Subscribers to this magazine can visit our article ar-
chives at Traders.com to read any of John Ehlers’ past

KAEPPEL/OPTIONS
Continued from page 7
buy five put options. The particulars

for this position appear in Figure 3
and the risk curves in Figure 4.
This position involves a tradeoff
relative to the standard collar. The
5×5 position has a maximum profit
potential of $700 and a maximum
risk of −$800.
By using the open collar in a 4×5
configuration: FIGURE 5: STANDARD COLLAR VS. OPEN COLLAR, P&L, AMC. This shows the expected profit
& loss for both positions at expiration. The tradeoffs between the two approaches are clear.
• The maximum risk is higher

(−$1,040 versus −$800) or a smaller loss. Nevertheless, it is essential to note
• The maximum profit potential is • Above $21.60 for AMC shares, that being able to put on an open
unlimited (versus $700) the 4×5 collar will enjoy point- collar with a favorable reward/risk
for-point profit with AMC shares, ratio somewhat depends upon the
COMParing the tWO while the 5×5 collar will enjoy pricing of the options considered.
StrategieS no additional profit beyond the If put options are relatively more
Figure 5 displays the expected P/L maximum of $700. expensive than call options, it may
for both positions at expiration. The be challenging to find an advanta-
tradeoffs are pretty obvious: SuMMarY geous position.
The open collar strategy can make a
• Below a price of roughly $21.60 lot of sense for a trader looking for a
for AMC shares, the 5×5 collar complete hedge but who also wants
will show either a greater profit to retain significant profit potential.
MARKET RAP
THE WORLD OF RETAIL TRADING
Emilio Tomasini is an adjunct professor of corporate finance at the
University of Bologna in Italy and is a professional trader. He has au-
dited over 5,000 accounts of traders during 13 years of a real-money
trading competition, giving him unique insights into what helps a retail
trader to succeed. He has expertise in technical analysis and trading
Emilio Tomasini
system design. In this column, he shares his sometimes “unserious”
thoughts on serious topics in finance. In his writings, he hopes to help the retail trader better understand the leap
from unprofitable to profitable trader, firmly believing that the right answers can come only if the right questions
are asked. At his website at www.emiliotomasini.com, he offers some of his expertise in a free video course.
SPECULATION VS. INVESTING here, we could adapt Roger Gray’s that greenlight the trade (for example,
What is an “investment” and how comments as follows: Investment the trendline is broken, the 200-day
does it differ from “speculation”? does not necessarily aim to achieve moving average is up, volume is
Economic literature has been dis- an average, boring rate of return, but increasing, the RSI indicator is not
cussing this topic for centuries and rather, it aims to maximize wealth. overbought, the e-margin is growing,
it seems that investment is connected In the war of definitions, which can the forecasts for the next quarter’s
to production, while speculation is often turn quickly from supporting earnings per share are upbeat, and
based on price forecasting. But can one side of the argument to support- generally, everything seems to be
an investment turn into speculation ing the other, it is almost always true in place). Well, having all the ducks
or vice versa? In the end it may be that speculation is an investment line up and having everything point
impossible to say precisely, since it’s gone wrong. to green and “all clear” implies that
connected to psychology and motiva- Putting aside the academic and you will lose money. Why?
tion. (And that is something that is theoretical debate over how to define Because if everything is “all clear,”
written in the clouds.) investing and speculation, I’d like then there is no risk. And if there is
Whenever I am asked about the no risk, then theoretically there won’t
difference between investing and be a return.
A good investment
speculating, I always think of a fabu- If you watch a real scalper in ac-
lous comment by agriculture futures involves some risk. And tion, then you will realize that what
expert Roger Gray (1921–1996). The in exchange for risk, it he does would be crazy to the average
comment was made in response gives back a return. We investor. For the scalper, in every case
to the eternal debate over whether all agree on that. there is a lot of insanity, and insan-
farmers are purely hedging in the ity means that there is no playbook
agricultural markets: Is a farmer who to offer a down-to-earth thought. It to follow, no handbook to read. This
buys a futures contract against his simply has to do with the odds of produces risk.
real crop production involved only making a profit or the odds of los- When the definition of “risk” moves
in operational hedging without any ing money. from the pages of a college textbook
speculative intent? Or is there a hint A good investment involves some to how it looks in reality, it’s a monster
of speculation in there? risk. And in exchange for risk, it nobody wants to live with. In reality,
What Gray said was this: “A gives back a return. We all agree on you are hoping against hope that you
clearcut definition of investment and that. But there are degrees to it. An don’t run up against a black swan.
speculation is meaningless because it investment that is very uncertain So when you talk about “risk and
presupposes not that most hedgers are and that causes a lot of apprehension return,” please put a real face on risk.
arbitragers trying to get ahead in the and psychological stress must make When you acknowledge that in real-
world, which they are, but that they a higher return than a less uncertain ity, risk feels more like “battle shock,”
are a peculiar sort of conservative investment, one that produces little “trauma,” or “clinical depression,”
commercial idiot, striving always and to no anxiety, for the investment to then you can start to appreciate the
only ‘to break even’ with an average be worth the risk. real meaning of “return.”
rate of return.” In trading, say you go to place a
For the purposes of our discussion trade after checking off all the boxes Continued on page 21
Looking To The Past For Trading Ideas
Developing And Testing

A Trading Strategy From
The Vault
A dive into this magazine’s vast article archives can Here, I’ll explain how I go about doing this, and I’ll
provide you with myriad ideas for trading strategies to also provide an example of developing a trading strategy
develop and test. Here’s an example of doing just that by based on an idea taken from the very first issue of S&C,
returning to the very first issue of this magazine to pull the October 1982 issue.
out a trading idea. Will it work? Let’s find out.
Algorithmic trading
by Kevin J. Davey Over the last 40 years, there have been countless trading
As
ideas written about in this magazine. And for someone
Technical Analysis of Stocks & Com- like me, an algo trader and strategy developer, these ideas
modities magazine celebrates its 40-year are a veritable goldmine. My style of algo trading needs
anniversary, I thought I’d share a way I lots and lots of ideas, since I am constantly testing new
take advantage of the 40 years of article strategies, concepts, and approaches.
COLLAGE: CHRISTINE MORRISON
archives that S&C magazine subscribers While most ideas I test do not pass all my rigorous
AURIELAKI/SHUTTERSTOCK
have access to at the magazine’s website, tests (somewhere around 95 to 99 out of 100 ideas fail), I
Traders.com. Using the article archives (which includes find if I test enough ideas, eventually I discover tradable
thousands of articles!) is a great way to discover potential algo strategies. And that makes it all worth it!
trading ideas. Here is an example of how I utilize the S&C article
TRADING STRATEGIES
archives to discover ideas to test. I am going to go back

to the very first issue to an article titled “Handling Mar-
ket Reactions” by John Rosenstock. Rosenstock’s basic
idea is to enter trades after a retracement against the
trend. In the article, he writes: “All markets exhibiting
prolonged price trends invariably have reactions against
the trend.”
The article posits that momentum reversal is a good
way to jump back on the trend after a pullback, as shown
in Figure 1, reproduced here from Rosenstock’s 1982
article.
Rosenstock claims that this approach can tell us: 1)
when the reaction is over, and 2) when the main trend
will resume. Based on that, we’ll use this concept for FIGURE 1: MOMENTUM REVERSAL (FROM 1982 ARTICLE). In an article
our entry. in the first issue of Stocks & Commodities magazine, John Rosenstock
posits that using a momentum reversal technique can be a way to enter a
For exits, the article is a bit more vague. It suggests trend after a pullback. The chart shown here is reproduced from Rosen-
the trader enter stop-loss orders “in a logical place.” I’ll stock’s 1982 S&C article, titled “Handling Market Reactions.”
provide my interpretation of that later in this article.
The article gives us a rough idea on how we might
enter and exit, but it needs some interpretation and flesh-
ing out. I’ll present the strategy that I developed from
Rosenstock’s ideas, which focus on momentum.
Momentum is an interesting indicator, and in many
ways is better than other trend indicators such as mov-
ing averages. Figure 2 shows an example of a 50-bar
momentum plotted with a 50-period moving average.
As you can easily see, the moving average significantly
lags the momentum calculation.
For my interpretation of Rosenstock’s strategy, I’ll
use two momentum calculations. First, a momentum
cross above or below zero is calculated. A longer-length
momentum—I’ll use a momentum length two times the
length of the shorter momentum—establishes the longer-
term trend. Therefore, when the longer-term trend is up,
TRADESTATION
and the shorter-term momentum crosses above zero, a
buy order is initiated. For short trades, the exact opposite
FIGURE 2: MOMENTUM VS. MOVING AVERAGE. A 50-bar momentum
logic is used. is plotted along with a 50-period moving average. As you can see, the
Code in TradeStation EasyLanguage for the strategy moving average significantly lags the momentum calculation.
looks like this:
A sample trade in shown in Figure 3.
Input: mlookback(50); There is only one parameter to optimize with this
Var: momentum1(0); entry: the momentum lookback period “mlookback.” I
did this intentionally to keep the strategy simple. I have
momentum1=close-close[mlookback]; found that simplicity and minimal optimization are
if momentum1 crosses above 0 and

close>close[2*mlookback] then buy next bar at Over the last 40 years, there have
market; been countless trading ideas
if momentum1 crosses below 0 and written about in this magazine.
close<close[2*mlookback] then sellshort next bar at
market;
keys to better real-time performance. This also leads to
inferior-looking backtests. Unfortunately, many traders
are turned off by this, as they mistakenly feel the goal
of strategy building is to build a perfect backtest equity
curve, a.k.a. the so-called “holy grail” backtest.
For the range of mlookback, I will use a medium- to
long-term length of 50 to 100 bars. This will ensure that
trades are only taken during a significant trend.
The reader should also note that the entries are sym-
metric. This also is intentional, as it allows long trades
to be entered as easily as short trades. Again, some will
quibble with this (they might say “markets crash faster
than they rise”), but I have found in general that sym-
metry is a good approach.
Some traders therefore will look at my entry and think,
“If I made the lookback periods different for long and
short, and defined the trend lengths differently, I could
optimize four different inputs instead of one.” They
FIGURE 3: ROSENSTOCK MOMENTUM STRATEGY. This shows a sample will think that they can “tune” the parameters four
trade for the strategy that was developed based on John Rosenstock’s times better that way and get a better fit. I look at the
1982 S&C article. same situation and say that I am four times less likely to
curvefit using only one input. My biggest fear in strategy
development is curve-fitting or overfitting the model to
the historical data.
Looking at exits, we could simply let the entries func-
tion as a stop-and-reverse strategy (that is, long signals
first exit the short trade, then go long). We could also use
a simple stop-loss, profit target, or both together.
For this strategy though, I am going to provide my
interpretation of Rosenstock’s “exit at a logical place.” I
take that to mean exiting after a few bars go against the
trade. It seems logical to exit a trade after it goes against
you for a few bars. My exit will be to exit longs at next
open after a recent lowest close is hit, with a short exit
after a recent high. The length of the lookback period
will be rlookback and will be optimized. I will set the
range for it to be very short, to prevent trades from los-
ing too much.
FIGURE 4: EXIT STRATEGY. This shows a sample exit for the trading Input: rlookback(4);
strategy. The trading strategy exits longs (shorts) at next open after a
recent low (high) is hit.
if marketposition=1 and
close=lowest(close,rlookback) then sell next bar at
market;
Rosenstock’s basic idea if marketposition=-1 and
is to enter trades after close=highest(close,rlookback) then buytocover
a retracement against next bar at market;
the trend.
An example of this exit is shown in Figure 4.

View AbleTrend Signals
Let’s test! At Critical Points
At this point, we have our entry
and our exit defined, so we can
combine everything to create our
strategy code. Now we are ready
for testing.
I run each combination of strat-
egy code, instrument, and bar size
through a test process I call the
Strategy Factory. This rigorous
approach filters out many bad strate-
gies and leaves only the potentially
good strategies.
One step in my process is what
I call “preliminary testing.” This
testing is done on a small sample
of historical data, and allows me to
change rules, add filters, and basi-
cally “tweak” the strategy until I
have something that I feel is robust.
For this particular strategy, however,
I am skipping this step, as I already
have my strategy fully defined.
Out-of-sample walk-forward
testing Traders Rave Over AbleTrend
The next step is to run out-of-
sample walk-forward testing on
the various instrument and bar size
combinations I am interested in. SINCE 1994
ABLETREND 7.0 COLLECTED BY
I typically will test 40–50 of the
major futures markets, and four or
more standard bar sizes, such as
240-minute, 360-minute, and daily
(1,440-minute) bars.
Since walk-forward testing in-
cludes optimization, I will use
the following ranges for the two
inputs:
Mlookback 50–100, step 10

Rlookback 2–6, step 2
Total iterations = 18 TEST DRIVE THE LATEST SIGNALS

Note that even though I am op-
timizing, I am not being excessive
with the number of iterations. In
THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS
SHOWN IN AN ACTUAL PERFORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUAL-
LY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF
general, my experience is that the LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT
OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE BEING
fewer iterations the better when it SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE OF FUTURE
PERFORMANCE OR SUCCESS. TECHNICAL ANALYSIS OF STOCKS & COMMODITIES LOGO AND AWARD ARE TRADEMARKS OF TECHNICAL ANALYSIS, INC.
comes to future performance.
Results of the walk-forward tests are shown in Figure Monte Carlo simulation
5. Just looking at the net profit for these tests, you can see After walk-forward testing, I run the good cases through
that a large number of the 172 cases are losers or barely my Monte Carlo simulator (freely available at https://
profitable, and only a select few have high net profit and kjtradingsystems.com/calculators.html), which reduces
are worth investigating. the potential profitable cases even further.
Of course, eliminating all the bad cases after walk-
forward and Monte Carlo testing feels a bit like optimiza-
tion, and to an extent it is. In reality, as soon as you test
any trading system, market, or bar size more than once,
you have likely optimized—since you will typically pick
the best performer. So, in my opinion, optimization of
some sort cannot be avoided. The trick is to be smart
about the optimization you do.
Real-time observation, or “incubation” period

I greatly reduce the chance for optimization by performing
the next step in the process, which I call “incubation.”
This step is to simply watch the strategy in real time for
a number of months. Many times, strategies without a
FIGURE 5: WALK-FORWARD TEST. Results of the walk-forward test on true edge will have dramatically different performance
the strategy are shown here. A large number of the 172 cases are losses during this real-time test. Good strategies will continue
or are barely profitable, and only a few cases show a high net profit and to be profitable, albeit possibly at a reduced rate.
thus merit further consideration.
After walk-forward and incubation, we have
In Sample Incubation Period
four combinations that have performed to my
Symbol Bar Size
Net Profit Net Profit requirements (see Figure 6).
NQ — mini Nasdaq 240 minute $61,182 $22,867 So at this point, there are four possible versions
NQ — mini Nasdaq 1440 minute $62,864 $12,482 of Rosenstock’s idea that could be traded. Each
KW — Hard red winter wheat 360 minute $20,863 $2,170 case has been profitable through out-of-sample
PL — Platinum 720 minute $42,075 $780 walk-forward testing, has passed criteria for Monte
FIGURE 6: WHITTLING DOWN THE CASES TO FOUR. The walk-forward test and Carlo simulation return/drawdown ratio, and has
incubation period of real-time observation whittle down the possible combinations performed profitably during a live incubation
to four versions of the strategy that perform acceptably well.
test period.
Post-development performance
Net Profit
Symbol Bar Size
March–July 2022
NQ — mini Nasdaq 240 minute $5,981 Now let’s see how they performed in the five months
NQ — mini Nasdaq 1440 minute $4,376 after all this testing (referred to as post-development
KW — Hard red winter wheat 360 minute $279 performance).
PL — Platinum 720 minute ($2,510) As you can see in Figure 7, three of the four strate-
FIGURE 7: PERFORMANCE OF STRATEGY IN REAL TIME. How gies performed well the past five months in real time.
did the four versions of the strategy shown in Figure 6 perform in the Of course, one could argue that the two NQ versions of
five months following the testing period? Three out of four strategies the strategy are likely highly correlated, but even trad-
performed well in real time. ing either one of the NQ strategies, along with the PL
and KW strategies, would have been profitable over the
last five months.
I have found that Based on the testing analysis performed, I would
simplicity and minimal personally feel comfortable trading these four “Rosen-
optimization are keys stock” strategies. At the same time, however, I realize
to better real-time that any strategy may stop working at any time. Caution
must be exercised at all times in order to prevent poorly
performance.
performing individual strategies from stifling overall
account performance.
The walk-forward and
incubated equity curve
for the KW 360-minute
version is shown in Fig-
ure 8, with the last five
months shown by the
magenta line.
Wrapping up
As I mentioned earlier,
the Stocks & Com-
modities archives can
MULTIOPT SOFTWARE
provide a goldmine of
ideas. Using the ap-
proach I’ve described
in this article, you can FIGURE 8: EQUITY CURVE. This shows the equity curve for the KW 360-minute strategy, which is one version of
find many trading ideas the Rosenstock-based strategy. The black portion of the line is the equity curve produced from the walk-forward test
buried in the “dusty” and then incubation period, and the magenta portion of the line at right is the five months following the test period.
archives, subject them to
a modern testing approach, and possibly find deployable Further reading
strategies. (You can visit the article archives at Traders. Rosenstock, John E. [1982]. “Handling Market Reac-
com to try this approach for yourself.) tions,” Technical Analysis of Stocks & Commodities,
In closing, thank you to S&C magazine for making Volume 1: October.
your article archives available to magazine subscrib- KJ Trading Systems, Monte Carlo simulator, https://
ers, and congratulations on 40 years of helping traders kjtradingsystems.com/calculators.html
worldwide! Davey, Kevin J. [2014]. Building Winning Algorithmic
Trading Systems: A Trader’s Journey From Data
Kevin J. Davey is a full-time algorithmic trader and a Mining To Monte Carlo Simulation To Live Trading,
regular columnist in this magazine. He is president of Wiley Trading.
KJ Trading Systems, where he teaches and consults via [2021]. Algo Trading Cheat Codes: Techniques For
his Strategy Factory online workshop. He is the author Traders To Quickly And Efficiently Develop Better Al-
of five books on trading. He can be reached through his gorithmic Trading Systems, kjtradingsystems.com.
company’s website at kjtradingsystems.com or via email
at [email protected].
MARKET RAP
TOMASINI/MARKET RAP return in exchange for low risk. You
Continued from page 15 give up the possibility of making It simply has to do with
a fortune when giving up insanely the odds of making a
Big risk can bring huge returns. If high risk. That is the deal—take it profit or the odds of
you do not want to accept risk, then or leave it. But put the correct label
losing money.
we don’t talk about scalping; we talk on it: one is investment, the other is
about having a balanced retirement speculation.
scheme. There is no drama in it; you So if you want to “take the road less battle scars that risk will inevitably
just take a street that you know leads traveled” rather than taking the street produce.
to a known destination. You take that leads to a known destination,
an investment with a given average then you must learn to live with the
Compound Your Returns
Four Steps To
Bull And Bear Profits
The major cyclical trends in the financial markets create losing 40%, then the compounded annual return over six
both risk and opportunity for investors, yet most lack years would be 18.8%, nearly six times higher.
a system to identify and profit by these cycles. Here is If an investor can identify when a bull market is start-
a tutorial to help you build a comprehensive system in ing and ending—which is the same as identifying when
four steps—using a wide variety of proven fundamental a bear market is ending and starting—then an investor
and technical indicators—to identify and profit in both can profit in both directions and generate much higher
bull and bear markets. compounded annual returns over time than simply using
the buy & hold approach.
by Jon Wolfenbarger, CFA
T
Four key steps to identifying bull and
he key to creating wealth for an investor is bear markets
to generate high compounded annual returns Contrary to the popular belief spread by many profes-
over time. sional investment advisors, who self-servingly say that it
This is relatively easy to do when stocks is “impossible to time the market,” there are numerous
(or whatever asset class one is investing in) proven fundamental and technical indicators that can be
are in a bull market, with a price uptrend of used to identify the likelihood of when a bull or bear
higher highs and higher lows. market is starting or ending.
However, this “easy path to riches” faces a major and My “bull and bear profits” approach to investing is
recurring problem: bear markets. Bear markets are price based on four key steps to identifying bull and bear
downtrends with lower highs and lower lows. Bear markets markets, which are as follows:
can dramatically lower compounded annual returns.
For example, if an investor earns 15% annual returns 1. Estimate long-term returns, using key fundamental
TZIDO SUN/SHUTTERSTOCK
in a bull market for five years, but then loses 40% in a valuation and long-term return indicators
bear market in the sixth year, the compounded annual 2. Forecast the economy, using key fundamental
return after six years will only be 3.2%. But if the investor economic indicators
profits during that bear market and earns 40% instead of 3. Identify potential trend changes, using key technical
MARKET TIMING
sentiment indicators
4. Identify the current trend, using key
technical trend indicators
Investing is based on probabilities, not
FRED/STLOUISFED.ORG
certainties. There are no perfect indicators
in investing. That is why this approach
uses the weight of the evidence of a wide
variety of proven fundamental and techni- FIGURE 1: STOCK MARKET CAPITALIZATION TO GDP RATIO. This shows the ratio of stock
cal indicators to help build conviction in market capitalization to GDP from the early 1950s to first quarter 2022.
a given investment outlook on multiple
timeframes.
It is beyond the scope of this article to
go into detail on any particular indica-
tors, but I will provide examples of two
key indicators for each of the four steps
below to illustrate how useful these steps
and indicators can be.
Step 1: Estimate long-term returns

The first step to investing in any asset is to
estimate the long-term returns of buying
and holding that asset. In this case, I define
“long-term” as about 10 years. Various
fundamental metrics can be used for this
STOCKCHARTS.COM
purpose, but it’s important to keep in mind
that returns over shorter time periods are
not predictable with such metrics.
Bonds are the easiest asset to estimate FIGURE 2: COMMODITY PRICES TO GDP RATIO. This shows the ratio of commodity prices
(based on the CRB Commodities Index) to GDP from 1980 to January 2022.
long-term returns for, since the return for
holding a bond until it pays back the prin-
cipal at maturity is simply the annual yield of the bond. Buffett’s favorite metric for the valuation of the stock
For example, if a 10-year Treasury bond is yielding 3%, market. This ratio is strongly correlated with total an-
that means the total annual return of holding that bond nual stock market returns over the next decade. It is a
until maturity in 10 years is 3%. much better predictor of future returns than P/E (price
Long-term returns of REITs can be estimated with less to earnings per share) measures, since it is not influenced
precision, based on a formula using REIT dividend yields, by cyclical fluctuations in margins. Red circles highlight
likely dividend growth rates and yields in the future. when the stock market was expensive and green circles
Long-term returns of stocks are more challenging to highlight when it was inexpensive, based on this ratio.
estimate, but formulas using dividend yields, price to This shows stock market valuations are near the highest
revenue, cyclically adjusted P/E ratios, and market capi- levels in history, which implies very poor returns over
talization relative to GDP and other stable fundamental the coming decade or so.
measures have proven to be very useful in estimating
long-term returns.
Commodities, cryptocurrencies and other assets that
do not generate income are the most difficult assets to My “bull and bear profits”
estimate returns for, but even with these, long-term returns approach to investing is based
can be estimated using prices relative to GDP or other on four key steps to identifying
stable fundamental measures. bull and bear markets.
Figure 1 shows the ratio of stock market capitaliza-
tion to GDP (Gross Domestic Product). This is Warren
Figure 2 shows the ratio of commodity
prices (based on the CRB Commodities
Index) to GDP. This ratio shows how at-
tractively valued commodity prices are
relative to the peak of the previous two
commodity bull market cycles in 1980
and 2008.
Step 2: Forecast the economy

The second step to profiting in bull and
bear markets is to forecast the economy.
Stocks and most other assets are highly
correlated to the “boom and bust” busi-
ness cycle. In an economic boom, stocks,
real estate, commodities, cryptocurrencies
and other “risk on” assets are typically in
a bull market. In an economic bust, they
are typically in a bear market. Treasury FIGURE 3: 10-YEAR LESS 2-YEAR TREASURY YIELD CURVE SPREAD WITH S&P 500.
bonds can often be countercyclical, but The 10-year less 2-year Treasury yield curve spread (top clip) is shown with the S&P 500
that depends on other economic factors, index (bottom clip) since 1995.
including inflation.
Over a century ago, Austrian economist
Ludwig von Mises first explained that the
recurring business cycle is caused by cen-
tral and commercial banks manipulating
the money supply. When they accelerate
money supply growth, that typically causes
an economic boom. When they deceler-
ate money supply growth, that typically
causes an economic bust. Mises’ student, FIGURE 4: OECD US LEADING INDICATORS. Here you can see the OECD US leading
indicators since the early 1960s.
F.A. Hayek, won the 1974 Nobel Prize in
economics for this theory of the business
cycle. Inverted yield curves (10-year yield less than 2-year yield)
Proven fundamental indicators that help in forecasting and stock bear markets are highlighted with red circles.
the business cycle include money supply growth, yield This shows the yield curve is a very strong predictor of
curve spreads, high-yield bond spreads, various leading major stock bear markets.
economic indexes, housing starts, copper prices, manu- Figure 4 shows OECD (Organisation for Economic
facturing PMIs, and initial unemployment claims. Co-operation and Development) US leading indicators.
Figure 3 shows the 10-year less 2-year Treasury yield This leading index is designed to anticipate turning
curve spread (top clip) with the S&P 500 (bottom clip). points in US economic activity relative to trend over
the next six to nine months. Downturns before reces-
sions are highlighted with red downward arrows, while
upturns before recoveries are highlighted with green
There are numerous proven upward arrows.
fundamental and technical
indicators that can be used to Step 3: Identify potential trend changes
identify the likelihood of when The third step is to identify potential changes in the bull
or bear market trend. Technical sentiment indicators can
a bull or bear market is starting
be very useful in helping to identify when a bull market
or ending. is likely to turn into a bear market and vice versa. This
is because the crowd is usually wrong at extremes in
sentiment. This is due to herding behavior,
which is a survival mechanism for humans
in normal life, but it can be very dangerous
in financial markets.
When most investors are bullish, that
is a contrarian bearish signal, since there
are few investors left to buy. When some
start to sell, herding behavior causes many
others to sell. When most investors are
bearish, that is a contrarian bullish signal,
since there are few investors left to sell.
When some start to buy, herding behavior
causes many others to buy.
Technical sentiment indicators useful
for identifying potential trend changes
include put/call ratios, VIX (Cboe Volatil-
ity Index), TRIN (short-term trading index
or Arms index), investor stock and cash
allocations, margin debt, and overbought/
oversold indicators.
Figure 5 shows monthly prices of the
FIGURE 5: S&P 500 MONTHLY PRICES WITH MONTHLY RSI. Shown here are monthly prices
S&P 500 (top clip) and the 14-period of the S&P 500 index (top clip) and the 14-period monthly RSI (bottom clip) since 1985.
monthly RSI (bottom clip). Overbought
periods (with monthly RSI over 70) before
major stock selloffs and bear markets are
highlighted with red boxes. Oversold pe-
riods (with monthly RSI below 30) near
bear market bottoms are highlighted with
green boxes. As with many other sentiment
indicators, overly bullish periods can last
for a long time, while overly bearish peri-
ods tend to be shorter. This is because the
emotion of fear tends to be stronger, but
shorter-lived, than the emotion of greed.
Figure 6 shows the ratio of equity put
options to call options. Extremely bullish
ratios (which are contrarian bearish) be-
low 0.60 are highlighted with red boxes.
Extremely bearish ratios (which are con-
trarian bullish) above 0.70 are highlighted
with green boxes. This chart shows how
extremely bullish investors were in 2021.
Step 4: Identify the current trend FIGURE 6: EQUITY PUT/CALL RATIO. Here you can see the ratio of equity put options to
The fourth step is to identify the current call options since 2005.
trend, either bull or bear market. Due to
herding behavior, financial market prices move in trends like advance-decline lines, cyclical versus defensive stock
that persist, until investor sentiment reaches an extreme, performance, and new highs less new lows.
as discussed in step 3. Figure 7 shows the QQQ (NASDAQ 100 ETF) (black
Useful technical trend indicators include asset prices line) with its 250-day moving average (red line) (top clip),
relative to moving averages, as well as breadth indicators its price relative to the S&P 500 (middle clip) and PPO
(percentage price oscillator) (bottom clip).
Periods with bear market downtrends (top
clip), underperformance versus S&P 500
(middle clip), and negative price momen-
tum (bottom clip) are highlighted with
red boxes.
Figure 8 shows NYSE new highs less new
lows (top clip) with NYSE Index (bottom
clip) since 2003. Bearish periods when
NYSE new highs less new lows (black line)
were trending down below the 250-day
moving average (red line) are highlighted
with red boxes.
Conclusion
Most investors have no system to identify
and profit from major cyclical trends in
financial markets, which is the key risk
FIGURE 7: QQQ (NASDAQ 100 ETF) WITH RELATIVE PRICE AND PPO. In the top clip, you
and opportunity of investing. Those who see the QQQ (black line) shown with the 250-day moving average (red line). In the middle clip,
do use fundamental or technical indicators you see price relative to the S&P 500. In the bottom clip, you see PPO since mid-2019.
tend to use them in an ad hoc manner and
usually only focus on one or two of the
four steps we have discussed. This com-
prehensive system of four steps—using a
wide variety of proven fundamental and
technical indicators—to identify bull and
bear markets can help improve investor
returns significantly.
Jon Wolfenbarger, CFA is founder & CEO

of BullAndBearProfits.com, a website de-
voted to helping investors generate high
returns in both bull and bear markets.
Previously, he was a securities analyst
at Allianz Global Investors for over 22
years and was an investment banker at JP
Morgan and Merrill Lynch for over three
years. He earned an MBA degree from
Duke University and a BBA degree from
the University of Texas at Austin. He can
be reached at Jon@BullAndBearProfits.
com.
FIGURE 8: NYSE NEW HIGHS LESS NEW LOWS WITH NYSE INDEX. In the top clip, you see
Further reading NYSE new highs less new lows. In the bottom clip, you see the NYSE Index since 2003.
Wolfenbarger, Jon [2022]. “Simple Rules
To Profit From Bear Markets,” Technical Analysis of
Stocks & Commodities, Volume 40: April.
‡StockCharts.com
‡See Editorial Resource Index

TRADING ON MOMENTUM
Entering Over 50MA, Target 200MA
Swing Trading In The

50/200MA Channel
You can use the popular 50-day useful technique is to trade inside the over the 50-day SMA line at $100/
and 200-day moving averages for 50/200 channel, using the 50SMA as share. Note that when the 50SMA
more than looking for crosses of support and the 200SMA as resis- broke out, the 200-day SMA would’ve
the two lines. You can also use the tance, following an uptrend, as seen in been much lower, compared to today
channel that the two lines create Figure 1, a chart of Disney (DIS). (for example, near 110–115). As long
to swing trade in a continuous up- as price remains in an unbroken
trend. Here’s how. Trading inside the 50/200 uptrend, like this chart illustrates,
SMA channel we stay long. We set an exit target in
by Ken Calhoun In the example in Figure 1, an entry Figure 1 at $130, because that’s near
T
signal was generated once price got a prior support/resistance level.
raders’ use of simple
moving averages (SMA) Step-by-step action plan
has largely focused on As long as price remains Here’s how you can start using this
crossover patterns, such in an unbroken uptrend, strategy:
as so-called golden crosses (upside we stay long.
50/200SMA crossover). Another Continued on page 41
eSIGNAL
FIGURE 1: TRADING IN THE 50/200SMA CHANNEL. In this chart of Disney (DIS) you can see a strong breakout over the 50SMA.
Identifying Promising New Energy Companies
Urban Energy Revolution:

A Choice Or A Must?
With increasing population growth and urban develop- century going back to the 15th century, including sources
ment comes increased energy use. Where can investors such as animal, biomass, coal, oil, and natural gas. Most
put their money to capitalize on opportunities brought recently, in the 20th century, nuclear energy emerged,
by new sources of energy? Here’s a study examining sev- and in the second half of the 20th century through today,
eral fundamental metrics to see if they might have some hydrogen power continues to be developed. According
forecasting ability that investors can benefit from. to a 2016 study published in Natural Gas Industry, the
development of new energy is projected go from high
by Jerry Zhao carbon to low carbon, from industrial to technological
We
CROWD ARROW: HOBBIT ART/SOLAR POWER ICON: KULYK TETIANA//SHUTTERSTOCK
production, and from direct use to energy transforma-

are living in a world that has seen tion. Following that trend, new energy sources need to
significant population growth and be identified and discovered to meet new demand. For
urban development. According to the investors, identifying promising new energy companies
World Bank, the population of cities is a subject of keen interest.
will grow from the current 55% to
approximately 70% by 2050. Under Selection of industry groups
this growth pressure, humans will need to develop new Where does the investor start, given that there are more
COLLAGE: CHRISTINE MORRISON
energy sources to sustain the needs of urban life. than 6,100 publicly traded companies? According to
According to the article “Evolution Of Energy Sources” finviz.com, nearly 270 companies in the energy sector
at the The Geography Of Transport Systems website, are listed on US stock exchanges. These companies,
found at https://transportgeography.org, new sources of however, belong to traditional industry groups such as
energy have been discovered or developed in almost every oil, gas, thermal, coal, and uranium. We therefore have to
INVESTING
look to the technology sector and explore industry groups Ticker Company name Avg_patent Rev_growth Return
involved in the development of new sources of energy. OPTT Ocean Power Technologies, Inc. 3.7 16.0% −96.5%
FCEL FuelCell Energy, Inc 8.2 10.1% −91.3%
Solar. The first group I will look at is solar energy. Every LTBR Lightbridge Corporation 0.0 −34.4% −89.0%
day, the sun gives off far more energy than we’d need to ESP Espey Mfg. & Electronics Corp. 0.0 −1.6% −44.8%
power everything. It is the cleanest and most abundant AYI Acuity Brands, Inc. 0.5 10.8% −9.4%
renewable energy source since it does not involve exca- POWL Powell Industries, Inc. 0.0 5.0% 13.3%
vating resources.
ENR Energizer Holdings, Inc. 1.7 −7.8% 17.7%
DATA FROM UNITED STATES PATENT AND TRADEMARK OFFICE AND BLOOMBERG TERMINAL
BDC Belden Inc. 8.0 9.5% 37.9%
Electrical equipment & parts. The other group I will
ENS EnerSys 0.2 6.5% 41.4%
look at is the electrical equipment & parts (EEP) group.
Companies in this group are involved in innovating new
SVT Servotronics, Inc. 0.0 0.1% 51.9%
energy-related technologies including fuel cell energy,

PLPC Preformed Line Products Company 1.7 4.2% 53.7%
wind turbine, and energy storage technology. OESX Orion Energy Systems, Inc. 6.3 −1.8% 66.8%
RFIL RF Industries, Ltd. 0.0 19.9% 81.8%
Impact of innovation on a company’s PPSI Pioneer Power Solutions, Inc. 0.0 19.3% 89.9%
stock price KE Kimball Electronics, Inc. 0.0 10.5% 98.0%
One of the most important measures of a technology HUBB Hubbell Incorporated 60.0 7.3% 106.1%
company is its capacity for innovation. Innovation enables AEIS Advanced Energy Industries, Inc. 11.7 6.9% 222.6%
a company to adapt and overcome the challenges of market BMI Badger Meter, Inc. 3.2 7.6% 263.7%
changes. The ability to innovate fosters growth by helping WIRE Encore Wire Corporation 1.5 7.3% 285.8%
the company to identify new business opportunities as PLUG Plug Power, Inc. 1.3 44.9% 1237.9%
well as to stay afloat in the face of competition. FIGURE 1: COMPANY INNOVATION VS. ITS STOCK PRICE—
There are different ways to measure a company’s in- ELECTRONIC EQUIPMENT AND PARTS (EEP) INDUSTRY. In the EEP
novation capability. Here, I’ll use the number of patents a industry, most companies hold between zero and 10 patents. Generally
speaking, companies with no patents appear to have only a small increase
company has obtained, as recorded in the patent database in their stock price, whereas when a company held patents, its stock price
maintained by the United States Patent and Trademark performed better, with some exceptions. The “avg. patent” column shows
Office (USPTO). This will serve as a quantitative account- the average number of patents the company has developed each year
ing of its innovation capability. I’ll use it to investigate from 2010 to 2015, the period under study.
the relationship between a company’s patent development
Ticker Company name Avg_patent Rev_growth Return
and its stock price. I’ll look at the average number of
patents a company has developed each year from 2010
SUNW Sunworks, Inc. 0.0 0.0% −88.1%
to 2015 and then examine the corresponding stock price

SOL ReneSola Ltd 0.0 9.9% −29.9%
change from 2016 to 2021. According to Yahoo Finance SPWR SunPower Corporation 46.3 8.3% 6.2%
data, only 20 EEP companies and only 7 solar companies FSLR First Solar, Inc. 22.7 7.6% 32.1%
existed between 2010 and 2021. This is not a big sample BEEM Beam Global 0.0 175.2% 186.2%
size, but it provides insight into important features of the RUN Sunrun Inc. 0.2 262.7% 191.4%
companies’ growth. ENPH Enphase Energy, Inc. 10.7 60.6% 5112.0%
In the EEP industry, most companies hold between FIGURE 2: COMPANY INNOVATION VS. ITS STOCK PRICE—SOLAR
zero and 10 patents, as shown in the table in Figure 1. INDUSTRY. Here, you can see the impact of the average annual number
of patents developed by a company each year (in the study period 2010
Companies having no patents appear to have a small to 2015) and the company’s revenue growth on the company’s stock price
increase in their stock price, whereas if a company had return from 2016 to 2021, this time in the solar industry.
published some patents from 2010 to 2015, its stock price
performed better. Of course, this is not to say that more
innovation is necessarily better innovation. As you can
see in Figure 1, Hubbell Inc. (HUBB) developed an aver- For investors, identifying
age of 60 patents annually, and its stock price returned promising new energy
approximately 100% from 2016 to 2021. In another ex- companies is a subject of
ample, FuelCell Energy Inc. (FCEL) developed more than keen interest.
eight patents each year—a significant number compared
to other companies in the group—and yet its stock price
dropped dramatically after 2015. In contrast, Plug Power,
Inc. (PLUG), a hydrogen fuel cell company, having just
1.3 new patents annually, saw its stock price appreciate
more than 1,200% over the six years studied.
A similar trend can be observed in the solar industry
(Figure 2). Sunworks, Inc. (SUNW) and ReneSola Ltd.
(SOL) had no innovation as measured by published pat-
ents, and both of their stock prices were down during the
period of 2016 to 2021. SunPower Corporation (SPWR),
with an astonishing number of patents at 46, had only
6.2% growth in stock price over a period of 6 years.
Meanwhile, Enphase Energy, Inc. (ENPH) rewarded FIGURE 3: REVENUE GROWTH VS. STOCK PRICE RETURN, EEP &
investors with a stock price appreciation of over 50 fold, SOLAR INDUSTRIES. This bar chart depicts the relationship between
a company’s average annual revenue growth (from 2010 to 2015) and
with an average number of patents at 10.7. The company the company’s stock price performance (from 2016 to 2021). In general,
stands out from the competition by providing innovative stock price increases as revenue increases, whether in the EEP or solar
micro inverter-based solar and battery systems for both industry.
commercial and residential customers.
The analysis of these two industry groups indicates accordingly. Figure 3 illustrates the relationship between
that innovation is an important factor in a company’s stock performance from 2016 to 2021 and average an-
future success. With good innovation, as measured here nual revenue growth from 2010 to 2015. In general, stock
by the number of patents it develops per year, a company prices increase as revenue increases, whether in the EEP
can have potentially huge growth. However, as we have or solar industry. Higher positive revenue growth forecasts
seen, more innovations does not guarantee better returns a greater appreciation in stock price. A company with no
in stock price. And without any innovation, a company revenue growth, on the other hand, is less likely to reward
is more likely to fail. investors with decent appreciation in stock price.
I also examined other factors such as gross profit, gross
Impact of revenue growth on company’s margin, net income, profit margin, EBIT, EBITDA, and
stock price EPS, and no clear trend was observed.
Any meaningful innovation aims to win in competition,
which should be reflected in a company’s bottom line. I Final words
looked into this issue by using companies’ fundamental Unprecedented population growth and
data downloaded from the Bloomberg Terminal, seen urban expansion demand clean and
in Figures 1 and 2 in the revenue growth and percent sustainable energy. This thematic trend
return columns. I also examined this data from 2010 to provides great investment opportunities.
2015 and then looked at the impact of these factors on In this study, I focused on two industry groups engag-
the stock price changes from 2016 to 2021. ing in new energy development—solar and EEP. With a
Revenue is the total amount of income generated by small sample size, it appears that the performance of a
the sale of goods or services related to the company’s company is measured by a binary feature, which includes
primary operations. If a company can stay ahead of the the number of patents it holds and its revenue growth.
competition and provide goods or services to meet grow- Companies with patents and positive revenue growth
ing market demands, its revenue is expected to increase can potentially reward investors by giving them above-
average returns. In addition, it is worth mentioning that
the results shown in this study are going to be slightly
better than real cases you will find in the market due to
Companies in the EEP group are survivorship bias.
involved in innovating new energy-
related technologies including Jerry Zhao is a student with a keen interest in stock
market patterns and statistical analysis. He can be
fuel cell energy, wind turbine, and reached at [email protected].
energy storage technology.
Continued on page 55
Algo Q&A
ALGORITHMIC TRADING
Have a question about system or algo trading? Kevin J. Davey has over
30 years of system trading experience. Kevin is a full time trader, and also
teaches and consults via his Strategy Factory® online workshop (https://
kjtradingsystems.com). He is the author of 5 bestselling trading books, in-
cluding “Building Winning Algorithmic Trading Systems” and his latest
book “Algo Trading Cheat Codes.” Send your questions or topic suggestions
to Kevin Davey at [email protected]. Selected questions will
appear in a future issue of S&C.
Kevin J. Davey
THE FUTURE OF ALGO TRADING? answer that question, I asked a few of celebrated book author and trading
Where do you see trading, specifically my trading associates. I’m sure you’ll legend to boot.
algo trading, 40 years from now? recognize many or all of their names, Kaufman’s take on the future: “I
This is a timely question, consider- and hopefully their views can help us think it will be much the same as it
ing we are currently celebrating the see where we are going. is now. A lot of algorithmic trading
40-year anniversary of Technical I asked all of these esteemed trad- (bots) competing with each other,
Analysis of Stocks & Commodities ing professionals where they envision but the discretionary and short-term
magazine. It’s a tricky question to trading, especially retail algo trading, traders always find openings where
answer, so I’ve asked some trading 40 years from now. Here is what they bots have created opportunities.
expert friends to help me address it. had to say: They won’t get rid of the small trader
But first, let’s see how far trading easily!”
has come in the 40 years since S&C I asked these esteemed
debuted in October 1982. trading professionals Carley Garner
Looking at early issues of S&C, My friend, S&C columnist colleague,
computerized strategies were not
where they envision burgeoning TV star, broker, and trad-
all that popular. Some pioneers were trading, especially retail ing book author Carley Garner had
dabbling in programming strategies, algo trading, 40 years this to say: “Technology has changed
running analysis in Basic, Compu- from now. Here is what the trading landscape dramatically
Trac, and other rudimentary pro- they had to say. in recent decades; yet, despite what
grams. (The predecessor of today’s seem to be improvements in retail
TradeStation platform, developed Larry Williams trader access to markets, pricing,
by Omega Research, which gave us First off is trading legend Larry Wil- and tools, their success rates haven’t
the EasyLanguage programming liams. Williams once turned $10,000 improved. I believe retail trader’s
language so popular with traders, was into over $1.1 million in one year, in a painful experiences will lead them
still in its infancy in 1982). live real money account, in a publicly to seek strategies with less automa-
The interesting thing is that even 40 traded contest. He is still the all-time tion, more futures exposure, smaller
years ago, some traders were push- top performer in that contest. position sizing (micro futures), and
ing (abusing?) the limited computer Williams states, “We will always longer time horizons (less day trad-
power available. One reader in an have retail traders because they add ing, more position trading).”
early issue commented, “I have de- liquidity and stability to the mar-
rived a very complex trading system ketplace. Plus it’s in human nature Thomas Starke
that has about 30 such parameters.” to speculate on the future. 40 years Next I sought the counsel of a true
Many developers still make the same from now people will still be trying rocket scientist, physicist-turned-
mistake today! to beat the market with computers and trader and hedge fund trading con-
Obviously today’s computing with marginal success; the market is sultant Thomas Starke.
power drives a lot of traders and the just that random.” Starke’s view: “The rise of quantum
decisions they make, whether it is computers could prove to be a game
algo trading or chart trading. Will this Perry Kaufman changer, making for more efficient
still be the case in 40 years? What Next I talked to Perry Kaufman,
might trading look like? To help me frequent contributor to S&C and a Continued on page 56
INTERVIEW
Financial Engineer, Trader, Author, Educator
Perry Kaufman: Still Dancing

Perry J. Kaufman began his career in technical
trading in 1969. As the markets grew up and market
products grew, he grew with them. Because he en-
tered that new era of technical trading at the start,
he gained an education from the ground up. And
with a strong background in engineering, he became
a notable contributor to the development of techni-
cal trading. The publication of his bestselling 1978
book, Trading Systems and Methods, helped to pave
the way for traders wanting to develop systematic
trading techniques. His many market studies over
the years have helped to demonstrate what works
best when approaching the markets, for both new We are the result of all we experience.
and experienced traders.
He has shared many of the wisdoms he’s acquired in numerous articles in this magazine, including an article
published earlier this year in the Bonus Issue of S&C titled “50 Years On, What Have I Learned?” which offers
a useful list of his tried-and-true tenets and market truisms that traders can profit by.
Kaufman is still actively trading, educating, and designing systems today. His company, Kaufman Signals, at
www.kaufmansignals.com, offers subscribers daily trading signals before the opening bell. Signals are based on
one system or a combination of systems of the subscriber’s choosing, for either equities or futures trading.
On the occasion of this magazine’s 40-year anniversary, Stocks & Commodities contributor Barbara Diamond-
Kaufman, an active trader herself and former CME member, interviewed Perry Kaufman to take a look back
at market history and how that has informed (and continues to inform) his current views on how to successfully
trade today’s markets.
What originally attract- when you realize the enormity and he made in a similar account. That
ed you to trading futures, importance of that, it is addictive! was our first try at trading, using
following a successful We had an early investor in our moving averages—the state-of-the-
career and education in company, a successful businessman art at the time.
aerospace? who taught me how to organize my We did well, but so did he. We
I left aerospace in 1969 because, day. Write down all the things you felt that moving averages worked,
being young, I thought the world need to do, then do the ones you but never got paid for it. A lesson
would open up in front of me. I was like least first. You often find that for the young.
persuaded to leave that field by a fel- they are not so bad. It clears the day We had an interesting experience
low worker, who became my partner, and your mind to do the productive with this investor. He was an older
because I could program—a rare tal- tasks. I still do that. fellow with a sparse gray crewcut
PRACHAYA ROEKDEETHAWEESAB/SHUTTERSTOCK
ent at the time. We bought time on When we decided to continue and he carried a small suitcase rather
an IBM System 3 and started doing with futures, a trader from Florida than a briefcase. A bit frumpy. We
medical reimbursement for nursing made a proposition. He put a large had lunch at a yacht club in Los
homes. We were approached by a amount of money into an account Angeles where we had a private area
company that needed a solution to so that we could trade futures. He to discuss trading. We were there for
hedging London options. That led would let us keep all the profits hours and were never disturbed. I had
to learning the futures markets, and that were greater than the profits wondered why and found out later
that he owned the club. Appearances we approached Chicago
can be deceiving. (Miggs airport), he turned
off the altitude control and It turns out that the
Why did you write the first version of the plane bucked. It was simplest solutions are
Trading Systems and Methods? scary. His knee hit the the best.
In the early 1970s, the futures in- emergency power off and
dustry had a mixed reputation. While we had no lights (inside
it served an important function, all or out) and no way to use the radio. Maybe “lured” is the wrong word
trading was discretionary. I wanted We were approaching a busy airport because it was everything a system
to show that you could do better by at night, blind. The tower kept ask- developer could want: enthusiastic
using some simple trends, patterns, ing where we were, but we couldn’t support from the owner, state-of-the-
and arbitrage, that the industry was answer. Clearly, I’m still here, so we art computers, unlimited investment
not just a bunch of wild traders. There made it down. He lost his license, funds, commercial use of energy
was little else published on technical and I took a Greyhound bus back. markets, a large payout, and living
analysis except Dow theory and point The lesson is to be prepared. He had in Bermuda.
& figure. So most of Trading Systems not looked at all the controls and was We had so much money that we
and Methods was based on my own not prepared for anything out of the traded the maximum positions in
research. I was taking the long view ordinary to happen. Don’t let that every futures market. I learned how to
of marketing. Looking back, it was not happen to your trading. execute large positions. I also learned
very sophisticated, but it was a start. I some other important lessons.
like to think it helped the industry. Currency and gold trading started For one, never submit a report to
in the 1970s, along with the first your boss that may have an error.
Grain futures ran to unprecedented commodity trading funds, and you Check your work, recheck it, and
high prices in 1973 and you found moved back to New York. ask someone else to verify it. I gave
yourself a partner in a farm in Il- Everything comes to an end. In a report to the head of the company,
linois. What happened? 1978 I moved back to New York after one of the richest people in the world.
It seemed ideal. I had been trading being away for 17 years. I was asked Two hours later I brought in a cor-
agricultural futures (that’s all there to develop a fund for Bache-Halsey- rected report. He had spent two hours
was in the early 1970s) and a farming Stuart-Shields, later to become wasting time. He made it clear that it
conglomerate in Illinois wanted to Prudential-Bache. It was early in the was not to happen again. It didn’t.
start a division that provided comput- fund industry and it turned out to be Another lesson was about risk seek-
erized hedging advice. I moved from successful. I learned about managing ers and risk avoiders. We were holding
L.A. to central Illinois. A serious large positions. a long position in oil and were down
change, but a good one for growth. I I was still working with Bache in $250 million (at that time it was a lot
learned what trading futures was all 1980 when the Hunts famously held of money). The head of the company
about. Grain prices had run up in a huge position in silver as it was gathered all the senior people together
1973 following a Russian wheat deal collapsing. I spent hours helping to to ask their advice on how to manage
and a poor US crop. With windfall liquidate their position before their the position. Everyone agreed they
profits, the business expanded—more losses threatened the survival of wanted to reduce the risk. He thanked
acres, more sow units. I remember Bache. It was another lesson in un- us and doubled the position. In the
how, after visiting a building that expected risk. The Financial Crisis of next week he made $1 billion. Not
housed sow units, it took days to get 2008 was still a long way off. Later, I everyone avoids risk.
the smell off me, even though I was wished that I had learned more about
wearing a lab coat and hat. I learned risk control. In the 1990s you moved to Vermont
a lot about crops and pigs. We started to retire. However, you are clearly
managing the crop sales for 500 large It looks like timing is everything. not retired. What happened to that
farms and business was good. Oil and interest rate trading started plan?
One frightening experience was in the 1980s. How did a Bermuda Having dogs and a farm was won-
flying to Chicago with my partner, company find you? derful, but the isolation was boring.
who was the pilot. His plane was in I was lured into working for Trans Speaking at conferences kept me
for repairs so he borrowed another. As world Oil, Ltd (Bermuda) in 1980. connected with the colorful people
By 2010 you had tested 2. Make your own list of rules.
your systems in the Keep it simple.
Overfitting is not the road stock market and got 3. Limit your exposure by starting
to success. excellent results. You small, but trade! You learn more
decided to retire again from a losing trade than you can
and trade for yourself. possibly learn from testing.
in our industry and brought a variety That lasted for a few months until 4. Pay attention to the long-term
of opportunities. The one that lasted some clients wanted to know what trend.
was Drapeau Research. you were doing. 5. Don’t worry about a lost op-
A member of the exchange (and a Just before 2010 I thought that I was portunity. The market will be
friend of my wife) started a new fund missing the biggest opportunities by open again tomorrow.
but the system wasn’t working well. not trading equities. With futures you
As a courtesy, I offered to look at it. can trade one or two markets from Any closing thoughts?
That turned into a revamp of an intra- each of the sectors and have a well- I want to acknowledge that I had
day breakout strategy and eventually diversified portfolio. With equities, the unique opportunity to meet, work
a partnership that lasted through the you can trade the broad index, the with, and learn from the many of
1990s. We sold the company in 1998 sector indices, or individual stocks. people who contributed their knowl-
after a remarkably good run. Individual stocks give you the great- edge to this industry. From the people
Retirement isn’t as much fun as est return and the greatest risk. who built the exchanges, the traders
trading, and doesn’t pay as well. Of course, we don’t always have who developed the futures contracts,
enough money to trade a large number the technicians who shared informa-
You went m ainstream in the of stocks. And the more you trade, tion through articles and conferences,
2000s. the closer you get to the average. We and the friends who read and edited
I consulted to a private capital want to beat the average. my books. We are the result of all
company that had some bright young It turns out that the simplest solu- we experience.
traders. They had a good trading tions are the best. Run your list of
system but wanted to optimize the al- stocks through your system and trade Barbara Diamond-Kaufman is an
locations to each system. I developed the ones that do the best. By “best” active trader and past exchange
a powerful genetic algorithm that I mean profits, not risk-adjusted member.
would create a “perfect” portfolio. or highest percentage of profitable
On paper, it had consistent profits and trades, just profits. You can control Further reading
small drawdowns. It had no chance of the risk in other ways. Kaufman, Perry J. [2022]. Learn To
working. Overfitting is not the road I have some friends who wanted Trade, Amazon.
to success. to give me money to trade. That re- [2020]. Trading Systems and
In another consulting position, the quires registration, compliance, and Methods, 6th Edition, Wiley.
fund wanted to trade as many markets liability. Even friends get upset when [2020]. Kaufman Constructs
and systems as possible. That seemed their account loses money. Instead, Trading Systems (print and ebook
to fit the concept of diversification. we started KaufmanSignals.com in editions), Amazon.
But I learned that selection is a better 2010. I had learned something about [2022]. “50 Years On, What
approach. Only trade those markets risk! Advice from friends can show Have I Learned?” Technical Anal-
and systems that are performing well you what investors really want, ysis of Stocks & Commodities,
on your strategy. You can make more and help motivate you in the right Volume 40: Bonus Issue.
money by trading less if you avoid direction.
markets that are underperforming.
One of my most enjoyable experi- What advice can you offer to
ences was consulting for the Reserve someone just starting out?
Bank of New Zealand. It is a wonder- To sum it up:
ful country with great people. Unlike
the US Fed, they admit to watching 1. Read everything and watch
the market to time their interest rate the market. Find a method or a
policy. And they are good. market that excites you.
Futures For You
INSIDE THE FUTURES WORLD
Want to find out how the futures markets really work? Carley Garner is
the senior strategist for DeCarley Trading, a division of Zaner, where she
also works as a broker. She has written five books on futures and options
trading, with the latest being Trading Commodity Options...With Creativ-
ity (July 2020), as well as A Trader’s First Book On Commodities (third
edition, October 2017) and Higher Probability Commodity Trading (July
2016). Garner also authors widely distributed e-newsletters; for a free
subscription, visit www.DeCarleyTrading.com. To submit a question, email
her at [email protected] or via www.DeCarleyTrading.com.
Selected questions will appear in a future issue of S&C.
Carley Garner
WHAT DOES THE COT REPORT overbought nor oversold price oscilla- are perpetually net long gold. In
TELL US ABOUT COMMODITY tors, nor an overcrowded trade, guar- other words, when looking at the
SPECULATORS? antee a trend reversal. Overcrowded COT Report one should not be doing
Unlike other marketplaces such as can become even more overcrowded so to learn whether speculators are
stocks or currencies, the US com- and prices can move substantially long or short but how long they are.
modity futures industry collects and during this time. Nevertheless, at Throughout the last 20 years, large
reports data on the type, size, and some point regardless of fundamental speculators in gold were net short on
direction of market participants. The news available at the time, markets only one occasion; that was 2018 and
findings of the government agency reach a point in which all the bulls (or marked the low ahead of what was
responsible for disseminating the bears in a downtrend) have already a nearly 100% rally. Similarly, the
data, the CFTC (Commodity Futures acted and there simply isn’t anyone handful of instances in which large
Trading Commission) can be found left to buy (or sell). Let’s take a look speculators were merely slightly net
in the COT Report (Commitments at a few popular commodities for long have generally been opportune
of Traders). I’ve mentioned the COT speculation. times to get bullish. In July 2022, the
Report in this column on multiple oc- large speculator group represented on
casions over the years; this month we the COT Report was only slightly net
are going to focus on a few key com- Speculators often long. If history is a guide, this could
modities and how market positioning attempt to find an edge be a precursor to a large rally in the
as depicted in the COT Report can by analyzing patterns precious metal.
impact price and trend. of data in the COT
As a refresher, the Commitments Report. Crude oil
of Traders categorizes traders into Like gold, large oil speculators are
three groups: large speculators, small always net long; at least they have
speculators, and commercial hedgers. Gold been since the financial crisis. But
To be frank, I’m simplifying for the Precious metals are considered a when this group of traders become
sake of brevity, but if you are inter- hedge against inflation or economic “too long” or has liquidated the bulk
ested in learning more about the COT turmoil. Yet gold, and even silver, of their position, trend reversals are
Report, you will find an extensive often prove to be neither of those common. When parsing data, ev-
discussion in my book Higher Prob- things. Precious metals are, however, erything is relative. In other words,
ability Commodity Trading. a diversifier. The price of gold, in knowing that speculators are net long
Speculators often attempt to find the long run, is not highly correlated 150,000 futures contracts is mean-
an edge by analyzing patterns of (positively or negatively) with other ingless without knowing the history
data in the COT report. I have found major asset classes. For this reason, behind it. In the case of WTI crude
the report to be most useful in iden- many portfolios hold the metal as a oil futures, when speculators amass
tifying overcrowded trades. Such a way to introduce an alternative as- a long position of over 500,000 net
scenario can act as a warning signal set class that might help to smooth long contracts, the bullish trend is
that an existing market trend might out the returns of a stock and bond
be overextended. Of course, neither portfolio. Accordingly, speculators Continued on page 56
The 5-Minute Chart And The 1-Hour Chart
A Cryptocurrency
Scalping Strategy
Here is a short-term and easy trend-following trading possible use in a crypto account. Before I go into details
strategy for you to consider and to test for yourself. It about this strategy, I’ll review a few fundamental details
uses a 5-minute chart for execution and a 1-hour chart to help make your trading experience smoother and more
for short-term trend identification. refined. Let’s jump right in!
by Azeez Mustapha Understanding what drives the crypto-
D
currency market
espite the recent negative string of events Since the crypto boom era, the cryptocurrency market
plaguing the cryptocurrency market, has never been short of volatility and erratic market
this industry remains one of the most moves. While technical factors play a critical role in this
sought-after financial markets by inves- market, fundamental catalysts also drive the industry like
tors in 2022. Many would argue that the no other market. Some external factors that influence
downtrend seen in the market over the market action include:
past few months is a positive indicator for them, as the
cryptocurrency market remains profitable in whichever Synchronized volatility
conditions it finds itself. Due to the interlinked nature of the assets in the crypto
VISUAL GENERATION/SHUTTERSTOCK
Having a trusted trading strategy essentially allows industry and the dominance of top crypto assets like
you to remain profitable in the market irrespective of bitcoin and ethereum, price actions usually occur in
whether the market is in an upward or downward trend. tandem across the market. This means that a spike in
In this article, I’ll present a tested and trusted short-term/ bitcoin would most likely result in a sharp rally across
scalping trading strategy for your consideration and for the market.
CRYPTOCURRENCY TRADING
TRADINGVIEW
FIGURE 1: INDICATORS. The three indicators used in this strategy are the 144 weighted moving average (WMA), the 5 smoothed moving average
(SMMA), and the stochastic indicator. This strategy uses the 5-minute chart for execution and the 1-hour chart for short-term trend identification.
Media attention Why do you need a trading strategy? If you have ever
Whenever news of a cryptocurrency goes on mainstream wondered about the need for a trading strategy, here are
media, it typically triggers an influx of new buyers or a few reasons highlighting the need for a trading strategy
sellers depending on the content of the news. This tends in the financial markets:
to precipitate a sharp move in its value, which could
be reflected across the market, thanks to synchronized Trading strategies serve as a roadmap. Having a trad-
volatility. ing strategy is much like having a map. It guides your
every action—when to trade, how much to trade, and
Impending regulations why to trade.
Whenever news of possible regulatory action on the crypto
market hits, traders typically go into a panic and offload It eliminates interference from your emotions. One
their holdings, which influences price action. of the most common drawbacks plaguing most traders
in the capital markets is the inability to separate emo-
Developments around crypto projects tions from the market. As humans, this is undoubtedly
New developments in crypto projects such as network a difficult task to pull off. However, once achieved, your
updates, token burns, or cyberattacks tend to influence trading experience will show some noticeable improve-
the price action of the underlying cryptocurrency sig- ments. Having a trading strategy help you to automate
nificantly. your decision-making process. This is why following
your trading strategy at all times is the best advisable
Trading the cryptocurrency market trading practice.
with a strategy
To help ensure consistent success and win rate in trading It helps with risk management. Every trader should have
the cryptocurrency market, it is imperative to develop or a risk threshold to avoid going bust due to overexposure
adopt a reliable trading strategy and stick to it, which is or being overleveraged. A trading strategy mandates that
a crucial part of using a trading strategy. you work with a risk allowance on every trade, thereby
In simpler terms, a trading strategy is a set of trading doubling as a risk-management tool.
rules and indicators followed by the user to simplify and The key takeaway is this: Trading the crypto market
automate their trading process. A trading strategy should is a high-risk activity involving the consistent sale and
include a focus industry (in this case, the crypto industry), purchase of crypto assets to realize short-term profits.
your preferred trade frequency, and investment size. That said, it only makes sense to make the most out of
FIGURE 2: INDICATOR CROSSES ON HOURLY CHART, BULLISH. A price trend is confirmed once a cross between the SMMA and the WMA on the
hourly chart occurs. Here, a cross of the smaller moving average (SMMA) above the larger one (WMA) indicates an uptrend.
the venture by applying a trading strategy and improving (WMA), the 5 smoothed moving average (SMMA), and
your chances of averaging more successes than losses. the stochastic indicator. (See Figure 1.)
With all the solutions and clarity it provides, trading the It is essential to identify the existing trend in the
crypto market with a trading strategy is what separates market before executing any trades using this strategy,
traders from gamblers. which is the function of the 1-hour chart. A price trend
is confirmed once a cross between the SMMA and the
A simple scalping cryptocurrency WMA on the hourly chart occurs. A cross of the smaller
trading strategy moving average (SMMA) over the larger one (WMA)
As mentioned at the outset, the crypto strategy presented indicates an uptrend (Figure 2) and vice versa for a
in this article is a quick and easy trend-following trading downtrend (Figure 3).
strategy. This scalping strategy is executed using the Because this is a scalping strategy, identified trade
5-minute chart, and while it must be said that in trading, setups are expected to be executed immediately after
past results are no guarantee of future results, in my own a cross.
experience, it has had a daunting win rate.
Trading the strategy
Basics of the strategy Once an indicator cross is identified, switch over to the
This strategy uses the 5-minute chart for execution and 5-minute chart and wait for another cross towards the
the 1-hour chart for short-term trend identification. It anticipated direction on the chart. This cross should
utilizes three indicators. The three indicators needed occur quickly, considering how volatile the smaller
for this strategy are the 144 weighted moving average timeframes are.
Now, to identify a perfect entry position on the desired
cryptocurrency, we look to the stochastic indicator for
clues. For those unfamiliar with the stochastic indicator,
A trading strategy should a cross between the blue and red line above the purple
include a focus industry (in area (75) indicates an overbought market condition, while
this case, the crypto industry), a cross of the lines below the purple area (25) indicates
that the market has entered oversold conditions.
your preferred trade frequency, After confirming a cross on the hourly chart and the
and investment size. 5-minute chart in a trending direction, we have to wait
for the stochastic to cross in the direction of the trend.
FIGURE 3: INDICATOR CROSSES ON HOURLY CHART, BEARISH. A price trend is confirmed once a cross between the SMMA and the WMA on the
hourly chart occurs. Here, a cross of the smaller moving average (SMMA) below the larger one (WMA) indicates a downtrend.
FIGURE 4: STOCHASTIC OSCILLATOR. After confirming a cross on the hourly chart and the 5-minute chart in a trending direction, the strategy then
looks for the stochastic to cross in the direction of the trend. Here, the stochastic crosses into the oversold area in a bullish trending market.
That means: In a bullish trending market, we wait for

the stochastic to cross in an oversold position (Figure
4), while in a bearish market, we wait for a cross in the While technical factors play
overbought area. a critical role in this market,
Once a line cross on the stochastic occurs, place an fundamental catalysts also
instant trade execution and place your stop-loss (SL)
at the previous swing low or the nearest support level
drive the industry like no
and put your take-profit (TP) at 3x risk or the desired other market.
resistance level (see Figure 5). However, you can decide
FIGURE 5: BUY TRADE EXAMPLE. Place your stop-loss (SL) at the previous swing low or the nearest support level and put your take-profit (TP) at
3x risk or the desired resistance level. In this example long trade, the strategy was profitable with a gain of 288 pips.
FIGURE 6: SELL TRADE EXAMPLE. In this example short trade, the strategy was profitable with a gain of 723 pips.
to place your SL and TP levels at whatever level or ratio your desired crypto after spotting an upward cross
you see fit. between the SMMA and WMA lines and a confir-
mation from a bullish stochastic cross.
Strategy snapshot Sell signal: Enter an instant sell trade on the crypto
Trading style: Scalping after seeing a downward cross between the SMMA
Tradeable instrument: Any cryptocurrency and WMA line and a confirmation from a bearish
Timeframe: Hourly chart and 5-minute chart stochastic cross.
Indicators: 144 WMA, 5 SMMA, and a stochastic Risk-reward ratio: 1:3 or better
indicator Stop-loss: Trade stop should be at previous swing
Buy signal: Enter an instant execution buy trade on low or nearest support for buy trades and vice versa
for sell trades
Take-profit: 3:1 of risk
It is essential to identify the
Some trade examples using this strategy existing trend in the market
Buy trade (Figure 5) before executing any trades
Instrument: Terra (LUNA) using this strategy.
Entry level: $88.34
Take profit: $87.38
Stop-loss: $91.22
Entry time: 11:45 author for various trading publications. He is a trading
Exit time: 12:20 signals provider at some websites. He can be reached via
TP: +288 pips email at azeez.mustapha@analytics. instaforex.com.
Sell trade (Figure 6) Further reading

Instrument: Terra (LUNA) Mustapha, Azeez [2021]. “A Quick Look At Approaching
Entry level: $89.00 Cryptocurrencies,” Technical Analysis of Stocks &
Take-profit: $81.68 Commodities, Volume 39: January.
Stop-loss: $91.44 [2021]. “Approaching Swing Trading In Forex,”
Entry time: 21:10 Technical Analysis of Stocks & Commodities,
Exit time: 11:50 Volume 39: February.
TP: +723 pips [2021]. “MACD x MA: A Cryptocurrency Trading
Strategy And Guide,” Technical Analysis of Stocks &
It bears mentioning that to avoid trading false signals, Commodities, Volume 39: September.
you should always wait for all of the pointers to be perfect, ‡TradingView
such as the crosses on all indicators. Trade well! ‡See Editorial Resource Index
Azeez Mustapha is an analyst at Instaforex Companies

Group and a blogger at Advfn.com, as well as a freelance
CALHOUN/MOMENTUM why this techniQUe works

Continued from page 27 Using this combination of moving Look for charts in
average signals is effective because it which there is a
is based on price action using popular strong downtrend that
Step 1: Look for charts in which moving average values. It can also
has recently broken
there is a strong downtrend that be particularly valuable because it
has recently broken above its minimizes ambiguity and subjective, above its 50SMA line.
50SMA line, similar to that seen discretionary decisions.
in Figure 1. Ken Calhoun moderates a popular
trade management tips live trading room for active traders.
Step 2: Enter the trade on the day Managing positions using this He is the founder of TradeMastery.
following this pattern, if it stays technique relies upon a continuous com, an interactive webinar site
above the most recent candle uptrend. If the price stalls or pivots for active traders and is a UCLA
high. back down early, the trade should alumnus.
be closed. If using position sizing, it
Step 3: Set a stop-loss at $2 under should be done within the first week
the 50SMA. or so of the trade.
Measuring Overbought And Oversold
Greed And Fear Index

Here’s a relative strength type of indicator called the GFI and oversold. Greed is a behavior that spurs buying. It
that can provide warning of an overheated or oversold results in very little profit-taking. Fear, on the contrary,
market. It could help you to buy or sell earlier rather is a behavior that spurs selling. The more fear there is,
than later in an uptrend or downtrend. the more the market will keep hitting new lows, and a
series of lower lows produces a downtrend.
by Howard Wang The GFI is an index of trading transactions. The higher
T
the GFI, the higher expectations are for stock prices and
he greed and fear index (GFI) is a relative for profits. A high GFI implies that there is overheated
strength of overbought and oversold conditions, buying sentiment and that traders may have overbought.
similar to the relative strength index (RSI). A high GFI may be a good time to sell ahead of the crowd
The GFI is an indicator of buy or sell action and ahead of a possible reversal.
that can help you know when to buy or sell in The lower the GFI, the more disappointed people are
advance of the crowd. with stock prices and with the market. It implies that
This greed and fear index is measured from the buying traders may have oversold. A very low GFI may indicate
and selling behavior of the market, and I’ll explain how it a good time to buy in advance of the crowd.
is calculated. Note that this indicator is different from the In simple terms, the GFI helps to detect selling
fear and greed index that was developed by CNNMoney and buying earlier in the trend rather than later in the
to gauge whether the stock market is fairly priced. That trend.
indicator looks at a large variety of factors in the market
SAFIA IBRAHIM/SHUTTERSTOCK
and scores investor sentiment on a scale of 1 to 100. The A look back at the BRSI and the concept
GFI, meanwhile, is scaled from −1 to +1. of the breakout candle
As all traders know, greed and fear in market In my September 2015 Stocks & Commodities article
participants can lead to the market becoming overbought “The Breakout Relative Strength Index,” I presented the
INDICATORS
concept of breakout candles and introduced a new indi-

cator I call the breakout relative strength index or BRSI. IDENTIFYING BREAKOUT CANDLESTICKS
I had wanted to find a way to determine if a breakout The breakout candlestick’s high, low, open, and close are
is about to happen as well as to determine the relative identified with the following characteristics:
strength of the breakout. So I developed the BRSI and it n High is higher than the high of the last two days
was a tool I could add to my arsenal to help determine the n Low is lower than the low of the last two days
start of a new trend or trend reversal—that all-important n Ifthere are two up days or two down days, then
quest for any technical trader. the open is the pre-day’s open, and the close is
The BRSI is similar to the relative strength index (RSI) today’s close
but there is a difference in its calculation. The RSI does n Ifthere is one up day and one down day, then
not incorporate volume and price range in its calculations, the open is the pre-day’s close and the close is
today’s close.
so in the BRSI, I incorporated these two variables to
make it more intuitive and effective in determining the The 12 different breakout candlesticks are displayed in
Sidebar Figure 1.
relative strength of breakouts.
The calculation of the BRSI is influenced by the
breakout candlestick. See the sidebar “Identifying 12 Breakout Candlesticks
Breakout Candlesticks” for ways to identify the breakout
candlestick. BRSI is calculated by using average
prices, range size, and mixed volume of the breakout
candlestick.
See my September 2015 article “The Breakout Relative Pre-day Today
Strength Index” for more about breakout candles and Breakout candlestick
2 days up
the BRSI.
Calculating the GFI

As with the BRSI, calculation of the GFI is according to
the breakout candlestick. “BOK” stands for “breakout
candlestick” and is formed from five original candles: 1 day up, 1 day down
BOKH (BOK candles high) (BOKH is the 5 highest

candles)
BOKL (BOK candles low) (BOKL is the 5 lowest
candles)
BOKC (BOK candles close)
(BOKC is the 5 last 2 days down
closes)
BOKO (BOK candles open) (BOKO is the 5 last
opens [avg.])
The formula for the GFI is:

1 day up, 1 day down
GFI = B⁄A
SIDEBAR FIGURE 1: BREAKOUT CANDLESTICKS. Here you see 12
where: possible candlestick breakouts.
�(BOKC−BOKO) ⁄5
5
B=
k=1
In simple terms, the GFI
�(BOKH−BOKL) ⁄5
5 helps to detect selling and
A= buying earlier in the trend
k=1 rather than later in the trend.
(Note: The number 5 can be adjusted according to
your trading needs.)
And where:
A ≠ 0, and B can be positive or negative)
If BOKC > BOKO, then GFI will be

positive. When GFI is close to +1, it means
there is little profit-taking.
If BOKC < BOKO, then GFI will be
negative. When GFI is close to −1, it means
there is too much profit-taking. FIGURE 1: SPY, 1/18/2022–4/27/2022. In this chart of the ETF representing the S&P 500
If B=0, then GFI is 0, meaning there is index (SPY), the GFI provided three sell signals while the RSI provided no signals.
an inflection point in buying and selling.
Thus, the GFI describes the relative
strength of buying and selling. GFI ranges
between +1 and −1, that is, −1< GFI <
+1.
If GFI is close to +1, it indicates there is
overheated buying sentiment and traders
may have overbought by this point. This
may be a good time to sell in advance of
the crowd, in order to sell close to a top.
If GFI is close to −1, it indicates that stop-
losses are being hit, indicating selling, and FIGURE 2: QQQ, 1/18/2022–4/27/2022. In this chart of the ETF representing the Nasdaq
the market may be reaching an oversold (QQQ), the GFI had three sell signals while the RSI provided no signals.
condition. This may be a good time to
buy in advance of the crowd (that is, buy
the dip).
If GFI = 0, it indicates we are at an
inflection point, which means a change
may be about to occur in the current buy-
sell activity.
Examples
As this is being written in May 2022, the
market is down heavily from January 2022.
Seeing this downturn occurring in the
market meant I wanted to find a good sell FIGURE 3: NFLX, 1/18/2022–4/27/2022. In this chart of Netflix Inc., the GFI provided two
signals while the RSI provided no signals.
signal to use because I want to sell earlier
in the downtrend rather than later.
As mentioned earlier, the well-known RSI is a classic
overbought/oversold indicator, serving to signal when
we may have reached overbought or oversold conditions.
Here in this article, I have introduced the GFI as a In this article, I have
tool for measuring on a relative basis the strength of introduced the GFI as a tool for
overbought and oversold conditions. The GFI can give measuring on a relative basis
you an indication of whether a buying or selling trend is the strength of overbought and
underway, and how far along the curve it is. oversold conditions.
In the following example charts (Figures 1–4), I will
compare the signals given by both the GFI and RSI, so
you can see how the signals from each
compare and how signals from the GFI
may be more helpful. All five charts cover
the same timespan in early 2022 from
1/18/2022 to 4/27/2022. In the charts, you
can see the sell signals that appeared on the
GFI, whereas few to no signals occurred
in the RSI.
Figure 1 is a candlestick price chart of
the SPY. The RSI is in the middle pane and
the GFI is in the bottom pane. During this
time period of about three months in 2022, FIGURE 4: FB (NOW META), 1/18/2022–4/27/2022. On this chart of FaceBook (now Meta
which saw a downtrend in the market, the Platforms), the GFI provided three sell signals while the RSI provided no signals.
GFI provided three sell signals, while the
RSI provided no signals. The signals are
marked by a vertical line that corresponds
to peaks in the GFI indicator plot at its
upper boundary.
Figure 2 is a chart of the QQQ. During
this period, the GFI had three sell signals
here as well, while the RSI provided no
signals.
Figure 3 is a chart of Netflix Inc. (NFLX).
Here, the GFI provided two signals while
the RSI provided no signals. FIGURE 5: OXY, 1/18/2022–4/27/2022. On this chart of Occidental Petroleum Corp., both
Figure 4 is a chart of Meta Platforms the GFI and the RSI provided two sell signals.
(formerly FaceBook, with a ticker symbol of
FB at the time this chart was created, ticker
symbol now META). In this example, the GFI provided Further reading
three sell signals while the RSI provided no signals. Wang, Howard [2016]. New Concepts In Trading: Profit
Figure 5 is a chart of Occidental Petroleum Corp. Taking Theory (published in Chinese).
(OXY). Here, the GFI provided two sell signals and the [2016]. “Waves And Profit-Taking,” Technical
RSI also provided two sell signals. Analysis of Stocks & Commodities, Volume 34:
November.
Conclusion [2015]. “The Breakout Relative Strength Index,”
In addition to the classic RSI indicator, the greed and Technical Analysis of Stocks & Commodities,
fear index (GFI) is another useful relative strength in- Volume 33: September.
dicator. It is an index of trading transactions. It is based [2019]. “Sell Relative Strength Index,” Technical
on the strength of profit-taking by traders in the market. Analysis of Stocks & Commodities, Volume 37:
For traders, it can be used as a contrarian indicator and February.
can help them to buy and sell in advance of the crowd.
When trading, it can provide more effective buy and sell
signals than the RSI.
Howard Wang has a master’s degree in mathematics

and economic statistics, and has over two decades of
investment experience. He is particularly interested in The GFI can provide more
analyzing technical indicators, candlestick construc- effective buy and sell
tion, and designing breakout trading software and signals than the RSI.
automated trading systems. He may be reached at
[email protected].
The Savvy Technician
CHARTING THE MARKETS
Stella Osoba, CMT, Esq., is an attorney, trader, and financial writer in New York, NY. Her work in financial
litigation involving regulatory bodies and large multinational corporations led to an interest in the financial
markets, then technical analysis and the psychological aspects of market behavior. She earned a CMT charter
in 2013 and was a director-at-large on the board of the CMT Association for four years. This column will
focus on recognizing and applying technical chart patterns to trading with flexibility and astuteness for better
decision-making in trading. She can be reached at [email protected].
KEEP YOUR MARKET OUTLOOK

BASED IN REALITY
“The stupid shall be punished” is a
military maxim. It is an admonish-
ment that mistakes can be costly
and can literally be the difference
between life and death. This is why
the importance of interpreting and
dealing with events as they appear
before one’s own eyes is so essential
in the military.
One profession that often seeks to
align itself with military parlance is
traders. Trading the financial mar-
kets is a profession where politics
and propaganda are at best useless
and worst destructive. Just because
you can convince others that you
believe the market will rally does
not mean it will. The market does
not care about your biases, beliefs,
and political agenda. You have to
adjust your mindset to deal with the
market on its own terms and move
STOCKCHARTS.COM
your perspective to align as closely as
possible with reality. Eventually, the
market will reveal the incompetent, FIGURE 1: SPX DAILY, BEAR MARKET. On May 20, 2022, the S&P 500 index entered bear market
the arrogant, and the dangerous fool. territory when it broke below 3,854 to touch a low of 3,810.
The market will expose those who
seek to bamboozle others with lies,
mistruths, and plain old stupidity. It market territory when it rises 20% happened. But look at first principles.
never fails. from its low. On January 4, 2022 the Look at the evidence before you and
The S&P 500 index (SPX) entered SPX touched a high of 4,818. On May pay no attention to pundits who are
bear market territory when it fell 20, 2022, the SPX officially entered paid to form opinions.
20% from its high. It will leave bear bear market territory when it broke Research tells us that bear markets
below 3,854 to touch a low of 3,810. last on average 289 days or about
The ensuing volatility resulted in one third as long as an average bull
Adjust your mindset to wild daily market swings and brought market. As technicians, we must do
deal with the market on the SPX back up above 4,000. Some what we are trained to do and look
its own terms. people thought then that the bear mar- for evidence on price charts. Figure
ket was done, or maybe it never even 1 is a daily price chart of the SPX.
The Savvy Technician
We can see that it is a mostly bearish
chart. From the time it made its high
at the beginning of January 2022, it
has proceeded to make a series of
lower lows and lower highs (the clas-
sic definition of a bear market). The
50-day moving average crossed the
200-day moving average in a death
cross in March 2022.
So, what about this chart will tell us
that the bear market is over? Figure
2 shows a weekly price chart of the
SPX. We can see that it completed a
rounded top and then broke down as
it crossed below the 50-day moving
average. Over the last seven weeks, we
see that price is forming a flag. Now,
it is possible that the flag will fail and
price will move to the upside. If that
happens, we must trade accordingly.
But flags are continuation patterns
and it is also possible that it will
break out in the direction in which
it entered the pattern, which will be
to the downside. Technical analysis
is the map, not the territory. Either
scenario can happen. As traders, we
derive information from price action.
We do not “do stupid.”
“Doing stupid” means listening to
pundits and others seeking to make
money by telling you what they
FIGURE 2: SPX WEEKLY, WHEN WILL THE BEAR MARKET END? As technicians, we look for
cannot know. We cannot know what market clues on the price charts. The S&P 500 index completed a rounded top and then broke down
as it crossed below the 50-day moving average. We can see that price is forming a flag.
We have the tools to will happen, but we have confidence ‡StockCharts.com

enable us to trade that we have the tools to enable us ‡See Editorial Resource Index
wisely no matter what to trade wisely no matter what does
does in fact happen. in fact happen. Flexibility is our
superpower.
YOUR ONLINE RESOURCE

FOR TECHNICAL ANALYSIS
Join us on Facebook at www.facebook.com/STOCKSandCOMMODITIES

Follow us on Twitter @STOCKSandCOMM

A RETROSPECTIVE: 40 YEARS
tify trends early and
A LOOK BACK AT SOME EARLY S&C INTERVIEWS
This issue marks 40 years that Technical Analysis of Stocks & Commodities magazine stick with them—not
has been published. Over the decades, we’ve presented interviews with hundreds of trade out of issues just
analysts, technicians, traders, and educators. All of those interviews add up to a lot of because they’ve gone
trading wisdoms. We wanted to share a few quotes from some of our earliest published theoretically too far too
interviews, so we dove deep into our article archives to pluck out some quotes. fast.”—Robert Nurock,
And this is just a small sampling from our article archives. Subscribers to this maga- April 1991
zine can visit the article archives at our website, Traders.com, to read all our timeless
interviews with those who have a lot to teach us about trading and market analysis, from “Being a technical ana-
years ago up through the present today. We hope you’ll enjoy this look back.
lyst, you can follow all
these different markets;
“I would go so far as commodities. I’ve al- you can follow all the
to say that whether ways wanted to be right international markets
one makes money in but you’re never going easily. It’s difficult for
the markets depends to be right. You’re not fundamental analysts to do that
on whether or not one going to get the high. because you can’t absorb that much
uses the proper money You’re not going to get fundamental information, so that’s
management. How much money you the low. Once I realized that, I felt one of the advantages of technical
make depends on where you enter and much more relaxed.”—Larry Williams, analysis. That also explains why those
exit the markets.”—J. Welles Wilder, June 1987 of us who do this kind of work are
February 1986 primarily technical analysts.”—John
“What it’s all about in Murphy, June 1991
“If you look at the options trading is trying
people who are in the ad- to choose a sensible vol- “Essentially, we are not
visory business, you’ll atility and then arrang- trying to call tops and
get a good answer as ing strategies that will bottoms, we are trying
to why they write a be profitable if you’re to follow an approach
[market] letter. There’s right, but won’t force you to go out that will make money
a common thread running through a of business if you’re wrong.”—Shelly over time and produce
lot of them who’ve done it successfully. Natenberg, November 1989 consistent returns.”—Tim Hayes,
Number 1 is, I think it’s almost like August 1991
being a teacher; you’ve discovered or “The most important
you’ve evolved something you think, thing about analyzing “The ma rket cycle
even if it doesn’t move the market, the markets and trading model is really an ar-
it’s an important factor in why the is discipline. I know that rangement whereby we
market moves. It’s like any discovery when I’m trading the recognize there is a
anyone makes—they want to share it markets, my enemy is primary trend, an in-
with other people.”—Peter Eliades, not the market.”—Alex Elder, Janu- termediate trend, and a
December 1986 ary 1991 short trend. A market cycle model is
just the arrangement of a chart with
“Superb investors tend “The early Japanese those three trends.”—Martin Pring,
to invest unconsciously traders had a lot of February 1992
in the sense that most practical market phi-
of what they do is auto- losophies, and those “Good money manage-
matic. They don’t even philosophies translated ment is equity invari-
have to think about it.” into technicals over the ant. I’d ask a trader
—Van K. Tharp, April 1987 next couple of hundred years.”—Steve who thinks he needs a
Nison, March 1991 certain amount before
“One of the important things for me he can trade exactly
is the realization in the last 10 months “The most money is made in the what amount he would need to stop
that you can never be right trading market by those who are able to iden- trading.”—Ed Seykota, August 1992
A RETROSPECTIVE: 40 YEARS
“I was first inspired by world looks. Since many people have technical analysis has to offer.”—Ralph
R.W. Schabacker’s Stock different hypotheses, they can’t all Acampora, February 1997
Market Theory And be right.”—“Trader Vic” Sperandeo,
Practice. It had many December 1993 “I tell people that you
of the stock formations need two things to trade.
that were described in “The better the techni- First, you need an ap-
more detail 18 years later by Edwards cal indicators you use, proach with a realis-
& Magee.”—Arthur Merrill, October the higher the confi- tic chance of making
1992 dence level you’ll have money in the long run,
in those indicators. This and it doesn’t have to be fancy. Make
“Quite frankly, people is an excellent way to sure you cover the basics, like “Go
practice too much tech- trade, but money management becomes with the trend,” “Cut your losses,” “Let
nical commentary, al- more important.”—Marc Chaikin, your profits run,” and so forth. Having
ways focusing on where January 1994 the plan is part 1. Part 2 is having the
the market is going, discipline to follow the plan.”—Jay
instead of having a bet- “If you have too many Kaeppel, May 1997
ter understanding of where the market rules in your model,
is.”—Laszlo Birinyi, February 1993 all you’ve done is cre- “I always tell people
ated a very curve-fitted that there are three
“One of the signatures model that may look things you need to do
of a nontrending market good in back-testing, when you actually take
is the number of reversal but it’s not likely to perform well in a position. First, you
patterns. In nontrending real-time usage.”—Gerald Appel, want to know your profit
markets, you tend to December 1994 targets. Second, you need to have your
pick up a large num- stop-loss. Then, and only then, are you
ber of reversal patterns. In trending “When verifying a strat- ready to take a position.”—John Hill,
markets, you pick up relatively few egy, people should ques- July 1998
reversal patterns.”—John Bollinger, tion profitable results as
July 1993 much as they question “It’s human nature to
losing results.” be influenced by the
“Short-term momen- “... Most markets are actions of the crowd,
tum precedes long-term highly correlated during a price shock. particularly in emotion-
momentum. And mo- The markets react the same way. And ally charged settings.
mentum precedes price. markets that have nothing to do with the ... The crowd behaves
Usually, trend reversals price shock reverse direction because the same way in every market cycle.
or the beginning of many investors liquidate positions Some trends last longer than others
new moves start with an increase in in other markets in order to cover and some travel farther than others,
the short-term momentum.”—Linda losses in the markets that they’re on but the psychological progression
Bradford Raschke, September 1993 the wrong side of.”—Perry Kaufman, through each bull and bear market is
June 1995 always the same.”—Robert Prechter,
“You shouldn’t only January 1996
understand that an indi- “But the most exciting
cator works, you should thing about all of this “You need to decide
understand why it works, is how well technical whether you want to
what’s behind it, and analysis has worked. If trade the trend mode or
how you think it might you keep it simple and the cycle mode. That’s
change.” stay with the basics, first. Second, you want
“... It is critical to test all theories, follow the trend, use bottom-up analy- to look at key parameters
technical or economic. Fundamental sis, then you’ll have a map to follow. when you’re designing the system.”
macroeconomic analysis is a function You’ll have a strong sense of where —John Ehlers, January 2004
of somebody saying, this is how the you’re going. That’s what I really think
The focus of Traders’ Tips this month At Traders.com you can also right-
is Vitali Apirine’s article in the Febru- click on any chart to open it in a new
ary 2022 issue, “Relative Strength tab or window and view the chart at a
Moving Averages, Part 2 (RS VA EMA).” much larger size.
Here, we present the October 2022
Traders’ Tips code with possible imple- The Traders’ Tips section is provided
mentations in various software. to help readers implement a selected
The code for the following Traders’ technique from an article in this issue or
Tips selections is posted here: another recent issue. The entries here
are contributed by software developers
•
Traders.com  S&C Magazine  or programmers for software that is ca-
Traders’ Tips pable of customization.
Vup = IFF(Close > Close[1], MyVol, 0);

Vdwn = IFF(Close < Close[1], MyVol, 0);
F TRADESTATION: OCTOBER 2022 TRADERS’ TIPS CODE
Vitali Apirine’s 2022 three-part article series examines RS = AbsValue( XAverage(Vup, Pds) -
XAverage(Vdwn, Pds)) / (XAverage(Vup, Pds) +
moving averages based on relative strength. The indicators XAverage(Vdwn, Pds) + 0.00001);
he presents are designed to reduce the lag of traditional
EMAs, making them more responsive. In part 2 of his article RS = RS * Mltp;
Rate = Mltp1 * (1 + RS);
series, which appeared in the February 2022 issue of S&C, he
explores the relative strength volume-adjusted exponential if CurrentBar = 1 then
moving average (RS VA EMA). RSVAEMA = Close
else
The indicator is designed to account for relative strength RSVAEMA = RSVAEMA[1] + Rate *
of volume and as part of the calculation incorporates a mea- (Close - RSVAEMA[1]);
surement between the positive and negative volume flow.
Indicator: TASC OCT 2022 RS VA EMA
Volume is considered positive when the close is above the // TASC OCT 2022
prior close and considered negative when the close is below // RSVAEMA - Relative Strength Volume-Adjusted
the prior close. The indicator can be used to help establish // Exponential Moving Average (RS VA EMA)
// 2022 Vitali Apirine
trends and define turning points. It is important to note that
when using the EasyLanguage function code given here, it inputs:
should be configured as a series function in the general tab Periods( 10 ),
Pds( 10 ),
of the function’s properties window.
Series Function: RSVAEMA
// TASC OCT 2022
// RSVAEMA - Relative Strength Volume-Adjusted
// Exponential Moving Average (RS VA EMA)
// Series Function
// 2022 Vitali Apirine
inputs:
Periods( NumericSimple ),
Pds( NumericSimple ),
Mltp( NumericSimple );
variables:
Mltp1( 0 ),
Vup( 0 ),
Vdwn( 0 ),
RS( 0 ),
Rate( 0 ),
MyVol( 0 );
Mltp1 = 2 / (Periods + 1);
{ Daily, Weekly, or Monthly bars }

if BarType >= 2 and BarType < 5 then
MyVol = Volume FIGURE 1: TRADESTATION. This shows a TradeStation daily chart of the S&P 500 ETF SPY with the
else indicator (blue) applied and an exponential moving average (red). The RS VA EMA indicator uses inputs
MyVol = Ticks; 20, 20, 20 and the exponential average uses a length of 20.

Mltp( 10 );
variables:
RSVAEMAValue( 0 );
RSVAEMAValue = RSVAEMA( Periods, Pds, Mltp );
Plot1( RSVAEMAValue, "RS VA EMA" );
A sample chart is shown in Figure 1.

This article is for informational purposes. No type of
trading or investment recommendation, advice, or strategy
is being made, given, or in any manner provided by TradeS-
tation Securities or its affiliates.
—John Robinson
TradeStation Securities, Inc.
www.TradeStation.com FIGURE 2: THINKORSWIM. This chart replicates the chart in Figure 3 of Apirine’s
article.
F THINKORSWIM: OCTOBER 2022 TRADERS’ TIPS CODE

We put together a study based on an article by Vitali Apirine
on the relative strength volume-adjusted exponential
moving average (the RS VA EMA), which appeared in the
February 2022 issue of S&C as part of a series. We built
the strategy referenced by using our proprietary scripting
language, thinkscript. To ease the loading process, simply
click http://tos.mx/ffByDgy or enter it into the address into
setup → open shared item from within thinkorswim, then
choose view thinkScript study and name it “RS_VA_EMA”
or whatever you like and can identify. You can then add
the strategy to your charts from the edit studies menu from
within the charts tab and then selecting studies.
The chart in Figure 2 shows our version of Figure 3 from
the original article. Please see the article by Vitali Apirine FIGURE 3: WEALTH-LAB. This shows an example of laying out the system’s rules
for more information on how to utilize the study. in the Building Blocks feature of Wealth-Lab 8.
—thinkorswim
A division of TD Ameritrade, Inc.
www.thinkorswim.com
F WEALTH-LAB: OCTOBER 2022 TRADERS’ TIPS CODE

The RS VA EMA, introduced by Vitali Apirine in his February
2022 S&C article, is a trend-following indicator interpreted
in a similar way to the EMAs, but responds more quickly
than other lagging indicators. Its speed of response can cause FIGURE 4: WEALTH-LAB. This demonstrates some trades taken by the system
applied to a chart of the SPY.
whipsaws. Here is a simple trick to avoid that undesirable
effect when designing trend-following systems. ter X consecutive closes above the MA and a long exit is
Rather than rely on a crossover or crossunder, we can performed after the close price drops below the MA for Y
require the close price to stay X consecutive closes above consecutive bars.
or below the RS VA EMA to determine that the trend has In this example, the entry is relaxed by requiring only
changed. In our example system, we break this variable two consecutive closes above the MA whereas the system
into two for better precision: A long entry is triggered af- will wait for five consecutive closes below the MA for the

exit to trigger. It lets profits run but a downside is the delay
of an exit if the market starts moving against your position
strongly.
Figure 3 shows setting up the rules in Wealth-Lab’s Build-
ing Blocks feature and Figure 4 shows the indicator on a
chart of SPY.
The RSVAEMA has been added to Wealth-Lab 8 which
makes it available to any tools and extensions automatical-
ly.
—Gene Geren (Eugene)
Wealth-Lab team
www.wealth-lab.com
F NINJATRADER: OCTOBER 2022 TRADERS’ TIPS CODE

The relative strength volume-adjusted exponential moving
average (the RS VA EMA), as detailed in a February 2022
S&C article by Vitali Apirine, is available for download at FIGURE 5: NINJATRADER. The RSVAEMA (10, 50, 50) indicator (green) and a
the following links for NinjaTrader 8 and for NinjaTrader 20-period EMA (blue) are displayed on a daily chart of the DJIA from September
2018 to April 2019.
7:
NinjaTrader 8: www.ninjatrader.com/SC/October2022SCNT8.zip
NinjaTrader 7: www.ninjatrader.com/SC/October2022SCNT7.zip
Once the file is downloaded, you can import the indicator

into NinjaTrader 8 from within the control center by select-
ing Tools → Import → NinjaScript Add-On and then select-
ing the downloaded file for NinjaTrader 8. To import into
NinjaTrader 7, from within the control center window, select
the menu File → Utilities → Import NinjaScript and select
the downloaded file.
You can review the indicator source code in NinjaTrader
8 by selecting the menu New → NinjaScript Editor → In-
dicators folder from within the control center window and
selecting the RSVAEMA file. You can review the indicator’s
source code in NinjaTrader 7 by selecting the menu Tools → FIGURE 6: TRADINGVIEW. The relative strength volume-adjusted exponential
Edit NinjaScript → Indicator from within the control center moving average (RS VA EMA) is shown on a chart of the SPX.
window and selecting the RSVAEMA file.

NinjaScript uses compiled DLLs that run native, not in- // TASC Issue: October 2022 - Vol. 40, Issue 11
terpreted, which provides you with the highest performance // Article: Relative Strength Moving Averages
// Part 2: The Relative Strength Volume-Adjusted
possible. // Exponential Moving Average (RS VA EMA)
A sample chart displaying the indicator is shown in Figure // Article By: Vitali Apirine
5. // Language: TradingView's Pine Script v5
// Provided By: PineCoders, for tradingview.com
—Emily Christoph
NinjaTrader, LLC //@version=5
www.ninjatrader.com indicator('TASC 2022.10 RS VA EMA', overlay=true)
float src = input.source(close, 'Source:')

int periods = input.int(10, 'EMA Length:', minval=1)
int pds = input.int(10, 'VS Length:', minval=1)
float mltp = input.int(10, 'VS Multiplier:', minval=0)
F TRADINGVIEW: OCTOBER 2022 TRADERS’ TIPS CODE rsvaema(float source = close,

Here is the TradingView Pine Script code implementing simple int emaPeriod = 50,
simple int vsPeriod = 50,
the relative strength volume-adjusted exponential moving float multiplier = 10.0
average (RS VA EMA) described by Vitali Apirine in his ) =>
article in the February 2022 issue of S&C. var float mltp1 = 2.0 / (emaPeriod + 1.0)
var float coef1 = 2.0 / (vsPeriod + 1.0)

var float coef2 = 1.0 - coef1
float pv = source > source[1] ? volume : 0.0
float nv = source < source[1] ? volume : 0.0
float apv = na, apv := coef1 * pv + coef2 * nz(apv[1])
float anv = na, anv := coef1 * nv + coef2 * nz(anv[1])
float vs = math.abs(apv - anv) / (apv + anv)
float rate = mltp1 * (1.0 + nz(vs, 0.00001) * multiplier)
float rsma = na
rsma := rate * source + (1.0 - rate) * nz(rsma[1],source)
rsma
float rsvaema = rsvaema(src, periods, pds, mltp)
plot(rsvaema, title='RS VA EMA', color=#B21BD8, linewidth=2)
The indicator is available on TradingView in the Pine-

CodersTASC account: https://www.tradingview.com/u/
PineCodersTASC/#published-scripts
An example chart is shown in Figure 6. FIGURE 7: NEUROSHELL TRADER. This NeuroShell Trader chart shows the rela-
—PineCoders, for TradingView tive strength volume-adjusted exponential moving average on the SPX.
www.TradingView.com
F NEUROSHELL TRADER: OCTOBER 2022

TRADERS’ TIPS CODE
The relative strength volume-adjusted exponential
moving average (RS VA EMA), as introduced by Vitali
Apirine in his February 2022 article in S&C, can be easily
implemented in NeuroShell Trader by combining some of
NeuroShell Trader’s 800+ indicators. To implement the
indicators, select new indicator from the insert menu and
use the indicator wizard to create the following indicators:
FIGURE 8: OPTUMA. This sample chart displays the relative strength volume-
VUEMA: ExpAvg( IfThenElse( A>B( Momentum(Close, 1), 0 adjusted exponential moving average (RS VA EMA) on the SPY.
), Volume, 0 ), 10)
VDEMA: ExpAvg( IfThenElse( A<B( Momentum(Close, 1), 0
$Periods = 20;
), Volume, 0 ), 10)
$Pds = 20;
RS: Divide( Abs( Subtract(VUEMA, VDEMA) ),
$MLTP = 10;
Add3(VUEMA, VDEMA, 0.00001) ) MLTP1 = 2 / (VarToList(VAL=$MLTP) + 1);
RATE: Multiply2( Divide( 2, Add2(10, 1) ), Add2(1, Vup = IF(Close() IsUp, VOL(), 0);
Multiply(RS, 10) ) ) Vdwn = IF(Close() IsDown, VOL(), 0);
RSVAEMA: DynamicExpAvg (Close, RATE ) EMAVup = MA(Vup,CALC=Close, STYLE=Exponential,
BARS=$Pds);
The DynamicExpAvg is a dynamic rate exponential mov- EMAVdwn = MA(Vdwn,CALC=Close, STYLE=Exponential,
ing average custom indicator available for download on BARS=$Pds);
RS=ABS(EMAVup - EMAVdwn) / (EMAVup + EMAVdwn) +
NeuroShell’s free technical support website with this Trad- 0.00001;
ers’ Tip. Users of NeuroShell Trader can go to the STOCKS RATE=MLTP1*(1+RS);
& COMMODITIES section of the NeuroShell Trader free RSEVMA = RSEVMA[1] + RATE * (Close() - RSEVMA[1]);
RSEVMA
technical support website to download a copy of this or any
previous Traders’ Tips. —[email protected]
—Ward Systems Group, Inc.
[email protected]
www.neuroshell.com F THE ZORRO PROJECT: OCTOBER 2022 TRAD-
ERS’ TIPS CODE
In Vitali Apirine’s article on the relative strength
volume-adjusted exponential moving average (RSEMA2) in
®
the February 2022 issue, a volume-based RSI serves as an
EMA time period. This requires only a small modification
F OPTUMA: OCTOBER 2022 TRADERS’ TIPS CODE of the similar but volatility-based indicator from Apirine’s
Here is the Optuma script formula for the relative strength previous article.
volume-adjusted exponential moving average (RS VA EMA), Here is the MetaStock code given in the article converted
which was introduced by Vitali Apirini in his February 2022 to C:
S&C article.
var RSEMA2(int Periods, int PdsEMA, var Mltp)
{
var Vup = ifelse(priceC(0) > priceC(1),marketVol(),0),
Vdn = ifelse(priceC(0) < priceC(1),marketVol(),0);
var EMAUp = EMA(Vup,Pds), EMADn = EMA(Vdn,Pds);
var RS = abs(EMAUp-EMADn)/
(EMAUp+EMADn+0.00001)*Mltp;
var Rate = 2./(Periods+1)*(1+RS);
return EMA(priceC(),Rate);
}
Figure 9 shows the RSEMA2(20,20,10) applied to a chart

of the DJIA in comparison with EMA(20). We can see that
the RSEMA2 (red) has noticeably less lag than the original
EMA (blue). This is not surprising since its time period is
modulated by the volume.
The RSEMA2 indicator can be downloaded from the
FIGURE 9: ZORRO PROJECT. The RSEMA2(20,20,10) is applied to a chart of the
2022 script repository on https://financial-hacker.com. The DJIA in comparison with EMA(20). The RSEMA2 (red) has noticeably less lag than
Zorro software can be downloaded from https://zorro-proj- the original EMA (blue).
ect.com.
—Petra Volkova
The Zorro Project by oP group Germany
https://zorro-project.com
F AIQ: OCTOBER 2022 TRADERS’ TIPS CODE

The importable AIQ EDS file based on Vitali
Apirine’s article in the February 2022 issue titled
“Relative Strength Volume-Adjusted Exponential Moving
Average” can be obtained on request via email to info@
TradersEdgeSystems.com. The code is also available on
this magazine’s website at Traders.com in the Traders’ Tips
section.
Code for the author’s indicator is set up in the AIQ EDS
code file. Figure 10 shows a comparison of the EMA(40)
versus the RS_VA_EMA on a chart of SPY during three
months of 2022.
CODE:
FIGURE 10: AIQ. Here, the exponential moving average of close over 40 bars
! Relative Strength Volume Adjusted Exponential Moving Average (smooth blue line) is compared to the RS_VA_EMA(40,40,10) (jagged red line) on
! Author: Vitali Apirine, TASC October 2022 SPY.
! Coded by: Richard Denning, 8/16/2022
ListValues if 1.
Periods is 40. EMAp is expavg(C,Periods).
Pds is 40.
Mltp is 10.
C is [close].
—Richard Denning
v IS [volume]. [email protected]
Mltp1 is 2/(Periods+1). for AIQ Systems
Vup is iff(C>valresult(C,1),V,0).
Vdwn is iff(C<valresult(C,1),V,0).
VupEma is expavg(Vup,Pds).
VdwnEma is expavg(Vdwn,Pds).
F EXCEL: OCTOBER 2022 TRADERS’ TIPS CODE
RS is abs(VupEma-VdwnEma)/(VupEma+VdwnEma+0.00001). This month we’ll explore the second article in a series by Vitali
RS1 is RS*Mltp. Apirine on relative strength moving averages. Here, we’ll
Rate is Mltp1*(1+RS1).
HD if hasdatafor(Periods*2+1) > Periods*2.
look at the relative strength volume-adjusted exponential
DaysInto is ReportDate() - RuleDate(). moving average (RsVaEMA), which he described in his
Stop if DaysInto > 50. February 2022 article.
stopesa is iff(stop,C,RS_VA_EMA).
!myesa is alpha * [close] + beta * valresult( stopesa, 1 ).
The RsVaEMA indicator uses the volume at each bar to
calculate a relative strength. That relative strength value is
RS_VA_EMA is iff(HD,valresult(stopesa,1)+Rate*(C- used to scale the coefficient used in the EMA calculation at
valresult(stopesa,1)),C).
!If(Cum(1)=Periods*2,C,PREV+Rate*(C-PREV)).
each bar.
In the example charts that the author provided with the
FIGURE 11: EXCEL. This chart is an approximation in Excel of Figure 3 from Vitali Apirine’s article.
article, RsVaEMA values appear to track price action more 4. Fill in the “Find what” box with: Call ButtonText1(
closely than a standard EMA with less apparent lag. 5. In the search box, click the “Current project” button.
The spreadsheet I am providing here is set up to allow up 6. Then click the “Find next” button. The target line
to two standard EMAs and up to two RsVaEMAs, each with will be highlighted in yellow.
their own specifications, so that users may mix and match as 7. On the target line, place a single quote (‘) in front of
they explore. the word “Call”
To download this spreadsheet: The spreadsheet file for 8. In the “Find” dialog box, change the “Find what:”
this Traders’ Tip can be downloaded from www.traders.com box to read: Call ButtonText2(
in the Traders’ Tips area. To successfully download it, fol- 9. Then click the “find next” button. The target line
low these steps: will be highlighted in yellow just a few lines down.
10. On this target line, place a single quote (‘) in front of
• Right-click on the link to the Excel file, then the word “Call”
• Select “save target as” to place a copy of the spreadsheet 11. Close the VBA editor (the red X in the upper-right
file on your hard drive. corner)
12. Close the spreadsheet and “save changes” when
Note: The spreadsheet provided in the September 2022 issue prompted.
contained an error that will interfere with data retrievals. For
those willing to venture into the VBA editor, two simple “Price refresh” or “download for a new symbol” should
fixes will bypass problem. Here are the steps: now work correctly for the September 2022 spreadsheet.
—Ron McAllister
1. Open the spreadsheet but do not refresh prices. Excel and VBA programmer
2. Open the VBA editor (ALT-F11—that is, hold down [email protected]
the ALT key and press the F11 key).
3. Open VBA Find dialog (hold down the CTRL key
and press the “F” key).
ZHAO/ENERGY Data?” Technical Analysis of StockS & commodi-

Continued from page 30 tieS,
Volume 40: February.
Rodrigue, J.P., editor, “Evolution Of Energy Sources,”
FURTHER READING https://transportgeography.org/contents/chapter4/
Zou, C., Zhao, Q., Zhang, G., and Xiong, B. [2016]. transportation-and-energy/energy-sources-evolution/,
“Energy Revolution: From A Fossil Energy Era To A accessed on May 23rd, 2023.
New Energy Era.” Natural Gas Industry, 3(1), 1–11.
https://doi.org/10.1016/j.ngib.2016.02.001 ‡Bloomberg Terminal; ‡finviz.com; ‡Yahoo Finance
Zhao, Jerry [2022]. “Momentum And Seasonality: What ‡See Editorial Resource Index
Can We Learn From Nearly 100 Years Of Historical
Algo Q&A
DAVEY/ALGO Q&A from now, the battle will be among
Continued from page 31 algos, even in retail. Edges will be- Markets are driven in
come smaller and good execution and part by human nature,
proper timing will be very important. and I think that will
markets and tougher trading for retail Yet I still believe trend-following
traders. Currently, trading is 60–70% will be there. We keep on stating it
continue.
technology, and in 40 years it could is dead, but sooner or later it comes
easily be 99% technology based. I back to produce profits.” work. Markets are driven in part by
see the very real possibility where human nature, and I think that will
the human factor could be gone, or And, my own thoughts continue.
at least greatly diminished.” Where do I see trading in 40 years? I In 40 years from now, I’ll be in
have to agree with just about everyone my mid-90s, and a lot can happen in
Andrea Unger I spoke with. I see retail trading still that time. I hope S&C and I are both
Finally, I asked my dear friend and happening, although a lot of trading around to see how these predictions
four-time trading contest winner will be (sentient?) computers fight- turn out!
Andrea Unger what he thought about ing each other for profits. Yet at the
the future of trading. same time, simple approaches such
Unger states: “I believe 40 years as trend-following will probably still
Futures For You

GARNER/FUTURES interrupted by violent, but temporary,
Continued from page 35 rallies. Thus, when looking at the When parsing data,
COT Report for gas, the question everything is relative.
should be how short speculators are
generally exhausting itself, but more and whether are they vulnerable to
telling is a speculative long position a price squeeze. It should also be and their tendencies, so users of this
falling below 200,000 which has noted that natural gas traders often data must recognize that the analysis
historically, eventually, led to bullish get the shortest a few months before is static.
opportunities. a significant bottom but are the least The CFTC’s website offers COT
short near significant tops. data in free text format, but those
NATURAL GAS interested in seeing what the COT
Unlike gold and oil, speculators are WRAP UP Report has to offer should consider
continually net short natural gas The purpose of this month’s column viewing a source that charts the
futures. With a few brief exceptions, is to introduce a few tips and tricks for data. There are a few free sources
this has been the case for several using the COT Report as a potential for COT charts. One is Barchart.
decades. A quick look at a monthly speculative tool. Obviously, there com, and another is the CMEGroup.
chart will make it obvious why this is is much more to learn and observe. com website.
the case: natural gas spends most of Further, just like markets are ever-
the time moving lower with the trend changing, so are market participants
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FUTURES LIQUIDITY
T
rading liquidity is often over- very high volumes. The greatest number three-year period. Thus, all numbers in
looked as a key technical of dots indicates the greatest activity; this column have an equal dollar value.
measurement in the analysis futures with one or no dots show little Columns indicating percent margin
and selection of commodity activity and are therefore less desirable and effective percent margin provide
futures. The following explains how to for speculators. a helpful comparison for traders who
read the futures liquidity chart pub- Courtesy of CBOT wish to place their margin money ef-
lished by Technical Analysis of Stocks ficiently. The effective percent margin
& Commodities every month. is determined by dividing the margin
value ($) by the three-year price range of
Commodity futures contract dollar value, and then multiply-
The futures liquidity chart shown being by one hundred.
low is intended to rank publicly traded
futures contracts in order of liquidity. Stocks
Relative contract liquidity is indicated Trading liquidity has a significant ef-
by the number of dots on the right-hand fect on the change in price of a secu-
side of the chart. rity. Theoretically, trading activity can
This liquidity ranking is produced by serve as a proxy for trading liquidity
multiplying contract point value times All futures listed are weighted equally and equals the total volume for a given
the maximum conceivable price motion under “contracts to trade for equal dol- period expressed as a percentage of the
(based on the past three years’ historical lar profit.” This is done by multiplying total number of shares outstanding. This
data) times the contract’s open interest contract value times the maximum pos- value can be thought of as the turnover
times a factor (usually 1 to 4) for low or sible change in price observed in the last rate of a firm’s shares outstanding.
Trading Liquidity: Futures

Contracts to
Effective
Commodity Futures Exchange % Margin Trade for Equal Relative Contract Liquidity
% Margin
Dollar Profit
S&P 500 E-Mini (Sep ’22) CME 5.6 11.8 2 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>>>
Ultra T-Bond (Sep ’22) CBOT 4.8 7.3 2 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
10-Year T-Note (Sep ’22) CBOT 1.7 8.6 7 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
30-Year T-Bond (Sep ’22) CBOT 3 7.5 3 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
5-Year T-Note (Sep ’22) CBOT 1.4 10.4 11 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Russell 2000 E-Mini (Sep ’22) CME 3.1 6.3 2 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Ultra 10-Year T-Note (Sep ’22) CBOT 2.4 8.6 5 •••••••••••••••••••••••••••••••••••••••••••••••••••••••
Soybean (Nov ’22) CBOT 3.3 7.4 2 ••••••••••••••••••••••••••••••••••••••••••••••••••••••
Crude Oil WTI (Oct ’22) NYMEX 10.1 7.1 1 ••••••••••••••••••••••••••••••••••••••••••••••
Nasdaq 100 E-Mini (Sep ’22) CME 6.4 13.2 1 ••••••••••••••••••••••••••••••••••••••••••
Corn (Dec ’22) CBOT 9.1 16.7 9 ••••••••••••••••••••••••••••••••••••••
Soybean Meal (Dec ’22) CBOT 1.2 3.5 2 •••••••••••••••••••••••••••••••••••
2-Year T-Note (Sep ’22) CBOT 0.6 9.8 14 ••••••••••••••••••••••••••••••••
Euro FX (Sep ’22) CME 2.3 9.9 6 •••••••••••••••••••••••••••
3-Month Eurodollar (Dec ’22) CME 0.3 8.6 17 ••••••••••••••••••••••
Gold (Dec ’22) COMEX 4.1 21.6 5 •••••••••••••••••
S&P 500 VIX (Sep ’22) CFE 46.4 21.2 3 ••••••••••••••
3-Month SOFR (Mar ’23) CME 0.3 8.9 18 •••••••••••••
ULSD NY Harbor (Oct ’22) NYMEX 9.7 11.4 1 •••••••••••••
Natural Gas (Oct ’22) NYMEX 13.5 16 2 ••••••••••••
Gasoline RBOB (Oct ’22) NYMEX 12 13.9 2 •••••••••••
Japanese Yen (Sep ’22) CME 3.3 9.5 5 ••••••••••
Wheat (Dec ’22) CBOT 9.1 11.6 5 ••••••••••
Coffee (Dec ’22) ICE/US 11.6 19.4 3 ••••••••
Dow Futures Mini (Sep ’22) CBOT 5.3 11.9 2 ••••••••
30-Day Fed Funds (Aug ’22) CBOT 0.2 8.6 17 ••••••
Sugar #11 (Oct ’22) ICE/US 7.4 14.9 16 ••••••
British Pound (Sep ’22) CME 3.3 16.4 11 •••••
Cotton #2 (Dec ’22) ICE/US 8.8 15.5 5 •••••
Live Cattle (Oct ’22) CME 3 7 6 •••••
Hard Red Wheat (Dec ’22) KCBT 8.5 14.5 6 ••••
Silver (Sep ’22) COMEX 8.7 14.5 3 •••• CBOT Chicago Board of Trade, Division of CME
Australian Dollar (Sep ’22) CME 3.2 15.6 12 ••• CFE CBOE Futures Exchange
High Grade Copper (Sep ’22) COMEX 6.6 14.9 4 ••• CME Chicago Mercantile Exchange
Lean Hogs (Oct ’22) CME 5.2 8.6 7 ••• COMEX Commodity Exchange, Inc. CME Group
Canadian Dollar (Sep ’22) CME 1.9 16.1 18 •• ICE-EU Intercontinental Exchange-Futures - Europe
Cocoa (Dec ’22) ICE/US 6.8 21.4 22 •• ICE-US Intercontinental Exchange-Futures - US
Crude Oil Brent (F) (Oct ’22) NYMEX 9.3 11.1 2 •• KCBT Kansas City Board of Trade
Mexican Peso (Sep ’22) CME 5.7 25 28 •• MGEX Minneapolis Grain Exchange
Platinum (Oct ’22) NYMEX 7.1 13 7 •• NYMEX New York Mercantile Exchange

U.S. Dollar Index (Sep ’22) ICE/US 1.9 10.8 8 ••
2210
Canola (Nov ’22) ICE/CA 8.9 18.4 20 •
Trading Liquidity: Futures is a reference chart for speculators. It compares markets “Relative Contract Liquidity” places commodities in descending order according to
according to their per-contract potential for profit and how easily contracts can be bought how easily all of their contracts can be traded. Commodities at the top of the list are easi-
or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only est to buy and sell; commodities at the bottom of the list are the most difficult. “Relative
when compared to others in the same column. Contract Liquidity” is the number of contracts to trade times total open interest times a
The number in the “Contracts to Trade for Equal Dollar Profit” column shows how volume factor, which is the greater of:
many contracts of one commodity must be traded to obtain the same potential return In volume
as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price 1 or exp –2
In 5000
Excursion).

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Self-directed traders, as Stocks &
Commodities readers usually are,
Brokerage Company
have more choices than ever in their 1. Interactive Brokers Interactive Brokers
search for speed, pricing efficiency,
2. TD Ameritrade TD Ameritrade, Inc.
and good accounting when it comes
to brokerages. First, you have to 3. NinjaTrader Brokerage NinjaTrader Group, LLC
find a brokerage that handles your
4. Charles Schwab Charles Schwab
tradable; you can choose between a full-service
brokerages or a discount brokerage. Full service 5. Schwab Active Trading Charles Schwab
would mean you would sit down with your broker,
6. Bright Trading, LLC Bright Trading, LLC
whereas discount brokerage would involve trading
online without any advice from a professional. Most 7. Global Forex Trading Global Forex Trading (GFT)
institutions that offer full service brokerages also
8. Investrade Discount Securities Investrade Discount Securities
have the discount broker option.
Other considerations are what kinds of tools or 9. Infinity Futures Infinity Futures
services do they provide? Do they provide real-time
10. Fidelity Active Trader Pro Fidelity Investments
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but highly commercial markets such as futures, a brokerage’s Traders.com. There, you’ll not only find a listing of brokerages,
ability to provide market statistics, hedging activity reports, and you’ll also find information on products and services in numerous
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Trading Perspectives
SOME PERSPECTIVES ON THE EQUITIES WORLD

Rob Friesen is a professional trader and president & COO of Bright Trading
(www.stocktrading.com), a proprietary trading firm hosting independent
trader/members, an online trading school, and utilizing the StockOdds
database (www.mystockodds.com). This column shares his thoughts and
outlooks on trading, locating opportunity, probabilistic outcome, and
maintaining perspective throughout industry changes. He can be reached
at [email protected] or via stocktrading.com.
Rob Friesen
USING DATA STRATEGICALLY Doloc’s book if you are embarking a variety of data sources, one of which
I am frequently asked about how to on ML or data science or want to I will show here.
use data correctly. While this is a big expand your insights further in the For executing on a more dollar-
subject, we can cover a few items that areas of data-driven trading. neutral approach with baskets, there
relate to the world I am most familiar In viewing that data journey are five main approaches:
with, which is trading equity pairs staircase, what leaps off the page is
and baskets. at the very top: having wisdom to A. Longs with single hedge
The entire point of utilizing execute appropriately. At the end B. Shorts with single hedge
approaches to the market like pair of the day, that ability may be of C. Longs with sector ETF hedges
trading is the benefits that come from higher value than any debate over the D. Shorts with sector ETF hedges
relationship-based trading and the substance and quality of the data. For E. Long stocks and short stocks
relative performance between long
and short capital. Execution, position Note: Besides the sector ETFs, one
Given all that we have witnessed can get more granular with industry
sizing, inventory
over these past few years, expect the ETFs, and thankfully there are an
unexpected, and when the unexpected turnover, and risk abundance of liquid ones to choose
arrives, know that it may have many management all come from.
jagged edges. into play. Strategic deployment of those
The reasons many choose hedged baskets ties in with what conditions
strategies include the preservation example, pair traders could wrestle are favorable:
of trading account capital, and with the best cointegration test: Is
the opportunity to make money the Philips-Ouliaris or Johansen test • If the market is gapping down,
from defined probabilities and method better? Regardless of which then A, C, or E could be em-
m a t h e m a t ic a l r el a t io n sh ip s. test produced better cointegrating ployed, executing the long side
This is especially true in pairs factors, I would argue that even a first and deciding on whether
trading, where you have mean- baseline knowledge
reverting opportunities that are of two stocks that
compoundable. are related, coupled
With respect to data, those who with knowing how to
utilize data embark on a journey, trade them, is superior
whether knowingly or not. Many to a higher-quality
beginners put more weight on the statistical number.
ANTHONY LIEW/BUSINESS MANAGEMENT DYNAMICS
data itself, lacking understanding Execution, position

about its makeup, and lacking skills s i z i n g, i nve n t o r y
on how to effectively utilize it. I like tur nover, and r isk
this pictorial from Applications Of management all come
Computational Intelligence In Data into play.
Driven Trading by Cris Doloc (see In basket trading,
Figure 1). traders may create long
I highly recommend reading Cris lists and short lists from FIGURE 1: JOURNEY FROM DATA TO INTELLIGENCE
the short side is needed im-
mediately, can wait, or is not
necessary at all.
• If the market is gapping up, then
B, D, or E could be utilized, do-
ing the short side first.
• If the market opening is ap-
proximately flat, then deploying
longs and shorts simultaneously
would be the best approach.
• For flat opens, any of A, B, C,
MYSTOCKODDS.COM
D, or E could be used.
Then there is the context, which

FIGURE 2: LIST GENERATED FROM STOCKODDS WEB SCREENER APRIL 21, 2022
also determines which approach
would be the best fit. Assume that any
of the following were occurring: What did the SPY do the next day in
case we used it for the long hedge?
• Market sentiment is negative SPY performance was −2.49%
• Breakdown from a consolida- open to close and −2.74% from close
tion range to close. The overall performance
• Significant macro driver to the of the short basket was −1.68%
downside from open to close, so the basket
did not drop as much as the SPY
We know that high beta, high PE, did, due mostly to the EA positive
high historical volatility (HV), performance. SPY bought as hedge
speculative stocks, small caps, tech against the stocks would not have
stocks, and discretionary can move resulted in a profitable day of relative
greater relative to the market ETF performance between long dollars
they are most associated with. This and short dollars.
would also apply to sector ETFs and This showcases how there is
industry ETFs, which by their very nothing wrong with data. The curated
nature of construction don’t move short basket for the day performed as
as much as individual stocks can. expected. The key is how one applies
There are some exceptions for up long and short capital, or how one
days after a stock market rout, when skillfully trades with the variables FIGURE 3: DAILY CHART OF SPY
market participants are leery about presented. As EA was showing
stock picking and prefer to pile into incredible strength in a falling short basket with long dollars?
ETFs to play the move. market, why be short? Closing that With the hedge standing by but not
Let’s say we are working with the out early would have saved losses on deployed, you would have benefitted
S&P 500 stocks. With a potential that symbol. from the performance of the basket.
move down, and if we were playing The next item is this: Was there You can see that we did not execute
from open to close with baskets, we ever an indication that SPY had to with the A, C, or E approach doing
would deploy the short basket of be bought as a hedge? the long side first, as there was a
stocks at the open and then purchase Looking at the reversal day of gap down to start the day. Why the
the SPY if necessary. April 21 as our “context” and then departure? Context. It may be one of
Figure 2 shows a list that was opening lower on April 22, which the hardest things to learn. For this
generated after the close of April could not break above the previous particular morning, the edge was
21 (which was a large reversal day day’s close (see Figure 3), and the shorting stocks, but there were also
closing down) while preparing for multi-day support getting taken out, various ways it could have worked.
trading on April 22, 2022. where is the concern to protect our You could have utilized approach E
with deploying both long and shorts premarket for a probability backdrop. in keeping with using data wisely:
right at the open, but you would want We know there are no guarantees, October is historically a volatile
to check your long list construction but approaching each day with the month with this year’s being followed
for magnitude of beta and sector by mid-term elections. My thoughts
exposure, as it would be best to have are to use the StockOdds Seasonality
a defensive-orientated basket. We know there are Almanac for the ETFs favored to
I have often witnessed in the no guarantees, but perform and those that are not favored
hedging community a posture to approaching each day to perform. That way, you can be
over-hedge and often a lack of effort with the intention of aligned to flow with the current by
put into the variables of what should selecting stocks in those groups to
deploying capital in the
constitute a need to hedge or not. represent your long and short baskets.
But you might ask: At the market best manner possible Combine that with some volatility
open, how do we know what the makes a difference. trading by using best practices for
direction is going to be? gap up or down days, and context
We never know for certain, but you intention of deploying capital in on how we arrived there. My feeling
can also pull odds on the ETFs and the best manner possible makes a is this will be the most beneficial
combine that with what the markets difference. approach.
have been doing overnight and Finally, shifting gears here but
JOHN EHLERS MESA VIRTUAL work can be found in the September symbol entered into the SlopeCharts
WORKSHOP, OCT. 10–14, 2022 2019 issue. platform. The feature is designed to
The annual John Ehlers MESA The workshop will present four be a time-saver, since it is vastly more
workshop will be held on October modules per day after the market efficient to have the formula automati-
10–14, 2022 (Monday–Friday), with close, with the final day on Friday cally applied as opposed to altering
this year’s being conducted online reserved for open discussion. A work- every symbol you want to see. The
over Webex as a live event. The working knowledge of EasyLanguage as feature also provides a customized
shop teaches algorithmic trading well as high school-level algebra perspective into any symbols entered,
techniques and how to apply digital and trigonometry is recommended. particularly those in a watchlist.
signal processing and a scientific Topics will include cycle theory, ef- The user can enter any kind of
approach to your trading, based on fective data smoothing and filtering formula within the given format,
Ehlers’ decades of experience. Ehlers techniques, spectrum estimators, including using basic arithmetic op-
is the author of Cycle Analytics For data correlation, and predictions. At- erators, real numbers, and financial
Traders and Rocket Science For Trad- tendees will receive advanced unique symbols.
ers among other books and numerous indicators, unpublished strategies, A simple example would be if
articles. He has won many Readers’ and walk-forward optimizers in the user wanted to view a series of
Choice Awards over the years for his open-code EasyLanguage. assets proportionate to the Federal
articles appearing in this magazine. Workshop cost is $4,000. Traders Reserve’s M2 money supply (in other
An interview with Ehlers about his can view the full list of topics to be cov- words, you want to see every symbol
ered as well as enroll in the workshop divided by the M2 value). Viewing
at the MESA Software website. your symbols from this perspective
www.mesasoftware.com might lead you to some important
new insights.
TRANSFORMED CHARTS There is no limit to the kind of
BY APPLYING A FORMULA “transformations” applied, such as
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THE TRADERS’ MAGAZINE SINCE 1982

FOUR STEPS TO BULL

ALSO RECEIVE A FREE✝ BOOK

Email: [email protected] • Phone: 206-938-0570 facebook.com/STOCKSandCOMMODITIES @STOCKSandCOMM

Trading on margin is only for sophisticated investors with

6 Explore Your Options 31 Algo Q&A

4 • October 2022 • Technical Analysis of Stocks & Commodities

WINNER: Stand Alone Analytical Software $$$

Thank you to all who voted for NinjaTrader’s industry

$1,200 of premium for selling the call

• As long as both options are held,

Using Phasor Analysis To Identify Market Trend

phase angle of the phasor is −90 degrees, the cycle is at its

period of the cycle. The

PHASOR ANALYSIS, IN EASYLANGUAGE

October 2022 • Technical Analysis of Stocks & Commodities • 11

Start learning options today at tdameritrade.com/options

Explore Your Options

buy five put options. The particulars

• The maximum risk is higher

Developing And Testing

archives to discover ideas to test. I am going to go back

if momentum1 crosses above 0 and

18 • October 2022 • Technical Analysis of Stocks & Commodities

Mlookback 50–100, step 10

Total iterations = 18 TEST DRIVE THE LATEST SIGNALS

Real-time observation, or “incubation” period

Investing is based on probabilities, not

Step 1: Estimate long-term returns

Step 2: Forecast the economy

Jon Wolfenbarger, CFA is founder & CEO

26 • October 2022 • Technical Analysis of Stocks & Commodities

Entering Over 50MA, Target 200MA

Swing Trading In The

Urban Energy Revolution:

production, and from direct use to energy transforma-

energy-related technologies including fuel cell energy,

stock price KE Kimball Electronics, Inc. 0.0 10.5% 98.0%

to 2015 and then examine the corresponding stock price

companies’ growth. ENPH Enphase Energy, Inc. 10.7 60.6% 5112.0%

Financial Engineer, Trader, Author, Educator

Perry Kaufman: Still Dancing

by Azeez Mustapha Understanding what drives the crypto-

That means: In a bullish trending market, we wait for

Sell trade (Figure 6) Further reading

Azeez Mustapha is an analyst at Instaforex Companies

CALHOUN/MOMENTUM why this techniQUe works

Greed And Fear Index

concept of breakout candles and introduced a new indi-

Calculating the GFI

BOKH (BOK candles high) (BOKH is the 5 highest

The formula for the GFI is:

A ≠ 0, and B can be positive or negative)

If BOKC > BOKO, then GFI will be

Howard Wang has a master’s degree in mathematics

KEEP YOUR MARKET OUTLOOK

We have the tools to will happen, but we have confidence ‡StockCharts.com

YOUR ONLINE RESOURCE

Join us on Facebook at www.facebook.com/STOCKSandCOMMODITIES

6 Explore Your Options 31 Algo Q&A

BOKH (BOK candles high) (BOKH is the 5 highest

F THINKORSWIM: OCTOBER 2022 TRADERS’ TIPS CODE

F WEALTH-LAB: OCTOBER 2022 TRADERS’ TIPS CODE

F NEUROSHELL TRADER: OCTOBER 2022