This entry was posted on Wednesday, August 15th, 2007 at 7:31 pm and is filed under Education, chart patterns, market commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
With todays market selloff I was looking forward to the close to see if the T2108 indicator (% stocks under 40 day moving average) had closed in single digits. And lo and behold it had - it actually closed at a value of 8.24 today. Very low indeed. I ran a backtest to see what a close below 10 implied and how I might be able to frame a trade to the long side.
Here are the parameters of that trade.
- a close below 10 on T2108
- buy the open following the close below a 10 reading
- exit when T2108 closes above a value of 12 - (a small improvement)
- a stop-loss based upon historical deviations will be at 6%
I ran on data back to 1990 on the SP-500
It has triggered on only 6 occasions -Â 1990 (twice), 1994, 1998, 2001, 2002 and of course today.
Here are the results of that scan:
So the average winner is a whopping 5.7%! with only a 6 day holding period. Any other 6 day holding period would have an average change of about 0.15%. Truly volatile as John has shown in the previous two T2108 trades. Max adverse excursion on these trades was in the 5% area. So it has at times taken some adverse movement before the advance pushed through.
Here are charts of each of those signals (click to enlarge) :
The two signals close together in 1990
the 1994 setup
the 1998 setup
the 2001 setup
the 2002 setup
and where we stand today…….
And remember this would be a trade. That’s all. Well, I have framed the trade. Who’s taking it?
Have a Great Night!
Dave Johnson
August 15th, 2007 at 8:12 pm
I will be taking this trade on the ES mini. One question though, I subscribed to the worden.com platform based on the T2108 and your work; where the heck to I find this indicator on their platform?
thanks,
dan
alexandria, va
August 15th, 2007 at 8:23 pm
Dan:
If you click “Jump” and type in T2108 it will bring you right to the synbol.
I am not sure how you have things setup but if you go to your lists it’s under “all worden market indicators”. A handy bunch of tools there.
August 15th, 2007 at 9:57 pm
I took it - was running the same backtest as you - too compelling to ignore.
August 15th, 2007 at 11:51 pm
By the looks of the overnight session, you will be buying at much better prices vs today’s close at tomorrow’s open. Good fear (31 vix) and just a lack of bids out there.
But I do have a question about the stats: average drawdown is 5% then average win 5.7% so you are suggesting the market typically makes a swing of >10% in a 6 day holding period? That sounds far fetched to me
August 16th, 2007 at 12:41 am
Premium content as usual. Thanks for the heading, was becoming disoriented. Hope all is well now that time has passed since the chatroom adventure. FWIW I learned more from you Dave in 3 weeks than in the sum total of all my other studies.
Peace,
Tom
August 16th, 2007 at 5:02 am
No not drawdown. Max Adverse Excusion. That shows the highest pullback of each trade. One trade went to the 5% area. But look at the charts. Almost all had some downside to go.
August 16th, 2007 at 8:53 am
One of my two readers (I used to have three, but I think one of them busted out, hahahahaha) mentioned the T2107 trade, the percent under the 200ma. He says it has only triggered four times since 1987, with the percent being under 20 as the trigger. Have you tested out that??
By the way, John’s comments about the chat room are exactly what I thought you guys were feeling. Good luck.
August 16th, 2007 at 4:57 pm
Your opening range ES longs from the 1400 area are looking good so far here, max unfavorable excursion today was approx 25 points,
August 17th, 2007 at 9:04 am
Well, I couldn’t resist taking the 45 s&p point profit on the ES this morning after the fed discount rate cut. Thanks for the heads up on this indicator! Wow!
August 17th, 2007 at 11:24 am
The discount rate was an x factor that just happened to occur at the right time and work in your favor. In other words, you got lucky DAN. The losses on this trade were astronomical yesterday.
August 17th, 2007 at 11:58 am
MM ,
Losses?
Did you even read the post?
A 6% stop was in place.
What did we have 25 points against us? That’s about 1.5% or so? Not even close to historical Max Adverse Excursion. Also the Fed thing always becomes an issue when the markets are panicing. Look at the periods this triggered, 90,94,98,01,02 - Fed was always a factor at those points.
August 19th, 2007 at 4:42 pm
[...] expectations of a rate cut if you follow the complete thread, and read the comments. Read how this play panned [...]
August 21st, 2007 at 1:23 am
very impressive guys! quack!!!!!!!!!!!
December 17th, 2007 at 11:23 pm
[...] The blue buy dots you see are only showing a period when the indicator went to single digits which we discussed back in August. I circled the clusters of days where the indicator was below [...]