The VLE was soundly rejected at the 25dema. If it closes below 2048, it will be a renewed sell signal with the possibility of adding to existing short positions. Today would have been a great day to exit any countertrend long positions from last week. There may still be one more opportunity early to middle next week as long as markets do not close below last weeks lows on higher volume.
All intermediate term systems remain on a sell signal. I will introduce the next system by Sunday 2/3/08.
Wednesday, January 30, 2008
Tuesday, January 29, 2008
Buy Signal Could Be Near
I still think this is a bear rally, but the VLA system could potentially give a buy signal by Friday or Monday. If so, we will take it, but be prepared to reverse the position should we get a new sell signal later next week.
Saturday, January 26, 2008
Bear Market Rally
Don't be fooled by this rally. It may eventually turn out to be the start of a bull market, but every intermediate term trading system that I track is still on a short signal including the VLA system introduced earlier this month. At the beginning of February, I will introduce another intermediate term trading system that has a similar performance record to the VLA system except that it may be even better. I will provide tracking back to the beginning of the year for comparison purposes.
Once this bear market rally is over, one could take new short positions or add to existing ones. Keep in mind that I have not discussed the importance of risk management yet. No matter what system you are trading, preserving capital and risk management are the most important skills to learn. There are many books and sites on the subject and I will discuss the matter in the future.
Once this bear market rally is over, one could take new short positions or add to existing ones. Keep in mind that I have not discussed the importance of risk management yet. No matter what system you are trading, preserving capital and risk management are the most important skills to learn. There are many books and sites on the subject and I will discuss the matter in the future.
Wednesday, January 23, 2008
Reversal Day
The markets reversed strongly off the intraday lows today and the VLE closed up 6.4% above the 1/22/08 swing low. However, it is still well below the declining 25dema. No action is indicated at the present time except to hold short. As suggested previously, a countertrend short term trade could have and still can be made here. While we are presently concentrating on intermediate term trading systems, if you are looking to go long here, consider entering a limit order on the QQQQs around 42.50 to 43.00 and look to exit near the declining 25dema around 48.00.
In order for this system to reverse and go long, the VLE must now close above the 25dema and the 25dema must rise for two consecutive days.
While all of the emotional drama of the market crash is playing out in the media. It is nice to realize that there is nothing to do here except wait for a long signal. Relax and be patient. There may still be more downside to come, and regardless of the market prognosticators we can really only estimate potential outcomes.
In order for this system to reverse and go long, the VLE must now close above the 25dema and the 25dema must rise for two consecutive days.
While all of the emotional drama of the market crash is playing out in the media. It is nice to realize that there is nothing to do here except wait for a long signal. Relax and be patient. There may still be more downside to come, and regardless of the market prognosticators we can really only estimate potential outcomes.
Monday, January 21, 2008
Predictions Follow-up
As the markets are closed today, the news is that markets are crashing around the world and the Dow Futures are down 450 points. I have read a number of market commentaries this past week on why the market is due for a bounce due to the severe oversold condition. Some have even called for the 9 month cycle low last week. To be fair, some analysts have said that in bear markets traditional indicators are not reliable in predicting market bottoms.
The current situation highlights the value of price, volume and breadth based systems that do not rely on forecasting models. For those who have remained short with the VLA System, this week should offer continued gains.
The VLA System has been short the QQQQs from 1/3/08 at 50.40 and is presently up 10.0%.
The current situation highlights the value of price, volume and breadth based systems that do not rely on forecasting models. For those who have remained short with the VLA System, this week should offer continued gains.
The VLA System has been short the QQQQs from 1/3/08 at 50.40 and is presently up 10.0%.
Wednesday, January 16, 2008
On Market Predictions
One can find many interesting and useful sites that offer market commentary and predictions. I personally read several everyday, some of which are subscription services. In general, much of this commentary is a helpful framework for viewing the markets. I have rarely found that it is all that useful for trading purposes. Rather it gives one perspective on the possible outcomes and perhaps when and when not to press it by adding to a position or increasing profit targets.
As far as market direction is concerned, most of the commentary and predictions miss the mark, often considerably. The result for the commentators is to present an alternate interpretation that fits the current situation, but this is of questionable value to traders.
It is easier and more profitable to follow the market using tested systems based on price, volume and breadth than trying to predict the next move. It is also helpful to have a clear understanding of where you are in the 9 month cycle.
Presently, we are approaching a 9 month cycle low. By symmetry with the March 14 and August 16, 2007 lows this cycle has stretched to 10 months with a projected low on January 16, 2008. It would not be surprising to see a reversal low today given the bad news from Intel and Citigroup, but the VLA System is still on a sell so there is no action to take on an intermediate term basis. One might consider taking a countertrend trade into the Fed meeting.
A review of past bear market 9 month cycles shows that after a 9 month low in a bear market, the markets may only bounce for 2 to 4 weeks. There is no reason to expect a protracted rally. However, if we get a long signal on the system, it must be respected.
I hope the reader can see that by following the market using a tested system, a great deal of the anxiety in trading is removed ( and also the euphoria ) as there is no longer the need to predict the markets' next movement in order to trade successfully.
As far as market direction is concerned, most of the commentary and predictions miss the mark, often considerably. The result for the commentators is to present an alternate interpretation that fits the current situation, but this is of questionable value to traders.
It is easier and more profitable to follow the market using tested systems based on price, volume and breadth than trying to predict the next move. It is also helpful to have a clear understanding of where you are in the 9 month cycle.
Presently, we are approaching a 9 month cycle low. By symmetry with the March 14 and August 16, 2007 lows this cycle has stretched to 10 months with a projected low on January 16, 2008. It would not be surprising to see a reversal low today given the bad news from Intel and Citigroup, but the VLA System is still on a sell so there is no action to take on an intermediate term basis. One might consider taking a countertrend trade into the Fed meeting.
A review of past bear market 9 month cycles shows that after a 9 month low in a bear market, the markets may only bounce for 2 to 4 weeks. There is no reason to expect a protracted rally. However, if we get a long signal on the system, it must be respected.
I hope the reader can see that by following the market using a tested system, a great deal of the anxiety in trading is removed ( and also the euphoria ) as there is no longer the need to predict the markets' next movement in order to trade successfully.
Friday, January 11, 2008
VLA Advances
The VLE has now gained just over 4% from its intraday low on 1/9/08. This does not qualify as a buy signal as it is still over 4% below its 25dema and the 25dema is falling.
One feature of a good intermediate term trading system is its ability to keep you in a trade during volatile periods like we are experiencing now. This reduces transaction costs and emotional costs.
However, if you are a skilled short term trader, one way to boost your portfolio performance is to maintain an intermediate term position while taking the occasional countertrend trade when it presents itself. If the Qs can get past resistance at the 200dema and the November 07 low of 48.65, the 25dema or 50dema would be good exit points for a countertrend bounce.
There are a couple of ways this could be accomplished. One is to use the QLD and QID instead of the QQQQ for intermediate term trades. Then use the QQQQ for countertrend trades. Another approach would be to use another market or ETF for the countertrend trade such as the IWM or XLK. Also, one could use options.
At this time, I will not be addressing short term trading methods but I wanted to make the reader aware that it is not an all or nothing affair. Also, each trader should evaluate the merits of any trading system on his/her own before trading it and the current system being presented is not a trading recommendation. At a later date, I will provide a spreadsheet link with a summary of the systems presented.
One feature of a good intermediate term trading system is its ability to keep you in a trade during volatile periods like we are experiencing now. This reduces transaction costs and emotional costs.
However, if you are a skilled short term trader, one way to boost your portfolio performance is to maintain an intermediate term position while taking the occasional countertrend trade when it presents itself. If the Qs can get past resistance at the 200dema and the November 07 low of 48.65, the 25dema or 50dema would be good exit points for a countertrend bounce.
There are a couple of ways this could be accomplished. One is to use the QLD and QID instead of the QQQQ for intermediate term trades. Then use the QQQQ for countertrend trades. Another approach would be to use another market or ETF for the countertrend trade such as the IWM or XLK. Also, one could use options.
At this time, I will not be addressing short term trading methods but I wanted to make the reader aware that it is not an all or nothing affair. Also, each trader should evaluate the merits of any trading system on his/her own before trading it and the current system being presented is not a trading recommendation. At a later date, I will provide a spreadsheet link with a summary of the systems presented.
Sunday, January 6, 2008
VLA Update
The VLA System continues to be on a sell signal from 1/2/08. While the Qs are definitely oversold and could bounce at any time, we will not make any attempt to finesse the trade here. Rather, we will remain patient and wait for the System to give us a neutral or long signal.
Thursday, January 3, 2008
Wednesday, January 2, 2008
VLA System Sell Signal
The Value Line Arithmetic Index closed today more than 4% below its 12/26/07 swing high and below the 25dema. The 25dema has been down two consecutive days. Therefore today was a sell signal. We will go short the QQQQ (Q's) tomorrow at the open.
The Q's are presently somewhat oversold, however we will follow the system and not second guess it.
The Q's are presently somewhat oversold, however we will follow the system and not second guess it.
Tuesday, January 1, 2008
Introduction
The purpose of this blog is to share and compile methods for short term and intermediate term trading of financial markets. Over time, methods will be synthesized into coherent strategies to maximize returns and minimize drawdowns with the intent of providing traders with proven, reliable methods and strategies that can be used with confidence.
In recent years trading psychology has become a major focus in the trading community. A number of books have been written as well as many blogs and websites dedicated to dealing with this issue. However, it occurred to me that there are few areas in life where emotions play such a large role in determining one’s success, or at least that is the implication.
Should this be the case? Do we become emotional each time we get in our car to drive somewhere even though we may be putting our life in danger? No, we don’t. The reason is simple. We have a large positive experience base that gives us confidence that we can safely get from point A to point B.
In the trading and investment world, we are bombarded with a multitude of opinions about what the best approach should be, sometimes with research to back it up and sometimes not. Even then, sorting through all of this information and reaching useful conclusions is not easy. Particularly when one can see that even the best performers go through periods of losses and underperformance. How do we choose?
Each month (until I run out of methods) I will introduce a market trading method with clear rules that can be tested. I will use the QQQQ ETF as a trading vehicle for testing the method. Market commentary will be kept to a minimum, as it is not the purpose of this site to offer market forecasts. History has shown that with rare exceptions trading off of forecasts is a losing proposition.
VLA System
The first method that will be introduced is the Value Line Arithmetic Index trading system. This system has been around for some time in different forms. In TC2000 the symbol is VLE, at stockcharts.com it is $VLE. We will use the following version:
Long
After a market neutral or sell signal, we will go long the QQQQ when the VLE closes 4% above its recent intraday swing low and closes above the lower of either the 25 day exponential moving average(dema) or the 50dema. In addition, the lower moving average must be rising as indicated by two consecutive up days.
Short
After a market neutral or buy signal, we will go short the QQQQ when the VLE closes 4% below its recent intraday swing high and closes below the lower of either the 25dema or the 50dema. In addition, the lower moving average must be falling as indicated by two consecutive down days.
Neutral
We will exit long positions and go to cash when for longs the VLE closes below the lower of the either the 25dema or 50ema but has not closed 4% below its recent intraday swing high. We will exit short positions and go to cash when for shorts the VLE closes above the lower of either the 25dema or the 50dema but has not closed 4% above its recent intraday swing low or the lower of the moving averages is not rising.
Current Status
The VLE closed below its 25dema on December 27, 2007 but is still less than 4% below the recent intraday high after a buy signal on December 24, 2007. Therefore, this system is presently Neutral and in cash. We await the next signal, which could be either long or short.
Please be advised that all commentary provided on Trader Craig’s Market Edge is for educational purposes only. I may hold positions in the stocks or markets discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. Your use of any information on this blog is at your own risk. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this blog. The past performance of any trading system or methodology is not necessarily indicative of future results.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED 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 PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
In recent years trading psychology has become a major focus in the trading community. A number of books have been written as well as many blogs and websites dedicated to dealing with this issue. However, it occurred to me that there are few areas in life where emotions play such a large role in determining one’s success, or at least that is the implication.
Should this be the case? Do we become emotional each time we get in our car to drive somewhere even though we may be putting our life in danger? No, we don’t. The reason is simple. We have a large positive experience base that gives us confidence that we can safely get from point A to point B.
In the trading and investment world, we are bombarded with a multitude of opinions about what the best approach should be, sometimes with research to back it up and sometimes not. Even then, sorting through all of this information and reaching useful conclusions is not easy. Particularly when one can see that even the best performers go through periods of losses and underperformance. How do we choose?
Each month (until I run out of methods) I will introduce a market trading method with clear rules that can be tested. I will use the QQQQ ETF as a trading vehicle for testing the method. Market commentary will be kept to a minimum, as it is not the purpose of this site to offer market forecasts. History has shown that with rare exceptions trading off of forecasts is a losing proposition.
VLA System
The first method that will be introduced is the Value Line Arithmetic Index trading system. This system has been around for some time in different forms. In TC2000 the symbol is VLE, at stockcharts.com it is $VLE. We will use the following version:
Long
After a market neutral or sell signal, we will go long the QQQQ when the VLE closes 4% above its recent intraday swing low and closes above the lower of either the 25 day exponential moving average(dema) or the 50dema. In addition, the lower moving average must be rising as indicated by two consecutive up days.
Short
After a market neutral or buy signal, we will go short the QQQQ when the VLE closes 4% below its recent intraday swing high and closes below the lower of either the 25dema or the 50dema. In addition, the lower moving average must be falling as indicated by two consecutive down days.
Neutral
We will exit long positions and go to cash when for longs the VLE closes below the lower of the either the 25dema or 50ema but has not closed 4% below its recent intraday swing high. We will exit short positions and go to cash when for shorts the VLE closes above the lower of either the 25dema or the 50dema but has not closed 4% above its recent intraday swing low or the lower of the moving averages is not rising.
Current Status
The VLE closed below its 25dema on December 27, 2007 but is still less than 4% below the recent intraday high after a buy signal on December 24, 2007. Therefore, this system is presently Neutral and in cash. We await the next signal, which could be either long or short.
Please be advised that all commentary provided on Trader Craig’s Market Edge is for educational purposes only. I may hold positions in the stocks or markets discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. Your use of any information on this blog is at your own risk. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this blog. The past performance of any trading system or methodology is not necessarily indicative of future results.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED 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 PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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