Saucius Finance

Perhaps this is the most important post of all: as you can see in my blog over the past 4 years I have “translated” in ProRealTime code all the newest proposed indicators of Stocks & Commodities, magazine “leader” in technical analysis.

Why only the “Indicators” (with the concerning section of S & C)?
1 Because are the quickest and rational (ie quantifiable) device to analyze a market
2 Because the so-called “figures” are always subject to the discretion and human interpretation (unless massive simplifications that can be misleading)
3 Because, therefore, money management can be managed in a rational manner since it’s written in formula.

I have developed a trading system, periodically updated, in order to “capture” the beginning of a trend and to “stay” in position until the end, maximizing profits and minimizing errors in input and output, as well as any false signals.

The result was certainly a good system … but suitable for “secondary” daily trends (non-primary), as well as non-adaptable (at least easily) to automated trading.

Instead, the use of classic indicators, in particular for the Italian market (but also for the German and American one), led to the construction of a simple trading system, especially shared by operators since it refers to the indicators known to the public (MACD and SAR).
My job was simply to adapt the parameters of these indicators to the target market.

The logic is the following (very simple):
– Open position (long or short) when prices (usually, closing) crosses the SAR (under the constraint that prices are above / below the 20-period moving average)
– Close (and reverse) position if prices cross the SAR or the moving average or if the lines of the MACD cross
Usually the authors of technical analysis follow a contrary rule, using the indicators MACD for open positions and SAR as stop loss, but so it distorts the logic with which it was born the Parabolic SAR.

A more “dynamic”system – in the course of testing (with good anticipations) –  consists in opening positions on the basis of the histogram of the MACD (and not on the basis of its lines as before) when they reach the points of maximum and local minimum.
In detail, long positions should be opened as soon as the MACD histogram retraces from the minimum (ie, begins to grow), even if the prices are below the SAR or the MMA20.
Vice-versa for short positions.
The closure and the reversal of portfolio follow the same rule, in reverse.
This technique is based on the local maxima / minima of the MACD can generate false signals on the 1st retracing (so … be careful!) but it is infallible on 2nd tracing, that is, you are “armored” when you see the so-called figure of the (double) camel hump.

The standard parameters are as follows:

– SAR: 0.01, 0.01, 0.1 with a best version (best) with acceleration factor 0.02 or 0.03  (for inputs and outputs a bit ‘more’ tempestive2)
– MACD: 9,15,10 but also in the classic version (12,26,9) or 11,3,5 (for fast trading) or 11,15,9

[see DAX and FTSEMIB charts]

In conclusion, it is sufficient to set the parameters of SAR and MACD and the game is done (for all markets and all time frames): we have much lighter trading system, – I repeat – “shared” and no substantial differences in profit.
Why this result? Because the environment (domain) in which we operate, ie the data provided by the market and then to the brokers and finally to individuals, it is – as you know – very “poor”: O, H, L, C and volume, but nothing more.
Even the linear treatment through the various indicators of these numbers can not offer, therefore, so “different” results or offer “quantum leaps” in the analysis.

OPERATIONAL NOTES
In the next posts I will indicate some formulations of trading system:
– A suggestion (and sometimes necessity) is to create by yourself formulas for a single line of MACD or its histogram (in order to recall them in the trading system without errors).
– The points of local maximum and minimum can be found with the inverse cotangent (see previous post), function unfortunately not supported in ProRealTime.
The adaptation of the system of “camel humps”, as described above, also using functions that calculate the differences of the MACD histogram, can not find a faithful representation in automated trading system, but it must be implemented only through manual trading .

Many indicators (like hystogram of the Macd) reach important levels of local maxima/minima that could be useful for trader.
While manual trading does not need a precise formula for finding these levels (since they are visible to the human eye), on the other hand we must define a formula when approaching authomatic trading.

In this field, trigonometrical operators suit at the best sinusoidal function. In simple terms, you have to apply ARCOCOTANGENT formula to your indicator (e.g. Arcctan(Macd_hystogram)).

The Arcctan has the property of reaching level of -n or + n (depending on single situation), when respectvely the indipendent function (= your indicator) reaches local max or min.
This proxy is necessary because many trading programs naturally don’t support the calculation of derivatives function.

So writing a rule when the system has to open/close a position when absolute levels of n are reached is your easy last step.

Unfortunately, ProRealTime supports very few trigonometric function, i.e. sine, cosine, tangent, arctan.

In Tradingview, insted, you have the possibility of using such trigonometric functions.

After reading,

Swing Trading With Three Indicators

In Italian market I’ve experienced a RWI (5)  – Random Walk Index – on 5 days is very strong for swinging

In DAX the import of Ninja script has given hi results not for 5 periods, but for 6.

Change position long or short when the 1st balloon appears (even if points on the other sides are still present).
This indicator is quicker than combination supertrend + Vortex

Very, very nice!

Swing Indicator simple 

rd = 0
// Swing high
c1 = high[1] >= high AND high[1] >= high[2]

// Swing low
c2 = low[1] <= low AND low[2] >= low[1]

//c1 short, c2 long , c3 both, c4 nothing  (so we continue)
IF c1  THEN
d = high[1]
ELSIF c2  THEN
d = low[1]
else
d = d[1]
ENDIF

return d

Draw the indicator “d” as line+points
Change system position when swiing indicator 

This is the result:

For reducing noise, let’s introduce a n period, a local are where the test of the swing lows and highs should be tested


N-PERIOD SWING TRADING

// definition http://www.investopedia.com/terms/s/swinghigh.asp

// detecting SWING HIGHS AND LOWS in a period of ray “n”

d = 0
// Swing high
m = n + 2
him = highest[m]
c1 = high[1] >= him and high[1] >= high

// Swing low
lom = lowest[m]
c2 = low[1] <= lowest[n] and low[1]<=lom

//c1 short, c2 long , c3 both, c4 nothing  (so we continue)

IF c1  THEN
d = high[1]
ELSIF c2  THEN
d = low[1]
else
d = d[1]
ENDIF

return d

STRATEGY: enter long or short when condition change, i.e. when after a swing low(high) situation we pass to swing low(hi) situation, i.e. when swing indicator cut price (close price).
For instance, we do not change strategy 

NB: We have the same result of ninjatrader, but the optical effect is different

Well, it’s not the same BECAUSE PRO REAL TIME doesn’t have a correction for mantingale lines.I mean, the program does not accept the introduction of a variabile that gives the result constant in case of trend.

VERY NICE INDICATOR BUT ONLY IN NINJA TRADER, NOT IN pro Real time…

this is really not a succeSS!!!

Volume is really the engine of a market.
As stated in any site of trading, it is used:
– as anticipatory of price changes
– as confirmation for a change in trends in progress

Volume, unfortunately, is not avaible for all market: it is a good device for stocks and indexes.

Studying many indicators based upon prices and/or volume could be misleading and a trading desk could suffer of an “expensive” delay.

Here is a proposal for proscreener for a manual graphical analisys.
It extracts the titles whose the volume in the last bar is the maximum of the last twenties. It orders the stocks (or the financial instruments) by increase in percentage

 v1 = Volume

SCREENER[c1] (criteria AS “Volume perc”)

Here are some examples:

 
going long on Unilever:

 long in Premuda at last

For those who don’t want to be traders, following market everyday I suggest this strategy (only on technical basis, even in if the consultation of fundamentals and starcapital.de would be of great help):

– Use monthly graph
– enter with a cross of standard Parabolic Sar
– close when Aroon(7)gives a signal (undergoes line 70 or cross the other line) or when P-Sar crosses the line price (the first of 2). You can remove the Aroon rules if you don’t want to be histeric: a close far from the minimum or the maximum of the current month is just a good signal.

Don’t mind 20 periods-Moving Average Line.

Take position at the beginning of next month or in the very few days of the current month (after 25th of each month).

PS: I’ve tested a strategy based upon daily positions in accordance with monthly movement (e.g. in the last days of the graph I’ve opened only long positions), but it gives bad results.
You stay or on the months or in the days: do not use both!

2) Using simply a Heikin Ashi graph
Go long after a blue bar and viceversa for short (red one). Stop and reverse always (in the same morning). No other rule. Please notice almost 1/2 of entering are not correct.