Trend Indicators / Systems

Discussion in 'Technical Analysis' started by Gasherbrum, Nov 22, 2007.

  1. Dear all,

    my efforts are to summarize purely trend-based systems, which are
    1) expressable in a formula / code, thus a real system and no subjective elements
    2) invested in 100% of the time, long and short
    3) the only data input for the system is the price history

    The best reference I found so far is Perry Kaufman's New Trading Systems and Methods. He distinguishes six major trend systems:
    1. Simple Moving Average
    2. Exponential Smoothing
    3. Linear Regression Slope
    4. N-day Breakout
    5. Swing Breakout
    6. Point-and-Figure

    The profitabilities of these systems are correlated, but they have different risk-profiles.

    If you can give me any input to complete this list, I would be very thankful.
    The profitability of a single strategy over time etc. is of no matter for my purpose.

    Thank you
  2. Hello.

    I don't know if these are actually systems... In the true sense. They are trend indicators.

    Can you be more specific about what you are looking for?
  3. Lucrum


    I like HH and HL for up trends and LH and LL for down trends.
  4. There are likely lots of trend following systems. Here is a Zweig system it buys when price values increase and sells when price values decrease.

    Going long 100 shares when the most recent closing price value is greater than the closing price value 100 intervals earlier, selling when most recent closing price value is less than the closing price value 100 intervals earlier is a trend following momentum system.

    Scaling systems are trend following. The idea is buy 10 shares, if price value increases 4 points then buy another 10 shares, keep buying 10 shares every 4 points up, if price decreases 5 points from the prior buy price then sell the entire position and begin a short position. Add to the short position as price values decrease. Cover if price rallies 6 points from the price value of the most recent short sale.

    I recall reading about other algorithms in addition to simple moving average and exponential smoothing.
  5. @ Alex.Samant: I agree with you, I was not sufficiently specific. Indeed, I am looking for indicators that qualify for the three criterias mentioned above. I wanted to use the term system to exclude any subjective elements.

    @ TL Trader: Ok, nice. This indicator can only be calculated on a daily basis, right?

    @ Hook N. Sinker: Thank you, I will consider the first und second proposal. I forgot to mention a forth criteria. Not only should the indicator lead to a market opinion anytime / for at least most of the time, but also should the amount invested be 100% if invested (maybe interrupted by shorter deinvestment periods, then 0%)

    Thank you all!
  6. Lucrum


    I suppose, if daily charts are all your looking at. I use it real time intra-day.
    Not sure you would classify it as an "indicator" per se. Although Ensign does a
    price study that will label highs and lows in real time. 17-26 NQ #F D.png
  7. MGJ


    A two parameter family of spectacularly simple, always-in-the-market, pure reversal systems is the following

    1. Reverse to Long when Indicator(Setting) > 0
    2. Reverse to Short when Indicator(Setting) < 0

    The two parameters are: (i) the choice of which indicator to use; (ii) the choice of settings for the indicator.

    For example, Hook N. Sinker mentioned a system which happens to be member of this family; its parameters are
    (i) Indicator = Momentum
    (ii) setting = 100 bars

    The definition of the Momentum indicator is:
    Momentum = Close(today) - Close(some number of bars ago)

    So "Momentum(k) > 0" is the same thing as "Close(today) > Close(k bars ago)". And that's the system Hook N. Sinker recommended.

    Other typical choices of indicator are "(DMI+ minus DMI-)", "Rate Of Change", "Commodity Channel Index", "RSI minus 50", and so forth. There are a very large number of indicators and so there are a very large number of systems that reverse position based on the reading of an indicator.

    When you allow yourself to write the trading rules so they compare the indicator to numbers other than zero, this simple family of systems grows to incorporate some well known, classical textbook trendfollowing systems. For example the "Channel Breakout" trading system can be specified in terms of the unsmoothed Stochastic Fast K indicator (since Fast K = 100 when you hit a new high and Fast K = 0 when you hit a new low), as follows:

    1. Reverse to Long when unsmoothed Stochastic Fast K > 99.99
    2. Reverse to Short when unsmoothed Stochastic Fast K < 0.01

    Another classic trendfollowing system is based on Bollinger Bands. You can express it in terms of Bollinger's oscillator "%B" as follows:

    1. Reverse to Long when Bollinger's oscillator %B > +2.0
    2. Reverse to Short when Bollinger's oscillator %B < -2.0

    and on, and on, and on. In general, reverse to long when indicator > value1 and reverse to short when indicator < value2. There are thousands of such systems because there are thousands of indicators to base trading decisions upon.