Articles tagged Market Monitor

Breadth thrust marked on chart

 

I am a member on your site. I was studying general market signals for being long and short. Since picture is worth a thousand words while I was studing Market montor I created a picture for me where I drew "turns" according to market monitor guide. (10 day ratio > 2 after bullish and 10 ratio < 0,5 after bearish). I studied it  for last four years.

Result is a picture of weekly graph for qqqq with red (go short swing trading) and green (go long swing trading) vertical lines for 2007, 2008, 2009 and 2010 (YTD).

MM is prety good in predicting major turns. In attachment is a picture that I created.

http://goo.gl/gcIg3

Sent by Kresimir

Why you must develop a market timing method

When you have a process in place to determine market direction you will tend to be on right side of the moves. If the process is right and you follow it and act on the signals from your process, you can avoid big market surprises and can benefit from market moves. This is a video I did on August 28th, 2010 on Members site based on Stockbee Market Monitor a market timing tool which I have used for last 10 years successfully. This is how market looked on the video day:

 Daily Market Analysis August 28, 2010 Video You know what happened next. We had one of the best rallies in a month. In 14 days market went up 10% plus. It was easy time to make money with breakouts after breakouts working. That helped me to be up 52% for the year. But the trick in profitable trading is to be ahead of the curve and not give up hard earned gains.  On September 28th I made another video and the message this time was different. The market had made a big move. The other side of the process kicked in and the Stockbee market Monitor flashed warning signals.

 

This is a long video and the reason is I wanted to focus attention on market risk. It has two important messages. Net result is catching best part of move and retaining gains. Lot of time traders get caught in a vicious circle of making gains during bullish moves and giving up those during corrections. The result is lot of account churn but no major gains. The key to getting out of such vicious cycles is to develop a market timing mechanism which suits your trading style and time frame. As a speculator ability to determine market direction is very critical. As a speculator you are not a buy and hold and pray kind investor. The essence of  speculative mindset is to find ways and means to exploit easily tradable moves. For that you need some method to determine favorable and non favorable periods for your speculative ventures. Market Timing is a vast area of study. At one extreme are people and academics who "claim" that it is impossible to time the market and so they advise Indexing as the best strategy. At the other end speculators spend enormous time and effort designing market timing tools and many use them successfully to exploit the market for years. That is surely not luck. There are many ways to time the market and if you dig deep in to the subject you will find many ways in which people have designed market timing models:

 

  • Economic indicators based models look at macro factors to determine market direction
  • Valuation based models look at extremes in valuation or valuation zones to determine market direction
  • Breadth based models look at breadth of participating issues to determine market direction
  • Historical precedent analysis based models look at similar period in history and find most fitting periods
  • Statistical models look at if X, Y, Z happened with such frequency in the past then if todays situation is similar then what is the probability of next up or down moves
  • Chart based models look at chart patterns
  • Models like that of IBD relies on distribution days
  • Some use indicators
There are many different ways to skin the Market Timing cat. What is required for developing a timing model is thorough understanding of some of these concepts and how you can make them work. There is abundance of published material on this subject. The key really is to move from abstract idea to workable method and process.  If you can do that then it just becomes a matter of exploiting that model and process. If you want to be a consistently profitable trader then you must spend time and effort developing a workable market timing method for your style of trading. 

 

Market Monitor Guide Part 1


Market Monitor is a breadth based market timing system. I use it  primarily to decide which market phase is favorable for my style of breakout trading and which period should be avoided. I also use the Market Monitor to time long term retirement account (401k) fund allocation. 

I developed Market Monitor in the beginning of 2001. The impetus for developing the market monitor was couple big draw-downs after big profits. Prior to Market Monitor I often used to run up my account a lot during bull moves , but end up giving up lot of those profits during bearish periods. In 2001 I decided to do something about it. .

The process of developing Market Monitor started with an exhaustive study of commonly used market timing methods. I read every book, article, research study in public domain on market timing. I spent thousands of dollars on books and data and hundreds of hours and many sleepless nights till I found what I wanted. Everyday morning I would start work on this, experiment with hundreds of things and nothing would work. Everyday evening I would go for a long run near Princeton Lake, generate new ideas, come back and work on it till late in the night and next day the cycle would repeat. Basically for four months I had only one obsession in life, market timing. 

After hundreds of failed attempt I finally found a workable method. Most of the original models is intact since 2001. Over the years I have fine tuned it a bit but core logic is same. Since then I have avoided all major bearish moves successfully. Long standing members of the site who have been following this model since my public blog started will tell you how they avoided the worst bear market in history by using Market Monitor. There are several members who have built their own databases to monitor this information and many have refined and enhanced the model over the years. 

Once I started the blog I started publishing the figures on the blog and from that the spreadsheet evolved. Earlier I use to only look at the data daily and not maintain a running data series. 

When you study market timing you will soon discover that there are two camps. Those who believe market cannot be timed  and those who believe  market can be timed. Essence of speculation is in market timing. Speculators throw market studies and extreme development of skills have developed workable tools to time the market. 

The commonly used models used for market timings are based on:
  1. Technical analysis which looks for chart patterns or other indicators to time market
  2. Fundamental analyst who study fundamental macro factors like interest rates,Fed Fund rates, capacity utilisation, inflation, industrial production, and so on and predict likely market direction
  3. Sentiment analyst who look at investors, mutual funds, active option traders , newsletter writers and so on and look at sentiment extremes to time market
  4. Quantitative analyst who try and find hidden correlations to time market
  5. Cycle analyst who look for cycles in market
  6. Breadth analyst who study the extent of component stocks participating in a overall market move and determined market direction based on breadth trends.

The Market Monitor is based on market breadth. In 2001 I used a 40 years data of market breadth and found some data patterns which indicate likely start and end of a bull move. Other people have done similar studies and have developed variety of Market Timing models based on market breadth. One of the advantage of market breadth models over other models is it uses internally developed data points from market moves to decide market direction. As against that let us say you have market timing model based on length of skirts women wear, then the data point used in external. 

In 2001 when I developed by Market Timing model my goal was very clear: to avoid big draw downs. I knew that I could make big money by holding on to gain. So I was looking at a overall filter which will tell me when to trade my breakout kind methods and when to sit out. That is the basic objective of Market Monitor even today. 

The basic logic behind Market Monitor is that breadth extremes happen at turns and moves are confirmed by breadth cross over. Market Monitor measures the breadth of major moves in market as against other commonly used breadth measure which tends to be noisy. Market Monitor daily measures breadth of various magnitude and duration move. 

Market Monitor generates two types of signals: market extremes signal and market turn signal. In a bull market at some stage the market reaches a breadth extreme as measured by Market Monitor. That indicates likely turn zone or topping zone. Similarly in bear market at some stage market reach breadth extreme. That indicates likely turn zone or bottoming zone. Such extreme signals are often early indicator and actual topping and bottoming can be delayed by few weeks to few months.Rallies which start from such extreme levels tend to be major rallies lasting 8 to 12 months and result in market going up 20% plus. Extreme turn signals on end of day basis are rare. Often a bull or bear market reaches extreme in intraday basis and reverses. The second kind of signal Market Monitor gives is confirmation signal. It is indicated by breadth cross over. Breadth cross over signal safe periods for breakout trading. 

All he data used for Market Monitor is derived using Telechart and the scans used for it are as follow:



4% plus daily


(100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

4% plus down daily


(100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1



25% plus  quarter

100 * ((C + .01) - ( MINC65 + .01)) / (MINC65 + .01) >= 25 and AVGC20 * AVGV20 >= 2500

25% plus quarter

(100 * ((C + .01) - (MAXC65 + .01)) / (MAXC65 + .01)) <= ( - 25) and AVGC20 * AVGV20 >= 2500



25% plus month



C20 >= 5 AND (AVGC20 * AVGV20) >= 2500 AND 100 * (C - C20) / C20 >= 25

25% down month

C20 >= 5 AND (AVGC20 * AVGV20) >= 2500 AND 100 * (C - C20) / C20 <= ( - 25)

34/13 Bull

100 * ((C + .01) - ( MINC34 + .01)) / (MINC34 + .01) >= 13 AND AVGC20 * AVGV20 >= 2500


34/13 bear
 

(100 * ((C + .01) - (MAXC34 + .01)) / (MAXC34 + .01)) <= ( - 13) AND AVGC20 * AVGV20 >= 2500



MMA+

XAVGC3 > XAVGC30 AND XAVGC5 > XAVGC30 AND XAVGC7 > XAVGC30 AND XAVGC10 > XAVGC30 AND XAVGC12 > XAVGC30 AND XAVGC15 > XAVGC30 AND XAVGC3 > XAVGC35 AND XAVGC5 > XAVGC35 AND XAVGC7 > XAVGC35 AND XAVGC10 > XAVGC35 AND XAVGC12 > XAVGC35 AND XAVGC15 > XAVGC35 AND XAVGC3 > XAVGC40 AND XAVGC5 > XAVGC40 AND XAVGC7 > XAVGC40 AND XAVGC10 > XAVGC40 AND XAVGC12 > XAVGC40 AND XAVGC15 > XAVGC40 AND XAVGC3 > XAVGC45 AND XAVGC5 > XAVGC45 AND XAVGC7 > XAVGC45 AND XAVGC10 > XAVGC45 AND XAVGC12 > XAVGC45 AND XAVGC15 > XAVGC45 AND XAVGC3 > XAVGC50 AND XAVGC5 > XAVGC50 AND XAVGC7 > XAVGC50 AND XAVGC10 > XAVGC50 AND XAVGC12 > XAVGC50 AND XAVGC15 > XAVGC50 AND XAVGC3 > XAVGC60 AND XAVGC5 > XAVGC60 AND XAVGC7 > XAVGC60 AND XAVGC10 > XAVGC60 AND XAVGC12 > XAVGC60 AND XAVGC15 > XAVGC60

MMA-

XAVGC3 < XAVGC30 AND XAVGC5 < XAVGC30 AND XAVGC7 < XAVGC30 AND XAVGC10 < XAVGC30 AND XAVGC12 < XAVGC30 AND XAVGC15 < XAVGC30 AND XAVGC3 < XAVGC35 AND XAVGC5 < XAVGC35 AND XAVGC7 < XAVGC35 AND XAVGC10 < XAVGC35 AND XAVGC12 < XAVGC35 AND XAVGC15 < XAVGC35 AND XAVGC3 < XAVGC40 AND XAVGC5 < XAVGC40 AND XAVGC7 < XAVGC40 AND XAVGC10 < XAVGC40 AND XAVGC12 < XAVGC40 AND XAVGC15 < XAVGC40 AND XAVGC3 < XAVGC45 AND XAVGC5 < XAVGC45 AND XAVGC7 < XAVGC45 AND XAVGC10 < XAVGC45 AND XAVGC12 < XAVGC45 AND XAVGC15 < XAVGC45 AND XAVGC3 < XAVGC50 AND XAVGC5 < XAVGC50 AND XAVGC7 < XAVGC50 AND XAVGC10 < XAVGC50 AND XAVGC12 < XAVGC50 AND XAVGC15 < XAVGC50 AND XAVGC3 < XAVGC60 AND XAVGC5 < XAVGC60 AND XAVGC7 < XAVGC60 AND XAVGC10 < XAVGC60 AND XAVGC12 < XAVGC60 AND XAVGC15 < XAVGC60

Data generated from these scans is fed in to a spreadsheet and in some cases a further value is derived using simple calculations. In second part I will look at how each of the Market Monitor  column is interpreted.  

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