Allan Trends provides trading ideas based on Technical Analysis. Allan covers about 30 stocks, indexes and ETF’s, in multiple time frames, including Hourly Models in SPX and QQQQ for shorter-term analysis.
The preponderance of the evidence has in one market session shifted from a mixed stock market with a bearish bias to mixed stock market with a bullish bias. With the weekly reversal levels now within reach, it is possible that next week will confirm a new bullish trend across a broad spectrum of stock market indices. If so, the trend should last throughout the summer and we can officially say good-bye to the April-May TOP.
But we are not quite there yet and as I have been assessing the market all week, the trend models remain mixed and news-driven rallies (or declines) as we have had from late Thursday through Friday are more often than not aberrations within the trend of the market (and I would think especially suspect when the news is from an insolvent foreign cabal). Still, if the Weekly models follow with their own reversals next week, we may very well have a new ball game.
(click on charts to enlarge)
DJIA Weekly – April-May TOPS
A Guide to Profitable Trading Using Trend Following Signals – An Overview
This is what happened over the course of that last 3-4 years:
In trend following, all investment decisions are made by price movement. Look at the right side of the 2011-12 chart, the choppy period of the past few months. Tough to make money in that kind of environment. Now look at the first two charts, easy to make money there. Put it all together and you get an imperfect trading system, but one that over the long term captures the bulk of every major price movement, trends that last months and in the case of 2008-2010, one can argue years. The cost? Getting through the choppy periods characterized by small losses while waiting for the next big trend, characterized by large wins. But that’s only one market, the stock market. Let’s look at what a diversified portfolio of “trends” can do.
All calculations below are close approximations of results depending on entry/exits intraday or at the close and assuming a true 2x or 3X return from the leveraged instruments. Individual returns could be lower, or in some cases could be higher.
In the past 12 months we have seen the choppiest, trend-less stock indexes since the inception of this service. Of 8 Daily DJIA signals, 4 were wins, 4 were losses and the combined return was 8.7% without leverage, 17.4% using 2X leveraged ETF’s and 26.1% using a 3X leveraged ETF.
In the past 12 months the Daily VXX Model has had 11 trades, 6 wins, 5 losses and a total return of about 80% without leverage of any kind.
In the past 12 months SLV has had 7 trades, 6 wins and 1 loss for a total return of about 46% without leverage and about 92% assuming 2X leverage.
The trend table below shows 19 stocks (including a few sectors). Of those, only two are showing losses (although one is a new signal as of Friday, so that shouldn’t really count as a “win”). The average gain is 9.93% for the Daily Models. It would be hard to pick three or more stocks to follow and not average close to at least 10% returns. Note also that most of the trades are in for less than three months. Extrapolate that into a year. Maybe 40% is a little high, but that’s what is possible.
Now add all of the above and divide. My point is that this is not a get rich quick system (unless you are good at options) but it works on the assumption of a diversified portfolio, the discipline of taking every signal and the patience to wait for those huge trends when the 90-100% gains show up.
In Trend Following by Michael Covel (which by the way got me started in trend following as a strategic trading system back in 2009), he points out that the best performing hedge funds in the past 20 years have all been trend following funds. They had good years, they had bad years, but most of all, they had some very, very, very, good years. That is what I am trying to build here, a methodology, especially for stock indexes, that will pay off when the next 2008 comes around. We are overdue.
The bull and bear markets in gold, silver and oil are also perfect examples of trends that last months and sometimes years. Throw those into the mix and we should always have something that is trending and making us money every year, sometimes, big trends and big money. With the advent of these leveraged ETF’s, sometimes 2 and 3 times big money.
SLV Daily Trend Model
I intended to go into more specific strategies in this update, but I don’t want to deluge you on this Saturday (before my birthday) with the pontifications of your guru. I promise to pick up the slack in the coming weeks with some real time trading ideas during market hours. I keep pushing the expensive expanded service and by the rate of renewals, it appears to me that most all subscribers who are paying the extra $199/month are getting their money’s worth. We have a new UVXY 30 minute trading model that is starting to knock it out of the park. As I maintained all along, I’m determined to make all of you money, whether its just the standard service or both. We are going to have a profitable summer and fall, probably starting after next week’s July 4th uncertainty due to light, yet possibly volatile conditions…… I garoooooontee it!
UVXY 30 MInute Trend Model
Weekend Trend Models
(click on table to enlarge)
June 30, 2012
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