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Here are some quotes from the AIQ "Technical Indicators Reference Manual"
on confirming Expert Rating Signals. Chapter III lays the confirmation
options out quite clearly. The controversy on RealTraders about whether a
Sell or Buy signal is given really reduces to the style and instrument of
trading.
"These rules vary in complexity, in responsiveness, and in risk/reward levels.
1. No Confirmation
2. Price Confirmation
3. Price/Volume Confirmation
4. Independent Coroboration by Separate Trading Expert Components"
"AIQ Expert Rating signals are designed to anticipate changes in the
direction of price movement."
"Rule 1. No Confirmation
The lowest level confirmation rule is simply no confirmation at all. With
this rule, Expert Ratings are accepted at face value and trades are entered
without reliance on other information. This rule has the highest level of
associated risk, but it is a valid trading strategy and one that is used by
some AIQ users."
"Since the "no fonfirmation" strategy results in a greater number of trades
than the more selective confirmation strategies, traders must rely on good
money management techniques to minimize losses from trades that go against
them. At the same time, they must not exit too early from trades that are
working. This type of trading is only for the experienced, nimble trader."
"Trading on unconfirmed Expert Ratings is common with traders of both index
and equity options. These traders have found that, if they wait for signal
confirmation, the option premium has already jumped."
This rule and Rule 2, Price Confirmation, make up the majority of options
and futures traders on RT. Price confirmation "involves the use of
trend-following indicators to verify a signal." Rules 3 & 4 are used by
investors/traders that prefer lower risk entries and thus require more
confirmation.
For example, an option or futures trader using the AIQ ER Rules 1 & 2 the
last two weeks would have been short NDX, SPX futures and or long put
options on NDX, OEX. NDX had three back to back 95 to 100 sell signals
from the group breadth builder a week before it tanked out of a classic
wedge formation. The OEX and DJIA also had ER signals that were precient.
Price confirmation was clearly layed out here on RT with various technical
patterns such as the "wedge", stochastic momentum, and volatility
indicators. Most likely these traders exited entirely on Friday 10/17 an
hour and a half before the close. Ten for one gains in such a short time
are rare and only occur in market crashes or gonzo moves on an occassional
expiration. Those who use rules 3 & 4 are most likely hoping that Monday
provides some relief. There is no question in my mind that AIQ issued a
valid sell signal in the context of rules 1 & 2 and in the context of using
options and futures as tradeables.
BobR
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