Trading with Volume Analysis: Identify, Follow and Profit from Trends December 18, 2012 Paul Duncan 703-509-5332 GREMS8544@GMAIL.COM Twitter: @GREMS8544 Subscribe to Dropbox: SUBJECT of email: “Dropbox” Effective Volume Blog: http://www.effectivevolume.com GGT Blog: http://greekgodtrading.blogspot.com GGT TSP Blog: http://ggt-tsp.blogspot.com
General Disclaimer • You are responsible for your own investment/trading decisions, not me nor any representative of the Greek God Trading group . This group, as well as the portfolios and topics presented today as well as in the past, are no substitute for the services of a professional investment advisor. Investments recommended may not be appropriate for all investors. Recommendations are made without any consideration of your financial sophistication, financial situation, investing time horizon, or risk tolerance. Past performance is no guarantee of future results. Model and actual signals and • related analysis are for informational purposes only and should not be construed as an offer to sell or the solicitation of an offer to buy securities. Most financial instruments (stocks, bonds, funds) carry risk to principal and are not insured by the government. Anyone attending or viewing this session via electronic media for investment purposes does so at his or her own risk. • Data accuracy cannot be guaranteed. Opinions and analyses included herein are based on factual observations and are believed to be reliable and produced in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Paul Duncan is not liable for any errors or inaccuracies, regardless of cause, or for the lack of timeliness of, or for any delay or interruptions in, the transmission thereof to the users.
Tonight’s Agenda • Background • How Does GGT Work? • Reading the Tea Leaves: Where are We Now? • Equity Selection • Effective Volume • Putting it All Together
For the New Faces: My Background • Introduced to investing in 1984 • VectorVest user in 2003-2004 • Moved to Gorilla Trades and Ten Best Stocks 2005- 2006 • Returned to VV in late 2005 and continued to 2010 • Developed GGT 2007 – 2008; Significant improvements w/ Bob Wilson
What is GGT? How does it work? Recommendation +4 or +5 Strength New Long • Requires volume above historical norms • Only requires a fall Affirmed Long AND requires price in price to drop from Long increases above any of the LONG spots Cash historical moving to New Cash averages to move Affirmed Cash from any CASH spot -3 or -5 Strength New Cash to New Long • About every 30 days, each stock and ETF is optimized with respect to behavior over the last year in terms of two moving averages on price and one moving average on volume • Based upon end-of-day data, stocks and ETFs receive one of 6 recommendations • NEW LONG recommendations require VOLUME + PRICE appreciation (supply decrease) • NEW CASH recommendations require PRICE depreciation (supply increase) • AFFIRMED LONG means that the stock/ETF is already a LONG, but has met criteria for re- entry
Why GGT? What is so Powerful About the GGT Method? • Method developed to address deficiencies in MACD and other “static” TA methods Adaptive – constantly updated to change as markets and individual • securities change. • Draw inferences on individual equities as well as on group behavior: – overall trend of market as well as the equity in question – momentum of market/equity – acceleration of market/equity Aggregate all tracked stocks into two indexes • – the GGT Price Index – Long/Cash Ratio (LCR) Index • Track various moving averages of these two indexes: 2d, 3d, 5d, 8d, 13d, 21d, 34d, 55d, 65d Track the SLOPES (momentum) and SLOPE OF SLOPES (acceleration) • of each • Voila! Clarity for the market / equity.
Where are We Right Now (12/17)? Price model suggests “LONG” since ~11/21 (65d slope turned positive) • • Some weakness in prices exists but overall, remain on the long side
Where are We Right Now (12/17)? LCR model suggests “LONG” since confirming 11/30 (65d slope turned positive) • First indications of moving long around 11/21, then again on 11/26 (27 th strongest • move in LCR) • LCR considers PRICE, VOLUME, and price Rate of Change (RoC) • Some recent weakness in LCR was demonstrated, but overall, remain on the long side
GGT Deploys 4 Timers • Short-term timer – uses a simple 4d MA on the LCR value. Long if above the 4d MA, Cash if Below. Good for re-entry timing; terrible by itself because it does not consider market direction longer than 4d. • Intermediate-timer – uses Elder methodology to look at 13d EMA of the Force Index, 13d EMA of the pricing slope, and 34d EMA of the pricing slope. If all are positive then LONG. Individually, not the greatest timer, but will keep you out of trouble overall. • Long-term timer – uses the simple cross of the 13d MA and 65d MA. Very robust for calling overall market direction, but gives up gains since is relatively slow to enter/exit. • Combo Timer – uses a combination of the Intermediate and Long-Term timers to provide a robust method to get in and out. Outperforms individual timers.
Where are We Right Now (12/17)? • Despite some recent weakness, Monday 12/17 closed signaled “re-entry”. • Long-term 13d/65d timer already long • Intermediate-termed Elder timer in mixed state – not everything confirming either direction • Short-term timer was in CASH, but transitioned LONG
GGT Combo Timer
GGT Combo Timer Performance • Combo = Combine Elder and 13/65d cross • Go “Long” on: – 13d and 65d cross from below – If Elder NOT Cash • Enter if 4d Short-Term Moves Long, OR • Enter if 2d, 3d, 5d LCR are transitioning to Long (or 2d and 3d LCR already long) • Go “Cash” if: – 13d and 65d cross from above – Elder transitions to Cash
Signaling on Price Transitions – What is Expectation for Entering 12/18? Price Slope Model from Previous Slide
Signalling on LCR Transitions – What is Expectation for Entering Late 12/18? LCR Slope Model from Previous Slide Entering @ This Point 23% - 33% Success Rate
Market Trend Conclusions: • As of 12/17 close we are in a long-term LONG signal, and the short-term and intermediate-termed timers have just transitioned LONG. • The Combo Timer has been LONG since 11/30 • Re-entering when signaled when we were already long with the conditions of 12/17 has worked marginally (19-54%) in the past � entering new positions now is advised but with caution. • The most favorable time to enter is when 1) the short-term timer fires (everything in cash prior) & when the intermediate timer fires mixed (or long), 2) then add when the intermediate timer fires long, 3) then fully commit when the long-term timer fires long • Note that the Combo Timer will transition Long when 2) and 3) above move Long
Recap • We have a method of determining the overall trend of the market (GGT Price and LCR Slope Models) • We have a method of determining our chance of success of entering the market given the overall state of the market (momentum, acceleration) (GGT Transition Edges for Price and LCR) • We have a method to exit the market when the wheels come off the wagon (GGT Combo Timer) • How to pick equities to enter?
Picking Equities • Start with Sound Technical Pedigree: – Closing Price above 200d MA Price – 50d MA Price > 150d MA Price > 200d MA Price – 200d MA Price in an uptrend (positive slope) for last 4 weeks of trading – Closing Price within upper quartile (upper 25%) of 52-week HI price (if 52wkHI = $100, then price > $75) – Upper quartile of 52wk HI price > lower quartile 52wkHI price (if 52wk = $100, then upper quartile boundary is $75 and quartile = $25. If 52wk LOW is $60, then $60 + $25 = $85 > $75 and TEST FAILS ). This quartile test ensures that we are picking stocks which have already demonstrated the ability to move. – Above 50d MA Volume on day of entry AT THE TIME OF ENTRY AND greater than 50,000 shares – Above $1 in price
TradeStation* Leader’s Table – 12/18 *ELD available for free – simply ask and we’ll discuss offline. It’s hard- coded to your TS license.
Picking Equities – Con’t • Next, Ensure Basic Fundamentals are in Place: – Increasing Revenues • Year – over – Year (YoY) • Sequential quarters (last quarter, this quarter) • Last year’s quarter this time period over this year’s quarter – Increasing EPS • Year – over – Year (YoY) • Sequential quarters (last quarter, this quarter) • Last year’s quarter this time period over this year’s quarter • Sources: – TradeStation ($), Briefing.com ($), HGSI ($), – Yahoo, Google, FinViz (but you get what you pay for there)
TradeStation Leader’s Table – 12/18
Charting the Course – The Leader’s List Outperformance started when Note that the average is timers started firing ~ Nov 21- consistently above MAs 26 (strong group)
Recommend
More recommend
