'BTD Index' generated an Exit Signal

'BTD Index' generated an Exit Signal for Thursday's Close. The Modeled position (NDX) posted a 1.28% gain, with the actual Trading position (NQU09) posting a 1.15% gain (including commissions). This profitable trade created a new high for this model's Equity Curve (shown above). The position was held for 8 trading days (http://stbsmb.blogspot.com/2009/06/btd-index-generates-entry-signal_16.html).

This was the first position this model has generated since December 2007 and the 'Buy The Dip' (BTD) concept for the NDX was successful (using the specific variable settings for the Long Term Moving Average, the Short Term Moving Average and a Standard Deviation calculation of that Short Term Moving Average; other settings for these variables may lead to different results).

Perhaps doing some research on how the NDX historically performed over the next 3, 6 and 12 month periods after:

• a profitable exit at the Price Target;


• an unprofitable exit at the Price Target;


• an unprofitable exit at the Time Stop

would yield some insight into where the NDX may be headed over the next 1-4 quarters.

Having some trouble conceptualizing the Standard Deviation based band width for the ATR (Average True Range) Volality Bands

I am still working on it, but progress has been ssssssssssllllllllllllllllooooooooooowwwwwwwwww...

'BTD Index' generates a Long Entry Signal

All of my Strategy Trading models have a max holding period of 1-8 days except one, the 'BTD Index' model. This model generated an Entry signal for the EOD yesterday, Monday June 15th. The max holding period is 20 days. This model has the longest max holding period of any of my Strategy Models.

'BTD' stands for 'Buy The Dip'. The concept is simple: while in a Long Term uptrend, buy the Short Term dip. After a Short Term correction, the Longer Term trend should re-exert itself and send the tracking vehicle back up. This is the first Entry Signal generated for this model since December 2007.

What happens if the tracking vehicle (NDX: NASDAQ 100 Index) does not resume its Longer Term uptrend? Well that can suggest a Longer Term trend change (from up to sideways or from sideways to down). How do I protect myself from this scenario? A time based Stop. This is the only model that I have that does not use a price based stop. It's stop is based on Time, and if after 20 trading days the tracking vehicle has not reached my price target, then the Time Stop exits the trade. The price target is the Short Term moving average (middle red line in the charts above).

I believe the key to optimizing the potential profit from the overall concept is in how the 'Long Term' uptrend and the 'Short Term' dip are defined. This is one of the benefits of Systems Trading: all of the variables in the model are specifically defined. The Long Term variable is a longer term moving average (magenta line in the charts above), and the Short Term variable is the lower Standard Deviation band (lower red line on the charts above) derived from a Short Term moving average. The Short Term variable's standard deviation calculation is derived from a Bollinger Band.

The first chart is the current Entry Signal. The second chart shows numerous Entry and Exit Signals for this model from late 2007. I use the NASDAQ 100 (NDX) as the tracking vehicle, and the relevant e-mini future as the trading vehicle (NQU09).

Disclosure: Long the NQU09.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***

Current ATR Volatility Band Increment: Descriptive or Predicitve?

As it turns out using the current ATR Volatility Bandwidth increment of 0.5 ATR's (0.5, 1.0, 1.5 ATR Bands), with the current ATR lookback period of 8 daily bars, shows the QQQQ finding intraday support at roughly -1.5 ATR's (35.63) from Friday's close.

Is this a coincidence and thus just appears to describe the current environment, or does it in fact have some predictive value of where future intraday pivots might form? I say its a good question.

I need to do some more research on the optimal ATR Volatility Bandwidth Increments to have more confidence in whatever bandwidth is ultimately used. Additionally, I need to pay attention to the following

• Deviation of Current Bar's ATR Volatility compared to average ATR Volatility during a large sample period (1-2 years worth of daily bars), would provide true historical deviation from the average, and thus might increase the predictive value of the ATR bands placed over the next bar's intraday chart, especially if the deviation forms a bell curve;


• We should also recognize that the number of Daily Bars that we are using for our lookback period is an important variable (currently using 8 bars) in the ATR Volatility calculation;


• Should the current days ATR Volatility be included in the Band calculation? Currently it is, but on days with higher than average volatility (like today), it will skew the bars outward. I will build a test version of the bands that does not use the current daily bar's ATR volatility.

ATR (Average True Range) Volality Bands for Intraday trading

I have been working on building an Indicator for TradeStation that places an ATR (Average True Range) Volatility Band on an Intraday Chart. This indicator may help me get a sense of what the probable trading range for the current day would be.

This seems to be working pretty well for me with the QQQQ's (and other major market indices), though may be less useful with individual stocks as they are much more subject to headline risk.

The key thing to having more confidence in the Bands, is to determine how far apart the bands should be. I had been tinkering with 0.5 increments (ie, 0.5, 1.0, 1.5 ATR's), Fibonacci increments (0.34, 0.55, 0.89, 1.44 ATR's) but this may not be that representative of probable ranges.

In the snapshot above, the upper graph has 3 ATR Volatility Bands (blue, magenta, cyan) around each days Intraday Chart. There is also Baseline (dark blue) for each day based on the previous day's Close. The lower graph has the Daily ATR (normalized by ATR/Closing Price), and an ATR moving average.

I am now thinking of using some kind of Standard Deviation calculation to have more confidence that the band width is based on something relevant (perhaps a Normal Distribution) as opposed to an aribtary band width increment of lets say 0.5 ATR's. Any suggestions on this would be helpful.

If anyone is interested in checking out this TradeStation based ATR Volatility Band Indicator, then let me know, and I will send it out to you when its fully coded, probably a week or so from now.