Notice that the price stopped exactly at the major downtrend line, 1105. This is a major resistance level and I personally do expect a small pullback from here or at least some lateral consolidation before going further up. However, if SPX goes above 1105 the next stop should be around 1115 where the SMA200 resides and also one of the top three levels where we did see a lot of volume since the beginning of the leg down according to "volume at price" indicator (look two posts bellow)
Now let's have a look back at my preferred timing strategy, EMA25 crossing EMA50 on 60 minutes chart to see what was its performance since April 26 when the new leg down has started. For those of you who didn't follow my blog from the very beginning try one of the June's posts to see previous "buy/sell" signals. Since I am looking at hourly charts the software doesn't allow me to look further than 3 months back.
Most of the time when a sell signal is generated I sell my longs and immediately go short. If other indicators give me a "sell" signal before EMAs crossing I take profit on part of my shares (at least 25%), for example when daily DMI turned negative at the end of the April I took some profit around 1200 and sold the remaining shares around 1180 when EMAs did cross. Also when I recently spotted the "rising wedge" I took some profit. For the sake of the argument I am going to assume I did sell all my shares when I've got a bearish EMAs crossing and went 100% short at the same level.
short at 1180, cover at 1080
long at 1080, sell at 1090
short at 1090, cover at 1065
long at 1065, sell at 1095
short at 1100, cover at 1080
long at 1080, sell at ... (we'll see)
Excluding the last leg up since is not finished yet my strategy made me 185 points on SPX or if you prefer 1,900 points on DOW. It's not too much, I am sure there are people who made more money than me but I am trying to point out a strategy that can make you money no matter if the market is going up or down and with little risk. With discipline one can easily make 400-600 points per year on SPX depending on market conditions. Notice that I missed all the temporary tops and bottoms. Once again, notice the little risk I took to get these points, I never fought the market and at any point I wasn't in danger to lose my shirt.
All the best!
babaro
P.S. Once again thank you very much for all of you who did click on the adds displayed on this page, this is one way you can say "thank you" for the effort and time I am spending writing these daily analysis.
I used Ninja Trader to simulate your EMA25 crossing EMA50 strategy. I back-tested it from January 2006 on a 60 min S&P chart. The result was a losing system over that time period. It was positive over the last 3 months. I like your blog and general analysis, but your trades are not valid. Please don't encourage people to trade based on these signals. I am also a scientist and probabilities are all that matters for stocks. EMA based systems will never produce good results, please test it yourself. Also let me know if I missed a part of your system.
ReplyDeleteI re-read my comment and wanted to clarify. I think your doing really good work with your comments and analysis. Your on track to figure out how to trade these crazy markets. However, there is so much to a trading system that I don't want anyone to think that they can have a positive trading return off of something as simple as EMAs. It simply does not work. The reason I took the time to back-test the strategy is that I was amazed that you were having a positive return using EMAs. It turned out it is only positive in a particular and very short time frame, ie it is not repeatable. Good luck and keep up the effort!
ReplyDeleteIt's good that you've got a piece of software that can analyze data back to 2006 on 60 minutes chart. I am glad that I can look 2-3 months back on this type of chart. I did have a lot of success with these EMAs crossing in the past. They may not be the best pair but to say that any EMAs crossing doesn't work seems to be a little bit too much for me. MACD is a moving average crossover and works pretty well on daily and weekly charts.
ReplyDeleteI successfully used EMA10 and EMA20 crossover on daily charts on very fast moving stocks and EMA100 crossing EMA200 is still my best indicator that the market has slipped into a bear or a bull market. EMAs crossing doesn't work when market is trendless, then you get whip-sawed.
Everybody has his own trading system, there is no good or bad way to trade as long as you are making money
Good point babaro. I think the rate of return or level of success is not enough for me with the EMA25 crossing EMA50 system. I agree that you do better with higher EMAs on higher time-frames such as the EMA100 crossing EMA200 on daily charts. That is a decent long term indicator. Personally I think you got lucky with the EMA25 crossing EMA50 system at those times in the past when it worked for you. There are times historically when your account would be down as much as 37% before recovering. That is more than I can take given the risk/reward profile.
ReplyDelete