Skate's Modified CAM Strategy – 5th April 2019 (weekly update)
For the first time readers of the ‘Dump it here’ thread I’ll post the explanation of the CAM strategy on my weekly updates. Attaching the explanation of the CAM Strategy with the weekly updates will be helpful to some & a refresher to others.
Once the explanation is read - scroll down to the updated records below.
An expanded CAM Strategy explanation
Trading is all about catching price movements & the most sought-after indicators are those that identify price trends. While the trends are obvious in retrospect, it's another matter altogether to identify the trend in the heat of trading. By combining two popular indicators will not only help traders detect the trend direction but also the trend strength of that price movement.
As you may have noticed, a number of rather complicated indicators are available to measure trend direction & strength but none of these indicators unfortunately are perfect. The indicators involved in the CAM Strategy are the average directional index (ADX) and the moving average convergence/divergence (MACD).
The (ADX) functions as a trend detector, rising as price strengthens into an identifiable trend and falling when price moves sideways or loses its trending power. Unfortunately, the (ADX) does not reveal the trend direction. The (MACD) on the other hand, indicates price momentum and can also be used to identify price direction as it rises above its trigger line or falls below its zero line.
CAM Strategy Simplified
1. The CAM strategy indicates how two well-known indicators are able to help traders identify major price movements that produce repeatable patterns.
2. The CAM strategy uses a combination of indicators to identify upward and downward trends as well as pullbacks in existing trends and countertrend rallies.
3. Using the (ADX) & (MACD) indicators in conjunction with an exponential moving average (EMA) and the commodity channel index (CCI) helps to confirm signals generated.
4. The combination of the (MACD) and (ADX) register their signals after the start of a price move, with the (ADX) slower to respond than the (MACD).
5. The indicator combination will not pinpoint tops and bottoms, however traders can expect the (ADX) and (MACD) combination to identify and capture part of a trending move.
6. More important, the CAM Strategy can help traders stay on the right side of the market and increase the probability of successful trading results.
7. The Cam Strategy buys Pullbacks & Countertrends & sells on a Downtrend when the close is below the 13-period EMA.
The CAM strategy is an abbreviation of Coordinated ADX and MACD.
Please Note (it's critical to the CAM Strategy)
(a) The CAM system works well in a positive trend & generates a tremendous amount of Buy signals.
(b) PositionScore is critical to the CAM strategy success.
(c) In a BEAR market the CAM Strategy performance suffers with large drawdowns.
(d) The idea of my StaleStop exit is in place for the protection against large drawdowns.
(e) It’s mandatory to apply the CAM trading strategy to a trending universe of stock.
(f) Skate's modified CAM strategy uses a unique set of parameters with additional filters
because the standard CAM rules are not enough to maximize the odds of profit.
CAM Signals
The CAM strategy is a combination of 4 patterns that produce a tremendous amount of signals that can be short lived producing false & confusing signals. The amount of false signals proves the CAM strategy is not the “Holy Grail” but then again no strategy lives up to that title. The false signals are impossible to avoid & this is where the commodity channel index (CCI) comes into its own by filtering out many of those false, annoying signals. When both indicators are combined on the same chart, trend strength and trend direction become clear through the colour coding of the price bars or candlesticks.
ADX
The average directional index (ADX) shows the strength but not the direction of the price that is trending. Trading in the direction of a strong trend reduces risk and increases profit potential. The (ADX) rises as the price strengthens into an identifiable trend & falls when the price weakens or consolidates. The (ADX) can be confusing because it is interpreted differently from other indicators. Most indicators move up when prices rise, and they fall when prices decline, that’s not necessarily the case with the (ADX).
MACD
Moving Average Convergence Divergence (MACD) is a trend-following momentum directional indicator that shows the direction of the price movement. The (MACD) can mislead us at times as we often forget the (MACD) is basically a momentum indicator, so it does not always accurately reflect price movement.
How the CAM Strategy works
The CAM indicator compares the slope of (MACD) and (ADX) and identifies the following 4 market patterns. The combination of these 4 patterns can help traders stay on the right side of the market and increase the probability of successful trading results. (The bar colours are displayed in the chart below)
Chart patterns
1. Uptrend = Green Bars (or candlesticks)
2. Pullback = Gold Bars (or candlesticks)
3. Downtrend = Red Bars (or candlesticks)
4. Counter trend = Blue Bars (or candlesticks)
A Bar Chart is attached at the bottom of this post
At the bottom of this week’s update there is a chart for the first ‘Buy’ signal generated regardless whether the position is taken. I have included the Chart to demonstrate the colour coding of the Chart patterns.
Trade Setup (Enter LONG)
Buy tomorrow at the open if today is a GOLD-coloured bar [which represents the
CAM-PB, meaning that both the 10-period (ADX) and (MACD) are declining] but the 14-period (CCI) is above zero, OR if today is a BLUE-coloured bar [which represents the
CAM-CT, meaning the 10-period (ADX) is declining but (MACD) is rising] and today’s close crosses above the 13-period EMA.
Trade Setup (Exit LONG)
Sell tomorrow at the open if today is a RED-coloured bar [which corresponds to the
CAM-DN, that is, the 10-period (ADX) is rising but the (MACD) declines] and today’s close is below the 13-period EMA.
Skate's CAM Strategy Settings
Weekly Strategy
$300,000 Capital
20 Position Portfolio
$15,000 Fixed Positions
Starting Date 1st January 2019
CAM Strategy Weekly Update format
1. This week’s Buy & Sell positions to be placed in the pre-auction before Monday's open if action is required.
2. This week's generated Buy & Sell signals for the CAM Strategy (at the end of trade on Friday)
3. Portfolio performance line chart updated weekly (at the end of trade on Friday)
4. The CAM Strategy ‘Open’ positions will be posted weekly (at the end of trade on Friday)
5. The CAM Strategy ‘Closed’ positions will be posted weekly (at the end of trade on Friday)
6. The CAM Strategy Dashboard will be posted weekly (at the end of trade on Friday)
7. The CAM Strategy first weekly ‘Buy’ Chart to demonstrate the bar colour coding.
Start of this weeks updated records
1. Listed below is week’s buy & sell positions to be placed in the pre-auction before Monday open if action is required.
2. This week's generated Buy & Sell signals for the CAM Strategy
3. Portfolio performance line chart updated weekly
4. CAM Strategy ‘Open’ position
5. CAM Strategy ‘Closed’ positions
6. CAM Strategy Dashboard
7. The CAM Strategy first weekly ‘Buy’ Chart to demonstrate the bar colour coding.
Skate.