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<DIV>http://www.traders.com</DIV>
<DIV> </DIV>
<DIV>
<BLOCKQUOTE>
<CENTER>
<HR noShade SIZE=1>
<B><FONT size=+1>TRADING TECHNIQUES
<HR>
<BR><BR></FONT><FONT size=+4>Moving Averages With Resistance And Support
<HR>
</FONT><I>by Dennis L. Tilley<BR>
<HR>
</I></B><I><FONT size=+1>Moving averages are a popular way to signal trends.
Here's how to combine moving averages and the classic chart analysis of
support and resistance for trading mutual funds.</FONT></I><BR>
<HR>
<P></P></CENTER>
<P><FONT size=+2>M</FONT>ost simple moving average systems require one or
two additional confirmation signals to avoid excessive whipsaw trades. Such
confirmation signals can be based on features of moving averages such as the
crossover of multiple moving averages or the reversal of the moving average
slope. Momentum, volatility, volume and other nontrend indicators can also
serve to confirm moving average buy and sell signals.</P>
<P>In an effort to develop simple and robust stock and mutual fund trading
systems, I have found that combining the simple moving average (SMA) with
the concept of resistance and support very effective. Here is a mechanical
system for combining these two tried-and-true tools to provide a robust,
minimal-whipsaw, intermediate-term mutual fund trading system. I have used
this system successfully for about four years to switch emerging markets
funds and small-cap funds to and from a Standard & Poor's 500 index fund
and/or a money market fund.</P>
<H4><BR>SMA STRENGTHS</H4>
<P>I use the most common implementation of an SMA system, which is to buy
when the price closes above the SMA and sell when the price falls below the
SMA. The strengths of the SMA system compared to other trading techniques
are objectivity, simplicity and its trend-following nature. The SMA is
objective because it provides unambiguous buy and sell signals; thus, it can
be back-tested and suitably optimized.</P>
<P>The simplicity of the SMA, in that it has only one parameter to fit (the
lookback period), generally leads to a robust system. By <I>robust</I>, I
mean that it stands a good chance of working in the future. As discussed in
a recent STOCKS & COMMODITIES article by Jeffrey Owen Katz and Donna
McCormick, a rule of thumb in evaluating trading systems is that the more
parameters there is to optimize, the less robust the system is. Taken to the
extreme, many fitting parameters can be used to curve-fit past data to
eliminate all whipsaws while maintaining good performance. The potential of
such a system working in the real world is nil.</P>
<P>The trend-following feature of the SMA is highly desirable because it
resists becoming outdated as markets change character. Independent of the
fundamentals driving the market, trend-following techniques are designed to
capture extended runs in both bullish and bearish directions. This is
especially true for intermediate time-scale movements in the stock market --
those where typical peak-to-trough and trough-to-peak movements are in the
10-30% range, with a corresponding time scale on the order of two to six
months.</P>
<CENTER>
<P><BR><BR><IMG height=262 src="cid:036601bdce36$5a54baa0$eb5679c3@xxxxx";
width=359><BR></P></CENTER></BLOCKQUOTE>
<CENTER>
<P><BR><B>FIGURE 1: MONTGOMERY EMERGING MARKETS FUND (MNEMX),
1995.</B><I>Trading when the weekly close crosses above and below the 10-week
moving average would have easily outperformed the fund in 1995.<BR>
<HR>
<BR>Dennis Tilley trades his own portfolio of mutual funds and stocks. He
received a master's degree in mechanical and aerospace engineering from
Princeton University in 1991 and works in spacecraft propulsion research and
development. He can be reached at OPIECJ@xxxxxxxx</I><BR>
<P></P></CENTER>
<BLOCKQUOTE>
<H5><I>Excerpted from an article originally published in the September 1998
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 1998, Technical Analysis, Inc.</I></H5>
<H5><I></I>
<HR>
</H5></BLOCKQUOTE></DIV>
<P></P>
<H1 align=center>September 1998 </H1>
<H1 align=center>TRADERS' TIPS<BR>
<HR>
</H1>
<BLOCKQUOTE>
<P><I>Here is this month's selection of Traders' Tips, contributed by
various developers of technical analysis software to help readers more
easily implement some of the strategies presented in this issue.
<BR><BR></I><B>You can copy these formulas and programs for easy use in your
spreadsheet or analysis software. Simply "select" the desired text
by highlighting as you would in any word processing program, then use your
standard key command for copy or choose "copy" from the browser
menu. The copied text can then be "pasted" into any open
spreadsheet or other software by selecting an insertion point and executing
a paste command. By toggling back and forth between an application window
and the open Web page, data can be transferred with ease. <BR><BR></B>This
month's tips include formulas and programs for:<BR><BR><PRE><IMG align=bottom border=0 height=11 src="../../GIFS/tri-red.gif" width=11 NATURALSIZEFLAG = 3> <B>TRADESTATION / SUPERCHARTS
<IMG align=bottom border=0 height=11 src="../../GIFS/tri-red.gif" width=11 NATURALSIZEFLAG = 3> METASTOCK
<IMG align=bottom border=0 height=11 src="../../GIFS/tri-red.gif" width=11 NATURALSIZEFLAG = 3> SMARTRADER
<IMG align=bottom border=0 height=11 src="../../GIFS/tri-red.gif" width=11 NATURALSIZEFLAG = 3> WAVEWI$E MARKET SPREADSHEET
<IMG align=bottom border=0 height=11 src="../../GIFS/tri-red.gif" width=11 NATURALSIZEFLAG = 3> TECHNIFILTER PLUS</B><BR></PRE>
<P></P>
<CENTER>
<P>or return to <B><A href="../content.html">September 1998
Contents</A></B></P></CENTER></BLOCKQUOTE>
<CENTER>
<P><A name=tradestation></A>
<HR SIZE=3>
<P></P></CENTER>
<H3><IMG align=bottom height=11 src="../../GIFS/tri-yellow.gif" width=11
NATURALSIZEFLAG = 3> TRADESTATION / SUPERCHARTS</H3>
<BLOCKQUOTE>
<P><BR>The focus of this month's Traders' Tips is the combination of a
simple moving average with support and resistance, as presented by Dennis
Tilley in his article "Moving averages with resistance and
support." I have integrated this very interesting concept into both an
indicator and a system for TradeStation or SuperCharts. Notice that the
EasyLanguage codes for the indicator and the system are very similar.</P>
<P>We'll begin with the indicator, named "Mov avg--supp/res." The
indicator has three inputs. "Price" and "length" are
parameters for the basis of the moving average. "F" is the
critical percentage, and should be entered as the percent value (8 = 8%).
The plots for the indicator are as follows: the simple moving average line;
points representing the support levels; and points representing the
resistance levels. In order for the plots to appear correctly, the style for
the indicator must be properly set (formatting information will follow the
EasyLanguage code for the indicator).</P><PRE><B>Type: Indicator
Name: Mov Avg--Supp/Res</B></PRE><PRE>Inputs: Price(Close), Length(10), F(8);
Vars: AvgVal(0), S(0), R(0), SC(0), RC(0);
AvgVal = Average(Price, Length);
RC = RC + 1;
SC = SC + 1;
IF Close Crosses Below AvgVal AND Close > S* (1+(F/100)) AND R <> 0 Then Begin
For value1 = RC-2 TO RC+2 Begin
Plot2[value1](R, ÒRÓ);
End;
Alert = True;
S = L;
SC = 0;
End
Else Begin
IF Close Crosses Below S AND R <> 0 Then Begin
For value1 = RC-2 TO RC+2 Begin
Plot2[value1](R, ÒRÓ);
End;
Alert = True;
S = L;
SC = 0;
End;
End;
IF Close Crosses Above AvgVal AND Close < R / (1+(F/100)) AND S <> 0 Then Begin
For value1 = SC-2 TO SC+2 Begin
Plot3[value1](S, "S");
End;
Alert = True;
R = H;
RC = 0;
End
Else Begin
IF Close Crosses Above R AND S <> 0 Then Begin
For value1 = SC-2 TO SC+2 Begin
Plot3[value1](S, "S");
End;
Alert = True;
R = H;
RC = 0;
End;
End;
IF Close > AvgVal Then Begin
IF High >= R Then Begin
R = High;
RC = 0;
End;
End;
IF Close < AvgVal Then Begin
IF Low <= S OR S = -1 Then Begin
S = Low;
SC = 0;
End;
End;
Plot1(AvgVal, "SMA");
<B>Style:
Plot Name Type Color Weight
</B> Plot1 SMA Line Blue thinnest
Plot2 R Point Magenta medium
Plot3 S Point Cyan medium
<B>Scaling:</B> Same as Price Data
<B>Properties:</B> Enable Alert</PRE>
<P>The EasyLanguage for the moving average system is very similar to that
for the indicator. The inputs "price," "length," and
"F" have the same purpose.</P>
<P><B>Type: System<BR>Name: Mov Avg--Supp/Res</B><BR></P><PRE>Inputs: Price(Close), Length(10), F(8);
Vars: AvgVal(0), S(0), R(0), SC(0), RC(0);
AvgVal = Average(Price, Length);
RC = RC + 1;
SC = SC + 1;
IF CurrentBar > 1 Then Begin
IF Close Crosses Below AvgVal AND Close > S* (1+(F/100)) AND R <> 0 Then Begin
Sell Next Bar at Market;
S = Low;
SC = 0;
End
Else Begin
IF Close Crosses Below S AND R <> 0 Then Begin
Sell Next Bar at Market;
S = Low;
SC = 0;
End;
End;
IF Close Crosses Above AvgVal AND Close < R / (1+(F/100)) AND S <> 0 Then Begin
Buy Next Bar at Market;
R = High;
RC = 0;
End
Else Begin
IF Close Crosses Above R AND S <> 0 Then Begin
Buy Next Bar at Market;
R = High;
RC = 0;
End;
End;
IF Close > AvgVal Then Begin
IF High >= R Then Begin
R = High;
RC = 0;
End;
End;
IF Close < AvgVal Then Begin
IF Low <= S OR S = -1 Then Begin
S = Low;
SC = 0;
End;
End;
End;</PRE>
<P>This code is available at Omega Research's Web site. The file name is
"MA_SR.ELA." Please note that all the Traders' Tips analysis
techniques that are posted at the Omega Research Web site can be utilized by
both TradeStation and SuperCharts. Whenever possible, the posted analysis
techniques will include both Quick Editor and Power Editor formats.</P>
<BLOCKQUOTE>
<BLOCKQUOTE>
<ADDRESS>--Gaston Sanchez, Omega Research<BR>800 422-8587, 305
270-1095<BR>Internet:
http://www.OmegaResearch.com</ADDRESS></BLOCKQUOTE></BLOCKQUOTE>
<P>GO BACK</A><BR><A name=metastock></P></BLOCKQUOTE>
<P>
<HR>
<P></P>
<H3><IMG align=bottom height=11 src="../../GIFS/tri-yellow.gif" width=11
NATURALSIZEFLAG = 3> METASTOCK </H3>
<BLOCKQUOTE>
<P>In this issue, Dennis Tilley uses support and resistance to confirm price
and simple moving average (SMA) crossover signals in his article
"Moving averages with resistance and support."</P>
<P>In MetaStock for Windows, you can easily recreate the SMARS indicators
discussed in Tilley's article. First, choose Indicator Builder from the
Tools menu in MetaStock 6.5. Next, choose New and enter the following
formulas:</P>
<P><TT><B>Resistance and Support<BR></B>LookBack := Input("Look Back
Periods",1,1000,10);<BR>Resistance :=ValueWhen (1,Cross(Mov(C,
LookBack, S),C),HHV(H, LookBack));<BR>Support :=ValueWhen (1,Cross(C,Mov(C,
LookBack, S)),LLV(L, LookBack));<BR>Resistance;<BR>Support;</TT></P>
<P><TT><B>Resistance and Support *
F<BR></B>PrCnt:=Input("Percentage",0,100,10);<BR>LookBack:=
Input("Look Back Periods",1,1000,10);
Resistance:=ValueWhen(1,Cross(Mov(C,LookBack,S),C),HHV(H,LookBack));
Support:=ValueWhen(1,Cross(C,Mov(C,LookBack,S)),LLV(L,LookBack));<BR>Resistance
* ((100-prcnt)/100);<BR>Support * ((prcnt/100)+1);</TT></P>
<P>(Note that it's much easier to see the difference between the resistance
and support * F lines and the actual resistance and support lines if you
change the color and/or style of one of them.)</P>
<P>To display the indicators in MetaStock 6.5, drag the moving average
indicator from the Indicator QuickList into the price window. Choose<I>
simple</I> as the method, enter the time periods and then click OK.</P>
<P>Now, drag the resistance and support indicator from the QuickList into
the price window. You will be prompted to enter the lookback periods. You
should select the same time periods that you used for the moving
average.</P>
<P>Finally, drag the "resistance and support * F" indicator into
the price window. You will be prompted to enter the percentage and the
lookback periods. If you would like the indicator to be a 10% difference
from the resistance and support line, you would enter 10. Again, you should
select the same time periods you used for the moving average.</P>
<BLOCKQUOTE>
<BLOCKQUOTE>
<ADDRESS>--Allan J. McNichol, Equis International<BR>800 882-3040,
801 265-8886<BR>Internet:
http://www.equis.com</ADDRESS></BLOCKQUOTE></BLOCKQUOTE>
<P>GO BACK</A><BR><A name=smartrader></P></BLOCKQUOTE>
<P>
<HR>
<P></P>
<H3><IMG align=bottom height=11 src="../../GIFS/tri-yellow.gif" width=11
NATURALSIZEFLAG = 3> SMARTRADER</H3>
<BLOCKQUOTE>
<P>Implementation of Dennis Tilley's SMARS indicators is simple in
SmarTrader. (See the SmarTrader specsheet in Figure 1.) Begin by adding a
coefficient in row 9, which is named "periods," to contain the
number of weeks (10) for the simple moving average (SMA) and the lookback
for support and resistance. Row 10 is a simple moving average of the close
(row 6) using the coefficient periods. Row 11 determines the resistance
level (R) using the function "highest" on close for periods. Row
12 determines the support level (S) using the function "lowest."
Note that the SMA, R and S all use the coefficient periods. This makes for
easy what-if testing by just changing the value held in periods.</P>
<P>Another coefficient, "percent" in row 13, was used to contain
the value of the "critical percentage" as a fraction. Row 14,
"Rwork," is a user row that calculates the level of the critical
percent below R. Row 15, "Swork," similarly computes the critical
percent above S. Rows 16 and 17 are user rows defining the conditions for
buy and sell. Note in the next row, "trade," the short entry and
exit are set to zero to prevent any short trades.</P>
<P>We tested this system using the S&P cash for data using only a
10-week SMA. We did try various values for percent and found that 2% worked
best, since this data is trending steadily up. The result was strong equity
gain with very few trades.</P>
<P>CompuTrac SNAP users can implement this system with no changes.</P>
<P>This specsheet file is available on Stratagem Software's Web site.</P>
<P><IMG height=436 src="cid:036901bdce36$5a658380$eb5679c3@xxxxx";
width=404></P>
<P><B>FIGURE 1: SMARTRADER.<I> </I></B><I>This SmarTrader specsheet
implements Dennis Tilley's simple moving average system.</I></P>
<BLOCKQUOTE>
<BLOCKQUOTE>
<BLOCKQUOTE>
<ADDRESS>--Jim Ritter, Stratagem Software International<BR>504
885-7353, E-mail: Stratagem1@xxxxxxx<BR>Internet:
http://members.aol.com/stratagem1</ADDRESS></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE>
<P>GO BACK</P>
<P><A name=wavewise></A></P></BLOCKQUOTE>
<P>
<HR width=100%>
<P></P>
<H3><IMG align=bottom height=11 src="../../GIFS/tri-yellow.gif" width=11
NATURALSIZEFLAG = 3> WAVEWI$E MARKET SPREADSHEET </H3>
<BLOCKQUOTE>
<P>These Wave Wi$e formulas implement Dennis Tilley's simple moving average
system.</P>
<P><TT>A: DATE @TC2000(C:\TC2000\DATA,SP-500,STANDARD & POORS
500,DB)<BR>B: HIGH<BR>C: LOW<BR>D: CLOSE<BR>E: OPEN<BR>F: VOL<BR>G: convert
@CONVERT(1) 'CONVERT DATA TO WEEKLY OR MONTHLY H: period 20 'CHANGE PERIOD
AS DESIRED<BR>I: avg @MAVG(CLOSE,PERIOD)<BR>J: signals @SIGNAL(CLOSE,BUY,
CLOSE>=AVG, CLOSE<AVG)<BR>K:<BR>L: color @IF(SIGNALS>0, GREEN,RED)
'COLOR BUY/SELL BARS<BR>M:<BR>==========End Formulas</TT></P>
<BLOCKQUOTE>
<BLOCKQUOTE>
<BLOCKQUOTE>
<ADDRESS>--Peter Di Girolamo, Jerome Technology<BR>908 369-7503,
E-mail: jtiware@xxxxxxx<BR>Internet:
http://members.aol.com/jtiware</ADDRESS></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE>
<P>GO BACK </P>
<P><A name=technifilter></A></P></BLOCKQUOTE>
<P><BR>
<HR>
<P></P>
<H3><IMG align=bottom height=11 src="../../GIFS/tri-yellow.gif" width=11
NATURALSIZEFLAG = 3> TECHNIFILTER PLUS</H3>
<BLOCKQUOTE>
<P>Given here is a TechniFilter Plus strategy that implements Dennis
Tilley's simple moving average system. The resistance and support levels are
given in formulas 2 and 3. The resistance requires tracking the maximum high
while the close is above the average in a recursive manner. The support is
computed in an analogous manner. The buy signal checks to see if the close
has broken the resistance level, or if it has broken the average away from
the resistance level. The sell signal is similar. Note that the strategy
requires the position limit to be set in order to avoid opening multiple
positions.</P><PRE><B>SMARS Trading Strategy
</B>NAME: SMARS
TEST TYPE: stock
DATE RANGE: all
POSITION LIMIT: 1</PRE><PRE>FORMULAS---------------------
[1] Date
[2] Resistance
[1]: C>CA&1
[2]: ([1]=[1]Y1) * [1] * (TY1%H) + ([1]<>[1]Y1) * [1] * H {r}
[3]: ([2]Y1 * ([2]=0))U31
[4]: [3]
[3] Support
[1]: C<=CA&1
[2]: ([1]=[1]Y1) * [1] * (TY1#L) + ([1]<>[1]Y1) * [1] * L {r}
[3]: ([2]Y1 * ([2]=0))U31
[4]: [3]
[4] Close
C
[5] SMA(10)
CA&1
[6] Cross
(C>[5])U2-TY1</PRE><PRE>RULES---------------------
r1: Buy
buy long 1 on Close
at signal: Buy ([4] > [2]) ^ ( ( [6]=1) & ( [2]/[5]>1.08))
r2: Sell
sell long 1 on Close
at signal: Sell ([4] < [3]) ^ ( ( [6]=-1) & ( [5]/[3]>1.08))</PRE>
<P>This TechniFilter Plus strategy and the reports, strategies and formulas
of earlier Traders' Tips can be downloaded from RTR's Web site.</P>
<BLOCKQUOTE>
<BLOCKQUOTE>
<ADDRESS>--Clay Burch, Rtr Software<BR>919 510-0608, E-mail:
rtrsoft@xxxxxxx<BR>Internet: <A
href="http://www.rtrsoftware.com";>http://www.rtrsoftware.com</A></ADDRESS></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
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