A quick overview of where I am at now.
Trading by the BPI with sector ETFs
Bull trading - Use the S&P 500 trend based on the 30/20/10 BPI entry rules for bull trades
- the over sold condition cannot remain oversold for long
Bear trading - Use the S&P 500 trend based on the 70/80/90 BPI entry rules for bear trades
- unlike the over sold condition, over bought can remain in force a lot longer so entries need to have tighter stops and stricter trade management overall
Compare sector performance at each point to determine which sector is leading the charge, or is losing the least ground if it is early enough
- this is a relative measure to determine which sector to focus on
Compare the ETFs within the leading sector to determine which is performing the best overall
- this is the same relative measure to determine which ETF to trade or focus on
Trade the sector ETF based on the S&P500 trigger
- assuming good liquidity or, if options, enough selection and liquidity in the option chains
Alternately compare constituent stocks within the ETF to trade
- this might be due to an expensive ETF, a desire to only trade options or an attempt to boost returns by using the stock that is driving the ETF that is driving the sector that is driving the market
This can mostly be set up ahead of time to make life easier. Stockcharts.com uses strings of ten symbols for it's performance chart, free or otherwise, so setting up strings to be able to cut and past will make life easier. Tracking the market to be ready for a change in trend and tracking sectors for the same reason is a good daily practise while waiting for the initial trade setups. Checking ongoing trades in order to maximize earnings by perhaps selling one ETF/stock/option in order to play a better performer can be done monthly.
Jeff.
Questrade, My direct access discount broker.
Showing posts with label BP Index. Show all posts
Showing posts with label BP Index. Show all posts
Monday, December 7, 2009
Saturday, December 5, 2009
S&P 500 and the bullish percent chart continued...
I was just sitting in front of the fire as the temperature has started to drop outside, toastie. I picked up the laptop and decided to run a quick historical test using the S&P 500 index as a base to determine entry points in related ETFs. I was surprised to find so many large cap ETFs out there.
I entered them all into Esignal in a quote window and sorted them by 12 month performance as a percentage relative to their respective price at that start point. Taking the top 10 and placing them into a relative performance chart, relative to each other, resulted in the top three. The top one was far ahead of the rest by enough to be a little odd, so I might take the second best but I will test all three.
I started on January 1st 2009 as a starting point figuring that the Bullish Percent Index (BPI) should definitely get low enough to trigger all sorts of entries in the continues spring drop.
Method, seeing as I don't want to enter on the way down I would follow these steps to capture the best possible entry price.
1) When the BPI hits 30% on the way down I flag the sector and check the representative ETFs to choose the top three relative performers in the sector, S&P 500 and large caps in general in this case.
2) If the BPI crosses 30% on the way back up, enter a long trade in one of the ETFs. This could be options or straight ETF units.
3) If the BPI does not recross 30% but heads farther down then use the 20% as the next recross target, again, enter a long trade after the BPI is above 20%.
4) If the BPI does not recross 20% but heads farther down then use the 10% as the next recross target, again, enter a long trade after the BPI is above 10%. Alternately I might just enter a long trade once the BPI is below the 10% mark as this is so low that it almost cannot stay there long.
Using these four entry steps:
Feb 20th, 30% is broken, no trade, check performance, QQQQ, IVW and IWF are the three best performers even though they are losers they lost the last of a few timeframes.
Feb 28th, 20% is broken, QQQQ remains the top performer even with a loss over all timeframes up to 200 days.
March 6th, unbeknownst to any at the time 2009 just posted the lowest S&P 500 level for the year at 666.79 points.
March 9th, QQQQ posts it's lowest for 2009 as well at $25.63.
Mar 11th, the 20% is broken on the way up, QQQQ is still number one and is posting some positive performance over the shorter time frames. Trade entered March 12th at a limit of the previous day's close of $27.75 or just at the open, I am not sure which to go with. 50 shares stopped at $24.75.
March 13th, the 30% is broken on the way up, March 16th (Monday) 50 more shares bought at the previous day's close (limit again) for $28.74. 100 shares with ACB of $28.24. Stop os at $25.24. $3 stops set for now, I will adjust to some ATR method or use the P&F or reversal of the BPI to get out or to help determine how much space to give.
Today, if using a $3 stop I would still be in for a current price of $44.12. A $15.88 gain over the 8 month period. That is a 56% gain.
Also worth noting for today I should be readying my list of potential shorts as the exact same entry criteria and method could be applied on the way down using 70% as the first trigger. 70% with downward recross to short the poorest performing ETF, then 80% recross and 90% recross.
This could be considered a conservative measurement as using other sectors that are performing well against the SPX and better performing ETFs from within those indices. Also, using options could allow for not needing to place stops, provide leverage and using spreads against some of the positions in certain ways could also produce premium income. Then there is playing the downside moves as well which I would most likely do with either buying puts instead of short selling anything or just running bear call spreads to take advantage of the weakness even without a defined drop.
All in all I think that this is a nice workable and easy to execute plan. I may redirect some funds into my margin account in order to run some live trades in this methodology. I might luck out and hit a market downturn soon as the SPX has crossed 70% and 80% on the way up. This should affect my long only option trades heavily, although I am selling a few of them as they show strength right now.
Jeff.
I entered them all into Esignal in a quote window and sorted them by 12 month performance as a percentage relative to their respective price at that start point. Taking the top 10 and placing them into a relative performance chart, relative to each other, resulted in the top three. The top one was far ahead of the rest by enough to be a little odd, so I might take the second best but I will test all three.
I started on January 1st 2009 as a starting point figuring that the Bullish Percent Index (BPI) should definitely get low enough to trigger all sorts of entries in the continues spring drop.
Method, seeing as I don't want to enter on the way down I would follow these steps to capture the best possible entry price.
1) When the BPI hits 30% on the way down I flag the sector and check the representative ETFs to choose the top three relative performers in the sector, S&P 500 and large caps in general in this case.
2) If the BPI crosses 30% on the way back up, enter a long trade in one of the ETFs. This could be options or straight ETF units.
3) If the BPI does not recross 30% but heads farther down then use the 20% as the next recross target, again, enter a long trade after the BPI is above 20%.
4) If the BPI does not recross 20% but heads farther down then use the 10% as the next recross target, again, enter a long trade after the BPI is above 10%. Alternately I might just enter a long trade once the BPI is below the 10% mark as this is so low that it almost cannot stay there long.
Using these four entry steps:
Feb 20th, 30% is broken, no trade, check performance, QQQQ, IVW and IWF are the three best performers even though they are losers they lost the last of a few timeframes.
Feb 28th, 20% is broken, QQQQ remains the top performer even with a loss over all timeframes up to 200 days.
March 6th, unbeknownst to any at the time 2009 just posted the lowest S&P 500 level for the year at 666.79 points.
March 9th, QQQQ posts it's lowest for 2009 as well at $25.63.
Mar 11th, the 20% is broken on the way up, QQQQ is still number one and is posting some positive performance over the shorter time frames. Trade entered March 12th at a limit of the previous day's close of $27.75 or just at the open, I am not sure which to go with. 50 shares stopped at $24.75.
March 13th, the 30% is broken on the way up, March 16th (Monday) 50 more shares bought at the previous day's close (limit again) for $28.74. 100 shares with ACB of $28.24. Stop os at $25.24. $3 stops set for now, I will adjust to some ATR method or use the P&F or reversal of the BPI to get out or to help determine how much space to give.
Today, if using a $3 stop I would still be in for a current price of $44.12. A $15.88 gain over the 8 month period. That is a 56% gain.
Also worth noting for today I should be readying my list of potential shorts as the exact same entry criteria and method could be applied on the way down using 70% as the first trigger. 70% with downward recross to short the poorest performing ETF, then 80% recross and 90% recross.
This could be considered a conservative measurement as using other sectors that are performing well against the SPX and better performing ETFs from within those indices. Also, using options could allow for not needing to place stops, provide leverage and using spreads against some of the positions in certain ways could also produce premium income. Then there is playing the downside moves as well which I would most likely do with either buying puts instead of short selling anything or just running bear call spreads to take advantage of the weakness even without a defined drop.
All in all I think that this is a nice workable and easy to execute plan. I may redirect some funds into my margin account in order to run some live trades in this methodology. I might luck out and hit a market downturn soon as the SPX has crossed 70% and 80% on the way up. This should affect my long only option trades heavily, although I am selling a few of them as they show strength right now.
Jeff.
BP index and trading with the trend
The next bit I am laying with is to trade with the trend.
There are various timeframes as well as various frames of reference to apply this idea. My spread trading has little to do with trend trading and now that I have a trend neutral plan in place that is proving to be profitable, easy to execute and track I am moving into trading with the trend to boost potential profits in other areas.
Timeframes are going to be daily weekly and monthly even though I do not plan on using weekly or monthly charts. I will be running longer time frames just to be sure of established trends and possible trend reversals.
Other frames of reference include using the S&P 500 as an overall gauge of market sentiment while drilling down to the sector level to look for the various sector trends that are driving the overall market. In an SPX down trend the best thing to do is short the poorest performing sector and in an up trend long on the best performing sector.
Within this frame of reference the next step is to drill down one more level, or two if you have that inclination, to the ETFs. Same rules apply as in an SPX downtrend, pick the poorest sector and the poorest ETF within the sector and, perhaps, pick the poorest stocks that make up the ETF. In an up trend of the SPX pick the best sector, the best ETF within the sector and perhaps again the best stock within that ETF.
How to determine which is the best and poorest is not rocket science either and there are many ways to manage this. Dual linear regression applied to the respective charts could be used, Oscillators to look for over sold/bought conditions under varied timeframes, P&F charted performance.
The Investors Intelligence site is a good cue to work from though. The Bullish Percent Index comparison for the sectors works as seen by the correlation with the BP and SPX charts. This is the CTP part as this represents the over sold/bought indication. There is no identical comparative setup for ETFs but going over to Stockcharts.com and looking at the Performance Charting (this is still free and works exactly the same as if I had a paid subscription). I used this when playing with the Pankin method to compare ETFs in sectors before. I can place 10 symbols onto the chart and it compares the relative performance of all 10. I can look at the line chart of a bar chart, there is a cool tool to slide to change the timeframe and period. Esignal can point me to the top ten performers in the last 12 month period and Stockcharts can apply those top ten against each other in the various timeframes to choose which one might be best to trade at the time.
Mentioning Pankin reminds me that this is really just a modification of his strategy that worked for him for many years. While the idea was unique then it is much easier to see and apply now as the online charting and data available is far far superior to what was available to traders back in the day.
Jeff.
There are various timeframes as well as various frames of reference to apply this idea. My spread trading has little to do with trend trading and now that I have a trend neutral plan in place that is proving to be profitable, easy to execute and track I am moving into trading with the trend to boost potential profits in other areas.
Timeframes are going to be daily weekly and monthly even though I do not plan on using weekly or monthly charts. I will be running longer time frames just to be sure of established trends and possible trend reversals.
Other frames of reference include using the S&P 500 as an overall gauge of market sentiment while drilling down to the sector level to look for the various sector trends that are driving the overall market. In an SPX down trend the best thing to do is short the poorest performing sector and in an up trend long on the best performing sector.
Within this frame of reference the next step is to drill down one more level, or two if you have that inclination, to the ETFs. Same rules apply as in an SPX downtrend, pick the poorest sector and the poorest ETF within the sector and, perhaps, pick the poorest stocks that make up the ETF. In an up trend of the SPX pick the best sector, the best ETF within the sector and perhaps again the best stock within that ETF.
How to determine which is the best and poorest is not rocket science either and there are many ways to manage this. Dual linear regression applied to the respective charts could be used, Oscillators to look for over sold/bought conditions under varied timeframes, P&F charted performance.
The Investors Intelligence site is a good cue to work from though. The Bullish Percent Index comparison for the sectors works as seen by the correlation with the BP and SPX charts. This is the CTP part as this represents the over sold/bought indication. There is no identical comparative setup for ETFs but going over to Stockcharts.com and looking at the Performance Charting (this is still free and works exactly the same as if I had a paid subscription). I used this when playing with the Pankin method to compare ETFs in sectors before. I can place 10 symbols onto the chart and it compares the relative performance of all 10. I can look at the line chart of a bar chart, there is a cool tool to slide to change the timeframe and period. Esignal can point me to the top ten performers in the last 12 month period and Stockcharts can apply those top ten against each other in the various timeframes to choose which one might be best to trade at the time.
Mentioning Pankin reminds me that this is really just a modification of his strategy that worked for him for many years. While the idea was unique then it is much easier to see and apply now as the online charting and data available is far far superior to what was available to traders back in the day.
Jeff.
New service trial and the Bullish Percent Index
I signed up for an information service yesterday, Investors Intelligence. This was one of the gems that was mentioned in the program that I mentioned in the last post.
While it does not replace a decent charting package, too bad, it gives great information on ETFs and stocks with regard to some of the things that I am likely to need for my CTP-O plan.
I had hoped that they might have free access to some of this but they really don't. I could generate my own studies as long as I could find the index charts that I would need. I can do a relative performance comparison on a list of ETFs through Esignal to find performers based on MTD, QTD and YTD as well as last 12 months within the sectors to determine which one has been a best performer for those periods. Running the sectors against each other for the same comparison would point to the one that should be looked at.
Using the CTP approach (Counter Trend Positioning) I could just enter the best performing ETF for the sector in the most over sold position... but that would be too simple.
Some time ago I was looking at the Bullish Percent Index for the overall market and comparing that against the performance of the market. It was not hard to notice the correlation between the two.
The S&P500 chart for the last 3 years:
While it does not replace a decent charting package, too bad, it gives great information on ETFs and stocks with regard to some of the things that I am likely to need for my CTP-O plan.
I had hoped that they might have free access to some of this but they really don't. I could generate my own studies as long as I could find the index charts that I would need. I can do a relative performance comparison on a list of ETFs through Esignal to find performers based on MTD, QTD and YTD as well as last 12 months within the sectors to determine which one has been a best performer for those periods. Running the sectors against each other for the same comparison would point to the one that should be looked at.
Using the CTP approach (Counter Trend Positioning) I could just enter the best performing ETF for the sector in the most over sold position... but that would be too simple.
Some time ago I was looking at the Bullish Percent Index for the overall market and comparing that against the performance of the market. It was not hard to notice the correlation between the two.
The S&P500 chart for the last 3 years:
The Bullish Percent Index for the S&P 500 for the past three years:
Looking at the correlations I noted that during the downtrend the BP index peaks closely matched the rally peaks in the SPX. The meltdown in latter 2008 is out of synch and can hardly be used for any meaningful study as everything went out the window for a couple of months.
Even before the uptrend was established the BP index troughs were corresponding to the pullbacks in the SPX. These COULD have been traded profitably based solely on this and using the SPY as a proxy for the index but I tried to tie it into trading sector stocks and it got too complicated...that was one reason why I dropped the study and never got to really trying it out.
The reason I go over this is due to a very useful tool at Investors Intelligence which is a sector bell curve of Bullish Percent Indices. This shows where each is with respect to the index percent value so it is easy to tell where the sector is with respect to the underlying stocks.
I should mention that the index is made up of the percentage of stocks assigned to the sector that are in a bullish phase based solely upon the P&F charting. This is dead simple and ties the P&F charts into the plan nicely and makes a good point to end this post...in the interest of trying to keep these a little shorter for easier back referencing for me.
Jeff.
Subscribe to:
Posts (Atom)
