Strategy Selection in Stock Market

WHICH STRATEGY TO SELECT?    

If buying the futures markets seemed too risky, you at least have a situation where you can explore longer-term low-risk/high-reward options strategies such as S&P call options. That was my recommendation in my weekly newsletter. You could apply this analysis to buy Standard & Poor’s Depositary Receipts (SPDRs), Diamonds, Nasdaq QQQs, or options on those  exchange traded funds. That is one reason why I spent time going over those products in Chapter 1. Seriously, if you are just a day trader in futures or forex or simply a stock trader, diversification is a trader’s best friend. Anyone who is after profits and making money can apply these techniques. To any investment vehicle, a trading system can be programmed to alert you when dojis form near pivots support or resistance levels. Moving average crossover features using various parameter settings can also be applied. This form of market analysis is adaptable and very versatile for integrating in a trading system.

WHAT ABOUT THE MACD?    

Pivot point analysis enhances what Stock Trader’s Almanac reveals. Looking at the chart again in Figure 11.2, you see how the MACD indicator gave a buy signal triggered by the zero-line crossover and a moving average crossover on October 24. This was generated on the close at 1202.25.

Not knowing the risk you want to take with the MACD seasonal buy signal, if you bought at that price at that time, the most pressure you took on the trade was 22 points, slightly more than the high close doji trigger signal. Also the MACD signal came a bit later. This is why all traders can use pivot point support and resistance analysis to help time trades better with both elements, time and price.

I went over how to use the pivot point as a moving average in Chapter 6. In Figure 11.3, I took the liberty of highlighting the pivot point to illustrate the slope (or direction) of the moving average. Once the market hits the pivot support, the market moves in a consolidation phase; but the pivot point average is sloping higher, indicating a bullish bias. Granted, you always want to see immediate results as a trader; but using the seasonal factors identified by Stock Trader’s Almanac combined with pivot point support targets and a pivot point moving average component gives you a much better timed entry and method to identify a trend reversal.

One more advantage of incorporating the pivot point average is that as the market finally blasts off, the moving average component generates a sell signal and the histogram makes a negative zero-line cross.

However, that is the opposite of what prices are showing from the candle patterns, as we do not see a succession of lower closing lows. In addition, the pivot point moving average is sloping higher, once again indicating a bullish bias. From a systems programmer looking for a defined set of rules, when you develop your own system, it is important to make sure that your set of criteria or the series of conditions that exist all need to be in sync, such as all must be generating sell signals, before making your entry or exit triggers.

In Figure 11.4, the Genesis Software has my algorithms programmed with variations of what was covered in this book to show you how you can develop your own personal “black box” system. As this illustrates, for my day trading program, I use both the 5-minute and the 15-minute periods with the e-mini-S&P, the Chicago Board of Trade (CBOT) mini-Dow, 30-year Treasury bonds, euro currency, and the spot forex British pound. Except for in this figure, the one chart that is second from the right is a 5-minute chart on bonds; and under it is a 15-minute chart on the euro currency.

I use this system to help confirm buy and sell signals, as indicated with the arrows. When we are at the projected support targets, which the software indicates by green support lines, arrows appear, indicating to go long. The chart on the left is the e-mini-S&P; the 5-minute is on top and the 15- minute is beneath it. See how arrows point up simultaneously, which indicates a buy signal, especially as the market is near support. The chart second from the left is the mini-Dow with the 5-minute on top and the 15- minute beneath it. The 5-minute time period generates a buy signal against the pivot point support targets simultaneously with the e-mini-S&P. This corroborates the buy signal, as it has developed in both markets. It is also confirmed in the 15-minute chart beneath it.