CHARTING
Know What To Trade
Trade The Chart, Not The System
by Anthony Trongone, PhD, CFP, CTA
This is why you need to constantly monitor the performance
of your trading system.
Changing economic conditions can affect
the performance of any trading system. Therefore, developing the discipline
to periodically monitor the performance of your systems becomes a constructive
exercise, one that can increase profits or prevent loss.
The proactive trading system (referred to as "GIA," which stands for
"generating interactive assets") is a successful strategy for taking a
position 60 minutes after the opening of trading. As well as discuss its
effectiveness, I will also describe how to proactively react to the running
performance of any trading strategy. By tracking your system's performance,
you can fine-tune your trading strategy to existing price movements. This
will give you the opportunity to either go short when your system is working
or go long when its success fades.
TRADING THE NASDAQ 100
This article investigates the price movements of the NASDAQ 100 index
(QQQQ) over 514 trading days from January 30, 2004, to February 10, 2006
(Figure 1). With a daily average of 94.5 million shares, NASDAQ 100 findings
are generally an accurate barometer of trading technology stocks with active
volume. The purpose of this popular exchange traded fund (ETF) is to replicate
the movements of the NASDAQ 100, and since the QQQQ has a near-perfect
correlation with the NASDAQ 100 futures, you can actively trade it as its
replacement.
Figure 1: an upward trend. In an upward trending market,
any system having you take a long position would produce a profit, but
this proactive system has you taking a short position. With a 1,000-share
short position in the cues, the contrarian investor came away with a $21.07
daily profit. Therefore, you can generate success even when the overall
price movement is antagonistic to your trading position.
MONITOR YOUR PERFORMANCE
With such an impressive rally coming after March 31, 2005, a 1,000-share
long position in the QQQQ was worth an average of $39.03 for each of the
220 trading days. By simply taking a long position in this uptrending environment,
any trading system should demonstrate success. But does the success of
your trading originate from the trading system or from the sustainable
rally?
...Continued in the June issue of Technical Analysis of STOCKS &
COMMODITIES
Excerpted from an article originally published in the June 2006 issue
of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2006, Technical Analysis, Inc.
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