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I wouldn't call the MACD an indicator of sentiment but it does a respectable job as a momentum indicator. The MACD can turn down while prices are going up (generally they're going up slowly ie. momentum has slowed) and the MACD can turn up while prices are going lower.

I like the MACD especially the divergence signals as a warning indicator. The appeal of the MACD for me is that there are two lines. The MACD and a signal line. This creates nice objective crossovers. The MACD also has a horizontal line at zero. Using this, one can segment the MACD into four stages.
(i) MACD crosses up, but below zero - cautiously bullish, start investing
(ii) MACD bullish and above zero - fully bullish - be fully invested
(iii) MACD bearish but above zero - cautiously bearish - reduce portfolio heat
(iv)MACD bearish and below zero - fully bearish - minimal portfolio heat or none.

If you prefer the objectiveness of two line crossovers then two MAs will do what you want with less whipsawing than a MACD. One can tune the two MA lines to suit your risk tolerance.

Try as we might, we will never produce something that works well all of the time. The corona virus selloff in 2020 was just too swift for any combination of indicators on weekly charts. All the genuine trend traders must accept that there will be times when they have to cop a 20% draw down.
 
Hi @Skate,

I hope this question is ok for this thread...

Why do you use commsec as your broker, since there are a few others (for example CMC, IB, Selfwealth) with lower brokerage?

Commsec must have features worth the extra brokerage, I just don't know what they are. I will start off trading similar to you, i.e. XAO, weekly, so don't need access to O/S markets or other securities.

(Trying to decide which broker to use...)

Thanks!
 
Linus van Pelt said:
Hi @SkateWhy do you use commsec as your broker, (Trying to decide which broker to use...) Thanks!
Click to expand...

eSuperfund
My SMSF reporting is handled by eSuperfund & they require direct bank feeds. When you join Superfund you have two options when it comes to selecting a trading account (1) CommBank (trading with CommSec) or ANZ (trading with EBROKING ) so for me it's a no brainer.

Which broker?
Deciding which Broker to use is your "second decision" after deciding on a Portfolio Trading Account Balance. (trading funds)

Skate.
 


@peter2 thanks for your input but I believe you have failed to realise how I'm using two independent MACD's to catch the "upside" & "downside" sentiment of the markets. I'm not using the MACD as intended but using the MACD as a dual purpose filter: (1) as an "on/off switch" & (2) to define the "Market sentiment". My research "so far" has been pleasing & the results posted tonight reflects the improvements over using a stock standard "Index Filter".

As you said: "I wouldn't call the MACD an indicator of sentiment"
The definition of the word sentiment means "a view or opinion that is held or expressed" & I don't believe your words fall short of that definition.

Let's me annex "sentiment" to your bolded words below
(i) MACD crosses up, but below zero - represents a cautiously bullish sentiment, start investing
(ii) MACD bullish and above zero - this condition represents a fully bullish sentiment - be fully invested
(iii) MACD bearish but above zero - this is the first sign of a cautiously bearish sentiment - reduce portfolio heat
(iv)MACD bearish and below zero - trading is not advised with a fully bearish sentiment - minimal portfolio heat or none.

I'm confused
I'm unsure what are you're implying. Are you saying (a) I've used the incorrect terminology of the word "sentiment" or (b) the MACD is not suitable to gauge market sentiment? or am I missing the point of your post entirely?

I do like the way you have described a "divergence signals" as a warning indicator.
I'm first to admit the MACD can be used as a "warning indicator" as well as "sensor" of current market sentiment to the upside. As you have expressed the MACD has a "range" of sentiments that I've taken advantage of. Using an Index Filter, a simple moving average of the index can only be used as a binary signal. (either on or off)

If you have an alternative indicator
If you have an alternative market-based indicator to "define a bull market from a bear market" you might wish to share it with me (other than a MA or EMA). My mission was to find an indicator, an alternative to an "Index filter". The new filter had to have the ability to not only define a bull market from a bear market but it also had to be reactive enough to identify conditions quickly & accurately. I based my research on finding an indicator that could predict the best time to be in the markets. Why? In order to filter trading opportunities in a more efficient way.

Skate.
 

There is a fine line between enough information & information overload
Yesterday's series of posts were designed to encourage others to think of alternative ways to gauge market sentiment. By filtering those sentiments we can take advantage of trading opportunities in a more efficient way.

Thinking a little deeper "is there a better measure than the MACD"?
There are of course endless indicators that will do the job & yesterday I concentrated on the (MACD) as the switching indicator. Today I want to concentrate on the (VIX) to define a bull market from a bear market. The VIX is a forward-looking index that shows the expected volatility in the S&P 500 options market for the next 30 days, so why wouldn't I want to harness this power. Talk about a crystal ball.

"But there's more"
What if we take the VIX one step further & not only use it as a "Fear Switch" to enter the markets but as a buy condition as well.

Let's not waste the power of a "fear index." (VIX)
The VIX being a forward-looking index solves the issue of lag that most indicators suffer from so it's perfect to use as part of an exit strategy.

Skate.
 

The (VIX) Volatility Index "fear index."
Another name for the (VIX) is the "fear index." Why? Because of its tendency to move significantly higher during periods of market fear & uncertainty. The $VIX shows the market's expectation of the next 30-days of volatility.

Volatility Index (CBOE)
For those who use Norgate Data (NDU) the symbol is ($VIX).

Now the questions
1. How do we harness an American crystal ball & apply it to our Australian market?
2. Is there a correlation between the S&P 500 options market & our market?
3. How do we use the VIX not only as a binary "switch filter" but as a "Sentiment Filter" as well?
4. How can we use a foreign market as our "Index Filter" to our advantage?
5. How do we harness the power of "fear" & incorporate it into our exit strategy?

I've been thinking what if I had the power to look 30 days into the future
The (VIX CBOE) combines the price of multiple options & derives an aggregate value of volatility, which the index tracks allowing for a more accurate view of investors expectations on future market volatility.

WOW, that's handy to know but really what does that mean?
I often hear "buy low & sell high" but nobody explains how it can be achieved. Well here's the difference, I'll explain how we can squeeze an advantage from the (VIX) & how we can apply that advantage to a trading strategy in the next few posts.

Skate.
 

First off a bit of background information about the (VIX)
The (VIX index) represents the price of a commodity, interest rate or exchange rate. It's a "calculated index" based on the price of options of the (S&P 500). The estimation of volatility for these S&P options between the current date & the option's expiration date forms the (VIX).

So where is the power I speak of?
The power is in the knowledge that when the (VIX value) moves higher than 30 it's usually associated with a significant amount of volatility as a result of investor fear or uncertainty. Correspondingly on the flip side knowing when the (VIX value) is below 15 ordinarily correspond to less stressful or even complacent times in the markets. Now there's some powerful information to use.

As the saying goes
"If what you learn leads to knowledge, you become a fool - but if what you learn leads to action, you can become wealthy"

I'm starting to believe in the power of the (VIX)
I'm thinking it would be "advantageous" knowing the sentiment of investors 30 days in advance & by applying some fancy mathematics we harness the power in real-time (that today's time). Yep, that's the "power" of the (VIX)

I'm trusting it's "easy peasy" so far
The next few posts will get a little more intense but I intend to explain the process succinctly in plain English, well that's my intention.

Skate.
 
Not to reveal any of my trade secrets but using the VIX, you can get a pretty good guess statistically of the asx asx move, before the open.
Disclaimer, it is used in most of my current strategies in one form or other
 

Why talk about Investors when we are traders?
Well, it's a fine line we walk "pigeon-holing" one trading group to another but at times we can be both. Sometimes traders & investors like to "pigeon-hole" themselves into one type of investment/trading style. There is a distinction between being an investor & a trader. From my experience, it generally boils down to the trading timeframe (to me at least).

My definition
Investors invest in long time-frames whereas traders deal in shorter durations. A simple definition that works for me.

The (VIX) is "Implied Volatility" Index
So what does "Implied volatility" mean in English?. Simply "Implied volatility" is a metric that captures the market's view of the likelihood of changes in a given security's price. Investors & traders can use it to project future moves (supply & demand) often "employing" the (VIX) to price an options contract, but we'll apply (VIX) in a completely different way to suit our trading strategy. "Implied volatility" is not the same as "historical volatility", so let's not confuse the two. The "historical volatility" figure will measure past market changes & their actual results. "Implied volatility" is forward-looking.

Summary
1. Implied volatility is the market's forecast of a likely movement in a security's price.
2. Implied volatility is often used to price options contracts but not for us.
3. High implied volatility results in options with higher premiums and vice versa.
4. Supply/demand & time value are major determining factors for calculating implied volatility.
5. Implied volatility increases in bearish markets and decreases when the market is bullish. (WOW, that's music to my ears, something that I can work with)
6. Implied volatility is the power I intend to harness.

Skate.
 

Let's stay with "Implied volatility" the power I intend to harness
"Implied volatility" is a metric used to estimate future fluctuations (volatility) of a price based on certain predictive factors as @qldfrog has eluded to. "Implied volatility" is commonly expressed using percentages & standard deviations over a specified time horizon. This "time framing" will become important in how I will use the (VIX) going forward.

Moreover
The (VIX) when used as a "market sentiment indicator" is completely different when I use it as a "trade entry condition". Using the (VIX) as an "exit strategy" requires plenty of mathematical gymnastics so it works efficiently.

The (VIX) is a "fear filter"
When applied to the markets, "Implied volatility" generally increases in "bearish markets" where I believe the prices will decline over-time. On the flip side, when "Implied volatility" decreases, the market is deemed to be bullish. I believe when the markets turn bullish prices will rise in the near future. Bearish markets are considered to be undesirable, hence riskier.

Implied volatility does not predict the direction in which the price change will proceed.
For example, high volatility means a large price swing, but the price could swing upwards or downwards, sometimes fluctuating between the two. Volatility, in this case, starts to become our friend because it's all about "predicting changes", changes we can take advantage of.

Skate.
 

How am I going to using Implied Volatility (VIX)
Implied volatility (VIX) will help me quantify market sentiment. I'm going to code a formula that can manipulate the (VIX) in such a way to estimate the size of the movement & use those calculations in three different ways.

Let's cut the crap
How will I use the (VIX) to quantify "market sentiment" using the uncertainty & fear displayed in the (S&P 500) options index? By manipulating the (VIX) in a "unique way" I'm sure there will be an increased benefit to my trading, let's see.

How will I increase the profitability of my trading (By three different ways)
1. I'll use the (VIX) in its raw state as a direct "Sentiment Filter" (remembering the VIX is a 30-day forward-looking index)
2. I'll code the (VIX) using a "multi-day system" calculating the differences between highest high value & lowest low value averaged as an entry condition. To achieve this it will require complex coding.
3. I'll also be using the reverse calculations for an exit condition. When the market is hot, it's hot & when it's not, it's not, that's the simple logic of using the (VIX)

Summary
The (VIX) is supplementary to a strategy, "not a stand-alone strategy" by any means but with careful coding, I believe this trading idea would have merit & legs to perform.

Skate.
 

Skate, in regards to your system development what is the reason for not getting the full Norgate package? That way at least you can test accurately over a statistically large enough data set. I saw you said you didn't have the full set with historical constituents? or did i miss something..

Because of the smaller test periods we already have a pre-conceived idea of what the results will be.

I know you say backtest results mean 'Jack' but surely a larger number of trades/ time period has more weight in assessing performance than short time frames with <100 trades.
 
Love your work Skate.
Have you considered coding actual orders?
I would think with your apparent ability there's potentially room for a consistent minimum of 2 to 3%? range (stock dependant) better entry and exit prices?
Obviously not the action strategy though but a future strategy?
 
Last edited:

Well, I finally got here
"The proof of the pudding is in the eating". The real value of using the (VIX) can only be judged from practical experience & backtest results - not from a theory about using the (VIX).

Practical examples of using the (VIX)
This is a backtest from 1st July 2019 to 9th June 2020 (today) as a direct comparison between using an "Index Filter" compared to using the "VIX" (2019/2020 financial year to date)






Using an "Index Filter" only
This is a backtest result from 1st July 2019 to 9th June 2020 (today) using an "Index Filter" only





Examples of using the (VIX) in combination
This is a backtest result from 1st July 2019 to 9th June 2020 (today) using the "VIX" combo.
The (VIX) backtest result include the application of (1) the "VIX Sentiment Filter", (2) the "VIX entry condition & (3) the "VIX exit strategy" a combination of the three all working in unison.

Using the "VIX" combo



Before someone asks
I'll post a backtest from 1st January 2020 to 9th June 2020 (today) as a direct comparison between using an "Index Filter" & the "VIX" - I won't be uploading any more comparison backtests, two backtest results will have to be sufficient.

Skate.
 

willoneau said:
Hi Skate, how does it compare when taken from the start of the year?. As there were good gains at the beginning of the year.
Click to expand...

Credit where credit is due
@ducati916, is a valuable contributor to the "Dump it here" thread & without his help with the (VIX) I wouldn't be able to use it to my advantage.

Practical examples of using the (VIX) (2019/2020 financial year to date)
This is a backtest results from 1st January 2020 to 9th June 2020 (today) as a direct comparison between using an "Index Filter" compared to using the "VIX" combo.

"Index Filter" The (VIX) combo



Trading is still the hardest game in town
Trading to a great degree hasn't changed over the years but the tools certainly have. When you're playing with some of the best traders around, you need to trade on a level playing field otherwise it could be "all over red rover" quick smart. By using a "market sentiment" filter, either the (MACD or the VIX) it accomplishes three goals, (1) the ability to detect a trend as early as possible, (2) be able to distinguish "false signals", (the wheat from the chaff) so you can avoid taking a wrong position & (3) the ability to get out quickly before the proverbial hits the fan. Every system requires these three to produce profitable results.

Get out quick
Timing of the exit is critical to any strategy. Cutting trades early is the secret of being a profitable trader & the (VIX) addresses this effectively.

If others have an alternative
If others have a more efficient way to gauge "market sentiment" feel free to share it. Using a simple moving average or any variety of a moving average to define a bull market from a bear market tends to be archaic nowadays (IMHO)

This brings me to the end
It's been exhausting, explaining how we can take advantage of the (MACD & the VIX Index) as a more efficient way to gauge the "sentiment of the markets" as trading is all about "predicting changes"

Skate.
 
@Roller_1 in my strategy development days I had Norgate Platinum subscription level using (NDU) 3 years before it was released to the public. My trading strategies have been fully tested & evaluated using the full set with historical constituents (25 years of data). They are now all mature trading systems.

Having 3 Norgate subscriptions
These days I don't require the features of a Platinium subscription package (including historical constituents) as I considered my development days are over. Retaining 3 Platinum subscriptions is overkill in my opinion.
Roller_1 said:
I know you say backtest results mean 'Jack' but surely a larger number of trades/ time period has more weight in assessing performance
Click to expand...
I do have a trick up my sleeve
I can accurately test a strategy with live results as "Share Trade Tracker" has now added an API to Norgate Data for subscription holders, a great new program update.

So what does that mean?
It means my backtest results will be 100% accurate. The more accurate my backtest replicates real-life trading the more confident I am in the system. I personally need to correlate & replicate my systems behaviour in real life. This is where Amibroker backtest results fall short of the mark on many fronts for me.

Imagine this
You miss a trade because it (a) gapped or (b) the position wasn't taken because the security was suspended (ISX) or (c) the signal was subject to a negative announcement (takeover or profit downgrade) or (d) the position contravenes my trading plan or (e) any other myriad of reasons.

Amibroker doesn't care
I know this, you know this, but Amibroker carries on regardless, taking the next position at the "opening price" no matter what. Not only does it take that position it won't allow another position to take its place in the portfolio. I hope this clarifies why Amibroker backtesting means JACK to me.

Skate.
 

Cheers Skate,

I understand this with your existing Live systems, once you are happy that's ok. I am more talking about when you are 'tinkering' or adding new adaptions such as your vix exit, or developing the Action strat. Without a large set of trades the significance of results diminishes doesn't it? I'm not saying they are not significant results they look great but how are you measuring it? Or are you not intending to incorporate in your live trading.

Thanks
 

@Roller_1, I'm not saying I'm at a level of competency but when you put a few thousand trades under your belt, fiddling around the edges becomes second nature & less stressful. To me, trading is a straight forward endeavour, yet many make a mess of. The most common problem that traders have is that they always tend to over complicated their trading when trading doesn't need to be complicated at all. We obsessed looking for confirmation for every decision or code alteration we make. It's a trait most of us suffer from, fiddling & optimising till eventually, we end up with a meaningless system that makes a fortune on paper but performs miserably in real trading "if you don't know what you are doing".

Let's not forget the basics
As traders we buy a position in the hope sometime in the future we will be able to offload our position to someone at a higher price than we brought it. Traders make money in the markets by exploiting changes in the prices & that's exactly what I try to do.

Skate.
 
Saqeeb said:
Week 16: Update on my MAP paper trading portfolio.
Click to expand...

@Saqeeb I was looking at your portfolio and wondered if you have thought about using (backtesting) Rotational Trading to weed out some of your lesser performing stocks that might tie-up critical funds that could be used in other positions that you would not normally be able to take.

Example -

You have been holding PDN since the 11/5 for a loss of $220 and it appears to be trending sideways ( range 0.105 to .130 ).

When you run your weekly scan and a better stock appeared then you would exit this PDN trade and open up another trade that would hopefully be successful.

​

Have a read up and then maybe give it a go and see if it will work for.

===========================================

Also I think you have a typo in the date column for the last few entries


​
Good luck with the trading mate
 
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