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Strategies & Market Trends : Technical analysis for shorts & longs

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Dec 5 4:00 PM EST

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To: Johnny Canuck who wrote (16414)	6/6/1998 2:49:00 PM
From: Lachesis Atropos	of 68689

Hi Harry, Its been a while! Got some news from the grapevine. MCI is bent on coming out with good earnings until the WCOM merger happens or not, for fear of what happened with the BT case. MCI is going in lean and mean for the next few quarters, if positive earnings mean anything in this market and if the controversy of the merger doesn't eclipse good earnings per share. iffy, iffy. I would suspect that systems trading in indices would be better but have not tried it. Indices are not as volatile as the individual stocks. A system has to compensate for volatility and still make a profit Using index is a good indictor. An index is composed of stocks if the index rises then this implies that the stocks making up the index are rising, which increases your changes of making a good trade if you trade in the direction of the index. Using indices gives on a good place to look. Using indices is a top down approach. I modeled sector rotation using graph theory, however model showed patterns similar to a random walk. Nothing one could exploit. A bottom up approach would use each stock and build unique indexes based in some criteria. What I suspect is that unique indexes based on price may be exploitable. I did notice that an $8.00 stock behaves more like other $7-$9 dollar stocks than to a $45 dollar stock. Even if all the stocks are in the same sector. The 200-day moving average and SD measurements are not very reliable. I'll ruffle a few TA feathers on this explanation. 200, 100 and 50-day moving averages, head and shoulder patterns are all classic TA portents. Now one has to ask the cause and effect question. Is it the stock or is it all the TA traders moving the prices. Like in literature when a pattern is well know is becomes a clich‚. Overall the 200-day ma shows the direction of the momentum. It is a good long-term indicator. For long- term trades it is better to buy into the momentum rather than oppose it on a SD indicator (I see the flames coming from the Bollinger group). Wait for the ma to change direction. I would not use a SD to for a change in trend. Unless one trades on spikes, which I have not simulated. The system I am using is still based on weighted moving averages but have modified to so that the MAs are dynamic from day to day. This way if a stock changes momentum the MAs will catch it before I loose too much money. Dynamic MAs have some neat characteristics. The concept of Bollinger bands is implicit in them-a better Bollinger -- and they reduce risk. They follow the principle of letting the winners run and cutting your losses short. However, some traders would freak out if they use this system. On the surface it appears to be very volatile but one has to look at the long run. It is very difficult to escape the power of an average and stock market momentum. It is a short-term inter-day (not intra-day) momentum trading system. I am in a stock for only 2 to 14 days. For example, here are some stocks that show up as good momentum plays: DSET using a 1 and a 5 day WMA LONG ICST using a 2 and a 3 day WMA LONG ELIX using a 1 and a 2 day WMA LONG INCY using a 1 and a 2 day WMA LONG The health indicator I use is how well the system does. A few weeks ago it was doing 13% very 40 days now it dropped down to the low 11%. To me this indicates momentum up and down is weakening. Also, it indicates to me that the using the system pushes the odds in my favor-- 89% chance of winning if one plays by the rules (But that is another story). Lachesis

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