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A while back, I was searching for a technique to use in a trend following
system that would:
1.) Get you into a trade in the direction of the trend.
2.) Get you out on a stop.
3.) Re-enter the trade without too much judgment on a stop.
4.) Avoid many of the whipsaws you normally get with moving averages.
This by itself is NOT a system. I think of it as a price matrix to
automatically get you in and out ACCORDING to some other system/approach of
a larger time-frame you may be using.
The rules would be as follows:
Suppose that your XXX end-of-day system says to go long and the market
currently is at 1008.
Now with this "price matrix" you would draw a "buy line" at roughly 2%
intervals, say...1000, 1020, 1040, 1060, 1080, 1100, etc. and a "exitlong
line" at 2% intervals, but somewhere between the others, say, 1010, 1030,
1050, 1070, 1090.
So, assuming that your system is telling you to BUY, using this approach,
you would actually buy at 1020. Then let's say the market rallied to 1041
(1 point above the next "buy line") and subsequently declined to 1030.5
(1/2 point above the "exitlong" stop) and then went higher again. You would
still be long since the price did not go below the 1030 stop level.
Now had prices hit 1029.5, then you would've been stopped out and assuming
your main system is still on a BUY, you would re-enter at the next "buy
line" (1040).
The reverse would apply in a bearish mode.
Anyway, I have not coded any of this but by visually checking my S&P charts
it seems to make a lot of sense (assuming your main system is good) and I'd
like some opinions on this. It appears to be better than using moving
averages.
Anybody out there using something similar?
Looking forward to your opinions, good or bad.
Carlos Lourenco
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