Ok, let's get down to brass tacks...
You are all looking for a way to determine when to enter/exit a trend, and a way to determine if that trend is viable.
Let me tell you, using traditional indicators is NOT the way to go, unless you modify them a bit.
I've been studying chaos theory, non-linear equations, and signal analysis for a while now, and I took what John Ehlers has done, reworked most of the code, and created new indicators based on traditional indicators (DMI, ADX, RSI, Triple MA, Volatility Bands), as well as some of my own proprietary design (Signal-To-Noise Ratio, a Stochastics that doesn't stick at the extremes during trends, etc.). All the indicators automatically adjust to market parameters, so no optimization is necessary (we use TradeStation, which can literally take years to optimize a sophisticated trading system, so I had to find a way to make the indicators optimize on-the-fly).
I can tell you that determining when to get into a trend and out of a trend is easy...you can even do it before the trend 'gathers steam' by anticipating the indicators, if you're willing to put up with a few small whipsaw trades.
Getting out is even easier, the indicators signal to get out right before the trend ends. Thus, you're not chasing the markets.
I'm currently creating a trading system based upon my work (I call it the HighTech trading system). It's based upon the premise that the market can be in one of two phases, trending or consolidation. The indicators clearly delineate what phase the market is in. I don't like ambiguity where money is concerned.
I've got the code finished for the trending portion of the system. In informal walk-forward testing, the largest single-trade drawdown is 10 points (due to a price shock on a report day; I'll be programming in the report days, so the system isn't holding any positions (or is only holding positions covered with options) right before reports, to prevent this from happening). The largest single-trade runup is 84 points over two and a half days, without pyramiding (Since doing the walk-forward testing, I've designed the system so each new day that the trend is still intact, it will pyramid).
So, the trending phase of the market is easy. The trouble I'm having is with the consolidation phase trades, those small 5 or 6 point moves. How can I determine if a consolidation phase move will actually result in a move large enough to capitalize upon (5-6 points)? How do I keep out of the smaller moves (i.e.: prevent those little whipsaws that eat up your equity over time)?
Or should I forego trying to trade in consolidation phases at all, and be content with the large equity run-ups from the trending phase? That would leave a lot of money on the table, but would reduce the standard risk deviation.
Any ideas or trading methods for consolidation phase markets would be greatly appreciated.
Please email me with your ideas at
DarrenBrothers@yahoo.com since I don't get the chance very often to check out this discussion website.
Thanks
