Sharemarket index indicators for position trading of futures

[AMR]

The daytraders of the stock index futures are rolling it in right now with the huge volatility and intra-day ranges, however this won't last. With that view in mind I'm developing a trend following long term futures strategy. There are a few indicators I'm struggling to place however.

1. A replacement for a stock volume indicator. OBV and Accumulation/distribution are very commonly used for shares. They don't seem to produce any divergences from the few indices I've flicked through. Do they actually work for indices?

If not, does anyone have any experience setting up a "Composite OBV" indicator like Brett Steenbarger's "Money Flow" indicator? Any software with this indicator?

2. New High/New Low indicators. Are there any websites that produce this indicator for non-US indices such as the DAX and the ASX200/SPI?

3. Will a futures provider automatically roll your contract over to the next one, or will you have to do it manually? If so, is there a quick process to minimise slippage?

cheers
AMR

[Steve]

2. New High/New Low indicators. Are there any websites that produce this indicator for non-US indices such as the DAX and the ASX200/SPI?

Quite a while ago, I went thru a phase where I imported the daily data into a spreadsheet, comparing today against yesterday for daily up's & down's for an A/D index and comparing today against previous High's & Low's for new high's & new Low's.

It was good in thoery, but with new listings etc, it became a nightmare making sure that everything remained on the correct row.

[Technical.Trader]

AMR, I might be able to help with your system... What type of move are you looking to capture and over what time frame.. Trend following systems based purely on price give average performance at best on the SPI. You need to setup your entry outside pure price considerations. The only good trend following systems based on price tend to be longer term ones on stocks and maybe commodities.. You could use weekly charts but the system will not reflect the overnight gap unless you use the 24 hour data. Anyway let me know we might be able toshare some ideas and program something up.

If you're just looking for swing systems and to hold the SPI overnight on a 1-5 day time frame I can show you some excellent setups.

TT...

[AMR]

Yes I'm looking to nab moves over 5-10 days really. I haven't given this idea much thought since the initial posting, have been focussing more on forex lately.

What sort of setups do you have for your 1-5 day swing trades.

[Technical.Trader]

If you use pure technical analysis you are destined to fail. Trust me on this, there is no edge. In saying this you can use it with other tools.

For instance lets look at a market anomoly.

Stocks rally from the open of the first trading day of the month... Is this true?

The test below shows buying the open of the first trading day of the month and exiting on the following days open on the SPI 200 futures contract:

http://img224.imageshack.us/img224/2992/spi200fdomqo5.jpg (http://imageshack.us)
http://img224.imageshack.us/img224/2992/spi200fdomqo5.0537bdea50.jpg (http://g.imageshack.us/g.php?h=224&i=spi200fdomqo5.jpg)

So now you know that 66% of the time you will win and on average you win 1.16 times more than you lose. No stops were used in the test above it was simply buy the open and sell the following days open.... Right so now you know this you could potentially day trade to the long side by taking techncal buy signals on the first trading day of each month using intraday data on the SPI 200 Futures. Or just take a lunch break on the first trading day of each month, buy the open, sell the next days open and have your mney sitting in fixed interest the rest of the time.. You will make very good returns on your money over time.

The Monday before options expiry is also great to trade in the US and buying Mondays close on the SPI and holding overnight to the next morning work well ont he SPI.. there are not many opportunities like the ones above though.... but just these two trades alone can turbocharge your returns for the year

TT

[AMR]

If you use pure technical analysis you ...there is no edge.

This statement just turned my world upside down...:eek::eek:!

So what we're looking for is fundamental ideas that can be backtested to search for profitable opportunities right on which we apply technical analysis for further study? So things like gap fading, selling short in September, selling the Friday, stuff like that?

Also, that backtesting software you showed me, what is the programme called?

Many thanks for your help
AMR

[Technical.Trader]

The Back Testing Software in Trade Navigator Platinum, it is similar to tradestation. www.tradenavigator.com is where I purchased it from.

For something to offer better risk:reward than buy and hold or random walk you need to find an anomoly. The reason longer term trend following systems work is not because of the technical analysis, but because trends persist for long periods and occassionally I larger/longer trend will persist more often across stocks in a portfolio or index than what randomness suggests it should.. but they are still few and far between. A trend following system keeps you in the market to catch these trends... In fact most trend following systems do not outperform the market by much, maybe 1%, but, because you are using a stop loss the drawdown is lower, making it possible to use leverage because your risk:reward is improved as you reduce downside risk by stopping out of stocks.

Other successful systems take advantage of other anomalies like momentum (for instance top performing stocks continuing to outperform in the short-medium term), but a scientific approach is what is required to find an edge.


Technical analysis is useful in that it graphically illustrates what is happening in the market. Personally I see TA as the frontrunner as far as graphicaly illustrating or modelling the market. The sooner the fundamental analysts catch on the better, becasue fundamentals, financial ratios, dividend dates, reporting dates etc and forecasts can be illustrated on a graph just as easily as any indicator and would certainly make things clearer as to what is actually going on that straight TA..

My point above should really be, a technical indicator needs to be based on something that will give you an edge for it to be useful and provide a positive expectancy, or used in conjuction with an anomaly like my example above.

Hope this is clear

TT

[AMR]

Ok it seems like I will have to really put in the hours for this. Currently my share trading strategy is based around sector selection and classical TA and so my edge is part FA as well...Would something like what you are suggesting be able to be found in forex as well? It seems I will be "priced out" of futures for the foreseeable future unless I persist with CFDs.

Also, do you know of software which can take old data and play it back minute-by-minute with intra-bar?

Thanks for letting me pick your brains
AMR

[Technical.Trader]

Trade Navigator has a reply on it that can play back minute by minute data but it is expensive.

FX is not something I have really looked into deeply, but the same patterns should be there.

You could test trading on different trading days of the month. You can also test patterns such as volatility breakouts combined with a Naked Close or Trading Days of the Month and even use interest rate diffential trends between currencies to filter trades.

Other setups that may be worthwhile include Overnought/Oversold criteria which reflects sentiment, large range bars with closes at the extreme ends of the bars etc.

I would use daily data to test or try to find setups for the next days bar..then youcan day trade it using your technicals in the directional bias you have covered. It is probably best not to trade every day as well, only on those days where you have a positive expectancy outcome, which could be as little as 2-5 times a month.

The trick is to diversify into non-correlated markets to increase your number of trades per month.

TT...

TT...