Sunday, December 23, 2007

The TREND Scan

A while back I posted this Post. Now I want to know how exactly to interpret what the table was telling me. So I ran the scan for a few months back to see the story the table was telling, and then looked at what happened on the charts. Then I searched for and read the Livermore trading rules. I'm going to take a stab at this with the little research I've done (no back testing etc., just looking through charts to figure out how to use the table).

Here is the scan I ran today on the FOREX market.

Here is what I would do (simulated trading exercise) -

Short all the rows with 3 RED cells except for GBPNZD and GBPCHF. I don't really like the looks of GBPAUD but it looks like it will go red based on the H&S pattern it has completed today, so I would probably short that as well. The prices I would use to short would be based on interday charts but for this exercise, lets say its half way between open and close of the day before. Trailing stops would be the high of the day before.

Long all the rows with 2 GREEN cells. Buy price would be halfway between the open and close of the previous day (or no entry). Trailing stops would be the low of the day before.

I'll record these and see what happens. I wonder what the holiday season trading will be like, if the price levels will be impacted. I figure the volatility will be low.

More info on the screen rules.
The screen is based on the Livermore rules; below is an except from a web site on this trader.

All successful stock and commodity traders have rules for buying and selling. Many traders today still use the trading rules Jesse Livermore first devised almost a century ago.
Jesse Livermore constructed his rules over several years while he learned by trial and error what worked on the markets. He was guided by one of his favorite principles:
"There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."

Trading Rules

  • Buy rising stocks and sell falling stocks.
  • Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it's rising you should be long, if it's falling you should be short.
  • Co-ordinate your trading activity with pivot points.
  • Only enter a trade after the action of the market confirms your opinion and then enter promptly.
  • Continue with trades that show you a profit, end trades that show a loss.
  • End trades when it is clear that the trend you are profiting from is over.
  • In any sector, trade the leading stock - the one showing the strongest trend.
  • Never average losses by, for example, buying more of a stock that has fallen.
  • Never meet a margin call - get out of the trade.
  • Go long when stocks reach a new high. Sell short when they reach a new low.
Other Useful Trading Guidance

  • Don't become an involuntary investor by holding onto stocks whose price has fallen.
  • A stock is never too high to buy and never too low to short.
  • Markets are never wrong - opinions often are.
  • The highest profits are made in trades that show a profit right from the start.
  • No trading rules will deliver a profit 100 percent of the time.
Note: The AFL code for this was taken from the Amibroker website, posted by some guy.

1 comment:

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