Spydertrader's Jack Hershey Equities Journal

[Spydertrader]

The system failed to generate any signals again today. Actual Volume on most all Watch List stocks appears to be very low - 10% of the 65 day average. With a Market Holiday tomorrow, and only half a day on Friday, we will hold onto both CALM and SWIR for a couple more days looking to sell either Friday or Monday.

For those of you residing in the USA, Happy Thanksgiving. For those living outside the USA, enjoy another Thursday.

- Spydertrader

 

[makosgu]

General Comments...

Again Great Effort. Kudos to all!

I've been relentlessly tracking and generalizing across many different equities. There is a definitive learning approach here that can predominate and greatly benefit everything. Of the 15,000+ posts, I've probably read in detailed comprehension thru 60% of them. I'm still biased in that my intended approach will be race-track driven. The caveat and major breakthru for me was limit the possible vehicles to Hershey quality vehicles, kind of like opting for a Japanese car, I can't afford the vehicle to be in the shop for repairs.

First things first. It is likely but not definitive that my previous attachment will be the last as far as the master list is concerned. I recently found out that my EOD of charting is severely limiting for finding clean Volume visuals. I currently use Prophet.Net which is delayed but nonetheless gives me the desired flexibilities (fractals, indicators, channel drawing). I highly recomend since it's free to use for delayed data for all the frugal persons out there.

So the crucial bullet point. Sequences are an underlying key here for entrances and exits. I dipped into the futures thread to find any relevant material. There is a sh!tload but only 1 that pertains to my BEGINNER plateau. After running thru chart after chart, it dawned that we can apply the same BEGINNER futures guidelines to equities. Jack calls it ROCKETEERING. I've condensed the material to an attachment since I am sure most here will not consider what I'm saying to be of material value. The attachment in the following post will be entirely from Jack's posting.

The question needed to ask about exit/entrances is how can they be differentiated. This was difficult to track down since I was biased, I was only focusing on 1/2 full as opposed to 1/2 empty cup. I'll explain...

With MACD, we consider several things. One thing I will need to clean up. Earlier I had mentioned that the crossover of slow and fast macd give our derivative. The signal there is too late even tho it had some interesting backtested results. I will correct this misguidance. The fast MACD is actually just a mirroring line of price movement on a greatly reduced scale. The same sort of analysis can be used by incorporating a 4 day Zero Lag Exponential Moving Average on price it appears (John Ehlers). This produces a similar fast moving average line but on the Price Scale. I digress...

By evaluating the slope of the fast MACD, we have the derivative. Simplest way to do this is to contrast the current fast MACD value with the previous and following bars. A positive change from the previous bar to a negative difference on the next bar tells us that the slope has moved thru zero. The trough of these continuing calculations is the LEADING indicator (anticipating a zero XO), the XO of zero is the actionable/tradeable event. However, since MACD is an absolute indicator, we need to be assured that we are in a trend, so we confirm with Stochastics, a relative indicator, that such a trend exists... There are 2 contexts to consider with MACD, Jack identifies these regions within and vs outside the the taped region on the MACD. For future gurus it's +/-.4. For us, it may be different for each equity and needs to be calibrated for each fractal. If none of this makes sense, sift thru Jack's glossary, otherwise skip this post. It will make sense to you eventually. In each of the 2 MACD context, the Hist is either near 0 or far away from zero. For the initial entry, we want to be in the far away from zero region which is resolved by taping out the calibrated region. In either context, there are only 4 sequences. Zero slope on the fast MACD lines -> Convergence of the Fast & Slow MACD lines -> XO of the Fast & Slow -> Divergence of the Fast & Slow and then this repeats. How quickly this sequence repeats is what will or will not appear as entwined.

MORE TO COME... I will complete the understanding today...

 

[BigBriQuaker]

From makosgu:

However, since MACD is an absolute indicator, we need to be assured that we are in a trend, so we confirm with Stochastics, a relative indicator, that such a trend exists... There are 2 contexts to consider with MACD, Jack identifies these regions within and vs outside the the taped region on the MACD. For future gurus it's +/-.4. For us, it may be different for each equity and needs to be calibrated for each fractal.

First, sorry to jump in here...I have been lurking with some interest in this thread...great stuff by all.

Although I have not read all of Jack's stuff here and on other resources, I have read quite a bit. I have never heard him discuss taping part of the MACD indicator. Or did you mean taping the Stochastics indicator? I have heard him say tape over the 20-80 region of Stochastics and only look to trade when outside this range for beginners. Taping over the MACD makes less sense to me as it is not a relative indicator, and its bounds will vary widely between equitys as it is based on price. Which is perhaps why you said it would need to be calibrated to each equity.

Would you mind pointing me to where taping of the MACD indicator is discussed? Or am I missing what you mean by taping?

 

[makosgu]

Quote from BigBriQuaker:

From makosgu:

Taping... MACD ...

http://www.elitetrader.com/vb/showthread.php?s=&postid=218175#post218175

I am a beginner, and unfortunately I have had many disheartening lunch convos with many of my recent college friends and all see my orientation as riduculous. With confidence, we know better through a sort of consciousness. Knowing the sequences unvails the ability to identify what's next. None the less, I will post to hopefully provoke some thought. My aim here is to identify an efficiency to expand upon. Identifying an improvement is the recognition of a positive step, a plateau of sorts. Since Jack is not currently active here, we need to help ourselves step up using more efficient concepts. Fortunately, the techniques used in the futures can be used as a template. We should only need to filter out and find an equivalent for equities.

 

[svrz]

Hi Makosqu

You have made another outstanding and thought provoking post as usual.

A few points:

1) Ehlers' zero lag EMA: I assume you are referring to his IIR filter, no? I have been trying for a long time to create a zero lag MACD with these types of MAs. I had no luck. I came close by subtracting a SMA from IIR (or vice versa). However the behavior was too erratic.

2) I have found that the first line bands on MACD should be 2*tick. For example, in NQ, tick is 0.5. Sure enough, sideways markets are always contained with +/-1.
In YM (Dow EMini), this type of a market is contained within +/-2 which is again 2*tick (1 for YM).

3) As far as MACD[Bar] - MACD[Bar - 1] giving us the slope: mathematically, you are absolutely right. However, there are so many wiggles in the plot that I don't know if it is of any use. OTOH I defer to your knowledge.

Looking forward to your next post.

Take care.

 

[makosgu]

Several thing to consider. I recognized the importance of MACD sequences 2 weeks ago. Wonder of wonders, it made EOD of sequences appear to be EXTREMELY slow motion. This week I recognized the importance of Stochastics. I had trouble with MACD since in continual debriefing, I noted that it's reliabilty was good for identifying turning points but not necessarily for sustained price movement. Stepping down to the 30 min fractal made things an order of magnitude clearer. Currently, I only focus on 128 bars of data... 6 MO EOD bars, 10 DAY 30 MIN bars, 1.5 DAY 5 MIN bars, 2 hours of 1 MIN bars. Thus on any fractal, I only see 128 bars, it cleans up channeling. This way, the visual spacing always looks the same whether stepping up or down fractals. If the pace is too fast on one fractal, I step up to the slower fractal. There is a context thingy that I'm still working on with this step up step down but I'll report if it begins to reduce to some concept. Digressing....

Stochastics. Identifying the sequences of stochastics was a bit of a fumble and still continues to be. So, I keep it simple. Use beginner sequences. 20/80 tape. Last In/First Out Enter/Exit combo with momentary strong MACD. This stochastics stuff is extremely new and so I am no pro. But the benefit here is in the concept. I am gunning for rigor and robustness with this and hope to nail it down shortly.

Race-Track Digression
Consider here for a moment what Beginner Stoch is for futures Rocketeers. It is a strong fast-paced trend. In futures, +/- .4 was taped out to ensure only using fast paces. The future limitations for beginners is that only one vehicle can provide ES signals. Here, in our universe, any one of our names can provide a rocket signal. Intuitively, there is relationship between the probability of a rocket signal given the size of the universe. I will have to somehow regard this. It should be possible to statistically quantify an equities relative MACD tape out region nearly instantly. I have a number of methods, the correct approach should also produce Jack's +/-.4 and +/- 1 as stated above. The second step should be to continually sweep across the universe of names for rocket signals of a particular trading fractal, and continually change into the rocket with the highest money velocity (positive acceleration would help too). Note that this departs from EOD trading and increases cycles by an order of magnitude. The are many advantages here to be optimized. I am absolutely lousy at not thinking ahead. Having a flawless trigger finger and even sharper visual will benefit. What's the major benefit will be in the drawdown arena. You will have to convince yourself of this. Note, washes are not drawdowns. If your extremely afraid of fees, you may be undercapitalized. So the question then begins, how do you rank the paces across each of the rockets. Short answer, relative volume. A simpler and/or easier to glance answer, the angle of the channel. Steeper channels means greater velocity (trading range slope). I will greatly try to elaborate here as I am still filling in the "what ifs" and why should this be considered???. A few notes, cycles are fully taken advantage of here at a beginner level. The same can be from all ES levels techniques when correctly translated for equities. So what is my motivation for this option? It fully leverages all the tools we currently have. The only time we shouldn't make money is when there are no rockets across our entire universe (if your trading bias is neutral, this is doubly unlikely). The other great things about rockets is that if they don't work out, wash and look across the universe for another equity vehicle...

1/2 Full 1/2 Empty Perception...
Much of the difficult with sequences was trying to work out why they sometimes didn't work out. My initial failures was in not recognizing that a FAILED SEQUENCE is a SIGNAL . As sequences complete, the failure of the continuation of a sequence picks off a new state. Stochastics and FBO are an example of this.

Unfortunately I have log off for the time being, I will pick back up after the break.

Happy Thanksgiving,
G33M4K

 

[makosgu]

Quote from svrz:

Hi Makosqu

You have made another outstanding and thought provoking post as usual.

A few points:

1) Ehlers' zero lag EMA: I assume you are referring to his IIR filter, no? I have been trying for a long time to create a zero lag MACD with these types of MAs. I had no luck. I came close by subtracting a SMA from IIR (or vice versa). However the behavior was too erratic.

2) I have found that the first line bands on MACD should be 2*tick. For example, in NQ, tick is 0.5. Sure enough, sideways markets are always contained with +/-1.
In YM (Dow EMini), this type of a market is contained within +/-2 which is again 2*tick (1 for YM).

3) As far as MACD[Bar] - MACD[Bar - 1] giving us the slope: mathematically, you are absolutely right. However, there are so many wiggles in the plot that I don't know if it is of any use. OTOH I defer to your knowledge.

Looking forward to your next post.

Take care.

I will recommend some suggestions as for my time is limited, got to get this blasted turkey thing going. If possible I would microwave. Check for MAMA/FAMA things. No SMA should be necessary to apply to the ZLEMA. Use ZLEMA(4) as the fast line MACD equivalent and some other smoothing SMA(ZLEMA(4),6). Not too sure on this. I'd have to brush of my digital signal processing textbooks for this. However, Ehlers is on to something that is relevant for us. But I don't want to digress, just use the tools we already have well documented across all of Jack's posts.

2. 3. I will think and address. Only read 1 briefly...

Regards,
G33M4K

 

[nzbryant]

Spyder

How do you deal with comm, and how much do you pay in comm? I have calculated I would spend about 25% of my account in a year on comm if I turn over my 5 stocks every week, so have to slow it down.

 

[Spydertrader]

Quote from nzbryant:

Spyder

How do you deal with comm, and how much do you pay in comm? I have calculated I would spend about 25% of my account in a year on comm if I turn over my 5 stocks every week, so have to slow it down.

The old adage, "You get what you pay for" certainly applies to trading - especially when it comes to commissions. "There is no such thing as a free lunch." If you pay super low commissions, you should expect the broker's revenues to come from increased slippage on your order. Now, this is not ALWAYS the case, but consider the following: Brokerage House are in the business to make money.

Most 'Day Traders' require super fast executions, and as a result, they expect to pay for that speed. Direct Access Brokers, like Rushtrade, offer super fast executions, and for that speed, they charge $9.95 per trade (plus ECN Fees.) Web based brokers, like FreeTrade, do not offer direct access resulting slower execution speeds, but less cost on commissions. Keep in mind that this lower cost might get recouped on slippage. Since trading the Jack Hershey Equities Method does not require lightening fast executions, paying for faster speed might cost you more than slippage over the long haul.

For smaller account sizes, you may wish to use a broker that offers 'per share' pricing. Unlike brokers that charge you commissions on each trade, per share pricing basis your costs on the number of shares you trade - not the number of trades. Both Cybertrader and Interactive brokers offer per share pricing and remain excellent choices for smaller account sizes.

Ultimately, the choice of which broker to use remains a matter of personal choice. No matter which broker you choose from those I listed above, you can and will do btter than paying 25% of your account in commissions.

I hope that helped.

- Spydertrader

 

[dkm]

Quote from makosgu:

There are 2 contexts to consider with MACD, Jack identifies these regions within and vs outside the the taped region on the MACD. For future gurus it's +/-.4.

Just for the record, Jack used a 0.4 band on macd histogram , *not* macd, when trading rockets on ES.