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Technical trading
Posted on 6/16/17 at 3:36 pm
Posted on 6/16/17 at 3:36 pm
Everyone is trying to find an edge to beat the market averages. Obviously there are thousands of technical trading "systems" out there that claim to do that. But anyone experienced in the market knows those are usually baseless claims.
With that caveat in place, I was looking into the RSI-2 system developed by Larry Connors. The simplicity here is striking:
Buy rules
-buy when price is above 200d, below the 5d, and RSI-2 is below 5
Sell rules
-sell when price is above the 5d
Essentially what you're doing is buying stocks that are short-term oversold, but in a long-term uptrend. With megacap bluechips or ETFs, the price tends to come back to the mean pretty dependably - meaning a 2-4% rebound over a 1-3 day period in most cases. Small gains, in and out.
Even in your losing trades, the price will catch up with the 5d pretty quickly, limiting the downside.
Any comments on this or any other technical trading you've tried out?
Oh, and since this is a stock market thread...
With that caveat in place, I was looking into the RSI-2 system developed by Larry Connors. The simplicity here is striking:
Buy rules
-buy when price is above 200d, below the 5d, and RSI-2 is below 5
Sell rules
-sell when price is above the 5d
Essentially what you're doing is buying stocks that are short-term oversold, but in a long-term uptrend. With megacap bluechips or ETFs, the price tends to come back to the mean pretty dependably - meaning a 2-4% rebound over a 1-3 day period in most cases. Small gains, in and out.
Even in your losing trades, the price will catch up with the 5d pretty quickly, limiting the downside.
Any comments on this or any other technical trading you've tried out?
Oh, and since this is a stock market thread...
4
Posted on 6/16/17 at 6:22 pm to RidiculousHype
I like the way you're thinking. LSUneaux should be all over this.
Posted on 6/17/17 at 6:50 am to RidiculousHype
If anyone is familiar with Quantopian, this should be relatively simple to model out and backtest.
Posted on 6/17/17 at 3:47 pm to RidiculousHype
If you're interested in 1-to-5-day trading strategies, then it seems as though you are interested in "Very Low-Frequency" algorithmic trading strategies, at least according to the categories suggested by Anthony Brockwell of Carnegie Mellon ( LINK):
Ole War Skule started a pretty decent thread in October 2014 on longer-term timing strategies: " Russell Death Cross: BS or valid indicator?"
I only mention that, because it also includes the 200d / 10mo indicator in the trading strategy, and also because I tend to be more interested in the longer-term stuff. I think the professional algo wizards at places like Two Sigma and Renaissance Technologies have likely eaten up all the shorter-term profit potential, but who knows, right? Maybe not.
Regarding the longer-term market timing trading strategy, I like a paper that Mebane Faber published in The Journal of Wealth Management in Spring 2007, and last updated in 2014: " A Quantitative Approach to Tactical Asset Allocation."
The money chart is on pg. 23 of the paper:
quote:
Category, Reaction Speed, Average Trade Duration
Very Low-Frequency, up to several hours, 1 week or more
Low-Frequency, up to a few minutes, 1 day to 1 week
Medium-Frequency, up to a few seconds, 10 minutes to 1 day
High-Frequency, 100 milliseconds or less 1 second to 10 minutes
Very High-Frequency, 1 millisecond or less, 1 second or less
Ole War Skule started a pretty decent thread in October 2014 on longer-term timing strategies: " Russell Death Cross: BS or valid indicator?"
I only mention that, because it also includes the 200d / 10mo indicator in the trading strategy, and also because I tend to be more interested in the longer-term stuff. I think the professional algo wizards at places like Two Sigma and Renaissance Technologies have likely eaten up all the shorter-term profit potential, but who knows, right? Maybe not.
Regarding the longer-term market timing trading strategy, I like a paper that Mebane Faber published in The Journal of Wealth Management in Spring 2007, and last updated in 2014: " A Quantitative Approach to Tactical Asset Allocation."
The money chart is on pg. 23 of the paper:
Posted on 6/20/17 at 10:58 am to RidiculousHype
Technical trading doesn't work. It definitely calls to our ingrained need to find patterns. It's helped us survive but its not useful for stock picking. You can back test all kinds of strategies till you find one that works. Markets change.
I believe behavioral finance plays a part in markets as we are humans as mentioned above and we don't act perfectly. I also think restrictions by large institutions present opportunities to beat the market. Such as overselling because they can only sustain X amount of losses or the inability for lots of people to short sell.
Technical trading in the long term just doesn't work. There are numerous articles that support this. Anyone that had a trading system that worked, sure as shite isn't going to tell anyone about it. Hedge funds go to extreme measures to keep their trading strategies secret.
I believe behavioral finance plays a part in markets as we are humans as mentioned above and we don't act perfectly. I also think restrictions by large institutions present opportunities to beat the market. Such as overselling because they can only sustain X amount of losses or the inability for lots of people to short sell.
Technical trading in the long term just doesn't work. There are numerous articles that support this. Anyone that had a trading system that worked, sure as shite isn't going to tell anyone about it. Hedge funds go to extreme measures to keep their trading strategies secret.
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