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Bob:
There is no contoversy in my mind whether a AIQ Buy/Sell signal is confirmed
and what is used to confirm the signal. I agree with everything you have
said. Telescan users got a Sell signal last week which to them is
confirmed. However, Dial Data users have not gotten a Sell signal. The
difference between Telescan and DD data is that Telescan reports the high
and low on the DJIA as ACTUAL HIGH and LOW whereas DD reports it as
Theoretical High and Low. Theoretical High is calculated as if all the DJIA
stocks reached their highs for the day at exactly the same time. This
rarely happens, and what you see on CNBC and other feeds during the day is
Acutal High/Low numbers.
When AIQ was first developed the WSN reported theorectical h/l numbers and
the few data services at the time reported the same so that is why AIQ used
Theorictical h/l. Many users have called AIQ and questioned why Telescan
users get one signal and DD users get different signals. They are very
close but not always identical. For example, I believe 3-4 months ago
Telescan users also got a confirmed Sell signal (no signal on DD) and the
markets did not drop but advanced. AIQ has done a backstudy on ER signals
given by DD vs. Telescan in the last issue or two of the Opening Bell
Magazine. Their study revealed that DD had about a 1% gain over Telescan
data going back several years.
Since I go with AIQ and their default data of Theoretical H/L via Dial Data,
there has been no Sell Signal issued. Only time will tell if AIQ will get a
sell signal using DD over the next couple of days. There is no way to plug
in numbers and see if when or if a sell/buy signal will occur in the future.
I've looked at other market breadth build systems (ie: OEX with breath built
numbers from the individual OEX stocks) and there is still nothing
comparable to market timing than the traditional AIQ market Buy/Sell signals
based on the DJIA for price action and the NYSE breadth numbers and NYSE
volume numbers to base a AIQ ER rating.
Officially, if you call AIQ they will tell you AIQ is on a Buy signal at the
present time. That can change anytime based on DD numbers.
Lee
-----Original Message-----
From: bobrabcd <bobrabcd@xxxxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Monday, October 20, 1997 7:02 AM
Subject: Re: MKT - djia and ER numbers
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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