Qs Pivot Bands Update

This is an update of the March 10th post on the Qs Pivot Bands. Keep in mind that these are weekly bars displayed. . . not dailies. What's interesting here is that the Qs range bands are expanding in contrast to the contracting VIX (not shown). So volatility is correlated to the bands not only directly, but inversely also.
Note: The data date on the charts should read 3-13-09, not 3-11-03.
The weekly impulse signal reflects the relative overbought levels suggested by the ratio of the MA3 and MA7 of the range. In a previous study this indicator was shown to have a reliability of about 70% when applied to daily bars, a performance level that I'm not that happy with and so I'm continuing to work on refining and improving the signal line.
Today's action promises to be a bit frustrating as the DIA, IWM and VIX are all in the green, while the Qs are proportionately down. Hey!, it's a mean reversion pairs trade.

Weekly Update

Well Sir, we had a nice rally this past week that has my little ETF basket firmly in overbought territory. Per the LR30 channel, XLF is leading the pack as daily volume peaked on Wednesday and faded down into Friday. XLE and IWM are now at the LR30 channel mean, while the Qs have actually only risen to the lower channel band. So do we buy the Qs and sell the XLF at this point?

I've added back in the VIX overlay (red line on each chart to show the impending price/VIX crosses (already a done deal on the Qs) and in the past this cross has been good for at least a couple days of momentum contra the VIX . . . meaning the rally still may have some legs as we go into uber-overbought territory.

Below are the same charts with weekly bars. . . reflecting a little different outlook with the Qs and XLE riding a downsloping LR30 top band and the IWM and XLF clinging to the mean. The MACD/MAX technicals are all neutral. Hey!. . . nobody ever said trading was easy.

My GE, MSFT and Qs longs from last weekend worked out well, although heavy selling pressure in MSFT persists so I've just switched over to fading the ATM calls at the downturn of each intraday rally bounce (so far, so good). Bottom line, I banked some bucks and am now covered going into this week's expiration.

By the end of the month I hope to complete the new blog format focused on the Qs (and perhaps IWM) Dirty Dozen performance matrix.

In addition, and more exciting (to me), I hope to launch a live trading/chat room in conjunction with another active day trader. To start out with, I would moderate the room one day a week and focus on daytrading the Qs with streaming live video of the trading screens I'm watching and the various signals and setups that I'm seeing develop. Depending on the level of interest, this format could be expanded to include other traders using focus different ETFs, technical indicators and trading setups. For now, just getting the technology together is the big push along with finding the free time to put it all together.

Pivot Pulse system

This is the latest iteration of the pivots study. Basically' I've recycled the MAMA study using the pivots PP fulcrum in lieu of either high or low values. The results are rather impressive to say the least, with the short side trades being 100% reliable.
I know, I know, the study only delivers a total of 10 trades over 16 months so I can't expect a Nobel prize in system development for this (otherwise) little gem.
Nevertheless, the goal of these studies is to explore algorithms that yield high probability results, in that respect the pivot pulse delivers. The next logical application of this system is ? (this is a test). . . applying it to smaller time frames such as 60 minute and 10 minute bars to see how (if) the performance results hold up.
And, as I've mentioned previously, there are multiple ways to utilize these systems . . . not only as trading signals, but as trend indicators and signal confirmation for other non-correlated systems.

TS2000i code is shown below. I've created a number of variables to display the code parameters as it makes it somewhat easier to see what's going on. For use on smaller time frames, expect to re-optimize the inputs to reflect increased intraday volatility. If we remove the MarketPosition clauses from the order line "If" statements the system essentially morphs into a stop and reverse format with the fixed bar exits acting as kind of outliers for those longer trending trades. Just something to consider for those that like to deconstruct my coding.

Pivot Impulse Oscillator

This is a continuation of Tuesday's pivot study. Below is the code for a basic version of a PP pivot trend indicator. Since this is for the Qs, I've used 3 & 7 exponential MAs, as this was shown to be a superior pair per last week's MAMA study. In anticipation of your probable comments, I'm going to expand the indicator later to include the 7,14 MA pair in order to make the indicator into a trigger signal.

On the TS chart above I also included plots for the RSI(2) and the MACD(4,16,5)(again, per last week's Qs MACD study), just to show the timing of the Pivot oscillator turns relative to these other indicators that have been shown to be statistically reliable.

Below is the TS2000i coding for the pivot impulse indicator (not a signal). I've morphed the data into a zero line format by subtracting 1 from the moving average ratio as I believe this helps to see the scale of overbought/oversold conditions.

Qs Detrend

The Detrend is a canned Tradestation function that generates a zero line based overbought/oversold oscillator. I've expanded application of the default Detrend function to create a simple system with my usual fixed bar exits. Perhaps surprisingly, the Detrend returned a very nice equity curve with very limited risk exposure and a great max consecutive loser ratio. How well the Detrend works with other ETFs and stocks remains to be uncovered by my loyal cadre of testers, but this inital run on the Qs is hard to fault. I've used the detrend indicator signals before with moderate success, but in my recent exploration of zero line based systems this is a keeper and will be added to the Dirty Dozen.

Just to help non-TS users understand what the Detrend is all about, here's a breakdown of the function logic and settings:
Below is the TS2000i code for the Qs Detrend system. Note how the fixed exit on the longs is less than half of the shorts . . . reflecting clearly the downward momentum of the Qs over the 16 month test period. This notion is also supported by the relative distance of the long and short entries thresholds from the zero line required to trigger the trades.

Qs Pivot Bands

What we're looking at above are the rolling weekly R4-S4 pivots for the Qs.
What we're looking at below is a little volatility and impulse signal for the Qs based on the rolling deltas of the PP, S1-R1 range and the 3 and 7 period MAs of the ranges (the 3 flesh colored rows of data labeled "PP Delta, Range Delta and MA7/MA3" in the excel spreadsheet far below.

This is an ongoing pivot study that shows promise (to me) for forecasting probable short term pivot range and trend based on mean reversion. I have posted previously about the concept several times and am continuing to refine the signal metrics to put them in sync with my other Qs studies.

It's also interesting to me that the 3/7 MA crossover, which I formulated months ago for the pivot band moving average divergence exploration, was validated by the Qs MAMA study on Friday.

Keep in mind that these are weekly bars, not dailies, so the scale of things is a bit muted. Nevertheless, sometimes stepping back to look at the bigger picture helps to see not only where we've been, but where current momentum is carrying us.Above is a portion of my Excel workheet of weekly Qs pivot stats that drives the charts.

On my "to-do" list is the eventual transposition of the data to TradeStation where I can further explore the nuances of this very powerful indicator (IMHO).

Qs Dirty Dozen

After considerable dithering around, I'm about ready to begin final formatting and template setups for the Qs Dirty Dozen. Above are the system components and although there's not a lot of coding sophistication displayed in these various approaches to market dynamics, I'll be adding a number of performance merits as the matrix gets fleshed out in order to judge the relative returns of each system. I find these systems satisfy my needs and provide the level of risk management control that I require to in order sleep at night and rest assured that my capital is never at more than minimal exposure. Now that's just my (strong) bias towards the markets and other traders may have much different goals and objectives. These systems will never make a million dollars with a $10K investment, but they may help you craft your own trading to generate a steady revenue stream with relatively low exposure. I've used a 16 month rolling lookback period to test the systems and will continue with this time frame in subsequent updates.

As I've mentioned in previous posts, there are a more than a few ways to use these systems: as momentum indicators for option spreads or outright directional plays, in tandem (like Gravy Train) to further buffer risk exposure, as short term fractal indicators for daytraders to help gauge the probabilities to fading rallies versus buying dips, etc. . . . you get the idea.

Trading ain't easy. Anyone that says otherwise is a liar. And after 24 years of trading I've got to join the chorus and voice my opinion that these are some of the toughest markets to trade I've ever experienced, so new traders have kind of a double whammy working against them.

Nevertheless, for those of you who are gluttons for punishment, it's my hope that these systems will stimulate you to think about the markets from a variety of perspectives and give you ideas on how to lower your risk exposure and increase your bottom line. The usual caveat applies . . . you alone are responsible for your trading/investment decisions, and I really won't feel bad if you completely ignore my market spin and use any other approach to trading. Different strokes for different folks. Go get 'em.

Weekly Update

I know , I know. I said I wasn't going to tweak the weekly update charts any more, but after last week's MAMA and MACD studies I decided that this version reflects the impending momentum and reversal probabilities better.
I've deleted the VIX comparison overlay for now. There's no imminent signs of a near term cross and removing it allows me to pile on the MAMA study using a 3, 7 and 14 EMA.
I've also deleted the MLR6 study as few platforms allow you to create such an indicator without considerable programming, but I'm looking at alternate ways to display it without cluttering the larger price chart
I'm keeping the LR30 study overlay as I'll be publishing some studies on that down the line and I'll warn you ahead of time that it's a great tell.
The middle panel MACD periods have been revised to 4,16,5 per the MACD signal line study and I've added a 3,7 EMA of the MACD (not the price) to clarify signal crosses.
The lower panel has RSI(2) and Stochastics 10,2,2 indicators laid over the volume bars.

As feared last week, prices in 3 of my little ETF basket have effectively kissed the LR30 lower channel band goodbye this past week, and although all 4 ETFs are displaying some form of a doji or spinning top (normally suggesting the possibility of at least a short term reversal) a quick look back on the charts as to what happened the last few times this candle pattern set up should temper your enthusiasm for a rally.
The midpanel technicals suggest the Qs and XLE as the most likely candidates if a short term rally does materialize as they have formed little basing patterns while the IWM and XLF continue downslope.
Although I've been nibbling at GE, MSFT, and the Qs (hedged, of course) going into March expiration, I need a lot more positive technical signals before getting too enthusiastic about this market.
Finally, for anybody that's interested in becoming a prop trader, Bright Trading is having a number of get-to-know-us sessions around the country in the next 2 months. These guys are the real deal, having been at it for 30 years and I almost went to work for them 5 years ago, but decided Vegas wasn't my thing (you can traded remotely with them). A few hurdles to jump over (you need to get a series 7), but they know how to make money with really controlled risk. A tough act to follow (IMHO). I'm not a promoter for Bright and receive nothing for directing traffic that way . . . I just think this is a great free opportunity to kind of look under the sheets and see if this kind of trading appeals to you if you're around one of their session sites.

Meet the Qs MAMA

As I close in on finalizing the Qs Dirty Dozen components, this seemed like a good time to run a little reality check on another one of my favorite fractal indicators . . . a simple moving average crossover.
Of course, simple as as simple does (I think Forest Gump said that) so I've added my usual BZB twist to put some flesh on an otherwise boney system.
Right off you notice that I'm using the XAverage function, which is the TS exponential MA term, thereby skewing the weight of the average towards the most recent prices.
I've also deferred from using the EOD close, and have instead opted for using daily highs to track potential bullish signals, and the daily lows to track bearish signals. This little tweak improves performance considerably for those of you who want to play with this thing further.
I've used the cross below and cross above signals to trigger trades and have resorted to my fixed bar exits to get me out. Interestingly, the fixed exit on the shorts calcs out at 12, a bit longer than the 9 period we're use to seeing for Qs shorts but, in fact, the net difference between a 9 and 12 bar exit isn't that significant. More on that later.
The implications of this study are several:
First of all, as with Wednesday's MACD study, I'm going to revise my beloved 8/16 MA indicator to a 7/14 indicator and my 4/7 MA indicator to a 3/7 . Now this brings up another interesting point. . . as astute readers will notice that I've optimized different MA crosses for the long and short triggers. If you consider the momentum of the downtrend for the past 16 months, this makes sense intuitively. And, in like manner, the long fixed bar exits are shorter in duration than the shorts.

Like many of the systems I've studied recently the last couple trades defy the otherwise unbroken upslope equity curve.
No definitive explanation for this recent whammy, but I'm looking.

TS2000i code shown below with the usual caveats. . . these inputs are optimized for the Qs. . . since each stock/ETF has its own unique signature cycle you've got to do a little homework if you want to apply to your own portfolio. Hey!, I've already done the heavy lifting for you.

A picture worth a thousand words

Qs MACD signal line

This is a bit of unfinished business for the construction of the Qs Dirty Dozen and a verification of the MACD signal line I've been using in my weekly update Telecharts. This is just one variation of the MACD possibilities. . . I'll look at zero line crossovers down the line to add a little kick to the equity curve.
For now, the study yields a couple interesting (to me) outcomes.
First, for daily bars, the optimized MACD settings (FOR THE Qs) are 4,16,5. I've been using a 3,14,3 for my daytrading and will tinker with these new settings to see how they align with my suite of favorite indicators including the parabolics and the 8/16 and 4/7 MA crosses.
Second, (ho hum . . . yawn) the fixed bar short cover is 9 days. How many systems do we have to test to verify this is great exit ???????

The equity curve looks pretty smooth until we get to the last 5 trades, suggesting that, like other systems such as the Qs SD Oscillator that have turned squirrely in the last month, there may be a change in market dynamics in the making. Not necessarily up, just a change.
TS200oi code is below. As I mentioned above, this iteration uses support/resistance crossovers. The zero line crossovers should yield less net return but a higher success rate. Yet to come.

Pivot Range Reversion

This post looks a lot like yesterday's. The difference here is that in the previous study we examined the PP and today we're looking at the R1-S1 range of the pivots to give us a clue about what the Qs are likely to do next. Once again the fixed exit bar is close to 9, and the net return on the account is very similar.

There appears to be no obvious edge in using the pivot range versus the PP itself as a forecasting tool, which is a bit surprising to me. Nevertheless, I'll continue to explore other variations on this theme for the remainder of the week just to satisfy my own curiosity.

I've used a number of variables (Vars) in the code as it helps to clarify what's going on a little better (IMHO) and avoids a lot of otherwise confusing parens.

Pivots Mean Reversion

Supporting my on-going research into the value of pivots for forecasting market direction, Cucca recently sent me a link to one of Henry Carstens pivot based trading systems. Cucca also posted the code for a little MeClellan based system (in comments section of his blog) that produces some impressive results.

Henry's pivot aproach is worth a look and I'll probably be deconstructing the system later in the week as I explore more pivot based mean regression systems. Henry doesn't explain exactly how "volatility" is defined, so I'll just jump in and offers some suggestions.

Today's offering is a variation of my earlier SD signal line study and simply looks at the value of the PP buffered by a lookback at a Len1 moving average of the PP and converted to a zero line value by dividing the resultant by the standard deviation of the range.

Later this week I'll look at the same theme using the R1-S1 pivot range as well as several other permutations.

If nothing else, this study again confirms the 9 day period as the most profitable for Qs fixed bar short exits (covers) once the system triggers.

Weekly Update

Nothing stays the same so I've deployed a new weekly update format incorporating the 2 sets of ETF basket Telecharts I previously posted. The settings are as follows:
In the upper window of candlestick prices I've overlaid the MR6 (6 period moving linear regression channel) in white, the VIX in red and the 30,12,30 linear regression channel in orange.
The middle study pane includes the 5,20,3 MACD histogram in blue and 2 moving averages . . . 4 and 7 in blue and white.
The lower study window includes the RSI(2) and the Stochastics 10,2,2.
This new format provides a quicker view of the market pulse and still allows me to pick up butterfly candidates quickly.

The good news for market prognosticators this week was that both the bulls and the bears were correct (in the same day, several times).
The bad news is that an increasing number of stocks look like they're rolling over to the downside and are in danger of kissing the channel goodbye to the downside.

Next week I hope to complete the Qs dirty dozen studies and begin the reformatting of the blog, which will take on a distinctly different look by the end of March, focused on tracking and refining the signals of the IWM and Qs Dirty Dozen.

Qs SD Oscillator

Here's part of the larger standard deviation/ mean reversion system I'm putting together for the Qs as the final component of the Qs Dirty Dozen.

The system trades both long and short and, as with most of the systems I've examined recently over this backtest period, the short side produces considerably better results than the long side.

The oscillator effectively creates a rolling band of standard deviations and then looks for penetrations of the bands to trade against.

At first glance there looks like a lot of inputs, but the range of the inputs is actually very small so optimization takes place within a narrow range focused on finding the best fixed exit bars and defining lookback periods.

The equity curve is actually pretty impressive . . . until we get to December 08, which produces the first (modest) losing month. Until then, no losing months.

And then there's February . . . which is just plain dismal. On my near term "to do" list is a deconstruction of the Feb trades to determine what went wrong here and to reverse engineer some possible system improvements to relieve that drawdown. Other than Feb the system has definite possibilities.

TS2000i coding is shown below. I'll post open code in the comments section for cut and pasters. TS8.3 users know some order verbiage must be altered.

Qs and %B

This is a little closer look at the %B function referred to in yesterday's post. Just to get a sense of the type of signals the %B might generate I've lined it up with the RSI2 for comparison purposes. And I've added the overlay of the 8 and 16 MAs to examine the relative performance of those cross signals.
What I'd like to do is convert that %B reading of .5 to a zero line for my purposes of analyzing mean reversion and, as this data is integrated into Tradestation code for backtesting, that will provide the basis for strategy performance. Just another task on my overflowing "to do" list.

Here's another look at the same Qs chart, but this time viewed as a Qs/VIX ratio. While the charts don't display any major differences, the buffering of the VIX does smooth out the %B line a bit. The correlation between the RSI2 and %B12 is pronounced, but it's interesting (to me) how the %B tends to keep you on the right side of the trade relative to the chop in the RSI2. This may be a product of the period settings (2 vs 12) and I intend to delve into this issue in future posts.

Finally, here's an interesting little article from Trading Markets on the benefit of mean reversion trades (in this case using options).

New Qs Highs (really short term)

Here's a little thumbnail for gauging how far this rally is likely to go and as such it's a short only system. The system hold time optimizes at 10 days, but given the current uber volatile character of the market and the recent failure of intraday and/or opening rallies, a close stop is highly recommended before deploying any $ on this system by itself.

Finally, but not most importantly, there's a great little study by Bill Luby using the %B function on the VIX. This coincides nicely with my weekend post on the VIX/price crosses as I try to get a better handle on the intriguing possibilities of this indicator

NYAD & TICK Revisited

Shown above are 10 minute bars of the NYAD and TICK over 10 days.
This is an update to a previous post on using the NYAD and TICK to trade/fade the markets.

One thing we can see right away is that rallies have not fared very well for the past 10 days. The fade the open strategy has been a solid performer for that period and the NYAD has done a superb job of keeping us on the right side of those trades.

What is interesting (to me) is the failure of the TICK to generate confirmations as well as in the previous post. Settings have not been changed. . . the TICK MAs are 12 & 24 but of the 8 solid sell signals in the NYAD, the TICK really only fired on 4, with with significant lag delay and a fifth cross on day 6 when the markets gapped down at the open to a .07 level with no relief for the rest of the day.

On 3 of the days the TICK was actually upslope. . . contradicting the NYAD signal. I'm somewhat at a loss to explain this disparity and certainty welcome any reader input, but the net effect is to shake my confidence in the TICK and rekindle my enthusiasm for the NYAD.

Qs Linear Regression Crosses

Here's another snippet of the Qs mean reversion signal I've been working on. In much the same manner as the 8/16 moving average crossover this algorithm focuses on the reliability of using the crossover of 2 linear regressions to signal impending reversals of momentum.

In coming posts I'll detail my reasons for favoring linear regression and linear regression channels over other forecasting models. For the near term I'll just mention that linear regressions channels are unique (IMHO) in their ability to capture the trend of both mean reversion and random walk price patterns.

Below is the optimization report for a close range of inputs. What's interesting here is the robustness of the crossover, almost regardless of the settings. I've optimized for max consecutive losers (1), just because risk avoidance is more important to me than maximizing equity output.
Other traders may not be as risk adverse and may choose other input options.
The (9,13,10) model also produces nice returns.

The TS2000i code is very simple and, as with previous MR studies, I'm just looking at the short side for now. I've used a Fixed Bar exit for the study in lieu of a signal reversal. This tactic gains a few more bucks on the equity curve and knocks down the risk exposure time considerably.
The fixed bar exit is (no surprise) 9 days.

Weekly Update

The VIX/Price cross indicator proved its worth this week and one of my short term goals is to code the cross into TS and test it out on a variety of ETFs. Based on my little ETF basket, the VIX cross looks very encouraging. This rather unusual application of the VIX is not focused on the VIX's behavior above and below moving averages or in conjunction with bollinger bands, but is really a reflection of a zero line volatility cross in the same spirit as the standard deviation study of Friday. The odd hiccup on Thursday wherein the VIX and markets fell together can probably be chalked up to pre-expiration shenanigans or ? (send in your idea).
While the VIX cross will never get you in at the top or bottom, it will let you ride the sweet spot of the support/resistance cycle with very little risk exposure. It's difficult (for my old feeble mind) to imagine a daytrading application of the VIX cross, but on daily bars as a swing trading indicator there are several interesting possibilities including pairs arbitrage based on the sequential timing (firing) of the VIX crosses.
Yet to explored is a reliable exit strategy for the VIX crosses as waiting for a recross will invariably sacrifice most if not all of the accumulated trade gain. As usual, I'll look at fixed bar exits and several other momentum reversal signals profiled already in the Qs Dirty Dozen.

I'm not going to spend a lot of time on the 4LRs study this week. After this past week's carnage all the technicals in the basket are solidly oversold. IWM , the Qs and XLE look poised for a rally, currently riding the lower LR30 channel and, in the case of IWM and XLE, below the LR75.
While XLF's swoon has been dismal, if not downright pitiful, the LR4 chart suggests more downside action is likely as XLF sits on the LR30 mean.
We're overdue for a rally here, but when (and if) it comes next week, the first target levels of resistance in IWM, XLE and the Qs will be the LR30 means.
Easy does it.

Qs SD Signal Line

This is a continuing snippet of research based on last weekend's stated goal of refining a robust mean reversion signal using standard deviations of a floating price point, the pivots range mean reversion and a linear regression component.

This little algorithm was inspired by Jeff Pietsch's z-score analysis of ETF pairs trading opportunities. Now Jeff's work is considerably more complex than this system could ever hope to be, and I've stripped off the log functions to make it even simpler as they have no impact when not comparing 2 different ETFs. My goal here is rather basic and requires a conviction that price does indeed revert to the mean (eventually).
I've written before about the advantages of balancing probability theory (mean reversion) versus uncertainty (chaos theory, random walk, nonlinear logic) to build a Kit of Parts trading system of non-correlated factors and today's work focuses on some of the mean reversion aspects of that equation.

A little closer look at the TS code below reveals that we're actually looking for reversals above or below a zero line.
If the Len average price equals the current close, the result is 0, showing no + or - bias.
If the Len average price is less than the current close, the result is a + number, reflecting a price expansion above the current range.
If the Len average price is more than the current close, the result is a - number, reflecting price expansion below the current range.
If we then divide the +/- resultant by the standard deviation of the same Len range, we end up (hopefully) with a simple mean reversion to the zero line indicator.
I've just looked at the short side for now. . . the final product will incorporate both sides of the equation not only to generate BUY signals but, just as importantly, to confirm the bias of other mean reversion signal components.
As with many of the other short side systems I've profiled in the Qs Dirty Dozen, the Fixed Bar exit optimizes to 9, adding further support to this time frame as a reliable Qs short cycle.

Qs Short Setup

I thought I'd take a little break from the flurry of recent Qs system posts, so here's a picture perfect short at yesterday's open that alert traders should have picked up on.
With the NYAD running at .07 for most of Tuesday, Wednesday's uber pop to something like R25 was a dead give away that the open was going to retrace.
The subsequent downslope in the corresponding 2 minute TICK provided further confirmation of failing enthusiasm for the opening pop.
The parabolics actually gave us 2 quick short entries and once the NYAD and TICK leveled off a few minutes after 10:00 it looked like time to cover. With the Qs performing a quick penetration of S1, and no follow through, the cover signal was confirmed.
This quick trade produced a low exposure $ .40 in just 30 minutes, or a little more than $.01/minute, which is the level of return that I target for these 20-60 minute positions.

Qs RSI Lag

Continuing with the new Qs Dirty Dozen, the RSI Lag system looks like a worthy component.
Trading both long and short with a good balance of performance, the system incorporates a 2 high, 2 low signal with an RSI momentum confirmation. The long side has a few more consecutive losers than I'm typically comfortable with, but the relative drawdown in pretty muted. The system only holds for a few days (which I like), minimizing risk exposure.
The equity curve is attractive given the inclusion of both long and short signals. The short side only curve is even better looking. TS2000i code is posted below: