This post is from Allan who wrote this for me after I asked him how his trading system works and what he’s doing with his newly launched newsletter, Trend Following Trading Models.
In case you’re wondering after reading this article, the daily chart on Google has a sell signal while the weekly chart is on a buy. So if you’re trading this system with a short-term time frame, you’re short, and if you’re trading this system with a long-term time frame, you’re long. And if you’re using the daily as a filter, as Allan does, you’re flat – meaning the divergence between the daily and the weekly is sending you to the sidelines. – Ilene
Trend Models – Tutorial
Courtesy of Allan
This morning I want to explain my Trend Models and how they work.
I started a newsletter service on January 2, 2010 and just a few days later the first stock trade idea was sent to the list, via my trend model system. Here’s the trade, featuring Google.
Thursday Morning, January 7, 2010 7:53 AM:
As you can see from the above chart, GOOG closed Wednesday below it’s trend line (solid navy line) and generated a SHORT signal @ 608. The previous signal was a LONG generated November 9, 2009 @ 562.
The early January SHORT was closed out on March 3rd at 545, for a gain on the trade of about 63 points:
That is pretty much the entire system, LONG above the trend lines and SHORT below them. The system works on all time periods, below is the GOOG Weekly chart:
You can see from the interaction of prices and the trend line how effective the Weekly trend is on being on the right side of GOOG. After the close each day I update the status of trends on Daily and Weekly charts for about 50 different stocks and ETF’s. They all are not as effective as the GOOG trends, but most are and even if you only traded GOOG (some subscribers do just that), you should be able see the benefit of knowing where the trend line is, either above or below prices, for any tradable stock.
My system also uses the same approach to trade the 60 and 240 minute trends of SPX and QQQQ, as well as their Daily and Weekly trends.
How does this system fit into macro-trading, i.e. Wave 3 of 3 Down? Macro-trading refers to an Elliott Wave theory that financial martkets are completing a wave 2 countertrend rally. After which, a precipitous wave 3 of 3 decline will take the market below the 2009 lows. – Ilene
It doesn’t, not exactly.
The system only cares about where the trend line is in relation to prices. There are no other considerations. Simple and elegant. Yet, if there were to be a "third of third wave" decline this year, the trends can’t help but catch such a decline early enough to profit handsomely from it. By its very nature, the system will identify the current trend and get on board early. That’s what trend following does and this algorithm does it as well as any I have seen.
In addition to the trend models, I occasionally include added value ideas for subscribers, for example, the Biotechnology Basket from last weekends, "Weekend Update." Things I use to post on my blog I will usually post first to the email list, then to Blog, trying to make it worthwhile for subscribers to stay subscribers. So far, my renewal rate is up over 90%, so I must be doing something right.
I hope this answers a lot of questions about what these trend models and the email list are all about. I know it’s pretty basic stuff, but, as we should all know by now, simple works very well. As my mantra suggests, find a method that works, then trade it.
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Check out Allan’s site, and if you wish to subscribe, Allan is offering PSW readers a 25% discount. Click here for the discount. – Ilene
