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Preston, you are absolutely right! Many indicators are quick to pick
up a trend, ie they put you in right at the start. But by the time
the trend reverses they stick with it for quite some time still. Say
you have a major trend for three years, and then it reverses in just a
month at the end - not too uncommon. Your trend following indicator
uses say the previous 100 observations. When the trend starts
reversing, the indicator is based on 99 previous bullish days and one
new bearish day, so it is not quick to reverse. By the end of this
terrible month, your indicator is still bullish as it has 80 bullish
days and just 20 days (one month) of bearish info in it, so the
probability is for bullishness to persis - and you have lost all the
profits of the previous three years!
In practise, almost as a rule of thumb, when the first cracks appear,
I get out. Maybe this can be quantified as some measure of
volatility. Also, use a stop loss! This whole thing can be avoided
by proper money management as you point out.
Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder
http://www.ferra4models.com
http://fun.ferra4models.com
--- In equismetastock@xxxxxxxxxxxxxxx, pumrysh <no_reply@xxxx> wrote:
> Tan,
>
> It was the Trend Strength Indicator not the True Strength. They are
> similar but are set up differently. Trend Strength indexes the close
> above different moving averages. True Strength indexes double
> smoothed ROC's.
>
> If the Trend Strength is oscillating that much try reseting your
> periods and steps to larger numbers. The default of 10 is good but
> you may find that 25 is more to your liking.
>
> You can't expect to capture 100% of a trend without some drawdown.
> You should also keep in mind that the markets do not trend all of the
> time. You will hear a lot of numbers thrown around for the amount of
> trend time...20% is usually accepted. That means that the other 80%
> will be in ranges or consolidation.
>
> Capturing 100% of a trend may mean that you will have to step aside
> for a bit and then reenter the trade in order to avoid the drawdown.
> That's called money management. It is one of a traders biggest
> problems.
>
> Weekly values are set on Friday's data. Daily data will always be
> more sensitive to changes and reflect more oscillation. If the longer
> term weekly is bullish you would only trade bullish on the daily.
>
> Hope this helps,
>
> Preston
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "tan ming"
> <reminiscenostalgia@xxxx> wrote:
> > Hi,
> >
> > Personally I found the True Strength Indicator presented by Preston
> was
> > useful. The indicator works great in identifying trend which are
> persistent.
> > However when theres a upcoming moderate swing trading range, the
> indicator
> > oscillate between 100 to -100 instead of persist in upper or lower
> range.
> > The TSI seeks to quantify the trend degree. Perhaps, a indicator
> quantifying
> > the trading range degree, taking into account of the ampltitude of
> swings
> > will complement the TSI greatly.
> >
> > Preston, with regard to your mentioned abt time frame in
> determining of
> > strength, I fully agree abt it. I use weekly and daily data to
> determine the
> > trend. Basically I plot MA on weekly data and if the price is
> highly the MA,
> > I will look for long in the daily. However I found this has a flaw.
> Very
> > often I encounter large down swing in the daily despite the weekly
> is up and
> > vice versa. N in the end I got stop out. Anyone ppl wish to
> contribute how
> > to utilize different timeframe to determine trend?
> >
> > MG I found your idea on the use of slope extremely useful. Actually
> I did
> > monitor the slope of MA but didn't quantify it. U mentioned abt
> this idea
> > didn't perform as well in the market. What is the main set back of
> the lack
> > of performing? Personally I think there r more ideas on how to
> maximise the
> > idea od using slope to determine the maturity of trend such as ROC
> (which u
> > mentioned previously) on the slope.
> >
> > Many indicators had devised to determining the trend degree. How
> abt
> > developing indicator to determining the degree of trading range?
> >
> > Regards.
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