Holy Grail Indicator For Dow Jones

[trendmagic]

We have developed a proprietary signal that we are currently using to call bottoms in the DOW JONES with a high degree of certainty. This indicator becomes extremely handy when markets seem to be going into a "black hole", or when all the Bears come out in full force, putting a negative spin on the current market climate. This "Mob" mentality is what the bulls feast off of and that is exactly what this indicator tells you. It predicts, with a high degree of certainty, that the carnage is going to stop.

Displayed here is an analysis back to 1998 using this indicator, detailing out the % gains from low to high so that we can try to interpolate with a high degree of certainty the ranges for where a top could form.

Based on the system we have developed...here is how we would have fared using our little friend. Looks like an average of 9.15%. Lets take 1% off this number as buy and sells obviously would not have been exactly on. Sell signals are generated by using our own technique utilizing a shorter term moving average on top of the indicator.

So were looking at 8.15% average since 1998, including 13 winners and 2 losses. The system assumes a 3% risk to the downside. Now, to make matters clear, our sell signal got us out early on some of the rallies...ie. 2003 March. We will continue to fine tune.

The blue line indicates a buy signal, the pink indicates a sell signal

1998 - 2000

2000 - 2002

2002 - 2004

2004 - 2006

System Backtesting Results:

Date Buy Signal Low of day Date Sell Signal High of day % gain Low to High
8/28/1998 7951.30 11/11/1998 8936 12.4%
9/28/1999 10081 11/26/1999 11055 9.7%
2/28/2000 9842.57 3/29/2000 11101 13%
10/17/2000 10026.5 11/8/2000 10902 9%
3/21/2001 9106.54 5/14/2001 10879 19%
9/18/2001 8861 9/19/2001 8595.17 -3%
9/24/2001 8242 11/28/2001 9867.2 20%
6/13/2002 9491 6/27/2002 9206 -3%
7/24/2002 7532.66 8/30/2002 8783 17%
3/12/2003 7416.64 3/26/2003 8285 12%
5/21/2004 9939.27 6/14/2004 10401.3 5%
8/10/2004 9815.47 9/14/2004 10340 5%
10/25/2004 9750 11/16/2004 10550 8%
4/18/2005 10020.93 6/21/2005 10630.36 6%
10/13/2005 10156.46 11/29/2005 10959.79 8%

 

[jmreeve]

Congratulations.
You have mastered the art of fitting functions to data.

 

[rog1111]

pardon me asking, but perhaps you could clarify who this "we" is, exactly ?

rog1111

 

[Directional]

15 trades is hardly a statistically significant sample of data - more like a crapshoot. Try coming back when you have 200+ out of sample trade examples for an intelligent discussion.

 

[trendmagic]

Beauty is in the eye of the beholder. Perception is key

Congratulations.
You have mastered the art of fitting functions to data.

 

[trendmagic]

I have a trading associate who I work with.

pardon me asking, but perhaps you could clarify who this "we" is, exactly ?

rog1111

 

[trendmagic]

Hey tough guy,

I dont appreciate pikers judging my work with no basis, you dont care to understand how I trade this indicator...you care about smoothing your ego. If you want to engage in intelligent conversation, try asking a few questions first. For the readers....I apologize for the hasty post but this kind of behavior is what makes me rethink posting on message boards.

15 trades is hardly a statistically significant sample of data - more like a crapshoot. Try coming back when you have 200+ out of sample trade examples for an intelligent discussion.

 

[frugi]

Trendmagic,

Arbitrageur may have been a little brusque but there was absolutely no need to respond so rudely to his entirely valid observation. Besides, why should he be expected to "ask a few questions first" as

a. Your first post does not in any way invite questions or feedback and
b. I doubt he is at all interested in your indicator?

Anyway, since you have not disclosed any details regarding the indicator, it seems to me that the potential for discussion is extremely limited.

I also note that your website offers a "90 day free trial" which presumably means that you intend to charge for this indicator or some other "system" at some point. You should be aware that advertising is strictly prohibited on this forum and that your posts thus far could be construed as such. Intelligent discussion is one thing, flaunting a "Holy Grail" while being rude to those who point out its obvious inadequacies quite another.

Yes, it's probably time for a "rethink". Consider this a polite warning.

 

[trendmagic]

Frugi,

To be fair..
I thought this was a discussion board and questions and feedback were expected without me explicitely asking for them. Secondly, if someone is not interested in a post, why even bother responding, especially in the manner that he did? Trust me...I didnt just explore on the weekend and find this. It has taken months to define and redefine this piece of work.

I cannot disclose the parameters of the indicator as it is proprietary, however, since this is a board for indicators, I thought I would post it. I welcome feedback...I always have and always will. That is how I get better.

I would like to touch on another point. A system is not "inadequate" if it does not produce massive volumes of data points for buy and sell signals. I actually look at it the other way. Reliable systems wont produce that many buy an sells. It is by design that I do not have 200 datapoints for analysis. I want to catch the big moves and for my purpose, this does just fine. I buy call options every time it hits.

Secondly, my website only says 90 days free trial because mysmp does not currently have an option to put unlimited free trial. I do not have any plans at the current moment to charge for my service. This was primarily intended for family and friends.

Trendmagic,

Arbitrageur may have been a little brusque but there was absolutely no need to respond so rudely to his entirely valid observation. Besides, why should he be expected to "ask a few questions first" as

a. Your first post does not in any way invite questions or feedback and
b. I doubt he is at all interested in your indicator?

Anyway, since you have not disclosed any details regarding the indicator, it seems to me that the potential for discussion is extremely limited.

I also note that your website offers a "90 day free trial" which presumably means that you intend to charge for this indicator or some other "system" at some point. You should be aware that advertising is strictly prohibited on this forum and that your posts thus far could be construed as such. Intelligent discussion is one thing, flaunting a "Holy Grail" while being rude to those who point out its obvious inadequacies quite another.

Yes, it's probably time for a "rethink". Consider this a polite warning.

 

[frugi]

Frugi,

To be fair..
I thought this was a discussion board and questions and feedback were expected without me explicitely asking for them. Secondly, if someone is not interested in a post, why even bother responding, especially in the manner that he did? Trust me...I didnt just explore on the weekend and find this. It has taken months to define and redefine this piece of work.

I cannot disclose the parameters of the indicator as it is proprietary, however, since this is a board for indicators, I thought I would post it. I welcome feedback...I always have and always will. That is how I get better.

I would like to touch on another point. A system is not "inadequate" if it does not produce massive volumes of data points for buy and sell signals. I actually look at it the other way. Reliable systems wont produce that many buy an sells. It is by design that I do not have 200 datapoints for analysis. I want to catch the big moves and for my purpose, this does just fine. I buy call options every time it hits.

Secondly, my website only says 90 days free trial because mysmp does not currently have an option to put unlimited free trial. I do not have any plans at the current moment to charge for my service. This was primarily intended for family and friends.

Thanks for your civil response. We suffer a large number of snake oil vendors trying to tout their wares in here so members, including myself, are apt to be very wary when a new member makes a presentation such as yours. I'm sure you can understand why. I apologise if your intentions have been unfairly miscontrued and I will take you at your word regarding the free trial and that you are not trying to lure new customers.

However given the nature of what you have provided so far there is, as I said, virtually nothing to discuss, so in turn I would ask you to provide something more substantial for us to chew on.

 

[dcraig1]

I cannot disclose the parameters of the indicator as it is proprietary, however, since this is a board for indicators, I thought I would post it. I welcome feedback...I always have and always will. That is how I get better.

I would like to touch on another point. A system is not "inadequate" if it does not produce massive volumes of data points for buy and sell signals. I actually look at it the other way. Reliable systems wont produce that many buy an sells. It is by design that I do not have 200 datapoints for analysis. I want to catch the big moves and for my purpose, this does just fine. I buy call options every time it hits.

The point is that there is nothing to provide feedback on. All you have presented is a bunch of charts with some vertical lines. Nothing else. No discussion of princples, let alone indicator parameters. No reader can learn anything from this, and conversely you cannot receive any constructive feedback other than the obvious observation that only 15 data points smells of at best curve fitting. There is little else to add to this discussion unless you have some further contribution to make.

 

[Directional]

maybe my initial choice of wording was poor, but as others have said my point was that since your system only takes an average of two trades a year, its still a little early in your "sample" to determine any probability ratios. I was being ironic when I said "come back when you have 200+ trades" since that meant we'd be expecting your next post around 2098, but perhaps I was being too subtle and you missed the jibe.

13 out of 15 winners does not give any statistically significant indication that the success rate is or will continue to be 86% since by the time you've got to 100 trades the numbers will probably say something very different and not a "high probability" at all..

Since the markets motion is somewhat brownian in nature, have your tried "zooming in" and testing the same principle on a shorter time frame such as 15 or 60 minute intervals to generate more setup for the sample and see if the method is still valid? if its valid on daily bars, it should still be valid on hourly bars since the chart patterns look the same if its a purely technical based analysis, and if it isnt valid then as jmreeve mentioned that would suggest the system is fit to the small sample of data that you have demonstrated.

Since its currently long only, could you not in also invert the entry criteria to generate short trades and double your sample base data?

 

[TWI]

Good luck.
Seems to be long periods of sitting on hands. This is definitely somethign that would be hard to trade stand alone. How does it perform on shorter timeframes?

 

[Mayfly]

Trendmagic,

Doesn't the slow Stochastic (20,3,3) give similar - and possibly superior - results on both the Dow & FTSE weekly charts, particularly where this (the stochastic) is calculated on the close? For clarification, the signal only works on the low and when it turns up, i.e. that's the turning point. For that matter, I think you'll find that it works quite well on the daily too, if you're into that sort of thing.

HTH

Cheers

Mayfly

 

[Spam Man]

I welcome feedback...I always have and always will.

OK my friend - welcome this : Your indicator has a stupid name. I've seen The Da Vinci Code and it turns out that if you even come close to acquiring "The Holy Grail" then some shady religious organisation will dispatch an angry albino monk to beat the living daylights out of you with a big stick. IS THAT WHAT YOU WANT?!?!! Weirdo. You should re-name it immediately to something with a wider appeal. Can I suggest "The Lovely Cup Of Tea Indicator".

That is how I get better.

I hope you get better soon.

 

[trendie]

trendmagic,

have you applied your indicator to other charts apart from the Dow ?
have you tried it on FX markets ?
as twalker has said, there is too much time in between trades.
this would also help bump up the numbers of trades, etc.

have you actually traded the signals, or is this a retrospective analysis ?
this is particularly important if you are going to offer a "signal service".
the web is awash with people with fantastic paper systems that dont hold up well in forward-testing.

but, on the whole, looks interesting. ( you could try adding ADX to stay in the trades longer, as you seem to bail out too soon. )

you could also start forward-testing here by posting real-time signals.

 

[rols]

You should re-name it immediately to something with a wider appeal. Can I suggest "The Lovely Cup Of Tea Indicator".

Eureka! This indicator and my Rich Tea Minute Trader strategy may be a marriage made in heaven. A bit of jiggling on the old time frames and who knows.....

Frugi has suggested Madelines and Chris W Bourbons

Here is a strategy and it's free....

Seems to work quite well on YM but careful not to get your fingers burnt.

1. Just before the open make a nice cup of tea - I find PG Tips as good as any.
2. Take a fresh packet of Rich Tea biscuits and remove one and keep at the ready.
3. Wait for the first minute candle to form then dunk the biscuit in the tea about halfway and hold in the hot liquid for approx 5 seconds.
4. Gently lift the biscuit from the tea and hold above the cup.
5. This is the important bit: If the dunked half falls back into the cup then SHORT at market, if it remains intact then go LONG. Try and time step no. 5 to coincide with the third candle.
6. Now make another fresh cup off tea, sit back and watch and exit on the completion of the 8 minute candle.
7. If successful then repeat steps 3 - 5 again as many times as you like or until you run out of biscuits.

If not successful try using chocolate digestives....

The above strategy is intended for educational purposes only and trading futures with scalding hot liquids can result in a nasty accident.

 

[TheBramble]

trendmagic - a few questions as you appear to be asking for feedback.

1. What's the purpose of doing this analysis and publishing the results and presumably your forward predictions on your website? It's obviously more than just a friends & family exercise as the effort involved in setting something up for mass consumption is non-trivial. I'm not going to go down the 'bad nasty commercial interests' route as that has already been done. But if it's not with a view to eventually offering this service as a commercial venture, what is it? What's your motivation? Just interested.

2. You mention you use options. Couple of things then. Does your strategy indicate which strikes or series to go for?

The variation in the length of time the trades are held is quite wide - one day to some months. This makes the selection of the appropriate option a significant factor as time decay is going to be significant (obviously) on the longer trades. Does your system have any basis for predicting the potential length of time the trade will need to be held? If not, options are probably not the best option. :cheesy:

Plus your claimed percentage gains (buying low of day / selling high of day) are based on the underlying level - not the value of the option you have selected - which will be significantly greater given the gearing options provide - when they win. It's not therefore a really valid comparison. Unless you plan on buying CALLS just for your own implementation of your strategy and are going to let others decide how to best trade your signals. In which case, it probably is.

3. Drawdown. Relatively few signals (no, not a bad thing per se) of indeterminate length of time to hold. Do you have data for drawdown?

I apologise for not reading the entire thread (time is a a REAL premium at the moment for me) before posting this, but if you've covered any/all of these points already, just tell me to 'do my own research' and I'll take it on the chin, quite deservedly. Otherwise, I'll be interested in your responses.

 

[trendmagic]

Yes, I have applied this signal to the IJR..and it works like clockwork there as well. There are others but I am still backtesting. As for actually trading the signal....yes I have...and it is documented on other chat rooms. I have traded the April, October bottom of 2005 and the most recent one of June.

I really do not plan on offering a paid service to anyone at this point. That was not my intent with the website. It was for my friends and family as they kept asking me for their analysis.

trendmagic,

have you applied your indicator to other charts apart from the Dow ?
have you tried it on FX markets ?
as twalker has said, there is too much time in between trades.
this would also help bump up the numbers of trades, etc.

have you actually traded the signals, or is this a retrospective analysis ?
this is particularly important if you are going to offer a "signal service".
the web is awash with people with fantastic paper systems that dont hold up well in forward-testing.

but, on the whole, looks interesting. ( you could try adding ADX to stay in the trades longer, as you seem to bail out too soon. )

you could also start forward-testing here by posting real-time signals.

 

[trendmagic]

Spam....you are a detriment to an investor community. Why dont you spend your time actually adding value to something you do instead of acting as a leech wherever you go.

I liked this email from you..

"You created a website just for your family and friends? In that case here is some more of the feedback that you so desire : You are the world's biggest nerd."

I find it quite disheartening that a poster like this is allowed to continue posting to a chat room.

OK my friend - welcome this : Your indicator has a stupid name. I've seen The Da Vinci Code and it turns out that if you even come close to acquiring "The Holy Grail" then some shady religious organisation will dispatch an angry albino monk to beat the living daylights out of you with a big stick. IS THAT WHAT YOU WANT?!?!! Weirdo. You should re-name it immediately to something with a wider appeal. Can I suggest "The Lovely Cup Of Tea Indicator".




I hope you get better soon.