Conditional Optimized Moving Average System

CONDITIONAL OPTIMIZED MOVING AVERAGE SYSTEM     

The Conditional Optimized Moving Average System™ (COMAS) incorporates the pivot point moving average approach with another variable. This method combines two moving averages. The resulting system provides a powerful crossover trigger to enter the market as well as an indicator of the move’s strength with the slope and the difference, or separation, of the moving average lines.

A crossover provides both the entry and the exit signals, in addition to a set of rules or conditions. This system works on any time frame, five minutes and greater, and in any high-volume market. It is an excellent short-term trading method for highly liquid markets such as forex, for certain futures markets, and for stocks that have ample trading volume. One variation of what I use in my trading library with the Genesis Software and teach in our Trading Triggers University is the one-period pivot point with the three-period moving average of the pivot point. There are other combinations you can use, such as a five-period pivot point moving average of the pivot point with a two-period simple moving average of a close. I test various time periods and variables for my parameter settings because of the various conditions each market has. After all, bonds move differently than the e-mini-Standard & Poor’s (S&P) 500, the mini-Dow, the Russell, or the Nadsdaq does. You may agree that forex currencies move differently than individual stocks. The bottom line is this: I use the two moving average values to help me identify a shift in momentum of the market; and then as the conditions change, such as a close above or below the values of both moving averages, I use the pivot point filtering method to help me identify a potential profit target.

For the purposes of this book, let me show you how to integrate the pivot point with the three-period moving average of the pivot point. In Chapter 5, I disclosed how to filter the pivot support and resistance levels by labeling the market condition as neutral, bullish, or bearish. You can also chart and track the conditional change of the market by plotting the directional change in the two moving average settings. Figure 6.7 shows both moving average values declining; but as the pivot point crosses above the three-period moving averages, it alerts us that the internal market condition is changing to bullish. Once both moving averages start to point up and the pivot point is above the three-period pivot point average the market condition confirms we are in a bullish trend. As a general rule, a trader would look to buy from an area of support in a market that is trending upward (buy pullbacks).

Figure 6.8 shows a five-minute chart on the e-mini-S&P 500 futures. In the preopen outcry session around 8:00 a.m. (yes, you can trade preopen outcry session), notice that the market is trading sideways and that the moving average values are as well. Then by 8:30 a.m., the market turns lower and goes into a congestion phase trading sideways until 9:45 a.m. The tall white candle closes above both moving average values and above the prior time period’s high (which was a hammer pattern). As the market starts to move in a bullish trend mode, focus on the action of the moving averages in relation to prices. The pivot point is above the three-period moving average pivot point; and there are higher highs, higher lows, and higher closing values above both moving averages and past highs. This series of conditions continued until after the top was formed by a shooting star at 10:15 a.m. The trigger to go long occurred after the breakout of the sideways range at 1282.25 and after the trigger to exit the trade was initiated at 1288. This was a 5.75-point gain per contract.

The focus is that prices traded above both moving average values and that the three-period pivot point moving average acted as support all the way up. Both moving averages were moving in tandem with each other, and the slope of both averages was pointing in the direction of the trend.