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Trading with the Aroon Indicator

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Through this column we have covered many oscillators which are generally very effective in analyzing momentum; they include the Average True Range, MACD and the VIDYA. Some oscillators are better at predicting short term momentum, while some are lagging indicators and tend to shine brighter when it comes to long term momentum. まだ, in this article, I will be focusing on one oscillator—the Aroon Indicator—that has a very different benefit. As a backstory, the Aroon Indicator was developed by Dr. Tushar Chande a little more than 20 years ago. What makes the Aroon indicator special is that it provides in-depth insight as to how the buyers and the sellers are behaving within each price level. I will explain how that understanding of the buyers’ and the sellers’ behavior is very useful information.

Aroon Indicator: The Basics

The Aroon indicator, as seen in the chart below, has two separate curves, in this case marked with green and red. The green curve, called the Aroon Up, measures the buying momentum over time and the red curve, called the Aroon Down, measures the selling momentum. How does the Aroon measure momentum? In the Aroon Up it measures how much time it takes a pair to reach the highest level from the opening price at a given period. 逆に, in the Aroon Down, it measures how much time it takes the pair to reach a new low from the opening price.

In both the Aroon Up and the Aroon Down, the higher the indicator the stronger the momentum. So if the Aroon Up is high, it means buying activity is strong, and if the Aroon Down is high it means selling activity is strong. If both are high, then buying and selling activity is high, and if both are low, vice versa.

Aroon indicator

Aroon Indicator: Down to Practice

Now that we have established how to read the Aroon Up and the Aroon Down, it’s time to move into practice—how comparing the Aroon Up and the Aroon Down within the Aroon Indicator can help us understand the trend.

In the sample below we can see two zones, which I will call Zone A and Zone B. Each chart variation captures a different layer in the Aroon analysis and therefore each could provide a practical example on how to use the Aroon Indicator.

Aroon Indicator

Zone A.

In Zone A, we can see that, around July(Point X) the EURUSD had just started a very strong bearish trend that subsided only in April 2015. Before the Bearish trend began, the Aroon Up was high and the Aroon Down was low. This indicates that buying activity was elevated while selling activity was low. Then in April, the Aroon Up was starting to fall and the Aroon Down jumped shortly after. What does it mean? It means a quick change of momentum because as soon as the buyers became exhausted the sellers immediately began piling in. Selling activity was high through to April 2015 while buying activity continued to fall.

Insights-

  • The sellers are substantially more dominant around Point X. The sellers were very quick to react, showing overwhelming conviction over the buyers around this point. それゆえ, it should be recognized by the trader as a substantial pivot.
  • Once the Aroon Down jumped it stayed at an elevated level and held almost a straight line, suggesting the selling momentum was especially strong and this means a trader could expect a strong bearish move.

Zone B.

In Zone B, we can see something interesting; while the Aroon Down fell until October 16第 5 回, the Aroon Up was still staying low. だから, while the sellers were out of the market, the buyers were not coming in, suggesting very weak buying appetite. さらに, after October 16第 5 回, the Aroon Up jumped and so did the Aroon Down; later, both fell and then both jumped again. That suggests that even after the nose dive the pair took, and even after some buyers came back, the buyers were hesitant to buy. それにもかかわらず, because the Aroon Down is also unstable it means that, at that level, the sellers were also somewhat hesitant.

Insights-

  • In the immediate time frame, the trader might expect the pair to trade with some sort of sideways momentum, with both the buyers and the sellers undecided.
  • When we look at the bigger picture and in the context of what happened before October 16第 5 回 it is clear that the sellers had the upper hand. と, even when the sellers were sitting on the fence, the buyers did not come in and even when they did they were still hesitant. This means that there is a rather high likelihood that the sellers will gradually comeback for more and that signals a high likelihood of another bearish wave once the sideways movement is over.

ボトムライン

もちろんです, I always like to stress that no single indicator is perfect and the Aroon Indicator is no different in that respect. If the Aroon Indicator is not calibrated to the right duration or at other times during very high volatility the reliability of it might be lower. しかし, this is a very powerful Indicator, and the fact that it adds another layer to our analysis by letting us understand the behavior of both the buyers and the seller around each time frame and price zone makes it a powerful tool for those traders that focus on the long term.

傾向との取引の主な利点は何です。? ピップ!!!

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通貨ペアが強いトレンド移動を開始するたびに, トレーダーは、古い諺に取引のメリットについて聞いてきます。, “傾向はあなたの友人”. 何か傾向が提供しています。? 何傾向に対してだけでなく、両方の方法を行くトレンドとピップの取引?
有効な質問を確認する…

ピップ カウンター トレンドの取引を行うことができますしながら, 彼らは間違いなくリスクのより多くの量でくる.

本質的に, トレンドの方向で取引を撮るとき, トレーダーは、 “プッシュ”, 彼らの貿易の背後にある市場の勢い. 主な取引の目的はリスクを軽減するので, 支配的な傾向に反対している取引を排除するために我々 はそれを行うことができます 1 つの方法は、します。.
とき、そのような貿易からその方向に押す少ない量取引の逆が市場でトレーダーの大半に対して時に起こってください。. よう, 支配的な傾向、いつでもすぐに傾向に対して取引によって獲得されている可能性がありますいくつかまたはすべての利益を否定することが戻って蹴ることができます。.

bigarm-littlearm
また, トレーダーは、彼らが持っていることを知っているとき、 “彼らの貿易の背後にある市場します。” トレンドで取引する際, 彼らは貿易に固執し、それは早すぎるポジションを閉じるのではなく成熟した自信を持っています。.

最後に, 逆エントリはエントリ市場が時間の経過とともにペアを取っている反対の方向で動いている時しようとするのでより正確なする必要があります。. (駅伝競走と思う – それは簡単に/もっと寛容か、誰かと同じ方向で実行されている誰かにバトンを渡す反対の方向で実行中します。?)

傾向を持つエントリがはるかに寛容をすることができます。.

私たちの例として、USDCHF の歴史的な日足チャートを利用したこの考えで徹底的に調べるの他の宿泊を見てみましょう…

arms

 

それぞれのピップのおおよその数をマイナスに移動します。 – 全体的なトレンドの方向 – 緑色で表示されます。. 上方に移動するたびにピップのおおよその数 – カウンター トレンド – 赤で表示されます。.

我々 は間違いなくことができますピップを参照してください行うことができます取引逆, 4,070 この例では, トレンドの方向でのみ取引を取った業者によって獲得 pips 数で非常に重要な違いがあります。.

このグラフに基づく, のみ取引 と 傾向を蓄積しているだろう 7,755 ピップ – について 90% 詳細.

確かに, 4,070 ピップは鼻でを有効にするには. 私のただし, 正確なエントリともより密接に貿易を監視するより多くの時間を費やす必要のより大きい危険の素因数分解, トレンドの方向で取引が付く.

 

RKrivoFX@gmail.com

@RKrivoFX

スイング トレード戦略: ゴールデン クロスとクロスの死

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Swing trading broadly refers to a segment of trading strategies that combine technical momentum and pattern recognition with a smaller emphasis on fundamental analysis. 全体的に, swing trading is a great strategy for individuals unwilling to the devote the time and energy necessary for successful day-trading while seeking to be more active in managing funds than simply participating in buy-and-hold strategies. This strategy is largely employed by speculators and retail investors seeking to benefit from the confluence of short-term price momentum and economic fundamentals. This requires a modicum of flexibility unavailable to large institutional investors that are bound by large trade sizes and are often less adaptable to evolving short-term conditions. The time horizon for swing trades is typically a day to several weeks depending on the investor’s strategy and risk tolerance.

Two very famous technical patterns that fall under the category of swing trading strategies include the “golden cross” and “death cross”. Each of these strategies depend on the trends of moving averages, specifically the 50-day and 200-day moving averages (taken from closing prices). These technical patterns rely on more medium-term charts, primarily 4-hour to 1-day charts. Periodicity is especially important as shorter-term charts are not relevant and useful in assessing these patterns.

Golden Cross

The golden cross is a technical pattern where the shorter-term 50-day moving average crosses a longer-term 200-day moving average to the upside. This is a bullish pattern, signifying a situation where upside momentum is forecast to increase, marked in conjunction with higher than average volumes. 、 200 day moving average also becomes a support level for prices. This pattern is currently evident in the 米国. dollar index (DXY) which has witnessed a meteoric rise of 6.87% since the 50-DMA crossed the 200-DMA to the upside on July 16第 5 回.

Golden crossDeath Cross

The death cross, although dark in name, is merely the opposite of a golden cross, with the shorter-term moving average crossing the longer-term moving average to the downside. This is typically indicative of a possible bear-market on the horizon and is usually confirmed by higher than average trading volumes. After crossing, the longer-term moving average serves as a resistance level for prices and is a great area to short the instrument on momentum pullbacks. A great present-day example of the death cross is in the West Texas Intermediate crude oil benchmark which saw the 50-dma cross the 200-dma on July 22nd, causing losses to-date of -17.12%.

death cross

Suggestions for Swing Trading the Golden Cross and Death Cross

Speed is Key

The earlier the entry to a momentum trade the better the risk-reward conditions. As the phrase goes, the early bird catches the word. Quick entry also means more security in exiting a position without worrying about momentum chasing from picking a bad entry point.

Choose Liquidity

A careful exit and entry strategy is essential for any successful trade, especially in the shorter-term time horizons. Instruments that don’t trend for long periods of time and lack liquidity for entering/exiting position are not useful in this particular strategy no matter how pretty the setup. In thinly traded stocks, traders might encounter a sharp price impact from entering/exiting which is likely to create problems for strategies that require nimble maneuvering.

What Not to Do

Avoid fundamental analysis. Although swing trading typically relies heavily on careful reading of the technical indicators, fundamental analysis can still have a dramatic impact on an instrument’s price. Keeping up to date with the news, having familiarity with economics if trading currencies, or earnings if trading stocks is indispensable when swing trading and cannot be ignored. 覚えています。, information is power.

Fight the trend

While not necessarily a trend following strategy, swing trading requires careful examination of the prevailing trend for benchmarks to which an instrument may be closely correlated. 例えば, if finding a golden cross in a stock that is a component of a broader index that is trending lower, the relationships between stocks may negate the pattern. Situational awareness is key.

Chase momentum

If late to a trade, wait for a pullback or retrace before entering. Buying highs and selling lows is every investor’s worst nightmare. Timing is everything, so be wary of eagerness to enter a trade.

Are You Sabotaging Your Projected Trend Following Profits?

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It is widely understood that most of the profits from trend following and momentum strategies come from a select few big winners. Despite that understanding, traders generally don’t appreciate exactly how few trades make up that select few.

定量的なトレーダーとして, we willingly forfeit the desire to pick and choose between signals that our strategy triggers. Even though we aren’t making discretionary decisions about entries and exits, there is still a level of respect that needs to be paid to the importance of the select few trades that will drive our performance.

次のトレンド

Missing just one trade can have a severe impact on your overall return, so if you aren’t committed to taking every trade you might be better off with a buy-and-hold strategy.

The Dorsey Wright Money Management blog published a post earlier this month that did a tremendous job of breaking down exactly how the top 20% of returns of a momentum strategy were relative to the other 80%. The post also showed how each quintile performed relative to a buy-and-hold benchmark.

Breaking Down Performance of Trades

The article took a basic sector rotation strategy that trades S&P 500 sub-sectors and broke its returns into five groups that each made up 20% of the total trades after sorting all trades by performance. They charted the performance of each of these groups and compared it to a chart of a equal-weight strategy that held all of the sub-sectors and rebalanced monthly.

The charts show that, regardless of lookback period, the bottom 60% of the strategy’s trades underperform the benchmark. The next 20% of trades just barely outperform the benchmark, and more or less match it after transaction costs. The only group that significantly outperforms the benchmark is the very top 20% of trades.

The Best Trades Are Critically Important

The point that the post is trying to make is that you absolutely must be willing and able to take every single trade that your trend following or momentum strategy produces. Omitting even one trade from the top 20% could cripple your overall performance because. Because we have no way of knowing what trades will end up producing the best profits, we cannot afford to miss out on any of them.

The article sums up this theme quite nicely:

If you are unwilling to constantly cut the losers and buy the winners because of some emotional hangup, it is extremely difficult to outperform.

Even the Best Traders Learn the Hard Way

Market Wizard Tom Basso tells a great story that fits in well here. Early in his trading career, Tom took a day off to spend the day with his parents who had come to visit him. On that day, he missed a signal for a silver trade that would have ended up being hugely profitable. That single trade would have made the difference between a profitable year and a losing year.

The moral of the story is that if you are going to trade a trend following or momentum strategy, you absolutely must be willing and able to take every single trade signal. There are no exceptions, because just one exception could ruin your performance.

The Slight Tweak Than Can Add 2% Annually To Your Rotation Strategy

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As rotation strategies are becoming more and more popular with quantitative traders, creative traders are finding different ways to add value to their strategies. The constantly increasing number of ETFs available for these types of strategies is allowing traders the ability to really focus their capital with extreme precision.

An article that was published by Dorsey Wright Money Management did a nice job of illustrating one such adjustment that focused trading on the momentum stocks in each sector that was considered. That slight tweak ended up adding 2-3% in average annual return to the simple rotation strategy that they were backtesting.

sector rotation

Making a slight adjustment in the ETFs that were considered allowed this strategy to tack on an additional 2% average annual return.

The article gives us just one example of how focusing our capital on specific areas at different times can greatly increase the returns of rotational strategies without a severe impact on the overall risk. It would be interesting to see if there are any strategies that have found success with combining multiple adjustments like this one.

基本的な戦略

The basic strategy that the article broke down held either 3 または 5 of the SPDR Sector ETFs at any given time. The portfolio was rebalanced each month based on either 3 または 6 months returns. That gave them four different version of the same rotation strategy:

  • Holidng 3 ETFs with a 3-month lookback period
  • Holding 3 ETFs with a 3-month lookback period
  • Holding 5 ETFs with a 3-month lookback period
  • Holding 5 ETFs with a 6-month lookback period

Each of these strategies produced very similar results. The highest risk adjusted return was produced by the one that held 3 ETFs with a 3-month lookback period. That strategy produced an average annual return of 11.3%.

Improving The Strategy

The way that the article improved the strategy was to give it the option to trade the standard SPDR ETF or the company’s momentum version of that ETF. This decision was simply based on whichever had the best return over the strategy’s lookback period.

The article points out that there are times when the market will favor large-cap stocks, which means the standard ETFs will be more favorable. There are also times when the market favors smaller-cap momentum stocks, which would favor the momentum based index.

Giving the strategy the option to choose between the standard ETF or the momentum index increased the average annual profit for the 3 株式, 3-month lookback period strategy to 13.5%. Each of the other three versions saw similar jumps. While there were also jumps in standard deviation, the increased profits were substantial enough to offset those increases.