Tuesday, March 08, 2005


The DJIA closed down more than 24 points today; unable to move higher from the rally of the last few days. The market is poised to fall soon, I think.

I've made one additional modification to my test system. Stochastic indicators are known to be good in markets with cyclical movement, but not in markets when trends occur. Moving averages, on the other hand, are good for trends, but not sideways movement. To combine the positives from both, I'll take a signal when the stochastics breaks above 20 (long signal) and go short when the stochastics drop below 80, after being above it. But, these signals will only be taken if the 33 day proprietary moving average (the purple line) moves in the same direction as the signal. For example, on 26-Jan the stochastics broke above 20 from below that level. However, the purple m.a. line didn't turn up until 2-Feb. If we take the long signal the next day, and use the highest price that day, or 10640, we have a good signal, although a bit late.

Instead of exiting that position and going short when the stochastics went over 80 then dropped below it, on 22-Feb, we're still in the long position because the 33-day m.a. line has gone up without a downward break yet.
Today's close was 10912, so up to this point our paper profit would be 272 points. Not bad.

Because this was done with the effort of hindsight, I'm not going to count this "old" signal, but wait until the next signal, which would be a "short" one and see how this system works for the future.

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