Category Archives: technical indicator

A Simple Indicator for Traders

First the Bad News: There are no “magic bullets” when it comes to trading.  There are people in this industry who have literally tested somewhere in the range of six bazillion “indicators” – give or take (“Hi. My name is Jay”).  Every trend following indicator looks like a gold mine when it latches onto a huge trend and rides it (but not so much when it starts getting whipsawed).  And every overbought/oversold indicator looks like a gift from heaven from time to time when it somehow manages to peak (or valley) and then reverses right at a high (or low).  And then the next time the thing gets oversold the security in question just keeps plunging and the previously “amazingly accurate” indicator just gets more and more oversold.

Bottom line: what I am about to discuss is likely no better or worse than a lot of other indicators.  And it is no holy grail.  Still, I kinda like it – or whatever that is worth.

EDITORS NOTE an AIQ EDS file for this indicator with the 3 step rules outlined can be downloaded from here you will need to copy or save this file into your wintes32/eds strategies folder. Alternatively the code is available at the end of this article for copying and pasting into a new EDS file.

UpDays20

I call this indicator UpDays20 and I stole, er, learned it originally from Tom McClellan of McLellan Financial Publications.  My calculation may be slightly different because I wanted an indicator that can go both positive and negative.  For a given security look at its trading gains and losses over the latest 20 trading days.

UPDays20 = (Total # of Up days over the last 20 trading days) – 10

So if 10 of the last 20 trading days showed a gain then UpDays20 would read exactly 0.

If only 6 of the last 20 trading days showed a gain then UpDays20 would read -4

You get the idea (and proving once again that it “doesn’t have to be rocket science”).  As a “trading method” it is always advised that this indicator – like most all other indicators – NOT be used as a standalone approach to trading.  That being said, the way I follow this indicator is as follows.

Step 1) UpDays20 drops to at least -2

Step 2) UpDays20 rises 2 points from a low

Step 3) The security in question then rises above its high for the previous 2 trading days

It is preferable to follow this setup hen the security in question is above its 200-day moving average, but that is up to the trader to decide (the danger to using this with a security below its 200-day moving average is that it might just be in the middle of a freefall.  The upside is that counter trend rallies can be fast and furious – even if sometimes short-lived).

Again, there is nothing magic about these particular steps.  They are simply designed to do the following:

1) Identify an oversold condition

2) Wait for some of the selling pressure to abate

3) Wait for the security to show some sign of reversing to the upside

Like just about every other indicator/method, sometimes it is uncannily accurate and sometimes it is embarrassingly wrong (hence the reason experienced traders understand that capital allocation and risk management are far more important than the actually method you use to enter trades).

In this previous article (in Figures 3 and 4) I wrote about using this indicator with ticker TLT.  Figure 1 and 2 display the “buy” signals generated using the rules above for tickers IYT and GLD.

1Figure 1 – UpDays20 “Buy” Alerts for ticker IYT (Courtesy AIQ TradingExpert)

2Figure 2 – UpDays20 “Buy” Alerts for ticker GLD (Courtesy AIQ TradingExpert)

Are these signals good or bad?  That is in the eye of the beholder and not for me to say.  One big unanswered question is “when do you exit”?  That is beyond the scope of this “idea” article – however, “sell some at the first good profit and then use a trailing stop” looks like a decent approach to consider) but would have a profound effect on any actual trading results.

Some of the signals displayed in Figures 1 and 2 are obviously great, others are maybe not so hot.  Interestingly, some of the signals in Figure 1 and 2 that don’t look to timely at first blush actually offered a profitable opportunity to a trader who was inclined to take a quick profit. Again, how you allocate capital and when you exit with a profit and when you exit with a loss would likely have as much impact on results as the raw “buy” signals themselves.

Summary

No one should go out and start trying to trade tomorrow based on UpDays20.  No claim is being made that the steps detailed herein will result in profits nor even that this is a good way to trade.

But, hey, it’s one way.

Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client.

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

EDITORS NOTE an AIQ EDS file for this indicator with the 3 step rules outlined can be downloaded from here you will need to copy or save this file into your wintes32/eds strategies folder. Alternatively the code is available at the end of this article for copying and pasting into a new EDS file.

! UpDays20 – I call this indicator UpDays20. For a given security look at its trading gains and losses over the latest 20 trading days.

! UPDays20 = (Total # of Up days over the last 20 trading days) – 10

! So if 10 of the last 20 trading days showed a gain then UpDays20 would read exactly 0.

! If only 6 of the last 20 trading days showed a gain then UpDays20 would read -4

Upday if [close]>val([close],1).

totalupdayslast20days is CountOf(upday,20).

updayindicator is totalupdayslast20days – 10.

! How to follow this indicator

! Step 1) UpDays20 drops to at least -2

! Step 2) UpDays20 rises 2 points from a low

! Step 3) The security in question then rises above its high for the previous 2 trading days

UpDays20rises2points if updayindicator>valresult(updayindicator,1) and valresult(updayindicator,1)>valresult(updayindicator,2).

updays20atminus2orlower if valresult(updayindicator,2)<=-2.

closesabovehighof2priordays if [close]>val([high],1) and [close]>val([high],2).

Upsignal if UpDays20rises2points and updays20atminus2orlower and closesabovehighof2priordays.

Detecting Swings

The AIQ code based on Domenico D’Errico’s article in the May 2017 issue of Stoks Commodities, “Detecting Swings,” is provided below.

I tested the author’s four systems using the NASDAQ 100 list of stocks on weekly bars, as did the author, from 3/16/2005 through 3/14/2017. Figure 7 shows the comparative metrics of the four systems using the four-week exit. The results were quite different than the author’s, probably due to a different test portfolio and also a 10-year test period rather than the author’s 20-year period. In addition, my test results show longs only, whereas the author’s results are the average of both the longs and shorts.

Sample Chart
 
FIGURE 7: AIQ. As coded in EDS, this shows the metrics for the author’s four systems run on NASDAQ 100 stocks (weekly bar data) over the period 3/16/2005 to 3/14/2007.

The Bollinger Band (Buy2) system showed the worst results, whereas the author’s results showed the Bollinger Band system as the best. The pivot system (Buy1) showed the best results, whereas the author’s results showed the pivot system as the worst. I am not showing here the comparative test results for the Sell1 thru Sell4 rules, as all showed an average loss over this test period.

!DECTECTING SWINGS
!Author: Domenico D'Errico, TASC May 2017
!Coded by: Richard Denning, 3/15/17
!www.TradersEdgeSystems.com

!Set to WEEKLY in properties

Low is  [low].
Low1  is valresult(Low,1).
Low2  is valresult(Low,2). 
High is [high].
High1  is valresult(High,1).
High2  is valresult(High,2). 
PivotLow if Low1 < Low2  and Low1 < Low.
PivotHigh if High1 > High2  and High1 > High.

Buy1 if  PivotLow.  
Sell1 if  PivotHigh.    

!Set parameter for bollinger bands to 12 with 2 sigma (weekly) in charts:
Buy2 if [close] > [Lower BB] and valrule([close] <= [Lower BB],1).
Sell2 if [close] < [Upper BB] and valrule([close] >= [Upper BB],1).

!Set parameter for Wilder RSI to 5 (weekly) in charts:
Buy3 if [RSI Wilder] > 40 and valrule([RSI Wilder] <= 40,1).
Sell3 if [RSI Wilder] < 60 and valrule([RSI Wilder] >= 60,1).

Buy4 if [RSI Wilder] < 40  And Low > Low1.
Sell4 if [RSI Wilder] > 60  And High < High1.    

Exit if {position days} >= 4.
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems
Editor note: The code and EDS file can be downloaded from http://aiqsystems.com/Detecting_Swings_TASC_May_2017.EDS

The MACD ‘Tell’ Strikes Goldman Sachs

There are many ways to use the MACD indicator developed long ago by Gerald Apel.  This is one of them.  Maybe.  Nothing more, nothing less.
First the caveat: what follows is NOT a “trading system” or even something that you should consider on a standalone basis.
MACD
The MACD indicator uses exponential moving averages to identify the underlying trend for a given security and is also used by many traders to identify divergences which may signal an impending change of trend.
Figure 1 displays the daily MACD for ticker SPY.
1
Figure 1 – Ticker SPY with MACD Indicator (Courtesy AIQ TradingExpert)
The MACD ‘Tell’
While this is NOT intended to be a mechanical signal, I am going to put specific rules on it just to give it some structure.  The rules:
1) If the daily MACD (12,26,9) has declined for at least 7 consecutive trading days AND
2) The 2-day RSI is at 64 or above
Then an “alert” signal is flashed.  The key thing to note is that if the MACD ticks higher on the day that the 2-day RSI rises above 64, the signal is negated.
Before proceeding please note that the 12,26,9 parameter selection is simply the “standard” for MACD.  Also, there is nothing magic about 7 consecutive days – so one might experiment with different values there.  Finally, using the 2-day RSI and a “trigger” value of 64 are also both arbitrary.  There may be better values and/or different overbought/oversold indicators to use.
Ticker GS
A “classic” example of the MACD Tell appears in Figure 2 using ticker GS.
2
Figure 2 – Ticker GS with the MACD Tell (Courtesy AIQ TradingExpert)
The MACD Tell is typically best used as a short-term indicator.  In this case a short-term trader might have considered playing the short side of GS – or even better – using option strategies such as buying puts or selling bear call spreads.
Summary
No one should rush out and start trading put options based on this indicator (or any other indicator for that matter) without spending some time doing some homework and testing out the viability for producing profits.
In reality, this is the type of indicator that should typically be combined with “something else” and/or used as a confirmation rather than as a standalone approach.
Jay Kaeppel
 
Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Volume-Weighted Moving Average Breakouts

The AIQ code based on Ken Calhoun’s article in the February 2017 issue of Technical Analysis ofSTOCKS & COMMODITIES, “Volume-Weighted Moving Average Breakouts,” can be found at http://aiqsystems.com/Volume-Weighted-Moving-Average-Breakouts.EDS 
 
Please note that I tested the author’s system using the NASDAQ 100 list of stocks on daily bars rather than intraday bars from 12/31/2008 thru 2/10/2017. Figure 7 shows the resulting equity curve trading the author’s system with the cross-down exit. Figure 8 shows the ASA report for this test. The annualized return showed about a 17% return with a maximum drawdown of 19%.
Sample Chart

FIGURE 7: AIQ. Here are sample test results from the AIQ Portfolio Manager taking three signals per day and 10 concurrent positions maximum run on NASDAQ 100 stocks (daily bar data) over the period 12/31/08 to 2/10/07.
Sample Chart

FIGURE 8: AIQ. This shows the ASA report for the system, which shows the test metrics and settings.
The code and EDS file can be downloaded from http://aiqsystems.com/Volume-Weighted-Moving-Average-Breakouts.EDS , and is also shown below.
!Volume-Weighted Moving Average Breakouts
!Author: Ken Calhoun, TASC Apr 2017
!Coded by: Richard Denning 2/11/17
!www.TradersEdgeSystems.com

!INPUTS:
smaLen is 70.
vwmaLen is 50.

SMA is simpleavg([close],smaLen).
VWMA is sum([close]*[volume],vwmaLen)/sum([volume],vwmaLen).
HasData if hasdatafor(max(smaLen,vwmaLen)+10)>max(smaLen,vwmaLen).
Buy if SMA < VWMA and valrule(SMA > VWMA,1) and HasData.
Sell if SMA > VWMA.

rsVWMA is VWMA / valresult(VWMA,vwmaLen)-1.
rsSMA is SMA / valresult(SMA,smaLen)-1.
—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Exponential Standard Deviation Bands

The AIQ code based on Vitali Apirine’s article in the 2017 issue of Stocks & Commodities magazine, “Exponential Standard Deviation Bands”

Editor note: “Author Vitali Apirine presented a method intended to help traders see volatility while a stock is trending. These bands, while similar to Bollinger Bands, are calculated using exponential moving averages rather than simple moving averages. Like Bollinger Bands, they widen when volatility increases and narrow as volatility decreases. He suggests that the indicator can be used as a confirming indication along with other indicators such as the ADX. Here’s an AIQ Chart with the Upper, Lower and Middle Exponential SD added as custom indicators.”

 

 

To compare the exponential bands to Bollinger Bands, I created a trend-following trading system that trades long only according to the following rules:
  1. Buy when there is an uptrend and the close crosses over the upper band. An uptrend is in place when the middle band is higher than it was one bar ago.
  2. Sell when the low is less than the lower band.
Figure 8 shows the summary test results for taking all signals from the Bollinger Band system run on NASDAQ 100 stocks over the period 12/9/2000 to 12/09/2016. Figure 9 shows the summary test results for taking all signals from the exponential band system on NASDAQ 100 stocks over the same period. The exponential band system improved the average profit per trade while reducing the total number of trades.

Sample Chart

FIGURE 8: AIQ. Here are summary test results for taking all signals from the Bollinger Band system run on NASDAQ 100 stocks over the period 12/9/2000 to 12/09/2016.

Sample Chart

FIGURE 9: AIQ. Here are summary test results for taking all signals from the exponential band system run on NASDAQ 100 stocks over the period 12/9/2000 to 12/09/2016.
The EDS file can be downloaded from http://aiqsystems.com/EDS/Exponential_Standard_Deviation_Bands.EDS 
and is also shown here:
!Exponential Standard Deviation Bands
!Author: Vitali Apirine, TASC February 2017
!Coded by: Richard Denning 12/11/2016
!www.TradersEdgeSystems.com!INPUT:
xlen is 20.
numSD is 2.

!INDICATOR CODE:
ExpAvg is expavg([close],xlen).
Dev is [close] – ExpAvg.
DevSqr is Dev*Dev.
SumSqr is sum(DevSqr,xlen).
AvgSumSqr is SumSqr / xlen.
ExpSD is sqrt(AvgSumSqr).

!UPPER EXPONENTIAL SD BAND:
UpExpSD is ExpAvg + numSD*ExpSD.  !PLOT ON CHART

!LOWER EXPONENTIAL SD BAND:
DnExpSD is ExpAvg – numSD*ExpSD.   !PLOT ON CHART

!MIDDLE EXPONENTIAL SD BAND:
MidExpSD is ExpAvg.

!BOLLINGER BANDS FOR COMPARISON:
DnBB is [Lower BB].  !Lower Bollinger Band
UpBB is [Upper BB].  !Upper Bollinger Band
MidBB is simpleavg([close],xlen). !Middle Bollinger Band
!REPORT RULE TO DISPLAY VALUES:
ShowValures if 1.

!TRADING SYSTEM USING EXPPONENTIAL SD BANDS:
UpTrend if MidExpSD > valresult(MidExpSD,1).
BreakUp if [close] > UpExpSD.
BuyExpSD if UpTrend and BreakUp and valrule(Breakup=0,1).
ExitExpSD if [Low] < DnExpSD.  ! or UpTrend=0.

!TRADING SYSTEM USING BOLLINGER BANDS:
UpTrendBB if MidBB > valresult(MidBB,1).
BreakUpBB if [close] > UpBB.
BuyBB if UpTrendBB and BreakUpBB and valrule(BreakupBB=0,1).
ExitBB if [Low] < DnBB.  ! or UpTrend=0.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Zero In On The MACD

The AIQ code based on Barbara Star’s article in May issue of Stocks and Commodities “Zero In On The MACD,” is provided at www.TradersEdgeSystems.com/traderstips.htm, and is also shown below.
Sample Chart
FIGURE 7: AIQ. Here is a sample chart of VIAB with MACDhist, the color bars, and the 34- and 55-bar EMAs.
Figure 7 shows the MACD histogram on a chart of Viacom (VIAB) with the color bars and the 34- and 55-bar exponential moving averages (EMA). Note that I did not code the weighted moving average (WMA) but substituted the EMA for the WMA. I chose to view the chart of VIAB by running the EDS “Zero MACD.eds” on 3/14/2016 and examining the alert messages on the report “List.” VIAB is the only one on that date that showed a cross up on the MACDhist (see Figure 8 for a look at part of this report for 3/14/2016).
Sample Chart
FIGURE 8: AIQ. This shows part of the EDS custom report “List” that shows the MACDhist values on 3/14/2016, the color status, and any alerts that were generated for that day.
! ZERO IN ON THE MACD

! Author: Barbara Star, TASC May 2016

! Coded by: Richard Denning 3/14/16

! www.TradersEdgeSystems.com



! INPUTS:

macd1  is  12.

macd2  is  26.

macdSig is  1.



! INDICATORS:

emaST  is expavg([Close],macd1).

emaLT  is expavg([Close],macd2).

MACD  is emaST - emaLT.  ! MACD line

SigMACD is expavg(MACD,macdSig). ! MACD Signal line

MACDosc is MACD - SigMACD. ! MACD Oscillator



HD if hasdatafor(macd2) = macd2.

MACDhist is MACD.                                 ! plot as historigram

MACDblue if MACDhist > 0.  ! use these rules to color MACDhist

MACDred  if MACDhist < 0.  ! use these rules to color MACDhist

MACDcolor is iff(MACDblue and HD,"Blue",iff(MACDred and HD,"Red","White")). !for report list

List if 1.



!ALERTS:

EMA1 is expavg([close],34).

EMA2 is expavg([close],55).

xupEMA1 if [close] > EMA1 and valrule([close] < EMA1,1).

xdnEMA1 if [close] < EMA1 and valrule([close] > EMA1,1).

xupEMA2 if [close] > EMA2 and valrule([close] < EMA2,1).

xdnEMA2 if [close] < EMA2 and valrule([close] > EMA2,1).

xupMACD if MACDhist > 0 and valrule(MACDhist < 0,1).

xdnMACD if MACDhist < 0 and valrule(MACDhist > 0,1).

UpAlerts is iff(xupEMA1,"xupEMA1",iff(xupEMA2,"xupEMA2",iff(xupMACD,"xupMACD"," "))).

DnAlerts is iff(xdnEMA1,"xdnEMA1",iff(xdnEMA2,"xdnEMA2",iff(xdnMACD,"xdnMACD"," "))).

The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.

The Value of the ‘Perspective’ Indicator

Not every indicator that you look at needs to generate exact buy and sell signals.  There are many useful indicators that offer “perspective” more than “precision market timing.”  It can be very helpful to track some of these. The downside of course is that the more indicators you follow the more you can be susceptible to “analysis paralysis” – plus at some point you do have to have “something” that tells you “make this trade NOW!”
But the basis for considering tracking certain “perspective indicators” is that they can help to keep you from falling for those age-old pitfalls, “fear” and “greed”.  As the market falls – and especially the harder it falls – the more likely an investor is to start to feel fear.  And more importantly, to start to feel the urge to “do something” – something like “sell everything” to alleviate the fear. On the flipside, when things are going great there is a tendency to ignore warning signs and to “hope for the best”, since the money is being made so easily.
In both cases a perspective indicator can serve as – at the very least – a slap upside the back of the head that says “Hey, pay attention!”
So today let’s review one of my favorites.
The JK HiLo Index
OK, I will admit it is one of my favorites because I developed it myself.  Although in reality the truth is that it simply combines one indicator developed long ago by Norman Fosback and another that I read about in a book my either Martin Pring or Gerald Appel.
I first wrote about this indicator in the October 2011 issue of Technical Analysis of Stocks and Commodities magazine and I believe it is available via Bloomberg.
The calculations are as follows:
A = the lower of Nasdaq daily new highs and Nasdaq daily new lows
B = (A / total Nasdaq issues traded)*100
C = 10-day average of B
D = Nasdaq daily new highs / (Nasdaq daily new highs + Nasdaq daily new lows)
E = 10-day average of D
JK Hi/Lo Index = (C * E) * 100
In a nutshell:
*High readings (90 or above) suggest a lot of “churning” in the market and typically serve as an early warning sign that a market advance may be about to slow down or reverse.  That being said, a close look at Figure 1 reveals several instances where high readings were NOT followed by lower prices.  However, as a perspective indicator note the persistently high reading starting in late 2014.  This type of persistent action combined with the “churning” in the stock market could easily have served as a warning sign for an alert investor.
*Low readings (20 or below) indicate a potential “washout” as it indicates a dearth of stocks making new highs.  Readings under 10 are fairly rare and almost invariably accompany meaningful stock market lows.
Figure 1 displays the Nasdaq Composite (divided by 20) with the JK Hi/Lo Index plotted since 2011.
1
Figure 1 – JK HiLo Index (red line) versus Nasdaq Composite (/20) since 2011
Regarding the difference between a “timing” indicator and a “perspective” indicator, note the two red lines in Figure 2.  The JK HiLo Index first dropped below 20 on the date marked by the first red line.  It finally moved back above 20 on the date marked by the second red line.  2
Figure 2 – JK HiLo Index (red line) versus Nasdaq Composite (/20) since 2015 (Courtesy AIQTradingExpert)
Can we say that the JK HiLo Index “picked the bottom with uncanny accuracy”?  Not really.  The Nasdaq plunged another 10% between the first date the indicator was below 20 until the actual bottom.
Still, can we also say that it was useful in terms of highlighting an area where price was likely to bottom?  And did it presage a pretty darn good advance?  I think a case can be made that the answers to those questions are “Yes” and “Yes”.
Summary
The bottom line is that while there was a great deal of fear building in the market during January and February, an indicator such as this one can help alert an investor the fact an opportunity may be at hand.
Jay Kaeppel
Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client

We’ve been watching MIDZ – Direxion Daily Mid Cap bear 3X

We’ve been watching MIDZ – Direxion Daily Mid Cap bear 3X in our barometer the last few trading days. This 3 x bearish ticker has been in a long down trend, but recently Moneyflow has begun to show signs of accumulation and the MACD diverged up when the price was still heading down.
The 5 day barometer readings on Moneyflow and MACD in our Quotes montage are showing some bullish signs either all green or green arrow up. Maybe times are a changing.
How do we do what we do? TRY US http://aiqeducation.com/

Back to Basics with MACD (Part 2)

In this article I detailed one relatively “simple” approach to using the MACD indicator to identify potentially bullish opportunities.  In this piece we will look at one to actually put those signals to use.
The Limited Risk Call Option
One possibility upon generating a bullish signal as described in the last article is to buy shares of the stock/ETF/index/etc in question.  Not a thing wrong with that.  But there is a less expensive alternative.
Figure 1 reproduces Figure 1 from the last piece showing ticker XLF.  Let’s look at the signal generated on 2/12/16.
1Figure 1 – Ticker XLF (Courtesy AIQ TradingExpert)
One alternative that I like is to use the “Percent to Double” routine at www.OptionsAnalysis.com to find an inexpensive call option that has lot of upside potential.  The input screen with a few key input selections highlighted appears in Figure 1a (if it looks intimidating please note that a reusable set of criteria can be captured in a “Saved Wizard”, which appear towards the lower right of of Figure 1a.  Once a set of criteria is saved it can be reused by simply clicking on the Wizard name and clicking “Load”.)
NOTE: My own personal preference is to consider options that have at least 45 days left until expiration (as time decay can become a very negative factor as option expiration draws closer).

1a

Figure 1a – Percent to Double Inputs (Courtesy www.OptionsAnalysis.com)

Figure 1b displays the output screen.
NOTE: For my own purposes I like to see a Delta of at least 40 for the option I might consider buying (nothing “scientific” here.  It is just that the lower the Delta the further out-of-the-money the option strike price is. I prefer to buy a strike price that is not too far from the current price of the stock; hence I look for a Delta of 40 or higher).  With XLF trading at $20.49, in Figure 1b I have highlighted the 2nd choice on the list – the April 21 call – which has a delta of 43.1bFigure 1b – Percent to Double Output (Courtesy www.OptionsAnalysis.com)
So a trader now has two alternatives:
*Buy 2 Apr 21 strike price XLF calls for $70 apiece ($140 total cost; 86 total deltas)
*Buy 86 shares of XLF at $20.49 apiece ($1,760 total cost, 86 total deltas)
Figure 1c displays the particulars for buying a 2-lot of the April 21 call for a total cost of $140.1cFigure 1c – XLF Apr 21 call (Courtesy www.OptionsAnalysis.com)
By 3/18 the shares had gained 11% and the Apr 21 call had gained 143%.  See Figure 1d.1dFigure 1d – XLF Apr 21 call (Courtesy www.OptionsAnalysis.com)
Summary
Obviously not every trade works out as well as this one.  Still, the key things to remember are:
*The option trade cost $140 instead of $1760
*The worst case scenario was a loss of $140.
Something to think about.
Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client

Back to Basics with MACD

One danger of getting “way to into” the financial markets is that you can find yourself progressing into some needlessly complicated stuff (“Hi, my name is Jay”).  I mean it is only natural to wonder “hey, what if I divided this indicator value by that indicator value” and such.  But once you start finding yourself taking an exponential moving average of a regression line with a variable lag time, well, you can find yourself “a tad far afield.”  (Trust me on this one).  Which leads us directly to:
Jay’sTradingMaxim #44: Every once in awhile it pays to remember that the end goal is simply to make money.  The more easily the better.
So today let’s go back to a simple “basic approach.”
The Bullish MACD Divergence
We will define an “asset” as any stock, ETF, commodity, index, etc. that can be traded on an exchange (and for my purposes, there should be a liquid market for options on that asset).
Step 1. An asset price falls to a new 20-day low and the MACD value is less than 0.  Note the MACD value on this date.
Step 2. Not less than one week but not more than 2 months later:
*Price closes below its closing level in Step 1
*The MACD indicator is above its level at the time of Step 1
Step 3. The next time the daily MACD indicator “ticks higher” a buy alert is triggered
Can it really be that simple?  The Good News is “Yes, it can.”  The Bad News is that “It isn’t always.”  To put it another way, like a lot of trading methods it can generate a surprising abundance of useful trading signals.  However, there is no guarantee that any given signal will turn out to be timely.  In other words:
This method gives you a good guideline for when to get in, but:
*It may be early at times (i.e., price will move lower still before advancing)
*It will at times be flat out wrong
*You still have to decide when to exit the bullish position.
*Call options are useful with this approach as it allows you to risk a limited amount of capital.
Examples
Figures 1 through 4 highlight some recent examples using this method.  Note that the charts show only entry points.  Exit points are “a separate topic”.
1
Figure 1 – Ticker XLF (Courtesy TradingExpert Pro)
2
Figure 2 – Ticker WMT (Courtesy TradingExpert)
3
Figure 3 – Ticker AAPL (Courtesy TradingExpert)
4
Figure 4 – Ticker GDX (Courtesy TradingExpert)
As you can see, some signals were quite timely while others were quite early.  For the record, I started getting bullish on gold and gold stocks early in 2016 based in part on the multiple alerts that appear in Figure 4.
Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client