Saturday, February 17, 2007

Strategy design

First off, what happens when you see block trades in ER2 with no corresponding block trades in IWM? And what happens when you get block trades in both at the same time?
Also what happens when you see large volume when NYSE TICK is at the top of its daily range?

Chart interpertation: First notice we are trading in the middle of the day(time is pacific on the chart). We see large volume traded when NYSE TICK hits the top of its range, next the NYSE TICK pulls backs and we see selling(longs taking profits), next the tick bounces and there is no volume (no buyers), next we continue to selloff after the tick bounce but the volume starts to dry up and the negative TICK attempts provides no new sellers. The trend then continues up.

IWM in my opinion was forced higher friday to close above $81. My theory is that options sellers pushed it higher in order for them to make more money by having the options they sold expire worthless. Does that mean that I should be looking at the options market for signals too? More information never hurts.

Ok, I'm doing my strategy design tonight, adding some rules and indicators and refining my chart setups. Almost all my indicators tell me the same thing no matter if its a moving average, MACD, CCI, or fisher transform. The only difference you see is when you change the time frame for the indicator. The one indicator that is different from the rest is VOLUME.

I'm trying to come up with some good ideas for my strategy, so here is what I was thinking:
What do I want?
I want no more than 5 signals for the day, preferably 3 signals all day, because most days only give 1-3 reversals.
What time frame would I be trading on then if I'm looking for 1-3 signals per day?
Even though I may be only looking for 1-3 signals, the pobability is that these trades will still be kept short, probably no longer than 15min unless there is a breakout trend.I want the chart to tell me what the long term trend is and to give me signals only in its direction.
I want the chart to tell me where volume resistance and support is and where the value are is.
I want to know what the volume is and I want to know when large traders are entering by filtering for block trades.
I want to monitor short term market sentiment by following NYSE TICK.

That is about it, and with all of that said, you can see that I only want to trade with the trend and look for large traders. Does my system really need a ton of indicators? Sure doesn't sound like it does it.

Strategy design rules:
Are there certain NYSE TICK values that I should never enter a trade on when going long or short?
The smartest way to trade is to trade with the trend and enter by taking pullbacks, so this strategy does not chase moves by buying when the NYSE TICK is at the top of its daily range or by entering shorts when NYSE TICK is near the low of its daily range. To make sure we enter the trades based on this rule I have setup a moving average for the NYSE TICK so that long trades can only be placed below the MA and for short trades to be placed above the MA. Also, I've setup a bollinger band indicator on NYSE TICK to identify potential reversal points. The bollinger band indicator on NYSE TICK seems to be an ideal fit because of the way NYSE TICK ossilates, contracts, and expands.

More strategy design rules to come......


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