2008 Jun 08 - Sun
Stocks & Commodities, 2008/06
In a recent issue of Technical Analysis of Stocks and Commodities, there was an interview
with Tom Busby. A number of his comments struck home with some things I've learned. He
also introduced a few more things about which I should think.
He noted that trading can be a twenty four hour operation. There is always some market
open to trade. The world starts off with the Nikkei and the Hang Seng in the far east. In
Europe, primary markets are CAS, FTSE, DAX and the Swiss. I'd say in today's market the
IPE, with the Brent Crude Futures, is also important. Here in the west, we have the morning
New York market and the afternoon California market.
Busby made mention that 'market open' is an important event. As such, it is important to
know the time each of the markets open. I've been working on an algorithm that selects a
series of instruments, selects a direction and lets the instruments run. I've been
wondering what to set for an exit though. Busby, in the interview,
suggests exiting once a third of ATR
(Average True Range) has been reached. I'm not sure why he would use ATR (which accounts
for any opening gap) rather than just the daily average range. Assuming one gets in
sometime in the open, and exits by the end of the day (in order to eliminate what gaps in
the wrong direction can do to one's portfolio), then using ATR doesn't seem quite right.
Anyway, To set the tone for a trading day, he suggests some benchmark indexes to be
watched. Seven, which he calls the Seven Sisters are:
- S&P
- NASDAQ
- Dow Jones Indexes
- DAX
- Crude Oil
- Long Bonds
- Gold
As for micro-signals, he uses three kinds, with each needing to be in the same direction:
- Volume
- Tick (gainers vs loser)
- Trend
To finish things off, he suggests splitting an entry into three parts:
- Tick Part: the trickiest part of the entry based upon the three variables above
- Trade Part: with confidence building, try to make twice the reward vs risk
- Trend Part: capture the full movement of the day
|
