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Roy (code refinement) and I (theory and application) took Zweig's old
4% indicator based on the Valueline Geometric Index, updated it,
added a twist to it and refined it for trading the SPY Daily.
Here's how it works.
1. Instead of the Valueline Geometric Index, this system uses the
Valueline Arithmetic Index. (This is an important difference!) This
index is $VLE on Esignal. (I don't know what it is on whatever free
service you've found so don't ask me.)
2. Once you've opened that Index on a daily chart, color the price
line (not bars) red, create the following expert, and apply it.
Highlight Code Green
X:=If(Cum(Ref(C>Lowest(C)*1.04 OR C<Highest(C)*.96,-1))=0,
If(C>Lowest(C)*1.04,1,
If(C<Highest(C)*.96,-1,0)),
If(PREV=1,
If(C<HighestSince(1,PREV<1,C)*.96,-1,PREV),
If(C>LowestSince(1,PREV>-1,C)*1.04,1,PREV)));
I:=Cum(1)<=2;
State:=BarsSince(X=1 OR I)<BarsSince(X=-1 OR I)+(Cum(X=1)=1);
State;
3. Since March your price line should be green, except for two red
down turns.
4. To this chart apply a simple 20 ma.
5. Open another chart of the SPY daily. Create a new window on the
Valueline chart, copy the SPY daily and paste it into the new window
on the Valueline Chart. Close the SPY chart.
6. Here are the trading rules. You must follow them exactly. A buy
signal is created when either the price line turns green or crosses
the 20 dma. You take which ever signal comes first. It doesn't matter.
A sell signal comes when the price line turns red or crosses below
the 20 dma. It doesn't matter which comes first. You take the first
signal from either indicator. You sell the long and take the short.
If you're trading in a retirement account, you can't short but you
can buy Rydex, Profunds or Potomac on the short side.
7. To avoid whipsaws, you can use a pyramiding technique of buying
one third of your buyin at a time. It will limit losses on the
whipsaws but reduces your overall return somewhat. It's all in your
risk profile. You decide.
7. Since you can't buy the Valueline Arithmetic Index you buy the SPY
on the Valueline entry and exit signals.
8. Don't apply this to any other security except the SPY.
9. How good does it work?
Over the last 10 years, it's averaged 22% a year, with one small
losing year and 40% plus gains the last 3 years. Just take whichever
signal occurs first, either the green indicator signal or the 20 dma
crossover.
This is as simple as TA gets. Use it to your advantage. I got this by
paying attention to some of my systems development books. It's about
twice as profitable as Zweig's original method, and is about 3 times
more profitable than buy and hold.
Now isn't this why you bought MS in the first place. I know, don't
tell me, all of you arrogant wizard traders won't waste your time on
a measely 22% a year unless I can hang a 1 in front of the 22. No,
you killer TA masters are going to make buckets of money! Really,
well here's an article to put that theory to rest.
www.investorhome.com/psych.htm
Read this article on behavioral finance and see what arrogance gets
you......
This system is free, my momma could make money with it, and now you
don't have any excuses for losing dough.
JO
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