Monday, September 1, 2008

Brett Steenbarger: Making the Trend your Friend

Brett Steenbarger had sourced this system from Delbert Dunmore, but it got my attention via Afraid to Trade. The premise:

The key to Del's system is constructing a price channel consisting of a 10-day moving average of daily high prices and an 8-day moving average of daily low prices. When the current day's closing price closes above this channel, buy at close. When the current day's closing price closes below the channel, sell short at close. The trades are closed when SPY closes within its price channel.

This system can be followed with Zignals Stock Charts.

With Zignals Stock Charts you can set moving averages using the open, close, high or low of the day. So for the above example we can set a 10-day MA for the highs and an 8-day MA for the lows. For MSFT the chart looked like this:

The whipsaw contributed to the three to one ratio of losses as reported by Brett

...for another trading system that is so bad that it's promising

Except when it kills ;)

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website