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.