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Part 2: The SMAC optimizer 8
MATCHING THE
MARKETS TO YOUR
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Measure price noise
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TRUE RANGE
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Jug
Kni gler
ng
Buy and sell signals in the

im ill
Cl H
bi
presence of strong trends 22
fe
INTERVIEW
Peter Eliades 28
THE METAVERSE’S
ROSY FUTURE LIES Part
Swaricle
m
AHEAD, OR DOES IT? SMAC
ETFs focused on the virtual
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CONTENTS JANUARY 2023, VOLUME 41 NUMBER 1
6 Explore Your Options the Foundation For The Study Of

by Jay Kaeppel Cycles. We talked with him about
The Traders’ MagazineTM Got a question about options? his long experience in the markets
and his approach of using cycle
FEATURE ARTICLE projections.
EDITORIAL
[email protected] 8 Boost Your Strategy Development
Part 2: The SMAC Optimizer 36 The Savvy Technician
Editor in Chief Jack K. Hutson
by René Koch, PhD by Stella Osoba, CMT, Esq.
Production Manager Karen E. Wasserman
Trading strategies usually involve Recognizing and applying technical
Graphic Designer Wayne Shaw
adjustable parameters, and trading chart patterns to trading.
Webmaster Han J. Kim
strategy development involves
Contributing Editors John Ehlers, 38 The Metaverse’s Rosy Future
Anthony W. Warren, PhD. optimizing those parameters to find
the best inputs and variables for the Lies Ahead, Or Does It?
Contributing Writers Thomas Bulkowski, Martin Pring,
Barbara Star, Markos Katsanos, Leslie N. Masonson, most profitable results. Here is a by Leslie N. Masonson
Karl Montevirgen
look at using the SMAC optimizer In newer technology spaces such as
algorithm for the optimization of the “metaverse,” investors need to
trading strategies. consider whether they want to get
OFFICE OF THE PUBLISHER in near the ground floor or take a
Publisher Jack K. Hutson 16 Matching The Markets “wait and see” approach to find out
Industrial Engineer Jason K. Hutson
To Your Trading Style if the technology truly takes off.
Project Engineer Sean M. Moore
by Perry J. Kaufman Here’s a close look at ETFs related
Traders can choose to use a trend- to the metaverse industry to help
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46 Algo Q&A
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by Kevin J. Davey
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48 Futures For You
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INTERVIEW by Carley Garner
use, or the internal or personal use of specific clients, is grant- 28 A Conversation With Peter Eliades Here’s how the futures market
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4 • January 2023 • Technical Analysis of Stocks & Commodities

37 Years in the Making
metastock.com/whats-new
This is neither a solicitation to buy or sell any type of financial instruments, nor intended as investment recommendations. All investment trading involves multiple substantial risks
of monetary loss. Don’t trade with money you can’t afford to lose. Trading is not suitable for everyone. Past performance, whether indicated by actual or hypothetical results or
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Explore Your Options
GOT A QUESTION ABOUT OPTIONS?
Jay Kaeppel has over three decades of experience in the options markets. He
was a head trader for a CTA firm, an options trading software developer,
and was a portfolio manager for an investment management firm. He is
presently Senior Research Analyst for Sentimentrader.com. He is the author
of several books, including The Four Biggest Mistakes In Option Trading;
The Option Trader’s Guide To Probability, Volatility, And Timing; and
Seasonal Stock Market Trends. Send your questions or topic suggestions
to Jay Kaeppel at [email protected]. Selected questions will appear
in a future issue of S&C.
Jay Kaeppel
ORGANIZING YOUR APPROACH the best trade to take because there Another approach is to consider
WITH THE PROVEST METHOD are other factors to consider—most the “delta” value for a given option or
I am trying to develop an organized notably, the potential return relative position. Delta can be used to com-
approach to trading options that to the maximum risk. pare the probability of profit in one
considers the most critical factors. The probability of profit can be trade versus another potential trade.
Any suggestions? beneficial in comparing one potential Delta can range from 100 to −100.
One approach to this task is one I trade to another. The absolute value of delta provides
refer to as “the PROVEST method.” Figure 1 displays a list of potential an estimate that a given option will
PROVEST is an acronym for the bull put credit spreads. Note the re- expire in-the-money. A call bought
following factors: sults in the “Prob of Profit” column, with a delta of 80 has roughly an 80%
which allows a trader to compare probability of expiring in the money
Pro = Probability probabilities. (but at a higher cost). A call bought
V = Volatility with a delta of 20 has only a 20%
E = Expiration likelihood of expiring in the money
One approach to this
S = Skew (but at a lower cost).
T = Timing
task is one I refer Everything else being equal, a
to as “the PROVEST trader would likely favor the trade
Let’s take a closer look at each fac- method” (probability, with the highest probability of profit.
tor. volatility, expiration, However, “everything else” is rarely
skew, timing). equal, so profit probability is just one
Probability factor to consider.
With options trades, it is
often possible to estimate
the probability that a trade
will generate a profit. For
buying calls and puts, the
more in-the-money the
strike price, the higher
the probability, and vice
versa. For selling calls
and puts, the further out-
of-the-money the strike
price, the higher the prob-
ability of profit. However,
OPTIONSANALYSIS.COM
there are two other things

to remember:
The trade with the
highest probability of FIGURE 1: POTENTIAL BULL PUT CREDIT SPREADS. The column showing the probability of profit allows the trader
profit is not necessarily to compare different spreads. However, profit probability is just one factor to consider when weighing the choices.
Volatility
Volatility has multiple meanings in
the world of options. The first type
of volatility is statistical volatility,
which measures the fluctuations in
the underlying security price. For
some strategies where you want a
lot of price movement (for example,
straddles), a trader would likely mi-
grate to stocks with highly volatile
price movements. For other option
strategies where you do not want a
lot of price movement (for example,
credit spreads and condors), a trader
would typically prefer stocks with
low statistical volatility that are more
likely to trade within a given range.
The second type of volatility is
implied volatility (IV) and is based on FIGURE 2: IMPLIED VOLATILITY, AMAZON.COM INC. (AMZN). This shows a bar chart of AMZN
option prices. High implied volatility stock, overlaid with the implied volatility for >90-day options on AMZN (black line). The higher the
black line, the more time premium is built into AMZN options and vice versa. A trader would typically
indicates more time premium built prefer the black line on the low end of the historical range when buying premium, and when selling
into the price of a given underlying premium, would typically prefer the black line on the higher end of the historical range.
security’s options, and low implied
volatility means less time premium
built in. In essence, the higher the
implied volatility (for a given stock
relative to its historical IV range), the
more “expensive” the options, and
the lower the implied volatility, the
“cheaper” the options.
Generally speaking, when buying
premium (for example, buying calls
or puts, buying long vertical spreads,
or calendar spreads), a trader will
typically prefer higher statistical
volatility but lower implied volatil-
ity (that is, buying cheap options on
a stock that is capable of significant
price movement).
Conversely, when selling premium
(for example, selling credit spreads or FIGURE 3: CALENDAR SPREAD, EXXON MOBIL CORP. (XOM). The implied volatility for the option
bought is 34.41% and the implied volatility for the option sold is significantly higher at 39.43%. While
condors), a trader will typically prefer this difference provides a slight edge to the trader, it still does not guarantee a profitable trade.
lower statistical volatility but higher
implied volatility (that is, taking in as black line, the more time premium Expiration
much premium as possible on a stock is built into AMZN options and Every option will lose all of its time
that will hopefully remain within a vice versa. A trader would prefer the premium at option expiration, and
given price range). black line on the low end of the his- any option that is out-of-the-money at
Figure 2 displays a bar chart for torical range when buying premium expiration will expire worthless. As a
Amazon (AMZN) with the implied and on the higher end when selling result, when we refer to “expiration”
volatility for >90-day options on premium.
AMZN (black line). The higher the Continued on page 15
January 2023 • Technical Analysis of Stocks & Commodities • 7
TRADING SYSTEM DEVELOPMENT
Clever Use Of Modern Optimizer Algorithms
Boost Your
Strategy Development
Part 2: The SMAC Optimizer
Trading strategies usually involve adjustable pa- one or two parameter values (the red points in the
rameters, and trading strategy development involves graph). We see that there are promising values more
optimizing those parameters to find the best inputs to the right and use them in further experiments (the
and variables for the most profitable results. Here blue points), and finally, we’ll find the best possible
is a look at using the SMAC optimizer algorithm for parameter value (the green point).
the optimization of trading strategies. All this can be done automatically with a “hill climb-
T
ing” optimizer algorithm. The origin of this type of
here is constant debate about the usefulness algorithm actually dates back centuries (to the year
and benefit of optimization in the develop- 1690) and goes back to Isaac Newton (see “Newton’s
ment of trading strategies. Many have the method in optimization” on Wikipedia for more on
opinion that “optimized” strategies do not this). Much later (in the year 1965), John Nelder and
perform well in real-time trading. In this series of Roger Mead extended the method to more parameters
articles, I show some recent developments in the (higher dimensions) (see “Nelder-Mead Method” on
field and demonstrate some practices that can result Wikipedia).
in working strategies for the trader. All this means that there exist very nice optimiza-
Last time in part 1, I provided a brief overview of tion algorithms for a task such as the one depicted
optimizer algorithm types and compared them by in Figure 1.
using a sample optimization test and examining the
results. The one with the best results was the sequen-
tial model-based optimization for general algorithm
configuration (SMAC). So here in part 2, I’ll take a
closer look at using SMAC for optimization of trad-
ing strategies.
The problem
Modern trading software allows the development of
very interesting trading strategies. Here, the word
ALEXANDER LIMBACH/ ZEEDIGN.COM/SHUTTERSTOCK
“interesting” often means that there are quite a few

(more or less obvious) parameters to adjust.
Of course, we are looking for a good set of parame- FIGURE 1: IDEALIZED VIEW OF FINDING GOOD PARAMETER SETS FOR
ters, and we want to find this set as fast as possible. A TRADING STRATEGY. This graph depicts how we might imagine a trading
A graphical representation of the search problem is strategy may be improved through parameter adjustment. The red points
shown in Figure 1. This is how we typically imagine
represent starting with one or two parameter values, then more parameter
values are added (blue points), and then you arrive, in theory, at the best
the improvement of a trading strategy. We start with parameter value, represented by the green point.
by René Koch, PhD

Unfortunately, there are two major drawbacks to the
hill-climbing method:
First, these algorithms require the relationship between
parameters and profit to have no buckles, no jumps, and no
gaps—or, in more technical terms—the objective function
needs to be continuously differentiable, a property seldom
found when it comes to profits of a trading strategy. This
requirement may explain why the Nelder-Mead optimizer
performed poorly in our optimizer contest in part 1 of
this article series.
Second, our task looks quite different in most cases! A
more real-world representation of the relationship between
parameters and profits of a trading strategy is shown in
Figure 2. This strange curve results from the fact that FIGURE 2: REALISTIC VIEW OF FINDING GOOD PARAMETER SETS
many relationships between parameters and results are FOR A TRADING STRATEGY. This graph depicts a more realistic view of
nonlinear. Furthermore, often a small change in a param- the relationship between parameter values and profit of a trading strategy.
eter value will cause a set of entry signals to appear or Finding a good parameter combination for a trading strategy is a complex
problem. A simple hill-climb method will usually not arrive at the best parameter
disappear, which creates jumps. In other words, finding choice, that is, the highest point of the curve.
a good parameter combination for a trading strategy is a
problematic job. ing strategies.
(The table in Figure 3 provides a legend and explana- They named their algorithm SMAC, which stands for
tion of the plotlines and symbols found in all the graphs “sequential model-based algorithm configuration.”
in this article.) In part 1 of this series, I showed how the SMAC opti-
From the gray curve in Figure 2 it is obvious that a mizer was the clear winner of the optimizer “contest” I
simple hill-climbing method will usually not arrive at presented, which was an exercise to compare and contrast
the best parameter choice, that is, the highest point of the major types of optimizer methods by testing them. So
such a curve. next, I’ll shed some light on the inner workings of this
Furthermore, we usually don’t deal with a single pa- amazing optimizer algorithm.
rameter but with two, three, or even more parameters that The first idea is to switch from improving a single can-
interact and influence each other. While a two-parameter didate to a collection of candidates, which are improved in
problem might be imagined and visualized as a landscape parallel. This idea stems from the particle swarm family
or mountains where we are looking for the highest sum- of optimizer algorithms. (See part 1 of this series for a
mit, most people would have trouble imagining such a review of this concept.)
landscape in three or more dimensions. Fortunately, the With this idea in mind, we are ready for the first step:
basic problem and its solution stay the same even in higher
dimensions (with more parameters). It’s just much more Step 1: A random set of starting points
difficult to find the best parameter combination if there If there is a complex problem and you don’t know where to
are many parameters. start, it is often a good idea to just select a random starting
In what follows, we stick with a single parameter for the point. The SMAC optimizer does the same, but with a set
visualizations, but keep in mind that the real algorithm of starting points. In the first step of the SMAC optimizer
works on many parameters at the same time and a solution algorithm, a set of random starting points is chosen. The
that might be obvious in a graph like
Figure 2 is far from being obvious if
Graph Element Description
The true relationship between parameter values and profit of trading strategy.
there are many parameters. Gray line
This information is unknown to the optimizer.
Red, blue, and green points Results of single executions of the trading strategy. Results of backtest runs.
A good solution Red dotted line Model calculated in step 2 of iteration 1.
In 2011, the three scientists Frank Blue dotted line Model calculated in step 2 of iteration 2.
Hutter, Holger H. Hoos, and Kevin Black triangles Predicted results for random parameter combinations. (no backtest)
Leyton-Brown presented an optimizer Green triangles Predicted results for neighbor parameter combinations. (no backtest)
algorithm that turned out to be an FIGURE 3: LEGEND FOR ALL GRAPHS. Here’s a guide to all the graphs used in this article, explaining
ideal fit for the optimization of trad- the meaning of the plotlines and symbols.
number of starting points is determined Name Typical Value* Description
by the SMAC parameter named “ran- Number of random starting points in Step 1.
Random Starting Point Count 50
dom starting point count.” (See Figure Number of backtests in Step 1.
4 for a list of parameters used by the Iterations 200 Number of repetitions of Step 2 to Step 6.
SMAC optimizer algorithm.) Function Evaluations per Iteration 6

Number of backtests in each Iteration, executed in
step 6.
The result of step 1 is shown in Fig- Determines the number of “best” candidates in step 3.
Local Search Point Count 10
ure 5 with the random starting points (No backtest is executed)
drawn as red points. Each starting point Random Search Point Count 1000
Number of random predictions made by the model in
step 4.(No backtest is executed)
represents a unique set of parameter FIGURE 4: PARAMETERS FOR THE SMAC OPTIMIZER ALGORITHM. Here are the parameters
values. Step 1 requires the execution of used by the SMAC optimizer algorithm.
the trading strategy for each randomly *Good values depend on the number of parameters, the complexity of the trading strategy, and other fac-
chosen parameter combination. tors. Although the typical values work quite well, some experimentation may lead to improvements.
Step 2: Fitting a model

During the next step of the SMAC algorithm, a model is
fitted to all available data points. The fitting algorithm
comes from another field of computer science: artificial
intelligence (AI) or machine learning (ML) and is called
“extremely randomized trees.” It is somewhat beyond
the scope of this article to explain this model and fitting
process. It suffices to say that the fitting algorithm finds a
model that explains all the measured data points so far. The
model is also able to predict values (interpolate) between
the known data points and furthermore can calculate the
uncertainty of results between the existing data points.
The interpolating model is shown as a dotted red line
in Figure 5.
FIGURE 5: RANDOM STARTING POINT PLACEMENT AND FITTED MODEL.
No execution of the trading strategy is required for This graph represents the results of steps 1 and 2 of the SMAC algorithm.
step 2. In step 1, the SMAC optimizer selects a set of random starting points as
determined by the SMAC parameter named “random starting point count,”
Step 3: Calculate neighbors of the best and hill and each starting point represents a unique set of parameter values. In step
climbing
2, a model is fitted to all available data points using a fitting model borrowed
from the field of AI, which is able to predict values (interpolate) between
The best candidates are selected, the number of which is the known data points and calculate the uncertainty of results between the
determined by the SMAC parameter “local search point existing data points. The random starting points are represented by the red
count.” dots and the fitted model is depicted as a dashed line.
For each of these top candidates, a number of “neighbors”
is created. While a neighbor is an obvious thing if there The best neighbor is used as a new starting point for
is one parameter, it is quite a different story with many calculating new neighbors. The process repeats until
parameters and/or if you are in a multi-dimensional space the local summit is reached. (Such a process is called a
and with discontinuous parameters. The SMAC algorithm greedy search).
employs a method from the family of genetic evolving No execution of the trading strategy is required for
optimizer algorithms: Some properties of a subject are step 3.
randomly changed (mutation), and it is evaluated how
such a mutated subject fares with the rest (selection). If a
“subject” is a parameter combination, then a mutation is the In this series of articles, I show
random alteration of a single number in this combination. some recent developments in
Jug
Kni gler
ng
im ill
Cl H
The SMAC algorithm creates four random mutations in

bi
the field and demonstrate some

fe
each parameter which, for example, results in 20 mutations practices that can result in
for a trading strategy with five parameters. working strategies for the trader. Part
Swaricle
m
Then “expected improvement” for each neighbor is

SMAC
calculated using the model created in step 2.

FIGURE 6: ADDITIONAL RANDOM AND NEIGHBORING COMBINATIONS. FIGURE 7: KEEP THE BEST CANDIDATES. From all the combinations
This graph represents the results of steps 3, 4, and 5 of the SMAC algorithm. generated in steps 3 and 4 of the SMAC optimizer algorithm, only the
In steps 3 and 4, a large number of new parameter combinations were created. best are kept, that is, the ones with the highest “expected improvement”
For every new combination, the “expected improvement” is calculated. The calculated in step 5. The black and green triangles represent the remaining
random parameter combinations with their “expected profit” are shown as best parameter combinations. The blue dots represent the backtest results
black triangles. The neighbor parameter combinations and their “expected of the trading strategy run with these parameter combinations. The blue
profit” are shown as green triangles. The results as predicted by the model dashed curve is the new model fitted to all available results (that is, the red
are depicted by the red dashed line. and blue points).
Step 4: More random candidates 5. Steps 3, 4, and 5 serve solely the purpose to explore the
A large number of parameter combinations is created (us- model and find summits (maxima) in the model. This may
ing the SMAC parameter named “random search point look somewhat redundant for a single parameter (in one
count,” which is listed in Figure 4). dimension) but makes a lot of sense for more parameters
No execution of the trading strategy is required for (in a high-dimensional space).
step 4.
Step 6: Keep best candidates and execute trading
Step 5: Predict improvements for all new combinations strategy
using the model Executing a trading strategy (running a backtest) is consid-
In steps 3 and 4 we created a large number of new pa- ered a time-consuming operation. An efficient optimizing
rameter combinations. algorithm should use as few executions as possible. On the
For every new combination, the “expected improve- other hand, the optimizer should explore the parameter
ment” is calculated using the interpolating model created space carefully and avoid missing a good region. This is
in step 2. the reason that so many combinations are generated and
The random parameter combinations with their “ex- judged with the model, and then, from all the combinations
pected profit” are shown as black triangles in Figure 6. generated in steps 3 and 4, only the best are kept. The best
Likewise, the first-generation neighbor parameter com- are the ones with the highest “expected improvement” that
binations and their “expected profit” are shown as green was calculated in step 5.
triangles also in Figure 6. The hill-climbing is omitted Finally, some completely random candidates are added.
from the graph. This helps to find and explore regions that had no cover-
No execution of the trading strategy is required for step age before.
The SMAC parameter named “function evaluations per
iteration” (refer back to Figure 4 for the list of parameters)
Jug
Kni gler
ng
im ill
Cl H
bi
fe
The SMAC optimizer algorithm determines the number of “best” candidates plus the
is an excellent tool that can number of “random” candidates.
The trading strategy is executed for these parameter
SMAC
accelerate the development and
Partic
Swarm le
sets, resulting in a new set of candidates.

refinement of a trading strategy. In Figure 7, only the best parameter combinations (black
and green triangles) are shown. The new random candidates
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are omitted from the graph. The trading strategy is run between parameters and backtest results (gray curve) is
for all these parameter combinations resulting in a new found and it is easy to imagine that the algorithm will zero
set of backtest results (blue points). in on the best possible parameter combinations within just
Now the next iteration starts at step 2: A new model is a few more iterations.
fitted to all available results (red and blue points). Let me remark that nothing in the SMAC algorithm
The new model is shown in Figure 7 as a blue dashed requires the relationship between parameters and profit to
line. be smooth. It might have buckles, jumps, or even gaps such
Step 2 to step 6 are repeated in every iteration of the that the profit function needs not to be continuously dif-
SMAC algorithm. The number of iterations is determined ferentiable. Besides integer and floating point parameters,
by the SMAC parameter named “iterations” (Figure 4). it also works for Boolean and categorical parameters.
In our simplified visualization of the SMAC algorithm, Note on software: The results presented in the next
it becomes obvious that even after two iterations, a rather section were produced with the trading strategy de-
good model (blue dashed curve) for the “true relationship” velopment software Wealth-Lab 8 and its extension,
finantic.Optimizers. These software products are available
Smallest Largest at www.wealth-lab.com.
Parameter Name Type Step*
Value Value
Percentage Float 0.5% 5.0% 0.5% A practical real-world test
How many bars Integer 1 bar 10 bars 1 bar For an example test using the SMAC as a trading strategy
Profit target Float 0.5% 5.0% 0.5% optimization method, I’ll take the simple and publicly
FIGURE 8: OPTIMIZABLE PARAMETERS FOR TEST STRATEGY. For available trading strategy called “knife juggler,” which
the test of the SMAC optimizer algorithm, a simple and publicly available has three optimizable parameters (Figure 8): “percentage,”
trading strategy called knife juggler is used in the backtest. The strategy
has three optimizable parameters: “percentage,” “how many bars,” and “how many bars,” and “profit target.” The knife juggler
“profit target.” strategy can be expressed as follows:
*The step value is not used by the SMAC algorithm.
The knife juggler strategy—This trading strategy enters
a trade if prices fall <percentage> below yesterday’s
close with a limit order. It keeps the position for <how
many bars> or if <profit target> is reached.
Setting up the rules for this trading strategy is shown

in Figure 9. Here, I used Wealth-Lab’s “building blocks”
feature for this task.
Optimization results
WEALTH-LAB.COM
For the test, I used two different optimization algorithms

to find the best parameter combination for the knife jug-
FIGURE 9: SETTING UP THE RULES FOR THE TRADING STRATEGY.
gler strategy: the SMAC optimizer, and an “exhaustive
Here, the knife juggler trading strategy is set up using the “building blocks” optimizer,” which simply sports all possible parameter
feature in the Wealth-Lab platform. combinations as defined in Figure 8 by the smallest value,
step value, and largest value for each
Algorithm Iterations
Best Parameter
Combination
Best Annualized Sharpe
Profit Ratio
Max.
Drawdown
Calculation
Time*
parameter.
Exhaustive 1000 P=1.5, H=1, PT=5.0 64.20% 3.25 −15.80% 60 minutes Results are presented in Figure
SMAC 200 P=1.3, H=1, PT=1.2 64.90% 3.4 −14.40% 10 minutes
10. This table shows how the SMAC
optimizer algorithm arrives at a better
FIGURE 10: OPTIMIZATION RESULTS FROM BACKTEST. For the test, two different optimization
algorithms were run to look for the best parameter combination for the knife juggler strategy: the SMAC solution within a much shorter time.
optimizer, and an “exhaustive optimizer,” which sports all parameter combinations on a defined grid. The The optimal parameter combination is
results of the test are shown here. The SMAC optimizer algorithm arrives at a better solution within a much also more precise because the SMAC
shorter time, and also, the optimal parameter combination is more precise with the SMAC optimizer. optimizer is not restricted to a given
*Measured using a PC with four cores.
Notes: All backtests are executed on 10 years of daily data (2010–2019) and the 183 stocks of a dynamic
grid of possible parameter values as it
(historical correct) Nasdaq-100 portfolio. (This eliminates the danger of survivorship bias from tainting is the case with an exhaustive search
the backtest results.) (or grid search) algorithm.
Conclusion
The SMAC algorithm is a clever combination of ideas
and concepts from some of the different major types of We are looking for a good set of
Jug
Kni gler
parameters, and we want to find
ng
optimization and areas of study:
im ill
Cl H
bi
fe
this set as fast as possible.
• Particle swarm optimizer
• Random search optimizer
• Genetic algorithm optimizer René Koch studied physics, mathematics, Parti and computer
Swarcle
• Artificial intelligence / machine learning algo- science at University of Göttingen,
SMAC Germany. m
He received
rithms a doctorate in physics in the field of digital signal pro-
• Hill climber optimizer cessing (DSP). He headed his own company for 10 years
developing DSP software for noise and vibration analy-
This results in an optimizer algorithm that needs very sis. He currently develops financial software and offers
few executions of the trading strategy to arrive at a very technical analysis-related consulting services.
good parameter combination, which in turn returns very
good results. Further reading
The SMAC optimizer algorithm is an excellent tool Koch, René [2022]. “Boost Your Strategy Development,
that can accelerate the development and refinement of a Part 1: The Optimizer Contest,” Technical Analysis of
trading strategy tremendously. But as it is the case with Stocks & Commodities, Volume 40: November.
all fine tools, it needs to be used correctly. If used naively, [2004]. “Creating Your Own Trading System,”
an optimized strategy shows overoptimized behavior— Technical Analysis of Stocks & Commodities, Vol-
spectacular results in the past, but not working as expected ume 22: July.
in the future. ‡Wealth-Lab.com
Next time in part 3, I’ll introduce some techniques to ‡See Editorial Resource Index

measure and avoid overoptimization.
KAEPPEL/OPTIONS your expectations for the timing of a amount of time premium built into
Continued from page 7 given movement in price. each option’s price, and not the price
of the option itself).
we mean “time until expiration.” Skew
When buying premium, it is im- Skew refers to the difference in the Timing
portant to allow enough time before implied volatility of two different The timing of entry and exit into
option expiration for the underlying options. In a perfect world, a trader a trade is a key determinant of the
security to make the hoped-for move. entering a spread trade would prefer outcome for most options trades. If
When selling premium, a trader will to buy an option with a lower implied a trader puts all the other factors in
often prefer to sell shorter-term op- volatility and sell an option with a their favor in entering a bullish trade,
tions in order to limit the amount of higher implied volatility. but the underlying security falls hard
time the underlying security has to Figure 3 displays a calendar spread in price, a loss is still the most likely
move against them and for the option for Exxon (XOM). Note that the im- outcome. Market timing is out of the
to lose time premium as quickly as plied volatility for the option bought is realm for this piece; however, traders
possible. 34.41%, and the implied volatility for should carefully consider their expec-
There is nothing wrong with buying the option sold is significantly higher tations for price movement and how
short-term options if you intend to bet at 39.43%. This does not guarantee long it might take for it to play out.
on a short-term burst in price. Con- a profitable trade. It only means that If you expect a stock to rally over the
versely, selling longer-term options the trader gained a slight edge when next 12 months but buy a one-month
can afford a trader the potential to take the trade was entered by buying a option, you risk seeing your option
in more premium. The main point here “cheaper” option and selling a more expire worthless before the move you
is to make sure the expiration date for “expensive” option (with “cheap” and are hoping for occurs.
the options you trade are in line with “expensive” referring to the relative
Measure Price Noise To Gauge A Market
Matching The Markets

To Your Trading Style
Traders can choose to use a trend-following method or to the net price change. Don’t be fooled by a few years
a mean-reversion method depending on the market, but when the S&P trends. In the long run it’s only the slowest
how can you tell when and where to apply each? Here’s trends that work for the equity index markets, and even
a way you can know. those can have frequent drawdowns, some large.
by Perry J. Kaufman Noise
As
Measuring price “noise” is going to tell you how to use a
much as we would like to think otherwise, market. Noise is the amount of erratic ups and downs as
not all markets will be profitable with all prices move from one point to another. I like to compare
trading styles. Part of being a successful it to a drunken sailor’s walk—staggering back and forth
trader is knowing which markets work after drinking all day, but eventually getting back to the
with your strategies. And yes, price pat- ship. It’s the opposite of when he left the ship to find the
terns can change, but most markets can pub, walking quickly in a straight line. Then a straight
be put into a category that favors one trading approach line means no noise, and staggering around represents
over another. different degrees of noise. We can measure this with the
For example, if you’re a macrotrend trader, holding formula for the “efficiency ratio” (ER) on day t (today),
positions for weeks or months, then the eurodollar, short using the past N days:
FRIENDS STOCK/SHUTTERSTOCK
sterling, and Euribor interest rate futures would be the

all-time favorites. They closely track central bank action, ER(t) = A
BS(close(t) − close(t−N)) /
which evolves slowly, hence it has a strong trend and little SUM(abs(close(i) − close(i−1)),
distracting noise. At the other end of the spectrum are i=t-N+1 to t)
the equity index markets, which have high noise relative
TRADING TECHNIQUES
<> A B C D E F G H I
ABS(N-Day ABS(1-Day Sum N-Day Efficiency
1 Date Open High Low Close
Change) Change) Changes Ratio
2 8/3/98 72.31 72.73 71.83 72.01 10
6061 8/30/22 402.20 402.45 394.38 396.58 28.324 4.402 48.092 0.589
6062 8/31/22 398.29 399.60 393.42 393.56 32.576 3.018 48.073 0.678
6063 9/1/22 391.28 395.16 388.44 394.80 25.615 1.235 48.073 0.533
6064 9/2/22 398.64 399.92 388.73 390.64 21.024 4.163 46.509 0.452
6065 9/6/22 391.52 392.51 386.83 389.16 21.502 1.474 39.229 0.548
6066 9/7/22 388.83 396.96 388.60 396.15 15.825 6.991 45.224 0.350
6067 9/8/22 393.77 399.22 392.51 398.74 19.052 2.589 46.499 0.410
6068 9/9/22 401.09 405.84 400.81 404.94 1.285 6.195 46.877 0.027
6069 9/12/22 407.11 410.05 406.79 409.29 8.306 4.352 37.088 0.224
6070 9/13/22 400.19 401.45 390.32 391.49 5.089 17.797 52.216 0.097
6071 9/14/22 392.86 394.58 389.52 392.99 0.578 1.494 49.307 0.012
6072 9/15/22 391.35 394.34 387.19 388.52 6.274 4.462 50.752 0.124
6073 9/16/22 384.14 386.25 382.11 385.56 5.075 2.964 52.481 0.097
6074 9/19/22 382.26 388.55 382.18 388.55 0.611 2.990 51.308 0.012
6075 9/20/22 385.06 386.12 381.20 384.09 12.063 4.460 54.294 0.222
6076 9/21/22 386.11 389.31 377.38 377.39 21.352 6.700 54.002 0.395
6077 9/22/22 376.58 378.30 373.44 374.22 30.717 3.170 54.583 0.563
MICROSOFT EXCEL
6078 9/23/22 370.58 370.62 363.29 367.95 41.339 6.270 54.659 0.756
6079 9/26/22 366.41 370.21 363.03 364.31 27.182 3.640 53.946 0.504
6080 9/27/22 368.02 370.40 360.87 363.38 29.606 0.930 37.080 0.798
FIGURE 1: CALCULATING NOISE. You can use a spreadsheet to calculate the efficiency ratio for a market, a technique for measuring how “noisy” a
particular market is, and this can help you to know whether trend following or mean reversion may be a better approach to use for a given market. Here,
a 10-day efficiency ratio is calculated for SPY prices. In cell F2, the value “10” determines over how many days the efficiency ratio will be calculated.
The Excel function “OFFSET” was used to be able to change the value in row F2 and have all the calculations and the ratios change.
The numerator is the absolute value (always positive) of ment and the ER declining. When prices start down in
the change in price for N days (t–N+1) to today (t). The a smoother pattern, ER quickly moves higher, indicating
denominator is the sum of all the daily price changes, less noise and more trend.
each taken as a positive number. If prices only go up
over the N days, the value of ER(t) = 1. If they go up Ranking markets by noise
and down a lot, then the value of ER(t) will be near zero. We can calculate noise over different time periods, but
FYI, sometime later, this was called fractal efficiency if we use a rolling 10 days and average the results, it can
because it seems to give the same results across weekly, more easily show the differences in market characteris-
daily, and intraday data. tics. Let’s look at three different market groups: futures,
The spreadsheet in Figure 1 shows the calculations
using SPY prices. Cell F2 has the value “10,” which
tells us over how many days the efficiency ratio will be
calculated. I use the Excel function “OFFSET” so that I
can change the value in row F2 and have all the calcula-
tions and the ratios change.
The calculations for 9/27/2022 (row 6080) are:
Column F: = A BS(E6080−OFFSET(E6080,
−F$2+1,0))
Column G: = A BS(E6080−E6079)
Column H: = SUM(G6080:OFFSET(G6080,
−F$2+1,0))
Column I: = F6080/H6080 FIGURE 2: SPY PRICES VS. NOISE. Shown here are SPY prices and
the corresponding values of the efficiency ratio (ER) for the data from the
spreadsheet in Figure 1. SPY prices are in blue and the ER is in orange.
The chart in Figure 2 shows the SPY prices and the The left part of the chart shows sideways price movement and the ER
corresponding value of ER for the data in the spreadsheet. declining. When prices start down in a smoother pattern, ER quickly moves
The left part of the chart shows sideways price move- higher, indicating less noise and more trend.
FIGURE 3: NOISE IN FUTURES MARKET. Here’s a look at efficiency FIGURE 5: NOISE IN VARIOUS STOCKS. Here’s a look at efficiency ratios
ratios for some futures markets (2001–2022), ranked from highest ER for selected stocks (with data starting in 2001 or from the stock’s inception),
values (that is, low noise) to lowest ER values (more noise). As you can ranked from highest ER values (that is, low noise) to lowest ER values
see by this measure, EuroStoxx and Russell 2000 (at right in the chart), (more noise). Several tech stocks show high trend. That trend includes the
as well as longer maturity interest rates, have the most noise and least steady growth through 2020 and the fast declines in 2022—both relatively
trend. At the far left, short maturity interest rates show high ER values, smooth price moves.
that is, low noise.
least trend. Longer maturity interest rates also show
high noise even with the huge increase in yields during
2022. Markets in the middle will have varying periods
of trend and noise.
Next, we’ll look at ETFs, a way to get a broad picture
of stocks. Although a stock index can be noisy because
of the individual stocks going in different directions,
ETFs consolidate groups of similar companies, limiting
the offsetting effect of diversification.
Figure 4 shows that the most trending ETF is munici-
pal bonds (MUB) followed by high-yield bonds (JNK),
and the least trending are retail (XLT) and consumer
staples (XLP). The major equity index markets rank
FIGURE 4: NOISE IN A SAMPLE OF ETFS. Here are efficiency ratios for
selected ETFs (with data starting in 2001 or from the ETF’s inception), fairly high as trending, but the futures show that they
ranked from highest ER values (that is, low noise) to lowest ER values are still noisy. We will see that this inconsistency is due
(more noise). ETFs can provide a broad picture. The most trending ETF to an upward long-term trend even while they are noisy
is municipal bonds (MUB) followed by high-yield bonds (JNK). The least in the short term.
trending are retail (XLT) and consumer staples (XLP). Notice that the major
equity index markets rank fairly high as trending, but when compared to
I have tried to select stocks that are of interest to most
the futures market, they are still noisy. traders. They are ranked by the efficiency in Figure 5.
Because the calculations start in 2001, it should not be
ETFs, and individual stocks. In each case I have selected surprising that the tech stocks, such as Apple, Twitter,
what I think is a good sample. and Netflix, show the most trend. That trend includes
We’ll start with futures to provide perspective on how the steady growth through 2020 and the fast declines in
groups of markets compare. The short maturity interest 2022—both relatively smooth price moves.
rates are on the far left in Figure 3, showing high ER The markets with the least trends are Walmart (WMT),
values or low noise. On the right are the EuroStoxx Starbucks (SBUX), and Southwest Airlines (LUV). Wal-
and Russell 2000, the markets with the most noise and mart and Starbucks are consistent with the low ranking
of the retail ETF, and we all know that airlines have been
erratic in their performance during Covid.
Not all markets will be profitable
Is noise the same as volatility?
with all trading styles. Noise is not the same as volatility. Volatility is only the
change in price. The ER value can be zero (high noise)
FIGURE 6: VOLATILITY IN FUTURES MARKETS. Noise is not the same FIGURE 7: NOISE VS. RETURNS FOR SELECTED STOCKS. Is a given
as volatility, which is change in price. Compare this graph to Figure 3, sector a good match for your trend-following trading strategy? Is a given
which shows the same futures markets in the same order. You can see market within the sector trending, making it a good match for your trend-
that volatility does not correspond to efficiency (noise). following strategy? This scattergram depicts efficiency ratio versus returns
resulting from trend-following stocks using an 80-day moving average. In
the test, all stocks were profitable (with data beginning in 2001), although
when the beginning and ending prices of the interval are those with lower efficiency ratios had lower returns.
the same (or nearly the same) no matter what volatility
occurred in between. Almost any sideways period will
show high noise, regardless of volatility, because the
price change is small (the numerator) compared to the
sum of the price changes (the denominator).
At the other end, if you have high volatility and a
large price move, the ER value will be high (relatively
low noise). That means a trend will work if the net price
change (numerator) is big compared to the amount of
volatility. Let’s look at some examples.
Figure 6 shows annualized volatility (standard devia-
FIGURE 8: NOISE VS. VOLATILITY IN FUTURES. This scattergram
tion of daily returns times the square root of 252) of the compares the information ratio (annualized returns divided by annualized
same futures markets in the same order as Figure 3. The volatility) based on a 120-day moving average versus the efficiency ratio
volatility shows no obvious pattern. The least volatile are (through 2016). At the far right is Nasdaq futures, at the top is eurodollars,
the three short-term interest rates at the far left, and the and clustered at the bottom left are the Russell, EuroStoxx, crude oil, and
natural gas futures markets. This indicates that Nasdaq is a good candidate
2-year notes in the middle. Then the 3-month rates have for trend following; meanwhile, the cluster on the bottom left would be the
the most trend and the least volatility, an ideal selection for best candidates in the group for mean reversion.
trend following. Copper has high noise and high volatility,
making it a good candidate for mean reversion. or futures market. That will tell you if the sector, in gen-
eral, is good for your strategy, and whether the specific
How do you use it? market that you want to trade is more or less trending
As you know by now, markets with low noise favor trend- within that group. It is worth the effort to qualify the
ing and markets with high noise favor mean reversion. market before trading it.
If you use the wrong markets, you’ll struggle to make
money or you’ll experience higher risk than you want. Proof of concept
To apply this to your own trading, first calculate the It is one thing to put forth a theory and another to prove
sector ER value, and then the value of the specific stock that it is correct. To do that, Figure 7 shows trend-
following results for an 80-day moving average versus
the efficiency ratio. While futures and ETFs showed a
Measuring price “noise” is going similar pattern, the selection of stocks had the clearest
results, shown in Figure 7. The three outliers at the top
to tell you how to use a market. right are Apple, Netflix, and Tesla. In our test, all stocks
were profitable from 2001, although those with lower
FIGURE 9: NOISE VS. VOLATILITY IN ETFS. The same type of test from
Figure 8 was performed on ETFs (through 2016). The relationship between
noise and the information ratio is much stronger, as seen by the angle of
the regression line. Nasdaq (QQQ) is again at the top right, consistent with FIGURE 11: IS MY FUTURES MARKET A GOOD TREND-FOLLOWING
futures during that period, and IWM, XHB, and XLP are at the bottom left, CANDIDATE? The same type of test from Figure 10 was performed on a
good choices for mean reversion. selected futures market (with data from 2000 and onward)—Eurodollar
futures. Profits were calculated based on a range of moving average
calculation periods, using data from 2000 onward. Compare the results
to Figure 10. While SPY is erratic and loses money in the short term,
eurodollar is consistently profitable everywhere, tending to be better for
trends. The total profits are 100 times larger than for the SPY test, even
when adjusted for risk.
drawdowns and only part of the bull market that started

in 2010. I will not tell you which markets are best and
worst; that is for you to test yourself.
Futures (Figure 8) show Nasdaq at the far right, eu-
rodollars at the top, and the Russell, EuroStoxx, crude
oil, and natural gas clustered at the bottom left. This
means Nasdaq was the best performer while eurodollars
FIGURE 10: ARE EQUITY INDEXES GOOD TREND-FOLLOWING CAN- was modestly profitable with low noise, no doubt due
DIDATES? Equity indexes have an upward bias, which may suggest they to the flattening and turning of short-term rates in the
are trending markets; however, in the short term they are erratic. Erratic
prices mean that equity index markets have high noise relative to net price years following the 2008 financial crisis. The cluster on
change. The test here was on SPY net profits calculated from a range of the bottom left would be the best candidates for mean
moving average lengths, long only, with data from 2000 onward. The size reversion.
of the profits on the left scale are small for a 22-year period with an initial For ETFs (Figure 9), the relationship between noise
investment of $10,000.
and the information ratio is much stronger, as seen by the
angle of the regression line. Nasdaq (QQQ) is again at
ratios had lower returns. It only takes a few stocks that the top right, consistent with futures during that period,
outperform to be successful. and IWM, XHB, and XLP at the bottom left, the best
I needed to make a lot of choices in running these results: choices for mean reversion. Two other good markets at
the stocks to test, the length of the trend, and the data the upper right are XLK (technology), and SPY (sector
interval being the most important. Changing those will SPDRs).
result in different returns, but I believe they will all show
that a higher ER value produces better trend results. Index markets are a tale of
two extremes
Past results One last comment about the S&P and most equity index
I have some results for futures and ETFs from tests that markets: They have an underlying upward trend, as we
I did in 2016. The values shown in Figure 8 and 9 are know, because the price has gone up over many years.
the information ratio (annualized returns divided by an- But they are very erratic in their pattern. The best way to
nualized volatility) based on a 120-day moving average show this is to calculate the profits of a range of moving
versus the efficiency ratio. While 2016 does not include average calculation periods from 2000, shown in Figure
the bear market of 2022, it does include a number of large 10. It is different from charts of SPY that I have done in
the past, where calculation periods below 30 days are Perry J. Kaufman is a trader and financial engineer.
all negative. Still, this shows erratic performance. Note He is the author of many books on trading and market
that the size of the profits on the left scale are small for analysis, including the sixth edition (2020) of Trading
a 22-year period with an initial investment of $10,000. Systems and Methods (with the first edition published in
Compare SPY to a similar eurodollar test, shown in 1978 as a seminal book in the field of technical analy-
Figure 11. While SPY is erratic and loses money in the sis), as well as Kaufman Constructs Trading Systems
short term, the eurodollars market is consistently prof- (2020), and the newly released book Learn To Trade
itable everywhere, tending to be better for longer-term (2022). For questions or comments, please go to www.
trends. Also, the total profits are 100 times larger than kaufmansignals.com.
SPY even when adjusted for risk.
Further reading
Summary Kaufman, Perry J. [2022]. Learn To Trade, Amazon.
While there is a gray area in the middle where a market [2020]. Trading Systems and Methods, 6th Edi-
may be good for both trending and mean reversion, the tion, Wiley.
extremes are clear. A high value of the efficiency ratio [2020]. Kaufman Constructs Trading Systems
is good for trends, and a low value is good for mean (print and ebook editions), Amazon.
reversion. [2022]. “Trading A Moving Average System:
If you only eliminate the worst offenders from your Important Choices,” Technical Analysis of Stocks
portfolio, you will significantly improve your results. It & Commodities, Volume 40: January.
is not necessary to test and retest. Markets shown here
to have high efficiency ratios should continue to be good
trend trading choices, and those with low ratios should
be avoided.
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Crossovers In A Trend
True Range Adjusted

Exponential Moving Average
(TRAdj EMA)
Combine some classic indicators in this unique way and TRAdj EMA. Here is how the TRAdj EMA is calcu-
you will get buy and sell signals to consider using while lated:
in the presence of strong trends.
Current TRAdj EMA = Prior TRAdj EMA + MLTP
by Vitali Apirine * (1+TRAdj*MLTP_TRAdj) * (Price − Prior TRAdj
T
EMA)
he true range adjusted exponential moving
average (TRAdj EMA) is designed to account Multiplier (the weighting multiplier)
for true range. True range measures a stock’s MLTP = 2 / (Time periods + 1)
or index’s volatility.
This trend-following indicator can be used True range calculation
in conjunction with an exponential moving average of True range (TR) is a concept that was developed by J.
the same length to help identify the overall trend. TRAdj Welles Wilder and described in his 1978 book. True range
MICHAEL R. ROSS/SHUTTERSTOCK
EMAs with different lengths can define turning points is defined as the greatest of the following:
and filter price movements.
Current high less the current low
Calculation Current high less the previous close (absolute value)
The example given in this article is based on a 10-day Current low less the previous close (absolute value)
INDICATORS
multiplier. Other values

can be substituted depend-
ing on your trading style
and goals.
The Excel spreadsheet
table in Figure 1 shows
sample calculations for
the 10-day EMA and
TRAdj EMA(10,10,5).
The first value for the
10-day TRAdj EMA is a
close price, and for the 10-
day EMA, the first value
is a 10-day average. Note
that the 10-day TRAdj
EMA and 10-day EMA
values seen here are not
very accurate because of
the short number of data
points seen.
The formula for calcu-
lating the true range ad-
MICROSOFT EXCEL
justed exponential moving

average (TRAdj EMA) for
the MetaStock platform is
FIGURE 1: CALCULATING THE TRUE RANGE ADJUSTED EXPONENTIAL MOVING AVERAGE. This spreadsheet
image shows how the TRAdj EMA is calculated. The first value for the 10-day TRAdj EMA is a close price. The first shown in the sidebar “True
value for the 10-day EMA is a 10-day average. Range Adjusted Expo-
nential Moving Average
Absolute values are used to ensure positive numbers. (TRAdj EMA), In MetaStock Formula Language.”
Figure 2 shows a corresponding chart of the values
True range adjustment (TRAdj) multiplier plotted from the spreadsheet in Figure 1 of the 10-day
TRAdj = ( Current TR − Minimum TR) ⁄ EMA and TRAdj EMA on the S&P 500 index.
(Maximum TR − Minimum TR)
TRAdj EMA and EMA
where: The chart in Figure 3 shows the Russell 2000 index with
a 20-day EMA and TRAdj EMA(20,20,5) from June
Current TR = True range for current day 2013 to January 2014. Bullish TRAdj EMA and EMA
Minimum TR = Minimum true range for lookback crossovers (green arrows) can be used as entry points
period for long trades.
Maximum TR = Maximum true range for lookback Note that bearish crossovers were ignored during
period strong uptrends.
The TRAdj fluctuates between 0 and 1. If the current Trend identification

TRAdj is close to the minimum TRAdj then TRAdj is The chart in Figure 4 shows the S&P 500 index with the
close to zero. TRAdj can reach 1 if the current TRAdj is 200-day EMA and TRAdj EMA(200,200,10). You can
equal to the maximum TRAdj. Multiply by MLTP_TRAdj. see that the 200-day EMA and TRAdj EMA(200,200,10)
Mltp_TRAdj can vary from 5 to 10. captured the 2000–2003 bear market.
The values of 10,10,5 are the typical settings used for The weekly chart in Figure 5 shows the Dow Jones
the TRAdj EMA(10,10,5), where the first parameter is a Industrial Average (DJIA) with the 40-week EMA and
moving average length, the second parameter is a look- TRAdj EMA(40,40,10). The rising 40-week EMA defined
back period, and the third parameter is a MLTP_TRAdj the 2003–2007 bull market. Bullish TRAdj EMA and
METASTOCK
FIGURE 2: TRUE RANGE ADJUSTED EXPONENTIAL MOVING AVERAGE WITH SPX. This plots the values for the TRAdj EMA and 10-day EMA
from the spreadsheet in Figure 1 on a chart of the S&P 500 index.
FIGURE 3: CROSSOVERS. Shown here is the Russell 2000 index with a 20-day EMA and TRAdj EMA(20,20,5) from June 2013 to January 2014. Bull-
ish TRAdj EMA and EMA crossovers (green arrows) can be used as entry points for long trades. Bearish crossovers were ignored during the strong
uptrend.
TRUE RANGE ADJUSTED EXPONENTIAL MOVING AVERAGE (TRAdj EMA), IN METASTOCK FORMULA LANGUAGE
Here is the MetaStock formula for the TRAdj TL:=If(Ref(C,-1)<L,Ref(C,-1),L);

TR:=Abs(TH-TL);
EMA(40,40,10):
TRAdj:=(TR-LLV(TR,Pds))/(HHV(TR,Pds)-LLV(TR,Pds));
Periods:=40; Mltp2:=TrAdj*Mltp;
Pds:=40; Rate:=Mltp1*(1+Mltp2);
Mltp:=10;
Mltp1:=2/(Periods+1); If(Cum(1)=Periods+1,C,PREV+Rate*(C-PREV));
TH:=If(Ref(C,-1)>H,Ref(C,-1),H);

FIGURE 4: TREND IDENTIFICATION. The S&P 500 index is shown with a 200-day EMA and the TRAdj EMA(200,200,10). The 200-day EMA and
TRAdj EMA(200,200,10) captured the 2000–2003 bear market.
FIGURE 5: BULLISH CROSSOVERS. This weekly chart shows the Dow Jones Industrial Average (DJIA) with a 40-week EMA and TRAdj EMA(40,40,10).
The rising 40-week EMA defined the 2003–2007 bull market. Bullish TRAdj EMA and EMA crossovers (green arrows) can be used as entry points for
long trades.
EMA crossovers (green arrows) can be used as entry

points for long trades.
This trend-following indicator
Comparing TRAdj EMA and EMA can be used in conjunction
crossovers with an exponential moving
The chart in Figure 6 shows the Hang Seng index with average of the same length to
the 10-day EMA and 50-day EMA in the upper pane help identify the overall trend.
and the same index with TRAdj EMA(10,10,5) and
TRAdj(50,50,5) in the lower pane from April to August
FIGURE 6: BEARISH CROSSOVERS. In the upper pane, the Hang Seng index is shown from April to August 2011 with a 10-day EMA and 50-day
EMA. In the lower pane, the same index is shown with the TRAdj EMA(10,10,5) and TRAdj(50,50,5) for comparison. Bearish TRAdj EMA crossovers
(red arrows) can be used as entry points for short trades during a strong downtrend.
FIGURE 7: BULLISH CROSSOVERS. In the upper pane, the Nasdaq 100 index is shown from August 2018 to January 2020 with a 50-day EMA and
200-day EMA. In the lower pane, the same index is shown with the TRAdj EMA(50,50,10) and TRAdj EMA(200,200,10) for comparison. Bullish TRAdj
EMA crossovers (green arrows) can be used as entry points for long trades. Note the bad bearish signal that occurred in May–June 2019.
2011 for comparison. Additional bearish TRAdj EMA

crossovers (red arrows) can be used as entry points for
Bullish TRAdj EMA short trades during a strong downtrend.
crossovers can be used The chart in Figure 7 shows the Nasdaq 100 index with
as entry points for long the 50-day EMA and 200-day EMA in the upper pane
trades. and the same index with the TRAdj EMA(50,50,10) and
TRAdj EMA(200,200,10) in the lower pane from August
2018 to January 2020 for comparison. Additional bullish
FIGURE 8: BULLISH CROSSOVERS. The upper pane of this weekly chart shows the Russell 2000 index with 10-week and 40-week EMAs during the
uptrend from January 1996 to April 1998. The lower pane shows the same index with the TRAdj EMA(10,10,5) and TRAdj EMA(40,40,5) in the lower
pane during the uptrend from January 1996 to April 1998. Bullish TRAdj EMA crossovers (green arrows) can be used as entry points for long trades.
The bearish crossovers were ignored since they occurred during a strong uptrend.
TRAdj EMA crossovers (green arrows) can be used as The code given in this article is available in the Article
entry points for long trades. Note the bad bearish signal Code section of our website, Traders.com.
that occurred in May–June 2019.
The weekly chart in Figure 8 shows the Russell 2000 See our Traders’ Tips section beginning on page 50 for
index with 10-week and 40-week EMAs in the upper implementation of Vitali Apirine’s technique in various
pane and the same index with the TRAdj EMA(10,10,5) technical analysis programs and trading platforms. Ac-
and TRAdj EMA(40,40,5) in the lower pane during companying program code can be found in the Traders’
the uptrend from January 1996 to April 1998. Bullish Tips area at Traders.com.
crossovers are shown with green arrows.
Bullish TRAdj EMA crossovers can be used as entry Further reading
points for long trades. Bearish crossovers are ignored Wilder, J. Welles [1978]. New Concepts In Technical
during strong uptrends. Trading Systems, Trend Research.
Conclusion ‡MetaStock
The TRAdj EMA accounts for true range. The true range ‡See Editorial Resource Index
adjusted exponential moving average is a trend-following,
lagging indicator.
The TRAdj EMA is interpreted in a similar way to
traditional EMAs, but it responds more quickly. TRAdj
EMA crossovers can produce lots of whipsaws in the
absence of a strong trend. Therefore, the TRAdj EMA
should be used in conjunction with price analysis.
The 200-day EMA and
Vitali Apirine is a programmer engineer with an inter- TRAdj EMA(200,200,10)
est in technical analysis, especially the application of captured the 2000–2003
indicators such as MACD, RSI, OBV, etc. to trading. He bear market.
may be reached at [email protected].

INTERVIEW
Cycle Price Projection Developer, Market Analyst, Trader, Newsletter Author,

and Cycle Software Developer
A Conversation
With Peter Eliades
Peter Eliades had a fascinating and unique journey to Wall Street. After
graduating from Harvard College, he obtained his J.D. degree from Bos-
ton University Law School and was admitted to the Massachusetts Bar.
However, rather than take over his recently deceased father’s successful
law practice, he relocated to New York City where he exhibited entertain-
ment skills as a singer and pianist, and he appeared in an off-Broadway
musical comedy. But his dad had told him, “Get your education…then
you can become a bum!” A move to Los Angeles in 1967 allowed him to
continue his musical passion. But in the hot market of 1968, he became
fascinated by the stock market.
In 1972, he became a stock broker at Frederick Gregory & Co. in Los
Angeles. Beginning in 1973, he used his communication skills to provide
live stock market analysis for several years at KWHY TV, the country’s
first full-time financial TV station. In 1975, he started writing his Stock
Market Cycles newsletter. It was published for 36 years ending in 2011.
His many accurate forecasts and market calls both on-air and in his
newsletter resulted in receiving Timer Digest’s 1985 “Timer of the Year”
award, with a second-place finish in 1986. The Hulbert Financial Digest
named him the “most consistent mutual fund switcher” for his market Once I discovered this
timing signals from 1985–1988. In the following years, his newsletter magical thing called
was ranked first for multiple time periods.
As of 2022, Eliades has been offering his stock market cycle analysis
cycles in the market, I
for half a century. His analysis identifies key short- and long-term market just couldn’t get enough
highs and lows. Technical analysis is also used with ancillary confirming of it.
indicators such as moving averages, trendlines, the McClellan oscillator,
TRIN (Arms index), and moving averages. He currently offers subscribers
a nightly video commentary explaining his market projections. It covers the three major market averages, S&P
and NDX futures, gold, and Bitcoin, as well as select individual stocks and commodities as requested by users.
His projection techniques were programmed into an app that had been available as an add-on for the Trade
Station platform for many years. Eliades now offers it directly to subscribers since TradeStation discontinued
offering third-party software. The Eliades Cycle Price Projections app calculates short- and long-term cycle
price projections.
Over the years, Eliades has appeared on numerous TV shows and networks, including Wall $treet Week, PBS’s
Nightly Business Report, Larry King Live, and ABC’s Business World show, CNBC, and Fox Business. Eliades
offers YouTube videos through his YouTube channel and also makes regular appearances in videos produced by
BACKGROUND ART: MECHICHI/SHUTTERSTOCK
the Foundation For The Study Of Cycles.

A 14-day free trial of the software and/or daily video updates are available through the website at stockmar-
ketcycles.com/register.
Stocks & Commodities contributing writer and ETF columnist Leslie N. Masonson spoke with Peter Eliades
on October 21, 2022 to discuss his five decades of experience in the markets and his approach of using cycle
projections.

Peter, early in your charts by hand using tracing paper analysis. Why have you decided to
career, in 1968, you to place the cycles going forward focus on price projections more
went to the library and in time? recently?
read every book on the As far as the tracing paper goes, Some of the successful predictions
stock market. And that’s that was not a technique by Hurst that I was fortunate enough to make
where it all began for you. You found at the very beginning. What Hurst in the market over the years came
that The Profit Magic Of Stock taught in his original book was using from time cycles. On that Los Angeles
Transaction Timing book by J.M. offset moving averages. He didn’t television show I mentioned, after
Hurst was career-changing for you. start doing the tracing paper and the watching the show every day, the sta-
What happened next? offsets until quite a bit later on in his tion asked me to do on-air analysis.
After I graduated college at Har- career. But yes, I used tracing paper. During the course of my work, in
vard and then Boston University Law I sat there for hours on end after that 1974 I had discovered a time cycle,
School, I headed to New York City technique was discovered. I think the a 212-week cycle, on my Mansfield
because I actually wanted to go into first time I learned that technique charts. And I thought, “Gosh, this
show business. There’s a lyric from was by watching channel 22 in Los thing is due,” right at the end of 1974.
a song by Jimmy Webb that I always Angeles, KWHY, the nation’s first I studied it closely and I came up with
liked called “Evie.” The lyric goes: financial station. There was someone the week of December 9 to December
“Sometimes a single moment changes on the program who talked about 13, 1974 for the projection.
all the ones that follow.” And that was how Hurst developed this technique And so for several months leading
true for me. That single moment for of using offsets to project market up to that date I kept saying on the
me was when I discovered Hurst’s movement. So that’s another thing TV show that we should see a very
book on a friend’s coffee table and that I can almost say transformed important market bottom the week
asked if I could borrow it. The mo- my life. I went at it with a passion of December 9 to 13. At the time,
ment I discovered that book really and thought, “Oh my gosh, look at we didn’t have the graphics we have
changed the course of my life. this, it really works.” There was no today on television, so I would hold
way to do anything computerized at up a chart in front of the camera and
That’s amazing. It reminds me of that time, so I sat there with tracing show the cycles, the previous resolu-
the story of Tom Dorsey, who read paper and started tracing. tions, and explain, “This is why we
Abe Cohen’s book on point-and- The technique is basically that have a very important market bottom
figure charting, and that changed you take the midpoint of the day due between December 9 to 13.” And
his life, and it worked out well for and call that the median. You track lo and behold, on exactly December
him. A random event can impact the medians by drawing the median 9, 1974, one of the longest bear mar-
someone’s life. How long was your from day to day, the midpoint of kets in history ended. It lasted about
journey in developing your cycle each daily bar (if you’re using daily six years for the secondary stocks,
analysis techniques? charts), and then you move it forward from December 1968 to October or
It was a long, long journey but I went in time a half span of the cycle being December 1974. The average share of
at it voraciously. Once I discovered analyzed. When you cross above or stock lost, I think, 70% to 80% over
this magical thing called cycles in the below it, it gives you projections. So, that time, but on exactly December
market, I just couldn’t get enough of yes, that’s how I started out doing that 9, the Dow reached an intraday low
it. I subscribed to the Mansfield chart- technique of cycle projections, with of 570.01. The rest is history.
ing service, and I sat there night and tracing paper. It was time-consuming
day counting cycles out one at a time. but it was worth it. That was a very successful predic-
We didn’t have software that would tion.
do that for us back then—probably Early on, your cycle analysis And that was done with time cycle
the late 1960s or early 1970s. So it encompassed both time cycles, analysis. It was incredibly satisfying.
was a long journey and the journey which identify time periods for But it didn’t happen often. I didn’t find
continues to this very day. I like to potential bottoms, and price cycles, time cycles that would consistently
think that I’m still learning things from which price projections for give me bottoms, and I very seldom
all the time. the popular averages are derived. found any time cycles that gave me
You also used technical analysis to tops. I used to believe that cycles
Did you initially draw your cycle confirm what contradicts the cycle were only good for market bottoms
it or computerize it. When It took about two years of working
I was doing market com- with Steffen to get it to the point where
You could usually figure out mentary on the TV show, I wanted (working over Skype since
with a turning-point pattern someone called me up and he was located in Europe). There was
whether the market was said, “I work with a Sperry a lot of trial-and-error and back-and-
going to turn and whether it Univac and I could com- forth involved. The computerized
puterize those technical technique first became available on
should be a market top or a
indicators you’re using if TradeStation in 2019 or so. There
market bottom. you want.” What this per- have been some tweaks and updates
son was talking about was since that time.
one of the big mainframe
but then I discovered that there were computers at the time developed by In 1975, your Stock Market Cycles
actually turning-point cycles in the Sperry Rand. newsletter was born. This newsletter
market. Sometimes they’d be tops and So we started doing some technical was ranked number one by “Timer
sometimes they would be bottoms. analysis that way. As time went on, Digest” newsletter on a number
Obviously, if the market’s been going I realized there should be a way the of occasions, including March
up for a long period of time, you’re projections could be computerized. I 1984 and October 2011. That
not going to be looking for a bottom, had a subscriber who had a son who accomplishment must be highly
if there’s a resolution of some kind worked for Apple. She asked him if satisfying and shows that your cycle
of time cycle. So you could usually he could computerize my projections. approach has validity. Would you
figure out with a turning-point pattern He thought he could. It was probably agree?
whether the market was going to turn the late 1980s, early in the history Yes, absolutely. When you’re com-
and whether it should be a market top of Apple computers. My very first peting with some of the greatest stock
or a market bottom. Those are ways Apple was an Apple III, and that’s market minds in the world and your
I initially used timing cycles. the one that I started to do the initial information turns out to be better
And it’s not that I don’t use them projection work on, with his program- than theirs on a fairly consistent basis
anymore, it’s just that I come to the ming help. And I thought, “Oh, this then you know you’ve got something
markets with a scientific background is fabulous.” So that’s how the first of value.
(I majored in physical sciences at computerized projections began.
Harvard), and I’m always looking But for several decades I couldn’t Can you give us a very brief overview
at things scientifically so that it will find a programmer or software of your cycle approach?
have consistency. I can then use a company that could program it all to My main approach to the market
rule-based approach. When I discov- my liking, especially the fractional is to first identify the very long-term
ered the price-projection technique, offsets that I use in my own deriva- cycles. That gives me an overview
it completely took over my analysis. tion of Hurst’s work. Around 2017 or and whether I should be looking for
So it’s not that I didn’t look for time 2018 or a little later, I was speaking a big bear or a big bull. Within that
cycles anymore, it’s just that I be- with Larry Williams about it and he framework, I use cycles to let me
came impassioned by the idea that pointed me to a programmer named know whether we’re getting big up-
you could tell how far the market Steffen Scheuermann. I reached out side projections or big downsides.
was going to go in one direction or to him, and he was actually able to
another by using these offsets and program it. I thought, “Oh my gosh, You have said that you don’t even
making price projections. this is wonderful.” So finally, just think about what causes cycles, but
four or five years ago, after three or you believe that important cycles
When and how did you decide to four decades of using this technique, are of fixed length and should show
automate your work with cycle I was able to see it computerized in a consistency over time. If the cycle
software? very useful and accurate way. I was apparently disappears, you have
I had wanted to automate the work overjoyed. said it should reappear at some
from the very beginning, going all time to be considered a legitimate
the way back to the late 1960s, early Was it shortly after that point cycle. Can you briefly explain your
1970s, but it wasn’t a question of my that it become available on the reasoning there?
deciding that I wanted to automate TradeStation platform? Sure. Back when I was appear-
ing on the TV show “Wall Street four-year cycle, at the one-
Week” with Louis Rukeyser some year point or at that 50%
30–35 years ago, he would ask me, point, you should get an Within that framework, I
“What causes these cycles, Peter?” upside projection. You go use cycles to let me know
I said, “I really don’t know, but if I up for two years and then whether we’re getting big
had to conjecture, I would say it had you come down for two upside projections or big
to be something with a consistency years. On the downside,
to it over time,” and I referred to you should ideally cross
downsides.
astronomy and orbits of the sun and the offset in the first year
the moon, because they have a very down after one year and
strong consistency. then you go down another year. So than the shorter timeframes, which
Well, some people laughed at that you have two years up and two years exhibit more noise?
and some people said, “Stay away down, and the projections come ide- No, I don’t know that I find that to
from that.” But there’s a distinction ally at the halfway point of the up and be true. The shorter-term projections
between astronomy and astrology. down moves. have a better chance of being met
I was talking about astronomical because they’re not very dramatic.
configurations, not astrological ones. With the short-time projections For example, if I tell you that I looked
So my guess was, and still is, that like the 15-minute, 5-minute, and at charts this morning—and this is
what probably influences these cycles, hourly, how accurate have they been purely hypothetical—and I saw that
from the very shortest ones to the over the years? there’s a short-term projection for the
very longest ones, has something to I once had a subscriber who kept S&P to reach 3775 and it’s currently
do with astronomical configurations. track over several years. He came trading at 3688, you’re talking about
But I don’t know what causes cycles, up with percentages for how ac- a relatively small move. I don’t know
I only know that they occur. curate they had been. For example, what the success rate would be but
one had been 65% accurate, another I know that if the projection turned
You use a set of short- and long- one had been 75% or 78% accurate, out to be correct, no one would say,
term cycle lengths to develop your and so on. “Oh my gosh, how did you know that
projections. Can you tell us a few of When the projection technique ahead of time?” No one would be that
the more important ones you use? was computerized by Steffen a few impressed by that because it’s a small
They relate back to the work that years ago, it meant you could use move. But if I said to you, “The S&P
Hurst did. It’s easiest to look at them data to look back over 40, 50, 60, right now is at 3688 and it’s going
in weekly terms. Hurst spoke of a 100 years. But with a shorter-term down to 1950,” that’s a longer-term
nominal 10-week cycle, a nominal projection like an intraday projec- projection. And those are the ones
20-week cycle, a nominal 39 to 40- tion with hourly charts, you probably that are the impressive ones. If you
week cycle, a nominal four-year cycle, wouldn’t want to go back more than start projecting 20%, 30%, 40%, 50%
and a 78-week cycle. Those were three to five years because that would or more declines and it comes true,
the basic cycles that Hurst spoke of. encompass a lot of projections, maybe then those are the ones that have an
What I was doing was using the half 40, 50, 60 projections. The software air of incredulousness.
spans of those nominal cycles to get calculates for you what the success
projections. rate is. It can tell you, for example, What do you find is the difference
Look at it this way: If it’s a four- over the last three years there have between using logarithmic or
year cycle, then ideally, it goes up for been X number of projections to arithmetic scales in the projection
two years and down for two years. If the upside and 78.4% of them were numbers? Which do you find are
it goes up for two years, then at the met; or there have been X number more accurate?
halfway mark of two years, that is, of projections to the downside and It doesn’t come into play unless
after one year, you should be able to 73.6% of them have been met, and you’re talking about really dramatic
get a projection because your offset so on. It tells you exactly what the projections, projections that start to
has been moved over two years. It success rate has been. work in, say, hundreds of percent
sounds complicated but if you look degrees of magnitude. For example,
at it graphically it’s not. If the market Do your longer-term cycles and if Tesla is selling at $700 or $800,
goes up for one of the two years in a projections tend to be more accurate which it did before it split, and you
So the high end of the log projection
and the high end of the linear are fairly
close to each other, 8568 vs. 8161
implying NDX should decline to at
least that range, 8161–8568. I should
add that any interim move above
both offset lines would invalidate
the downside projections.
Similarly, the chart in Figure 2
shows the projection for the S&P 500
of 3285, plus or minus 140 points.
Do you use any technical indicators

TRADESTATION
to confirm your projection zones?

If so, which ones?
FIGURE 1: NASDAQ-100 INDEX WEEKLY WITH 100- AND 110-WEEK OFFSETS. This chart I used to be a real technical indi-
shows the confirmed nominal four-year projection, which is in the range of 7142.17 to 8568.11 using
cator guy, always looking for new
logarithmic projections. If the weekly median (average of weekly high and low) exceeds the red
line, then the projection is canceled (invalidated). Projections always remain in effect until met or technical indicators or ones that were
invalidated. more effective. One of my favorites
going way back was the trading index
(TRIN) also called the Arms index,
developed by Richard Arms. When
the 10-day moving average got to
0.80, you’d start looking for the pos-
sibility of a short-term top. When it
got down to 1.30 or so, usually you’d
start looking for a bottom. And when
it got as high as 1.50, then you knew
to jump into the market on the long
side with both feet. I still look at it
and it still gives me indications. But
it’s not nearly as reliable for me as it
used to be. Maybe it’s because of the
FIGURE 2: S&P 500 WEEKLY WITH 10-WEEK OFFSET AND NOMINAL 20-WEEK PROJECTION.
fractionalization of stock prices that
In this S&P 50 price bar chart, a move in price above the red line would invalidate the projection to has occurred since the time the Arms
the area of 3285 +/−140 points. index was developed. The smaller
increments that prices are quoted in
were giving your projection down 2008–2009. If you look at that pro- changes the up and down stock prices
to $70 or $80, you’re talking about jection on a linear chart (Figure 1), and up and down volume.
huge differences in magnitude. If it measured from the high to the mid-
moved back from $70 to $700, that point (where price crosses below the Do you use popular indicators like
would be 1,000% to the upside. When offset) and then that equal distance the MACD, RSI, or stochastics?
you start dealing with those kinds of down linearly from the crossing I look at them, but they certainly
moves then I think you need to use point, the projection would call for don’t rule in my work. I would say
a logarithmic scale. Let me give you 6249–8161. But if you calculated it their contribution to my thinking
an example. logarithmically in percentages, then in terms of where the market is—
On a chart of the Nasdaq 100, we you’d measure the decline from the whether the market is going to turn
recently got a nominal four-year high to the midpoint in percent, then or not turn—I give them about 10%
downside projection. Those do not an equivalent percentage down from weight, roughly.
happen very often. The last time it the midpoint, and that would give you
happened was over a decade ago in a projection of 7142–8568. So, basically, the cycles are the key
for you? So you use leveraged funds? don’t ask them for any information.
Absolutely. The final determination Yes, I do. I’ve been positioned So I couldn’t tell you.
comes from the price projections. in a 2X inverse fund for the Nas-
daq-100. When did you become associated
Is your methodology and corre- with the Foundation for the Study
sponding projections better suited Do you use the ETFs from Direxion of Cycles?
for traders or investors or both? and ProShares? My affiliation started probably
I like to think it’s suitable for both. I’ve been using the Guggenheim about 40 years ago in the 1980s. Later
But one of the things I’ve tried to avoid funds for a long time, so rather than in the 1990s Martin Armstrong was
over the years is enticing people to get go through the process of using a president of the organization. He held
my service just because they thought different technique and a different a conference, and UK Prime Minister
I was going to give specific advice. I instrument, I’ve just stayed with this Margaret Thatcher was the featured
may write that I’m expecting the mar- group of funds, which used to be speaker, and I was also a speaker at
ket to reach a certain level within the called the Rydex group of funds. It’s that conference.
next year, but I’m not telling people worked out fine for me and I’m happy
what to do with that information or with it because it’s no-load with no What is your view of Elliott wave
how to play it, because I stopped frequency-of-trade restrictions. theory? Did you follow Robert
giving specific recommendations a Prechter’s work over the years?
long time ago. I only write about my And using your approach for your It’s funny, we were fierce competi-
market outlook. own personal investing, would you tors decades ago because one year
So I don’t actively encourage people say that you’ve been able to beat he would win the “Timer’s Digest”
to take long-term positions or short- the indexes over the last, say, 20 award and I would win it another
term positions. I simply give them years? year, and so on, with other awards
our projections and let them make of Over the long term, I have beaten as well. But we ended up being good
it what they will in accordance with the market using my projections. friends.
their own trading or investing style. There was a period in the 1990s As far as his work is concerned, I
People can use their own investing where I tended to be overly bearish think Bob is brilliant. I think his work
approach they’ve developed or use as the market kept going up and up suffered from premature bearishness.
a financial advisor for recommen- and up throughout the 1990s into the I suffered from that same malady for a
dations on exactly how to position 2000 top. In that period, my market while. I can see how that can happen,
themselves in the market. timing would not have beaten the because you can get tied up with your
One reason for that is regulatory. market. But I got lucky and surprised theory and what you think should
When you give specific recommen- many with some gold mutual fund be happening. And when it doesn’t
dations for investments, it gets more recommendations that handily beat happen, you try to find reasons why
complicated procedurally and legally. the market at that time. it has not happened.
So I avoid giving specific recom- I have respect for Elliott wave
mendations. The market in the 1990s was, I theory and there are times when I’ll
think, the second-best decade with sit there and look for waves and count
As far as your own trading, have around 18% average annual return. waves. But I don’t use Elliott wave in
you structured your own profit- So getting out of the market to wait my market analysis.
able trades using your own projec- for a turnaround would cost time
tions? and money. That happens in a big Theoretically speaking, say that
Yes. For example, I like to use the bull market. theory had a long-term projection
Guggenheim group to position my- That’s correct. There weren’t any that was opposite of yours. Would
self in the markets, since they offer market turns during that period. It that impact your thinking or do
funds that allow you to go either long went straight up. Until it didn’t. you stay confident in your own
or short and you can also use lever- projections?
age if you want. For a good part of Are your subscribers m ostly I would probably look into my
this year I have been in a leveraged individual traders or institutional projections a little more closely if
short fund. traders? someone I respect had a contrary
When someone subscribes, we opinion. But I have been working
analysis. It’s been around 50% declines.
for 50 years yet only in They were large declines, but how
The final determination recent decades has it long did it take to recover? By com-
comes from the price gained credibility. parison, do you know how long it took
projections. Absolutely. It had little to recover from the 1929 crash?
respect going back 50, 60,
70 years. Yet some of the Yes, 25 years.
with my projections for so long that people who did pioneering work in You got it, baby, 25 years, a quar-
I have confidence in them and so no, the markets like Richard Russell and ter of a century, from 1929 to the
that generally wouldn’t change my John Magee were technicians. mid-1950s before you recovered
outlook. I can’t think of anyone whose that 1929 high. At that time, if you
opinion would affect the way I feel Have you noticed any m ajor had told people, “Don’t worry about
about a projection from my work. structural changes in the stock it, the market looks high here but
market over the past 25 years? be a long-term investor, you’ll have
Why do you provide your subscribers I think the short answer is no. no problems.” What if you were 50
with nightly video updates if People tend to think that movement years old at the time, and you had lost
conditions or projections haven’t in the stock market relates to day-to- 80–90% of your money? The Dow
changed from the previous day? day activities in the world, and that was down 90% from 1929 to 1932.
Because of the volatility in the if you could predict what happens If you lost 90% of your money, good
market and because the market is with these day-to-day fundamental luck with your long-term investing. It
such a dynamic thing day to day. Let’s activities, then you could predict took 25 years to get back there. That’s
say I’ve given a big upside projection, the stock market. All my research what I call a real bear market. The
and say I think the market is going tells me that is not the case. There’s market in 1968–1974, that also was
a lot higher. But in between, there no relation. a real bear market.
can be a lot of quick movements What first appealed to me in Hurst’s
that can confuse market direction, work, going way back to the begin- Yet most people still believe buy
and it’s important to subscribers ning of my career, was that Hurst & hold is the golden rule, versus
to know whether those movements said market movement has nothing market timing.
change the projections or whether to do with news. Many of us who do That’s because people have seen
the overall picture is unchanged and technical analysis and cycle analy- the markets go virtually straight up
the projection still holds. That’s why sis truly believe that. I think we’ve from 1982 to 2021–2022. The stock
I do daily video updates. Besides, discovered that market movement is market has not been undervalued in
there are other non-equity markets I not related to news. Psychologically, over 40 years.
do projections on, so there is always that’s important to remember. When
a market to discuss. there is fear of total market collapse, Three quarters of the time the
when that fear reaches a fevered pitch, market goes up.
Why do you think cycle analysis like it’s the best time to be buying. Right, but it’s the times that it goes
yours is not used by more investors down and stays down that you have to
and traders? Do you think people As John Templeton and others worry. From 1974 and 1982 on, any
just prefer to listen to soundbites on have said. bear market that we’ve had, including
the financial news channels? Yes, they learned the lesson. And the crash in 1987, has been recovered
Cycle analysis may come off as when there’s overconfidence out within a year, or two to three years
sounding a bit mystical and witch- there, as I think there probably has at the most. And if that’s true, then
crafty to some. If you tell people that been—I mean, we haven’t had a real you want to be a long-term inves-
market movement is determined by bear market since 1974. We had small tor. But the problem is that may not
cycles, they will counter that move- excursions. Look at the crash in 1987; be true. This year may have seen a
ment is determined by news and how long did it take to recover? Not historic high.
economics such as what the Federal long.
Reserve is currently doing. Would you say the markets have
What about the bear markets in gotten more difficult to trade
The same can be said for technical 2000–2002 and 2007? Those were since 2000 versus prior decades?
Or would you say it’s always been logarithmically. If we looked at that markets. With the software now able
difficult? downside move linearly, the projec- to make cycle projections using my
Well, as I explained earlier, I had tion called for a move into negative methodology, there will be people
difficulty with the market in the 1990s territory because it was such a large who can apply it. They may come up
because there were indications of linear move from high to crossing with slightly different interpretations,
excessive bullishness and optimism points. Logarithmically, it ended up slightly different ways to do it. But
in investors without any subsequent giving an accurate projection to the now that the principles of how it works
significant declines. But since then, downside. The log projection called have been captured in the software,
I have not found it any more difficult for a low between 771.44–881.45. there will be people who will carry
because I use the cycle projections. The final low came in the week end- forward with the tradition.
They worked before 2000 and they ing October 11, 2002 at 795.25. That
worked after 2000. So I don’t worry projection was confirmed in the week Peter, thank you for discussing
about market movement or changes ending March 9, 2001 when the NDX your approach to cycle analysis
in people’s attitudes, because I truly closed at 1813.02. and sharing your insights. It’s an
believe that my cycle projections will The nominal four-year and nomi- honor to speak with someone who
tell me if there is going to be a change nal eight-year projections are the has made such a major contribution
and what the change is going to be. longest projections we do. The last to the field. I wish you well going
time we had a downside crossing for forward.
I’ve been receiving your nightly the nominal four-year projection on
video updates for the past month NDX was 14 years ago. On October Leslie N. Masonson is president of
and found them to be fascinating. 3, 2008, with NDX at 1470.84, we Cash Management Resources, a fi-
On your October 12th video, your got a downside projection to between nancial consulting firm that focuses
work confirmed a Nasdaq (NDX) 880 and 1181. That was a linear pro- on ETF strategies. He is an active
downside nominal four-year price jection, not a logarithmic one. The ETF and Nasdaq futures trader,
projection in the range of 7142 to Nasdaq-100 actually bottomed in and the author of Buy—Don’t Hold:
8568, using LOG projections Since November 2008, not March 2009 like Investing with ETFs Using Relative
the Nasdaq closed on October 12 at the DJIA and SPX did. And it came Strength To Increase Returns With
10786, that would be a huge drop, down to 1018.86, almost exactly in the Less Risk; and All About Market
and you said it rarely appears in middle of that projection range. Timing, as well as Day Trading On
your work. You said extreme caution The Edge. He can be reached at
is urged. Over a week earlier, that When you retire from providing [email protected] or 561-
projection was initially made but your nightly update service, is there 824-8084.
not yet confirmed. Based on your anyone who will follow in your
experience, do you believe that footsteps with your methodology?
this projection zone has a high Not in particu-
probability of being attained? lar and that’s one
I’m confident in all the projections.
But I can’t tell you there is statisti-
of the reasons I
think there is such
The Market’s Compass
cal significance to this one because value to the soft-
these longer projections only happen ware that codes Navigating the waters
once or twice every decade or lon- the methodol- of global financial markets
ger. I can tell you that the nominal ogy. There are
four-year downside projections for so many people
NDX in the 2000–2002 decline and who are search-
the 2007–2008 decline were both ing for answers
accurate. Those were the only pre- about the mar-
vious nominal four-year downside ket. Some of the
projections over the past three to brightest minds
four decades. in the world are
It was the projection from the attempting to find
2000 high that prompted me to think answers about the themarketscompass.substack.com @Mkts_Compass

The Savvy Technician
CHARTING THE MARKETS
Stella Osoba, CMT, Esq., is an attorney, trader, and financial writer in New York,
NY, and is also the Senior Editor, Trading and Investing, for Investopedia.com. Her
work in financial litigation involving regulatory bodies and large multinational
corporations led to an interest in the financial markets, then technical analysis
and the psychological aspects of market behavior. She earned a CMT charter
in 2013 and was a director-at-large on the board of the CMT Association for
four years. This column will focus on recognizing and applying technical chart
patterns to trading with flexibility and astuteness for better decision-making in
trading. She can be reached at [email protected]. Stella Osoba
DO NOT INVEST IN THE PRESENT we are wired to believe they will rise happily provide 10, 20, even 30 rea-
It has been a really hard year to make forever, and when they are falling, sons why stocks will keep falling and
a profit in the stock market. With high we believe they will never rise again. when they are rising and near their
inflation and increasing interest rates, This behavioral quirk in our wiring is top will tell us why they have more
risk assets such as stocks are vulner- not helped by the mainstream media room to rise. Remember that many
able. Since the S&P 500 peaked in who, when stocks are falling, will of those writing financial copy are
January 2022, stocks have had a paid to write and not to trade.
brutal year with steep declines and So it is wise that we keep our wits
high volatility. It is why this advice When markets are about us and study market history.
from a legendary investor caught my rising, we are wired to The following charts will be a look
attention: back at the performance of the S&P
believe they will rise
500 over various time horizons to try
“That would be my number one
forever, and when they to decipher what the market is truly
advice to the young people. Do not are falling, we believe trying to tell us in the present.
invest in the present. The present, they will never rise
it’s not what moves stock prices. again. A historical look
Change moves them, and I want Figure 1 shows that we are in a down-
you to try and envision a trend as I write this in early
different world in a year November 2022, and have
and a half from now, and been in one since January
where these security 2022. Price has not broken
prices would trade ver- above the downtrend line,
sus now given the world so the trend is still in effect
you envisioned.” here. Until we can clearly
—Stanley Druckenmiller see signs of accumula-
tion, we must assume that
As technicians, we the trend is still in effect
choose our investment and expect prices to move
horizons, but in times of lower.
market turmoil, when there Figure 2 is a weekly chart
is “blood in the streets” so of the S&P 500 showing
to speak, it pays to hold our three years of price action.
positions and do little else. The 2020 collapse in prices
No one can successfully brought on by the onset of
STOCKCHARTS.COM
call a market bottom with the Covid crisis was sharp

any certainty, but a market and brutal. But it ended in
bottom will eventually a V-shaped reversal after a
FIGURE 1: S&P 500 DAILY, ONE YEAR. A daily chart of the S&P 500
appear. index over the recent one-year period shows an unbroken downward couple of months. The cur-
When markets are rising, trendline. rent bear market is likely to
The Savvy Technician
FIGURE 2: S&P 500 WEEKLY, THREE YEARS. A weekly chart of the FIGURE 3: S&P 500 MONTHLY, 2007–2009. This monthly chart of the
S&P 500 covering three years of price action shows the 2020 collapse in S&P 500 covers the Great Recession, which began in December 2007
prices brought on by the onset of the Covid crisis, which was sharp and and ended in June 2009. The plunge was steep and painful but it ended
brutal but ended in a V-shaped reversal after a couple of months. The and the market moved to eventually surpass its prior highs. The weight
more recent 2022 market downtrend is likely to look dissimilar due to a of historical evidence is that generally, the market will eventually find a
different environment and different circumstances. bottom and price will eventually reverse.
be longer and possibly more painful. tions will prevent us from listening
Price has been finding support at the Until we can to the market, which will eventually
200-day moving average, but despite clearly see signs of show us what it will do.
the positive divergence, there is scant The weight of the evidence shows
accumulation, we must
evidence that it will hold because of us the one thing we can know for
the current inflationary environment assume that the trend sure—that the market will eventually
and the Federal Reserve’s insistence is still in effect. find a bottom and price will eventu-
on continuing to raise interest rates. ally reverse. It has always done so, and
Figure 3 is monthly chart of the it likely always will. But when and
S&P 500 showing the Great Reces- or reversing. at what point is unclear. Searching
sion, which began in December 2007 There are times when the signals for a bottom to go long never works
and ended in June 2009. The plunge the market sends are not clear. Then because no one can precisely call a
that decimated portfolios was steep it is okay to wait for them to become bottom.
and painful, but it ended and the clearer. As traders, we are not forced So, it is times like these that it is
market moved to eventually surpass to do anything. We can choose when wise to pay attention to those who
its prior highs. to be in the market and when not have seen many market cycles and
to be. We can choose when to ac- know not to fear them.
Weight of the evidence cumulate and when to stand aside. “Do not invest in the present,”
Past performance is not indicative of Some people will see markets like Stanley Druckenmiller cautioned.
future performance. None of us can these as opportunities, while others What else is there to say?
know what will happen in the future. will fear them. But trading does not
How low will price go? When will have to be difficult. What is difficult ‡StockCharts.com
price reverse? Technical analysis is is taming our animal spirits. We must ‡See Editorial Resource Index
not a predictive tool. We use it to ana- quiet our emotions to allow ourselves
lyze price behavior and to determine not to be overtaken by greed or fear.
the probability of a trend persisting Drowning in the noise of our emo-
ETFs Focused On The Virtual World Of Interaction
The Metaverse’s Rosy Future

Lies Ahead, Or Does It?
In newer technology spaces such as the “metaverse,” decide for yourself.
investors need to consider whether they want to get in First, what is the “metaverse”? It’s a fairly new area
near the ground floor or take a “wait and see” approach and not every organization is likely thinking of it the
to find out if the technology truly takes off. Here’s a close same way as they develop their products and services.
look at ETFs related to the metaverse industry to help When I checked the definition of the term in Merriam-
you consider whether any of these recently launched Webster’s dictionary (m-w.com), the entry included the
ETFs deserve a place in your portfolio. following two quotes that help describe or explain what
the metaverse is:
by Leslie N. Masonson
I
“To its proponents, the metaverse is the natural evo-
nvesting in ETFs related to the metaverse space lution of the internet. They envisage a sprawling
could offer a window of opportunity into the network of interconnected virtual worlds for such
next iteration of social media, as well as the next diverse activities as gaming, watching live enter-
phase of remote work, gaming, productivity tainment … and collaborating on design projects.”
tools, and e-commerce applications. In essence, —Ed Gent
the “metaverse” is a virtual experience where
people can interact, work, and play games from the “Metaverses are immersive three-dimensional virtual
DEEMERWHA STUDIO/SHUTTERSTOCK
convenience and safety of their home. Should investors worlds in which people interact as avatars with each
and traders consider investing a small portion of their other and with software agents, using the metaphor
capital in this new technological opportunity? In this of the real world but without its physical limitations.”
article, I’ll examine the composition, performance, and —Alanah Davis et al.
other key metrics of metaverse-related ETFs to help you
WHY TRADE ETFS?
Due to the pandemic and the work-at-home model, by one Wall Street ETF Name Ticker
there has been a shift to more remote and hybrid work, analyst. Roundhill Ball Metaverse ETF METV
thereby adding impetus to the growth of companies of- ETFAction.com lists Fidelity Metaverse ETF FMET
fering services in the metaverse arena. seven ETFs in the meta- ProShares Metaverse ETF VERS
According to analytics and consulting firm GlobalData, verse category (Figure Fount Metaverse ETF MTVR
the global metaverse space will grow to a $996.42 billion 1) with total assets Global X Metaverse ETF VR
industry by 2030, growing at a 39.8 percent compound under management First Trust Indxx Metaverse ETF ARVR
annual growth rate of over the next eight years. In 2021, (AUM) of $432 million Subversive Metaverse ETF PUNK
the industry stood at $22.79 billion. with five ETFs showing FIGURE 1: METAVERSE THEMATIC
Here are a few other projections for the industry, ac- $6 million AUM or ETFS. The tickers and names of seven
cording to the website of Roundhill Investments: less, with most of those ETFs are shown here. Each ETF is of-
having only a one-year fered by a different sponsor and most
came to market within the past year.
• ARK Research estimates revenue from virtual or less life span. These
worlds could approach $400 billion by 2025 ETFs have an average of 43 holdings, and 157 unique
• Bloomberg Intelligence has stated the market op- holdings, which is surprisingly high. My review of the
portunity for the metaverse could reach $800 billion ETFs shows the variation in portfolio correlation is less
by 2024 (excludes Roundhill Ball Metaverse ETF’s than you might expect.
hardware, networking, compute, and payments
categories) An overview of metaverse ETFs
• Citi estimates there will be an $8 to $13 trillion All the ETF data in this article is from ETFAction.com
total addressable market for the metaverse by 2030, unless otherwise stated. The common characteristics of
including 5 billion unique users. Citi research calls these ETFs include: open-ended; equity-based; specialty
for 900 million to one billion VR/AR (virtual real- focused; average expense ratio of 0.60%; six are pas-
ity/augmented reality) users by 2030. sively managed and one is actively managed (PUNK);
broad-based global equity; three listed on NYSE Arca,
ETFs enter the metaverse three listed on NASDAQ, and one (PUNK) listed on
The metaverse ETF category is brand-new and was born Cboe BZX US Equities Exchange; three offer annual
after Mark Zuckerberg, CEO and founder of Facebook, dividends, three offer quarterly dividends, and one (VR)
announced the corporate name change from Facebook to offers semi-annual dividends; no leverage used in any
Meta Platforms in late October 2021 effective December of the ETFs; all had three-month losses of 5.0%–15.2%;
1, 2021. Facebook’s entry into the metaverse actually unimpressive YTD flows of −$34 million (METV) to
began in 2014 when it acquired Oculus, a virtual reality +$9 million; typically holding 40 to 50 positions; and
hardware platform. The term “metaverse” first appeared all have 1099 tax reporting.
in Neal Stephenson’s book Snow Crash, in which the
author envisioned the future existence of cryptocurren- Basic key numbers: AUM, expense ratios,
cies and the virtual world. holdings and yield
After Zuckerberg’s announcement, the financial media Figure 2 provides each ETF’s individual data points. AUM
was abuzz about the potential impact of the metaverse is the first key number and is one of the most critical
and who the influential players would be. The meta- factors for an ETF to maintain and grow to remain vi-
verse is considered a “disruptive technology” by Cathie
Wood, CEO of ARK Invest, a prominent flagbearer of
the revolution in technology. Surprisingly, as of October
31, 2022, none of the six ARK ETFs had a position in Metaverse ETFs offer a window
Meta. But there are other holdings in those funds that are of opportunity into the next
considered metaverse-related, including Roblox, Unity iteration of social media,
Technologies, and Nvidia, with a value of $825.3 million as well as the next phase
as of that same date. Previously, Ark’s entire position of remote work, gaming,
of 343,00 shares of Facebook was sold on November 6,
productivity tools, and
2020, so fortunately Ark’s ETFs did not get hit with the
24% drop in Meta’s shares on October 27, 2022, when e-commerce applications.
earnings and revenue were reported as a “train wreck”
Ticker METV FMET VERS MTVR VR ARVR PUNK
Brand Name Roundhill Fidelity ProShares Fount Mirae Asset First Trust Subversive
Listing Exchange Cboe BZX US

NYSE Arca NASDAQ NYSE Arca NYSE Arca NASDAQ NASDAQ Equities Exc.
Strategy Fundamental Fundamental Equal Vanilla Fundamental Vanilla Active
Inception Date 6/30/2021 4/19/2022 3/15/2022 10/27/2021 4/26/2022 4/19/2022 1/27/2022
AUM ($MM) $406 $11 $6 $6 $2 $1 $1
Expense Ratio 0.59% 0.39% 0.58% 0.70% 0.50% 0.70% 0.75%
Number of Holdings 45 45 40 52 40 40 39
Average Daily Volume 292,548 5,558 1,590 1,314 583 222 147
Dividend Yield 0.77% 1.13% 1.01% 0.68% 1.54% 1.50% 0.82%
Dividend Frequency Annually Quarterly Quarterly Annually Semi−annual Quarterly Annually
Performance—3 months −10.97% −15.24% −12.55% −14.34% −12.45% −11.28% −4.95%
Performance YTD −50.79% −41.28%
Performance—1 year −49.46%
Percent from 52-wk high −55.80% −26.95% −36.31% −46.84% −27.07% −23.51% −36.92%
Flows YTD ($mm) ($34) $9 $4 ($3) $2 $2 $1
Flows—1 Year ($mm) $833 $9 $4 $12 $2 $2 $1
FIGURE 2: METAVERSE ETF COMPARISON. The leader by far in AUM and share volume is METV with over 95% of both categories. The other ETFs
have very low AUM and extremely miniscule daily share volume. The viability of these latest newcomers is questionable as their AUM size is very low
by industry standards.
able. Six of these ETFs have AUM less than $11 million, million in AUM.
which is not unexpected, as they are all newbies less than The Fount Metaverse ETF (MTVR) was born only
one year old. Over the next few years, their assets need three months after METV in October 2021, but has been
to grow substantially to at least $100 million to ensure able to gather a measly $6 million in AUM. Their ETF
their existence and long-term viability. brand name of Fount Inc., South Korea’s leading robo-
Roundhill Ball Metaverse ETF (METV) is clearly advisor fintech company, is new on the block and does
the dominant player with $406 million totaling 94% of not have the recognition or clout of Roundhill’s marketing
the AUM in the category. It was the first ETF in this and name. Its only other ETF is the Fount Subscription
space with an inception date of June 30, 2021. This is Economy ETF with a $2 million AUM.
an exceptional accomplishment in 15 months. However, Fidelity Metaverse ETF (FMET) has gathered $11 mil-
METV has shed $84 million within the past year, as its lion in AUM since its April 19, 2022 launch. The bottom
performance has greatly eroded, dropping 51% in price, four ETFs in this category—VERS, VR, ARVR, and
which most likely accounts for most of these outflows. PUNK—have less than $5 million each and need to focus
Roundhill has seven ETFs in the market with a com- on bringing up the asset growth or they will probably be
bined AUM of $563 million, with METV being the withdrawn from the market after one or two years.
largest component at 70%. Their other well-known ETF The second critical factor is the annual expense ratio.
is Roundhill Sports Betting & Gaming ETF at $103 Here, three ETFs with the highest ratios are at or near
the 0.70% level. The two at that level are MTVR and
ARVR, while PUNK is at 0.75%. METV and VERS are
near 0.59%, VR is at 0.50%, and FMET is the lowest
According to analytics and
at 0.39%.
consulting firm GlobalData, the The third critical factor is the annual dividend yield.
global metaverse space will grow Here, there is a wider dispersion, with VR leading the
to a $996.42 billion industry by pack at 1.54% followed closely by ARVR at 1.50%. At
2030, growing at a 39.8 percent the low end are MTVR at 0.68% followed by METV at
compound annual growth rate of 0.77% and then PUNK at 0.82%.
over the next eight years. The last critical factor is the number of portfolio hold-
ings. Here, there is a definite cluster of four ETFs with 39
to 40 positions. Both METV and FMET come in at 45,
ETFACTION.COM
FIGURE 3: METAVERSE ETF PERFORMANCE. All these ETFs performed worse than the S&P 500 and Nasdaq-100. METV was down the most at
29.4% Close behind was FMET, MTVR, and VR at 24%. Keep in mind that this performance is for the short period of only five months due to their recent
infancy, and that a longer time period is needed to assess their true value.
and MRVR comes in at the high end at 52. By concluding earliest common starting date of April 28, 2022 through
that the number of positions is highly concentrated, one October 17, 2022 shows the negative returns inflicted by
would surmise that the holdings would be very similar. this nasty bear market assault on everything in sight,
However, that is not the case, as we will see later. except for oil-related stocks and ETFs. Clearly, METV
(mislabeled as Listed Funds Trust in the StockCharts.
Cash inflows, trading volume, and per- com chart in Figure 3) declined the most at 24.9%.
formance comparison Closing within a few percentage higher were FMET,
Incoming cashflow is the lifeblood for an ETF to remain MTVR, and VR. In comparison, the S&P 500 was down
a viable investment vehicle and to grow its footprint in only 13.5% while the Nasdaq-100 (QQQ) fell 17.6%. So
its category. Unfortunately, the year-to-date flows are overall, the metaverse ETFs got crushed, no matter how
minimal or actually negative as is the case with METV you look at it.
(−$34 million) and MTVR (−$3 million). FMET brought
in $9 million and the others gained $4 million or less. As Portfolio composition
mentioned earlier, these numbers need to greatly increase Figure 4 provides a comparison of the portfolio composi-
or many of these ETFs will be no longer viable for the tion of these ETFs. Both VERS and PUNK have about
sponsors to cover their costs, let alone make a profit. 90% of their portfolio in US companies while FMET,
Not unexpectedly, the average trading volume leader is NTVR, and VR have about 51% in the US. METV has
METV with over 290,000 shares a day. The remaining 77% in the US. The amount of assets in developed coun-
ETFs have paltry volume ranging from a high of 5,558 tries, excluding the US, varies greatly from 35–40% for
for FMET to a low of 147 shares for PUNK, truly min- FMET, MTVR, and VR to only 5–7% for VERS and
iscule. This low volume is another indicator of lack of PUNK. METV had 12% in that market.
investor interest, which does not bode well going forward The largest concentration of assets is in the large-cap
for these ETFs. The volume is extremely disappointing space, ranging from a high 90% for METV to a low of
and not suitable for either investors or traders, who may 50% for VERS with the remaining ETFs in between
experience higher
than normal bid- Ticker Unites States Dev. Ex−US Emerg. Mkts Large cap Mid cap Small cap Micro cap
to-ask spreads be- METV 77.21% 12.00% 10.63% 89.76% 6.70% 3.37%
cause of this lack FMET 48.75% 40.42% 10.59%

of liquidity. VERS 88.28% 5.60% 6.06% 50.46% 15.80% 14.84% 18.83%
Cha r ti ng t he MTVR 52.39% 36.85% 10.63% 57.82% 33.33% 8.73%
ETF price per- VR 51.74% 35.24% 12.98% 72.26% 19.59% 7.60% 0.52%
formance of these ARVR 64.03% 23.71% 11.68% 80.44% 12.55% 6.41%
ETFs (Figure 3), PUNK 90.41% 6.97% 0.00% 69.58% 6.01% 4.46% 3.24%
we see that the FIGURE 4: METAVERSE ETFS EQUITY COMPOSITION. Clearly, the vast majority of security holdings are in the US. Next
year-to-date per- in percentage terms is developed country ex-US, followed by emerging markets. Regarding capitalization size, the focus
formance from the was largely on large-cap names, with mid-cap and small-cap following in order.
overlap with the other ETFs. Among these ETFs, PUNK
has the lowest overall portfolio overlap.
Figure 6 provides a listing of the top 10 holdings of all
these ETFs combined. Only three stocks were in all seven
portfolios—Apple Inc., Take-Two Interactive Software,
Inc., and Adobe Inc. Six ETFs held Roblox Corp. Class
A, Meta Platforms Inc. Class A, NVIDIA Corporation,
Snap Inc. Class A, and Electronic Arts Inc. Lastly, five
ETFs held Microsoft Corporation and Unity Software
Inc. Five of these 10 stocks were in the Communication
FIGURE 5: METAVERSE ETF OVERLAP. Viewing the table from a top- Services sector and the Information Technology sector,
down view indicates the lack of consistency in common names among both of which had poor performance.
these seven ETFs. The highest overlap percentage was shown by METV Here are the top five holdings of each ETF:
with VR at 50% or 20 names. PUNK had the least correlation with less
than 33% overlap and in a few cases around 13%.
METV: AAPL (8.2% weighting), NVDA (7.8%),
those numbers. Emerging market exposure was fairly RBLX (7.7%), META (7.0%), and MSFT
uniform with holdings around 11%. However, VERS had (6.3%)
a 6% holding and PUNK had no holdings. FMET: Nintendo Co. Ltd (5.0%), GOOGL (4.9%),
Mid-cap holdings were bunched between 13% to 33%, AAPL (4.9%), META (4.3%), and EA
with the two outliers being METV and PUNK with around (4.3%)
6.5%. Small-cap holdings were in the 3–8% range with VERS: AAPL (4.8%), GOOGL (4.8%), MSFT
VERS as the outlier with 15% and FMET with 0%. VERS (4.7%), FUBO (4.6%), and QCOM (4.5%)
also was the outlier with 18% in micro-caps, while PUNK MTVR: AAPL (12.6%), GOOGL (4.5%), META
had 3%, and the remaining ETFs having no micro-caps. (3.4%), TWTR (3.0%), and RBLX (2.9%)
So overall, there was a wide variation of holdings with VR: Nintendo Co. Ltd. (7.0%), RBLX (6.5%),
no two ETFs even close in their portfolio mix. TTWO (5.9%), COIN (5.6%), and NTES
(5.5%)
ETF overlap ARVR: NFLX (4.5%), APH (3.7%), STM (3.7%),
Figure 5 provides a bird’s-eye view of the number of se- MCHP (3.6%), and Nintendo Co. Ltd
curities that were present in each ETF compared to all the (3.6%)
others. Viewing the table from a top-down view indicates PUNK: GOOG (5.1%), UUP (5.0%), RWM (4.9%),
the lack of consistency in common names among these EPV (4.6%), and A (4.1%).
seven ETFs. The highest overlap
percentage was shown by METV
with VR at 50% or 20 names. In
contrast, FMET and PUNK has
only a 12.4% overlap of six common
names. METV, the category crusher
in AUM (looking vertically down
the table), only has a 24% to 50%
Overall, the
metaverse ETFs got
FIGURE 6: METAVERSE ETF PORTFOLIO OVERLAP. Only three stocks were in all seven portfolios—
crushed, no matter Apple Inc., Take-Two Interactive Software, Inc., and Adobe Inc. Five of these 10 stocks were in the
how you look at it. Communication Services sector and the Information Technology sector, both of which had poor
performance.
FIGURE 7: ROUNDHILL BALL METAVERSE ETF YEAR-TO-DATE PERFORMANCE. Only Nintendo Co. Ltd. and Activison Blizzard Inc. had positive
returns of 17.6% and 8.5%, respectively. The stocks that took the biggest hits of nearly 75% were Snap Inc., Sea Ltd. ADR, Coinbase Global Inc.,
Galaxy Digital Holdings Ltd., and Unity Software Inc.
Notice that of the top five holdings, only AAPL and of virtual goods and currencies, and offer hardware
GOOGL were in four of them, RBLX and META were technologies and devices to gain access to and interact
in three, and Nintendo was in two. PUNK had the strang- with the metaverse.
est mixture of large holdings including Invesco DB US METV’s 45 stock performance by sector year-to-date
Dollar Index (UUP), ProShares Short Russell 2000 ending October 17, 2022 is shown in Figure 7. Commu-
(RWM), and ProShares UltraShort FTSE Europe ETF. nication Services and Financials took the biggest brunt
Remember that PUNK had the least correlation among of the drubbing with Information Technology coming
its competing ETFs. in third-worst place. Looking at the top and bottom
performers, we notice that only Nintendo Co. Ltd. and
Roundhill Ball Metaverse ETF (METV) Activison Blizzard Inc. had positive returns of 17.6% and
Because METV is the only viable ETF in the metaverse 8.5%, respectively. The stocks that took the biggest hits
category, I won’t provide any further review of the other of nearly 75% were Snap Inc., Sea Ltd. ADR, Coinbase
six EFTS. You can of course go to their websites for Global Inc., Galaxy Digital Holdings Ltd., and Unity
more information. Software Inc. The worst performer was Matterport Inc.
METV is a passively managed ETF investing in globally (MTTR). The vicious bear market made mincemeat out
listed equities spanning various industries, all relating to the ETFs in this unique market segment.
what it defines as a future iteration of the internet meta-
verse. Stocks are selected by a committee and weighted
in tiers. Roundhill defines the metaverse as “a successor
to the current internet that will be interoperable, persis-
tent, synchronous, open to unlimited participants with
Roundhill Ball Metaverse
a fully functioning economy, and an experience that ETF (METV) is clearly the
spans the virtual and ‘real’ world.” The companies in dominant player with $406
this ETF are ones that participate in computer access to million totaling 94% of
the metaverse, offer networking connections, develop and the AUM in the category.
maintain virtual platforms, have developed interchange
standards, support digital payments, design and creation
Conclusion and looking ahead For those interested in this space, but not enthralled
Based on the analysis presented here, it appears that with the recent price performance and not interested in
METV is the only viable candidate that provides the best buying any of these ETFs right now, I suggest checking
bang for the buck, with almost $300 million in AUM back in five years to see how they have performed, and
and 293,000 shares a day. However, its performance whether they represent a truly outstanding futuristic
to date has been miserable, as has been the market’s investing opportunity.
performance over the same time period since the price For long-term investors, probably no more than a
peak in November 2021. Clearly, metaverse ETFs are no 2% allocation is warranted if you plan to invest in this
place to hang out in any bear market scenario, as they space. You can decide whether to select a long-term
will most likely fall further than the market averages. buy-and-hold approach or a market timing approach
Therefore, any investment in METV or any of the other based on the technicals to ride the trend up and down
ETFs mentioned should be considered purely speculative with a predetermined stop-loss strategy to avoid capital
at this point in time, similar to the situation with Bitcoin. destruction. Another option is to play it from both sides
The metaverse may or may not turn out to be what fore- with a 1% long-term position coupled with a 1% concur-
casters are projecting. And always take any forecasts with rent trading position.
a grain of salt, even from well-known reputable firms.
Just think about how many economists, Fed officials, S&C contributing writer and ETF columnist Leslie N.
and market gurus have been way off in most of their Masonson is president of Cash Management Resources, a
economic and stock forecasts, respectively. firm focusing on ETF strategies. He is an active Nasdaq
Given the huge projections for growth in the metaverse futures and ETF trader, and the author of six books in-
space, it seems likely that additional competing ETFs cluding Buy—DON’T Hold: Investing With ETFs Using
will be launched by other aggressive sponsors. However, Relative Strength To Increase Returns With Less Risk,
based on the number of ETFs already in this category All About Market Timing, as well as Day Trading On
and their low asset size, any smart sponsor should have a The Edge. He can be reached at lesmasonson@yahoo.
wait-and-see approach before spending the money to add com or 845 323-7276.
another to the category. Nevertheless, since it has been
less than a year since all these ETFs launched, it’s still • fidelity.com • fountetfs.com • ftportfolios.com
too early to judge which of these funds may emerge as • globalxetfs.com • proshares.com
potential category winners in terms of gathering assets • roundhillinvestments.com • subersiveetfs.com
and performance, but METV by far has the lead.
Any new entrants to this category face an uphill battle Further reading
to gain assets against the dominance of METV. Inves- Gent, Edd. “Q&A: Why the Metaverse Needs to Be
tors interested in the metaverse space may be better Open,” August 18, 2021, https://spectrum.ieee.org/
off concentrating on a few of the big players such as open-metaverse?utm_campaign=post-teaser&utm_
AAPL, META, NVDA, RBLOX, and GOOGl instead content=1kp270f8
of using the ETF model that spreads its assets among 40 Davis, Alanah, John Murphy, Dawn Owens, Deepak
companies or more, many of which are on the periphery Khazanchi, and Ilze Zigurs [2009]. “Avatars, People,
of the metaverse. As of now, all these EFTs represent a And Virtual Worlds: Foundations For Research In
speculative play with no assurances that it will succeed. Metaverses,” Journal Of The Association For Infor-
mation Systems, 10(2), available at https://aisel.aisnet.
org/jais/vol10/iss2/1
Global Data report, with metaverse market outlook,
September 30, 2022, https://www.globaldata.com/
Since it has been less store/report/metaverse-market-analysis
than a year since all these
ETFs launched, it’s still ‡StockCharts.com
too early to judge which of ‡See Editorial Resource Index
these funds may emerge as
potential category winners.

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Algo Q&A
ALGORITHMIC TRADING
Have a question about system or algo trading? Kevin J. Davey has over
30 years of system trading experience. Kevin is a full time trader, and also
teaches and consults via his Strategy Factory® online workshop (https://
kjtradingsystems.com). He is the author of 5 bestselling trading books, in-
cluding “Building Winning Algorithmic Trading Systems” and his latest
book “Algo Trading Cheat Codes.” Send your questions or topic suggestions
to Kevin Davey at [email protected]. Selected questions will
appear in a future issue of S&C.
Kevin J. Davey
A PORTFOLIO OF STRATEGIES? metals, energies, ags/softs, currencies, starting point for your analysis. Next,
I am considering algo trading. I have interest rate and stock indices. That make sure you have strategies in each
a mid-six-figure account. I am an ex- would mean, at full margin, your of the six sectors. This will help keep
perienced futures trader. Should I try positions should require $50,000 or you diversified, which is a proven
to create one strategy and trade with less margin in each sector. approach to generating a smoother
big size, or should I aim for multiple Certainly, you will not want to equity curve.
strategies with small size? always utilize full margin, but maybe Using this technique, you can easily
Thanks for the question. I will 50% margin utilization is a good create a spreadsheet that calculates
assume that you know the proper the number of contracts to trade. An
way to design, develop, and test algo example of that is shown in Figure
strategies, and that any strategy or With one strategy, it 1 (spreadsheet available from me
strategies you roll out will have been is almost a “boom or via email).
properly vetted and approved by you. bust” type scenario, With this portfolio of 14 strate-
That is a key assumption in this dis- depending on how the gies, note that many of the strategies
cussion, as developing good strategies strategy performs.
is actually very difficult. Continued on page 55
That said, which is the best way to
go? Trade with one strategy, or use
multiple strategies? There are pros
and cons to each approach. With
one strategy, if it does well, trading it
with big size is a great way to rapidly
increase your account. Of course, if
that strategy stumbles, your account
balance will suffer.
With one strategy, it is almost
a “boom or bust” type scenario,
depending on how the strategy
performs. Most traders cannot
handle that sort of performance, and
therefore turn to multiple strategies.
Trading uncorrelated strategies can
provide a much smoother equity
curve. With that in mind, here is an
approach to utilizing multiple uncor-
related strategies.
Let’s say, for the sake of discussion,
you have $300,000 to algo trade with. FIGURE 1: HOW MANY CONTRACTS TO TRADE PER SECTOR? If you use the approach of trading
multiple (uncorrelated) strategies, this spreadsheet (which is available from the author by email)
You could allocate $50,000 to each of demonstrates one way to help you determine capital allocation to each strategy in each of the six
the six major futures market sectors— main futures sectors based on total amount of capital to trade.

TRADING ON MOMENTUM
Trading Off Major Support
Swing Trading
52-Week Low Pivots
Here is a trading technique based on Figure 1 (SOXS, Direxion Daily Step-by-step action plan
a pivot pattern that buys following a Semiconductor Bear 3x shares), you’ll Here’s how you can start using this
52-week low support level. see that buyers came in and strongly strategy:
moved SOXS up every time it reached
by Ken Calhoun a 52-week low. That’s valuable to take Step 1: Visually scan one-year
T
note of, because it illustrates a simple charts to find a similar pattern, for
his month, we’ll look at trading “buy the pivot” strategy. example, one in which buyers lifted
pivot patterns using 52-week price off the 52-week low support
low support levels (trading a consistently.
leveraged inverse ETF), featur-
ing a repeating pivot pattern. In trading, patterns Step 2: Set buy-stop entries at $2
often repeat above the 52-week low. Use $2 be-
Entering the bounce themselves, which is low the 52-week low as your stop
Like the solution to a puzzle, careful why technical analysis level. This is for stocks and ETFs
analysis of charts can reveal trading is so popular.
setups ahead of time. In looking at Continued on page 55
eSIGNAL
FIGURE 1: TRADING PIVOTS OFF 52-WEEK LOWS. Here’s an example of buying just above the 52-week low after a bounce.
Futures For You
INSIDE THE FUTURES WORLD
Want to find out how the futures markets really work? Carley Garner is
the senior strategist for DeCarley Trading, a division of Zaner, where she
also works as a broker. She has written five books on futures and options
trading, with the latest being Trading Commodity Options...With Creativ-
ity (July 2020), as well as A Trader’s First Book On Commodities (third
edition, October 2017) and Higher Probability Commodity Trading (July
2016). Garner also authors widely distributed e-newsletters; for a free
subscription, visit www.DeCarleyTrading.com. To submit a question, email
her at [email protected] or via www.DeCarleyTrading.com.
Selected questions will appear in a future issue of S&C.
Carley Garner
SOFR FUTURES on transactions rather than opinions, outstanding eurodollar futures and
What are SOFR futures and what it is expected to be a better reflec- options will be transitioned to three-
does their existence mean for euro tion of reality and less vulnerable to month SOFR futures and options
dollars? price fixing. on April 14, 2023. I don’t recall
Let’s start with the definition of Before we can discuss SOFR fu- a futures contract, nor an option,
SOFR: the Secured Overnight Fi- tures, we must recognize the original traded on US commodity exchanges
nancing Rate is a broad measure of short-term interest rate hedging and ever transitioning from one product
borrowing cash overnight collateral- speculating vehicle: eurodollar fu- to another. However, it isn’t every
ized by Treasury securities. In other tures. Eurodollar futures have been day a major component of the most
words, the SOFR is a benchmark one of the largest and most active actively traded suite of contracts
representing the rate that large fi- futures and options products in the on a futures exchange ceases to
nancial institutions pay each other world for decades. They are futures exist. On the date of conversion, all
for overnight loans needed to ensure contracts traded in terms of a dis- eurodollar futures positions will be
sufficient capitalization. The SOFR count bond based on the rate of inter- converted on a 1-to-1 basis into the
is also used by financial institutions same month of three-month SOFR
as a base rate to price loans for busi- futures (symbol SR3) with a price
nesses and consumers; for instance, SOFR is a benchmark adjustment of 26.161 basis points.
if the “risk-free” rate is 3%, a bank representing the rate For those looking to trade short-term
would need to grant auto, credit card, that large financial interest rates but without a currently
and home loans at some rate higher institutions pay each open position, I would strongly sug-
than 3% to turn a profit. For an auto other for overnight gest entering the speculation in the
loan, that might be the risk-free rate loans needed to SR3 rather than in the eurodollar
plus 4 points, or 7%. market, which might or might not
Before the SOFR, banks generally
ensure sufficient experience unintended volatility
used the LIBOR (London Inter-Bank capitalization. going into the conversion date.
Offered Rate) as their benchmark for The good news is that traders don’t
interest rates. However, unlike the est paid for eurodollar time deposits need to learn a new point system; the
SOFR rate, which is calculated based equal to the 3-month LIBOR interest trading math involved with the new
on actual transactions, the LIBOR rate. In short, it is the rate of interest SOFR futures and options contracts
rate was figured by leading banks paid on US dollar deposits on foreign is the same as it was for the eurodollar
providing estimates of the rate. Hu- soil. The quoted price of a eurodollar futures. The contract size is $2,500
mans being humans, we eventually futures contract is essentially 1.00 × the contract price. Therefore, if
learned the LIBOR rate was prone minus the LIBOR multiplied by 100. the three-month SOFR is trading at
to manipulation and rate rigging via Thus, if the LIBOR rate is 2%, the 95.00, it infers a notional value (total
bank collusion. For this reason, the eurodollar would be trading near contract value) of $237,500 and an
LIBOR rate is being phased out and 98.00 ((1.00 − 0.02) × 100)). interest rate of 5% (1 − (95.00/100)).
essentially replaced with the SOFR. LIBOR is scheduled to cease to Also, each point is worth $25.00 to
Because the SOFR valuation is based exist in June 2023; because of this, a trader. In other words, if the SR3
Futures
2023 Readers’ Choice Awards
Humans being humans,
we eventually learned
the LIBOR rate was
prone to manipulation
and rate rigging via
bank collusion.
futures contract moves from 95.00

to 95.01, the trader made or lost
$25. This is identical to the way a
eurodollar trader would figure profit
and loss. The primary difference
is the eurodollar trades at a lower
price (higher interest rate) than the
SOFR futures of the same duration
because there is slightly more risk
involved in the logistics and mechan-
ics of funds held in overseas banks
(LIBOR) than for locally deposited
funds based on transactions in what
are assumed to be risk-free Treasury
transactions.
If you aren’t familiar with eurodol-
lars, or SOFR futures and options,
I recommend looking into them.
There is a reason the eurodollar
products were the most popular Winners will be announced in the
on the CME Group exchanges,
and even beating out volume and Bonus Issue, available February 2023.
open interest figures for products
traded overseas. They are generally If you are a current subscriber,
lower-risk products, but in true 2022
fashion have been unusually volatile go to Traders.com and log in to vote.
as of late, with relatively low margin Not a current S&C subscriber? Become one today!
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around-the-clock liquidity. For those
looking to speculate or hedge interest
rate risk, the SOFR futures and op-
tions are great products to consider, Vote Now!
particularly for newer traders who
might not be up for the challenge of
the risk that comes with commodity Voting begins October 1 and ends December 31, 2022.
trading in wild arenas such as natural Must use your subscriber ID number to vote.
gas or crude oil.
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Join us on Facebook at www.facebook.com/STOCKSandCOMMODITIES

The focus of Traders’ Tips this month At Traders.com you can also right-
is Vitali Apirine’s article in this issue, click on any chart to open it in a new
“True Range Adjusted Exponential tab or window and view the chart at a
Moving Average (TRAdj EMA).” Here, much larger size.
we present the January 2023 Traders’
Tips code with possible implementa- The Traders’ Tips section is provided
tions in various software. to help readers implement a selected
The code for the following Traders’ technique from an article in this issue or
Tips selections is posted here: another recent issue. The entries here
are contributed by software developers
•
Traders.com  S&C Magazine  or programmers for software that is ca-
Traders’ Tips pable of customization.
if CurrentBar = 1 then
TRAdjEMA = Close
F TRADESTATION: JANUARY 2023 TRADERS’ TIPS CODE else
In his article in this issue, “True Range Adjusted Exponential TRAdjEMA = TRAdjEMA[1] + Rate *
Moving Average (TRAdj EMA),” author Vitali Apirine pres- (Close - TRAdjEMA[1]);
ents how a security’s true range, which measures volatility,
can be incorporated into a traditional exponential moving Plot1( TRAdjEMA, "TRAdjEMA" );
average. The trend-following indicator, called the true range
A sample chart is shown in Figure 1.
adjusted exponential moving average (TRAdj EMA), applied
This article is for informational purposes. No type of
with different lengths, can help define turning points and
trading or investment recommendation, advice, or strategy
filter price movements. By comparing the indicator with an
is being made, given, or in any manner provided by Trade
exponential moving average of identical length, the trader can
Station Securities or its affiliates.
gain insight into the overall trend.
—John Robinson
Indicator: True Range Adjusted EMA TradeStation Securities, Inc.
// TASC JAN 2023 www.TradeStation.com
// True Range Adjusted EMA
// Vitali Apirine
inputs:
Periods( 40 ),
Pds( 40 ),
Mltp( 10 );
variables:
Mltp1( 0 ),
Mltp2( 0 ),
Rate( 0 ),
TH( 0 ),
TL( 0 ),
TR( 0 ),
TRAdj( 0 ),
TRAdjEMA( 0 );
Mltp1 = 2 / (Periods + 1);

TH = Iff(Close[1] > High,
Close[1], High);
TL = Iff(Close[1] < Low,
Close[1], Low);
TR = AbsValue(TH - TL);
TRAdj = (TR - Lowest(TR,
Pds)) /
(Highest(TR, Pds) -
Lowest(TR, Pds));
Mltp2 = TrAdj * Mltp; FIGURE 1: TRADESTATION. This TradeStation daily chart of the S&P 500 ETF SPY shows a portion of 2022 with the indicator
Rate = Mltp1*(1 + Mltp2); and exponential moving average applied. The indicator is configured with inputs 20, 20, and 5, and the exponential moving
average is configured with the same length of 20.

F THINKORSWIM: JANUARY
2023 TRADERS’ TIPS CODE
We have put together a study
based on the article by Vitali
Apirine in this issue on the true
range adjusted exponential
moving average (TR AdjEMA).
We built the study referenced by
using our proprietary scripting
language, thinkscript. To ease
the loading process, simply
click http://tos.mx/Iwxt5XL
or enter it into the address
into setup → open shared item
from within thinkorswim, then FIGURE 2: THINKORSWIM. Here is a sample plot of a version of the study (TRAdjEMA) on a daily chart of SPX. Please see
choose view thinkScript study Vitali Apirine’s article in this issue for how to interpret the indicator.
and name it “TRAdjEMA” or
whatever you prefer and can
identify. You can then add the
study to your charts from the
edit studies menu from within
the charts tab and then selecting
“studies.”
Figure 2 shows our version
of the study on a daily chart
of SPX. Please see Apirine’s
article in this issue for how to
interpret the indicator.
—thinkorswim
A division of TD Ameritrade, Inc.
www.thinkorswim.com
FIGURE 3: WEALTH-LAB. An example of laying out the system’s rules in the Building Blocks feature of Wealth-Lab 8.
F WEALTH-LAB: JANUARY
2023 TRADERS’ TIPS CODE
The TRAdjEMA described
by Vitali Apirine in his article
in this issue has been added
to Wealth-Lab 8 Build 22+,
making it available to its wide
range of tools and extensions
automatically.
To demonstrate the new
indicator’s application, let’s
sketch a trading system based
on bullish crossovers of the
two TRAdjEMA smoothers FIGURE 4: WEALTH-LAB. Trades taken by the fast/slow TRAdjEMA crossovers are applied to a weekly chart of the Russell
2000 index (^RUT).
with faster and slower reaction
speed. For example, the author took the TRAdj EMA(10,10,5) es, to close the long position, we simply exit after 25 bars.
and TRAdj EMA(40,40,5) in his article. For testing purpos- The trading system’s rules are outlined in Figure 3.
dicators folder from within the
control center window and select-
ing the indicator file. You can re-
view the indicator’s source code
in NinjaTrader 7 by selecting the
menu Tools → Edit NinjaScript →
Indicator from within the control
center window and selecting the
indicator file.
NinjaScript uses compiled DLLs
that run native, not interpreted, to
provide you with the highest per-
formance possible.
A sample chart displaying the
indicator is shown in Figure 5.
—Chelsea Bell
NinjaTrader, LLC
www.ninjatrader.com
F TRADINGVIEW: JANUARY 2023

TRADERS’ TIPS CODE
FIGURE 5: NINJATRADER. The TRAdjEMA indicator is displayed on a one-minute chart of S&P 500 emini futures Here is TradingView Pine Script
(ES). code implementing the TRAdj EMA
indicator described in this issue’s
Figure 4 illustrates some potential long trades that could article by Vitali Apirine, “True Range Adjusted Exponential
have taken place when the faster TRAdjEMA (black) crossed Moving Average (TRadj EMA).”
below the slower TRAdjEMA (blue) in 2021 and 2022.
—Gene Geren (Eugene) // TASC Issue: January 2023 - Vol. 41, Issue 1
// Article: TRAdj EMA - True Range Adjusted
Wealth-Lab team
// Exponential Moving Average
www.wealth-lab.com
// Article By: Vitali Apirine
// Language: TradingView's Pine Script™ v5
// Provided By: PineCoders, for tradingview.com
//@version=5
string title = 'TASC 2023.01 TRAdj EMA'
F NINJATRADER: JANUARY 2023TRADERS’ TIPS CODE string stitle = 'TRAdj EMA'
The indicator described in Vitali Apirine’s article in this issue, indicator(title, stitle, true)
“True Range Adjusted Exponential Moving Average (TRAdj
EMA),” has been made available for download at the following int Periods = input.int(40, 'MA Length:', 1)
int Pds = input.int(40, 'Lookback Period:', 1)
links for NinjaTrader 8 and for NinjaTrader 7:
int Mltp = input.int(10, 'Multiplier:', 5, 10)
NinjaTrader 8:
TRAdjEMA (
www.ninjatrader.com/SC/January2023SCNT8.zip
float source = close,
NinjaTrader 7:
int Periods = 40,
www.ninjatrader.com/SC/January2023SCNT7.zip
int Pds = 40,
int Mltp = 10
Once the file is downloaded, you can import the indicator ) =>
into NinjaTrader 8 from within the control center by select- int pds = math.max(1, Pds)
ing Tools → Import → NinjaScript Add-On and then select- float Mltp1 = 2.0 / (Periods + 1.0)
float HHV = ta.highest(ta.tr, pds)
ing the downloaded file for NinjaTrader 8. To import into
float LLV = ta.lowest(ta.tr, pds)
NinjaTrader 7, from within the control center window, select float TRAdj = (ta.tr - LLV) / (HHV - LLV)
the menu File → Utilities → Import NinjaScript and select float Mltp2 = TRAdj * Mltp
the downloaded file. float Rate = Mltp1 * (1.0 + Mltp2)
You can review the indicator source code in NinjaTrader float TRAdjEMA = na
if bar_index > math.max(Periods, pds)
8 by selecting the menu New → NinjaScript Editor → In-
float prev =
nz(TRAdjEMA[1], source)
TRAdjEMA := prev +
Rate * (source - prev)
TRAdjEMA
float ma = TRAdjEMA(close,
Periods, Pds, Mltp)
plot(ma, 'TRAdjEMA', color.
blue)
The code is available on

TradingView in the PineCod-
ersTASC account:
https://www.tradingview.
com/u/PineCodersTASC/
#published-scripts.
An example chart is shown

in Figure 6.
—PineCoders, for TradingView
www.TradingView.com FIGURE 6: TRADINGVIEW. This chart demonstrates the indicator described in Vitali Apirine’s article in this issue, the TRadj
EMA.
F NEUROSHELL TRADER: JANUARY 2023 nical support website with the Traders’ Tip.
TRADERS’ TIPS CODE —Ward Systems Group, Inc.
The indicator described in Vitali Apirine’s article [email protected]
in this issue, “True Range Adjusted Exponential Moving Aver- www.neuroshell.com
age (TRAdj EMA),” can be easily implemented in NeuroShell
Trader by combining some
of NeuroShell Trader’s 800+
indicators. To implement the in-
dicators, select “new indicator”
from the insert menu and use
the indicator wizard to create
the following indicators:
Mltp1: Divide(2,Add2(40,1)))
Mltp2: Mul2(Divide(SimpleS
toch%K(ATR(High,Low,Clos
e,1),40),100),10)
RATE: Mul2(Mltp1, Add2(1,
Mltp2))
TRAdjEMA: DynamicEx-
pAvg (Close, RATE )
Users of NeuroShell Trader

can go to the Stocks & Com-
modities section of the Neu-
roShell Trader free technical
support website to download
a copy of this or any previ-
ous Traders’ Tips. The Dy-
namicExpAvg is a dynamic
rate exponential moving aver-
age custom indicator available FIGURE 7: NEUROSHELL TRADER. This NeuroShell Trader chart shows the SPX true range adjusted exponential moving
for download on the free tech- average.

®
F OPTUMA: JANUARY 2023

TRADERS’ TIPS CODE
Here is an Optuma script formu-
la to implement the true range
adjusted exponential moving
average (TRAdj EMA), which
is described in the article in this
issue by Vitali Apirine.
$Periods = 40;
$Pds = 40;
MLTP = 10;
MLTP1 = 2 /
(VarToList(VAL=$Periods)
+ 1);
TR=TRUERANGE();
TRAdj = (TR-
LOWESTLOW(TR, FIGURE 8: OPTUMA. This sample chart displays the true range adjusted exponential moving average (TRAdj EMA).
BARS=$Pds)) /
(HIGHESTHIGH(TR,
BARS=$Pds) -
LOWESTLOW(TR, BARS=$Pds)); !TRUE RANGE ADJUSTED EXPONENTIAL MOVING
AVERAGE
MLTP2=TRAdj*MLTP; !TRadj EMA
!Author: Vitali Apirine, TASC Jan 2023
RATE=MLTP1*(1+MLTP2); !Coded by: Richard Denning, 11/18/2022
RES1=RES1 + RATE * (Close() - RES1[1]);
RES1 C is [close].
C1 is valresult(C,1).
—[email protected] H is [high].
L is [low].
Optuma.com
Periods is 10.
Pds is 10.
Mltp is 5.
F AIQ: JANUARY 2023 TRADERS’ TIPS CODE Mltp1 is 2 / (Periods+1).
The importable AIQ EDS file based on Vitali Apirine’s
article in this issue, “True Range Adjusted Exponential TH is max(H,C1).
TL is min(L,C1).
Moving Average,” can be obtained on request via rdencpa@
gmail.com. The code is also
available on this magazine’s
website at Traders.com in the
Traders’ Tips section.
Code for the author’s color
study is set up in the AIQ EDS
code file. Figure 9 shows the
TRadj_EMA(10,10,5) indica-
tor (red jagged line) and the
EMA(10) (green smooth line)
on a chart of the S&P 500
index to 9/30/2020. The re-
sults match the author’s Excel
spreadsheet. This indicator
runs very slowly in AIQ so
you have to be patient for it
to load. Also, if you increase
the parameters to longer than
10,10,5 it will run even slower. FIGURE 9: AIQ SYSTEMS. The TRadj_EMA(10,10,5) and EMA(10) are shown on chart of the S&P 500 index.
TR is abs(TH-TL). valresult(stopesa,1)),C).
TRadj is (TR-lowresult(TR,Pds))/(highresult(TR,Pds)-
lowresult(TR,Pds)). EMA10 is expavg(C,10).
Mltp2 is TRadj*Mltp. Status is iff(TRadj_EMA>EMA10,1,0).

Rate is Mltp1*(1+Mltp2). ShowValues if 1.
HD if hasdatafor(Periods*2+1) > Periods*2. —Richard Denning

DaysInto is ReportDate() - RuleDate(). [email protected]
Stop if DaysInto > Periods. for AIQ Systems
stopesa is iff(stop,C,TRadj_EMA).
Algo Q&A
TRadj_EMA is iff(HD,valresult(stopesa,1)+Rate*(C-
DAVEY/ALGO Q&A into account as it sets the margin

Continued from page 46 requirements. Its goal is to maximize A portfolio such as this
participation (by keeping margins has many beneﬁts when
only trade one contract, while some low) while at the same time remain- compared to trading one
lower-margin instruments trade up to ing financially stable (by keeping single strategy.
four. Also note that since fractional margins safely sufficient for the whole
contracts are not allowed, some sec- market, especially in times of high it would be with the single strategy.
tors come close (or slightly go over) volatility and uncertainty). On a risk-adjusted basis (return/
the $25K allocation limit, and some A portfolio such as this has many drawdown), however, the portfolio
are well below the limit. benefits when compared to trading should be superior.
Some traders will question the use one single strategy. Assuming that the Of course, this is just an example
of margin for determining contracts, strategy performances are uncorre- portfolio, and your actual portfolio
as opposed to volatility or notional lated (an important requirement), the will be based on the strategies you
contract size. Using either of those portfolio will likely have less severe have, your risk tolerance, your avail-
metrics will give a different alloca- drawdowns than a single strategy. able capital, and other factors. But
tion. The nice thing about margin At the same time, though, not every hopefully I’ve given you some food
is that is has volatility and contract strategy will perform well all the for thought as you build your own
size built-in to an extent. The ex- time. Because of this, the upside of algo strategy portfolio.
change definitely takes these values the portfolio will likely be less than
CALHOUN/MOMENTUM because other market participants

Continued from page 47 recognize the opportunity and trade Careful analysis of
accordingly. charts can reveal
in the $20–$50/share range. trading setups ahead
TRADE MANAGEMENT TIPS of time.
Step 3: Trail a stop of no more than Note that this strategy should only be
5% of the chart’s current trading used after a 52-week low is triggered,
range (in Figure 1, it would be [$90 following a pivot off that support Ken Calhoun moderates a popular
− $30 = $60; $60 × 0.05 = $3]). level. With this strategy, you should live trading room for active traders.
not buy on the way down; instead, you He is the founder of TradeMastery.
WHY THIS TECHNIQUE WORKS must wait for a bounce (preferably com, an interactive webinar site
In addition to high-frequency trading after two green days up above the for active traders, and is a UCLA
(HFT) algos that use simple math- 52-week low). We buy in reaction to alumnus.
ematical support/resistance levels, proven, observable price action buy-
the 52-week low is also a pivot area ing, not in anticipation of it (which is ‡eSignal
for speculative active traders. As with gambling). Look at prior recent highs ‡See Editorial Resource Index
most trading strategies, it works often for ideas regarding price targets.
MARKET RAP
THE WORLD OF RETAIL TRADING
Emilio Tomasini is an adjunct professor of corporate finance at the
University of Bologna in Italy and is a professional trader. He has au-
dited over 5,000 accounts of traders during 13 years of a real-money
trading competition, giving him unique insights into what helps a retail
trader to succeed. He has expertise in technical analysis and trading
Emilio Tomasini
system design. In this column, he shares his sometimes “unserious”
thoughts on serious topics in finance. In his writings, he hopes to help the retail trader better understand the leap
from unprofitable to profitable trader, firmly believing that the right answers can come only if the right questions
are asked. At his website at www.emiliotomasini.com, he offers some of his expertise in a free video course.
INDICATORS—CAN’T LIVE WITH (two adjectives that in trading are an price action; they are too sensitive to
’EM, CAN’T LIVE WITHOUT ’EM? incubator of mass destruction), thanks optimization; they are mostly based
My feelings about indicators have to this powerful panoply of perfectly on the assumption that price series
varied over the decades that I have optimized indicators. are normally distributed (which is
spent in the markets. In the begin- But the reality was quite different almost never true); plus many other
ning, almost 30 years ago, I thought and harsh: After some months, I re- disadvantages.
success depended completely on the alized all that research was useless. But at the same time, technical
choice of indicator, which would All the trading systems I envisioned analysis cannot do without them. We
magically show the market’s turn- went bust after a few trades. I felt need indicators even if we do not like
ing points. But then I realized it’s a disenchanted. How could all that them. Technical analysis could not
lot like poker: Looking at a player’s time-consuming research have failed exist without indicators.
hand is not always the best indicator so miserably? As always, after any And I would add also another point
of who will win. Why? People (just action there is a reaction, and for that is very personal: Even if you are
like markets) have emotions and they many years I completely lost any not a systematic trader, indicators are
can run out of control. helping you to stay in control of your
I remember that in pre-internet emotions.
times, when a visit to London was Technical analysis I often trade discretionary one-
almost the only way to buy a book in could not exist without minute Nasdaq stocks charts, a world
English (I live in Italy), I purchased indicators. where feelings and emotions are often
the interesting book Martin Pring much more important than trading
On Market Momentum (Probus interest in discovering the so-called techniques. I am always impressed
Publishing, 1993) and was inspired magic indicator. But my reaction went by observing that a “stupid” RSI
by it. I spent a full summer working much further: I was skeptical about can help you to detect the swing
on indicators. I tested all the indica- whatever indicators my path would highs and lows of the trading session
tors that the MetaStock software cross and I tried to avoid their use with impressive precision. I am also
version of those times allowed you altogether, preferring instead price acutely aware that it is not the RSI that
to plot, optimizing and overfitting patterns and fixed inputs. knows in advance the turning points
whatever inputs I could throw into However, my mother always used of the markets. I know it’s a fallacy to
the battlefield. to comment that the color of life is think that some institutional players
The results were electrifying: I got neither “black nor white but endless with deep pockets dictate moves in
equity lines that sloped upward at a shades of gray.” And this tenet fits the indicator, creating times to sell
45-degree angle like a Concorde jet very well with technical analysis or buy, conditioning “the market” in
taking off into the sky. (The Concorde indicators. such a way. Really, the RSI is simply
was the cutting-edge jet of those times Today, my view on technical telling you that when a one-minute
and its 45-degree angle takeoff was analysis is clearer. On one hand, price series moves unsustainably
a mark of superiority.) I thought this indicators are a kind of drug that higher, then it needs to stabilize and
discovery would turn my life around. can artificially alter our vision of the retrace. Or vice versa when prices
I thought I would now reach trading world. They have a lot of drawbacks:
success very quickly and very easily They are, by their nature, lagging Continued on page 62
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FUTURES LIQUIDITY
T
rading liquidity is often over- very high volumes. The greatest number three-year period. Thus, all numbers in
looked as a key technical of dots indicates the greatest activity; this column have an equal dollar value.
measurement in the analysis futures with one or no dots show little Columns indicating percent margin
and selection of commodity activity and are therefore less desirable and effective percent margin provide
futures. The following explains how to for speculators. a helpful comparison for traders who
read the futures liquidity chart pub- Courtesy of CBOT wish to place their margin money ef-
lished by Technical Analysis of Stocks ficiently. The effective percent margin
& Commodities every month. is determined by dividing the margin
value ($) by the three-year price range of
Commodity futures contract dollar value, and then multiply-
The futures liquidity chart shown being by one hundred.
low is intended to rank publicly traded
futures contracts in order of liquidity. Stocks
Relative contract liquidity is indicated Trading liquidity has a significant ef-
by the number of dots on the right-hand fect on the change in price of a secu-
side of the chart. rity. Theoretically, trading activity can
This liquidity ranking is produced by serve as a proxy for trading liquidity
multiplying contract point value times All futures listed are weighted equally and equals the total volume for a given
the maximum conceivable price motion under “contracts to trade for equal dol- period expressed as a percentage of the
(based on the past three years’ historical lar profit.” This is done by multiplying total number of shares outstanding. This
data) times the contract’s open interest contract value times the maximum pos- value can be thought of as the turnover
times a factor (usually 1 to 4) for low or sible change in price observed in the last rate of a firm’s shares outstanding.
Trading Liquidity: Futures

Contracts to
Effective
Commodity Futures Exchange % Margin Trade for Equal Relative Contract Liquidity
% Margin
Dollar Profit
S&P 500 E-Mini (Dec ’22) CME 5.9 13 2 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>>>>
Ultra T-Bond (Mar ’23) CBOT 5.2 6.6 2 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>>
10-Year T-Note (Mar ’23) CBOT 2.1 8.8 7 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
5-Year T-Note (Mar ’23) CBOT 1.5 9.2 10 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
30-Year T-Bond (Mar ’23) CBOT 3.6 7 3 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
Ultra 10-Year T-Note (Mar ’23) CBOT 2.8 7.9 4 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Crude Oil WTI (Jan ’23) NYMEX 10.7 7 2 ••••••••••••••••••••••••••••••••••••••••••••••••
Russell 2000 E-Mini (Dec ’22) CME 3.5 7.3 2 •••••••••••••••••••••••••••••••••••••••••••••••
2-Year T-Note (Mar ’23) CBOT 0.6 7.8 11 ••••••••••••••••••••••••••••••••••••••••••••••
Nasdaq 100 E-Mini (Dec ’22) CME 7.5 16.9 2 •••••••••••••••••••••••••••••••••••••
Euro FX (Dec ’22) CME 2.3 11.7 7 ••••••••••••••••••••
3-Month Eurodollar (Dec ’22) CME 0.3 6.9 15 •••••••••••••••••
3-Month SOFR (Mar ’23) CME 0.3 6.7 15 •••••••••••••••••
Soybean (Jan ’23) CBOT 3 6.8 3 •••••••••••••••
Corn (Mar ’23) CBOT 7.4 13.3 10 ••••••••••••
Gold (Feb ’23) COMEX 3.6 18.7 5 ••••••••••••
Natural Gas (Jan ’23) NYMEX 13.5 16.8 3 ••••••••••
Soybean Meal (Jan ’23) CBOT 1.1 3.4 2 •••••••••
Gasoline RBOB (Jan ’23) NYMEX 10.1 11 2 ••••••••
Japanese Yen (Dec ’22) CME 3.8 10.2 5 ••••••••
S&P 500 VIX (Dec ’22) CFE 53.6 21.8 3 ••••••••
Dow Futures Mini (Dec ’22) CBOT 7.8 16.7 2 •••••••
ULSD NY Harbor (Jan ’23) NYMEX 10.8 13.3 2 •••••••
30-Day Fed Funds (Jan ’23) CBOT 0.2 4.6 10 ••••••
Wheat (Mar ’23) CBOT 9.3 11.3 6 •••••
Silver (Mar ’23) COMEX 8.9 20 4 ••••
Sugar #11 (Mar ’23) ICE/US 6.8 12.8 16 ••••
British Pound (Dec ’22) CME 4.1 21.4 13 •••
Cotton #2 (Mar ’23) ICE/US 12.5 12.5 5 •••
High Grade Copper (Mar ’23) COMEX 7 16.4 5 •••
Australian Dollar (Dec ’22) CME 3.3 16.2 13 ••
Coffee (Mar ’23) ICE/US 16.2 27 5 •• CBOT Chicago Board of Trade, Division of CME
Live Cattle (Feb ’23) CME 2.8 6 6 •• CFE CBOE Futures Exchange
Mexican Peso (Dec ’22) CME 5.5 21.6 27 •• CME Chicago Mercantile Exchange
Canadian Dollar (Dec ’22) CME 2 16.5 20 • COMEX Commodity Exchange, Inc. CME Group
Crude Oil Brent (F) (Feb ’23) NYMEX 9.9 12.2 3 • ICE-EU Intercontinental Exchange-Futures - Europe
Hard Red Wheat (Mar ’23) KCBT 8.4 15.4 7 • ICE-US Intercontinental Exchange-Futures - US
Lean Hogs (Feb ’23) CME 5.7 10.1 9 • KCBT Kansas City Board of Trade
Palladium (Mar ’23) NYMEX 14.3 17.2 1 • MGEX Minneapolis Grain Exchange
Platinum (Jan ’23) NYMEX 6.2 14.1 8 • NYMEX New York Mercantile Exchange

U.S. Dollar Index (Dec ’22) ICE/US 2.6 15.7 10 •
2301
Aluminum (Feb ’23) COMEX 7.4 11.8 5
Trading Liquidity: Futures is a reference chart for speculators. It compares markets “Relative Contract Liquidity” places commodities in descending order according to
according to their per-contract potential for profit and how easily contracts can be bought how easily all of their contracts can be traded. Commodities at the top of the list are easi-
or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only est to buy and sell; commodities at the bottom of the list are the most difficult. “Relative
when compared to others in the same column. Contract Liquidity” is the number of contracts to trade times total open interest times a
The number in the “Contracts to Trade for Equal Dollar Profit” column shows how volume factor, which is the greater of:
many contracts of one commodity must be traded to obtain the same potential return In volume
as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price 1 or exp –2
In 5000
Excursion).

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LINKS
Trading systems can help take Product Company
the subjective interpretation out
of trading decisions by providing 1. Catscan 4 Mindfire Systems
automated buy and sell signals
2. AbleTrend AbleSys Corporation
based on pre-programmed rules.
Trading systems are usually com- 3. Sure-Fire Trading Systems VectorVest, Inc.
puter programs but can also be a
real-time service issuing signals 4. TSL Platform Trading System Lab
or a set of published rules to follow. They can rely
5. Trade-Ideas Automated Trading Bot Trade Ideas LLC
on one or more trading disciplines, such as artificial
intelligence, Gann analysis, astrology, indicator sets, 6. Hurst Signals Sentient Trader
or custom rules.
The product information you’ll find at our website 7. Individual XGO Charts MicroMedia
for trading systems will help answer questions such
as: What indicators does the system utilize? What 8. Profitunity Trading Group Profitunity Trading Group
markets are followed by the trading system? Are 9. Andromeda Trading System Petros Development Corp.
additional applications required to use the trading
system? What types of customer support are of- 10. Bulls ’n Bears Red Light,
Gecko Software, Inc.
fered? What are the primary features of the trading Green Light System
system? While we are unable to present track records These are the 10 Trading Systems listings clicked on most often on the Traders’ Re-
or rankings in the listing, we hope this resource will source website, in order of clicks received. This is not an editorial rating or ranking. For
more information on specific products and services, try checking store.Traders.com for
be a starting place for finding out more about some archived S&C product reviews.
of the available systems and finding the right trading
system for your trading. you’ll also find listings of other trading-related products
and services such as brokerages, data services, courses and
TRADERS’ RESOURCE AT TRADERS.COM seminars, software, and more. We hope this will help you
In addition to the trading systems listing at Traders.com, learn about products to help in your trading endeavors.
The information in Traders’ Resource is the most accurate at the time of posting and is subject to change. Because the vendors posting to Traders’ Resource are responsible for their own listing, Technical Analysis, Inc. declines any and all
liability for any representations made by the businesses and individuals listed. Nor can Technical Analysis, Inc. endorse any business or individual listed on Traders’ Resource. Technical Analysis, Inc. makes no warranties, express or im-
plied, as to the accuracy and reliability of claims herein. You agree to release Technical Analysis, Inc., together with its respective employees, agents, officers, directors and shareholders, from any and all liability and obligations whatsoever
in connection with or arising from your use of Traders’ Resource. If at any time you are not happy with the information posted to Traders’ Resource or object to any material within Traders’ Resource, your sole remedy is to cease using it. This
list is updated frequently. If you are aware of a business that should be listed, please email us at [email protected].

Trading Perspectives
SOME PERSPECTIVES ON THE EQUITIES WORLD

Rob Friesen is a professional trader and president & COO of Bright Trading
(www.stocktrading.com), a proprietary trading firm hosting independent
trader/members, an online trading school, and utilizing the StockOdds
database (www.mystockodds.com). This column shares his thoughts and
outlooks on trading, locating opportunity, probabilistic outcome, and
maintaining perspective throughout industry changes. He can be reached
at [email protected] or via stocktrading.com.
Rob Friesen
TRADE NOT WHAT YOU SEE, BUT to our biases, either predisposed or instant gratification, but rather a belief
WHAT WILL BE. THIS IS THE WAY generated in real time? Absolutely, that the laws of nature will produce
FOR 2023! which is why in my educational a harvest in keeping with the type of
The main practice among retail trad- classes, I discuss how casinos can seed that was planted.
ers and to some degree institutional draw players to video games with Probability-based trades are those
players is to trade what is visible, their sounds, lights, and colors. Colors wisely chosen seeds, with the belief
witnessed, and evident. Through can affect us in trading platforms too, in economic payoff, and without
this methodology, they inevitably as red and green can stimulate fear “seeing” the immediate results. We
join the consensus. An example or greed or encourage a false sense choose our seeds for tomorrow, not
might be to jump on board a rising of calm or hope. I recommend that for today.
stock because it is has moved (note Our database, StockOdds, shows
the emphasis here is the past tense). historic evidence that many widely
Another example would be to buy a The main practice followed chart patterns fail more
stock because it is currently rising. among retail traders than 50% of the time. Beyond some
While those could be successful and to some degree patterns that can be used as a brush
trades, they may not provide you with institutional players stroke across all instruments in
the highest risk-adjusted return. the trader’s tracked universe, the
is to trade what is
For many, trading blind would feel StockOdds data reveals how things
like a departure from everything
visible, witnessed, can be very stock specific. That means
they have learned or have been and evident. Through that some stocks have better track
attempting to perfect through chart this methodology, they records in performance related to a
reading, indicators, and other aspects inevitably join the pattern, while others fail repeatedly.
of technical analysis. To be fair, the consensus. This is a very similar trap to using
goal of technical analysis is to trade the same technical indicators on all
what is expected next, but it’s done timeframes of charts, rather than
from a “seeing what-is-now basis.” students develop thick skin and if they being specific to each timeframe.
Let’s explore this a bit further. Can can’t overcome these emotions, then Without the data to back up any
there be advantages to “not being change the chart colors to something observations from technicals, one
able to see” (with our eyes)? Think else in place of red and green. might operate from mere opinion
about all the ways your eyes can A renewed focus through probabil- and speculation. Unfortunately, few
get you into trouble. (Have you ever ity-based trading can move you away traders’ actions in the marketplace
judged a book by its cover? Have from the disadvantages of “seeing” today are data driven.
you ever been fooled by an optical and immerse us in the incredible
illusion?) Now reflect on how what world of farming. Farming? Yes, An example stock screen for prob-
we see and what we choose to look probability-based trading is like a ability-based trading
at might play into our evaluations, farmer who researches types of seeds Let’s take an example. A web screen
beliefs, judgments, and perception and what would work best for the land was performed on Friday, November
of value. Could the visuals obtained and growing conditions, then plants 11, 2022 for close-to-close “streaks.”
from charts and tape-reading impact those seeds, not seeing immediately Streaks refers to stocks that have
our decisions and ensuing actions due the fruits of all the labor. There is no moved directionally. Positive streaks
WWW.MYSTOCKODDS.COM
FIGURE 1: SAMPLE RESULTS FROM STOCK SCREEN, NEGATIVE STREAKS. We can look for stocks that showed negative close-to-close moves
(streaks) using a lookback period of 2,000 days. Looking for negative stock streaks, in conjunction with examining the associated performance metrics
from past data, might suggest an opportunity for mean-reversion long trades.
FIGURE 2: SAMPLE RESULTS FROM STOCK SCREEN, POSITIVE STREAKS. We can look for stocks that showed positive close-to-close moves
(streaks) using a lookback period of 2,000 days. Looking for positive stock streaks, in conjunction with examining the associated performance metrics
from past data, might suggest an opportunity for mean-reversion short trades.
are closing prices that are higher for • “Sharpe” re-

each of those past days specified in fers to the
the streak signal. For negative streaks, Sharpe ratio,
the closing price was lower for each which is the
of the days indicated. risk-adjusted
The stock screen’s filters were set return of hold-
up to look for stocks in a price range ing that sym-
of $10–$1,000 with average share bol for those
volume of at least one million shares five days. If the
traded, and for which a minimum of Sharpe ratio is
15 events have occurred, since the negative, that
goal was to find high mean-reversion suggests it is
tendencies rather than just the goal better to short
of price discovery. The number of than to buy the
events shows how many times this symbol. The
has occurred in the lookback period Sharpe ratio
of 2,000 days. The symbols resulting can help with
from the web screen are shown in determining
Figures 1 and 2, with Figure 1 listing whether you
symbols that showed negative close- are adequately
to-close moves up to November 11, compensated
2022, and Figure 2 listing symbols for taking the
that showed positive close-to-close risk of enter- FIGURE 3: HOW DID THEY PERFORM? Here’s a look at how the stock
moves up to that date. ing each posi- symbols from Figures 1 and 2 ended up performing the following week, as
In looking at the tables showing tion. well as a look at some market ETF performances in case they were influential
on the symbols at that time.
the results: • “odds” refers
to how likely
• “last perf” means how much the the symbol is to go up during the
symbol moved in percent Novem- output period, which is five days.
Some stocks have
ber 11 from close to close If the odds are greater than 50, it better track records in
• “avg performance” refers to the has the probability of being up. If performance related to
historical record of the average the odds are less than 50, it is less a pattern, while others
percentage move in the following likely to go up, so may qualify as fail repeatedly.
five days after the streak a short. We view odds and average
performance together to get a more happening?” One reply to this might to guessing what happens next based
complete picture of the chance of get back to what I mentioned earlier on the visual cues.
the stock moving up or down along about the way that tendencies can I personally feel that I haven’t even
with the performance that may be very stock specific. Our database yet begun to mine all the data for
accompany that move. Average (StockOdds) analyzes things per potential edges and strategies that
performances after events or sig- symbol, so a positive streak of 3 could be employed. For potential
nals are a key component in finding edges, we could look at the behavior
those right seeds to plant. Having this data to of stocks after streaks and after given
draw on means you indicator readings. We could also look
So how did these symbols perform at seasonal patterns and technical
the following week? And what about
have probability-based patterns together with the odds of
the market ETF performances, in trail markers for that what may come next. Thankfully,
case they were influential on the unknown path of the I have a great career choice and the
symbols? Figure 3 shows market next timeframe you data to carry me further.
ETF performances from November select. You, too, can use the data to develop
11 to 18 and shows the long and potential trading edges and strategies,
short selections and their respective might be mean-reverting for some such as in ways I’ve described here.
performances for the week ending symbols but could be a continuation Let the data drive your analysis so that
November 18. for other symbols. your trading is rooted in probabilities
A critic might look at these Having this type of data to draw for a given outcome, rather than
sample results and say: “Well, that’s on means you have probability-based guessing at it based on an observation.
obvious—things that rise must fall trail markers for that unknown path After all, you never know when your
and stocks that go down retrace of the next timeframe you select. eyes could deceive you.
back up. So why would I need a There are never any guarantees, but
database to show me the odds of that data-driven trading can be superior
MARKET RAP
TOMASINI/MARKET RAP of the system creator’s emotions; what
Continued from page 56 is too much of a move for one person Systems are
may not be enough for another. representations of
And it doesn’t matter whether we’re
the system creator’s
are plummeting—price will need to talking about the RSI or the stochas-
stabilize. There is a natural mean- tic oscillator or Bollinger Bands or
emotions; what is too
reverting push. Nothing more than whatever indicators you choose to much of a move for
that. use. The particular choice of indica- one person may not be
But it’s one thing to try to decipher tor isn’t the point. A stochastic is not enough for another.
this phenomenon from the prices more efficient that an RSI; it’s just a
themselves and another to have an different way to communicate market
RSI reading that is above 90 or un- movements. Some indicators may their flaws, technical analysis can-
der 10. When you are in front of the communicate market movements to not do without indicators. Just as in
screen, provided you are not Mr. Cold you better or worse than others. What poker, the best hand may not always
Blood, emotions are in control, more matters is you know that indicators win. Why? If you focus too much
or less, so that a tool like the RSI in- have all the setbacks you can envision, on your hand and not the “players in
dicator will help you to make savvier but they help you in making better the game,” you have lost the match
decisions. Traders must understand decisions, provided you understand already. Like it or not, this is how the
that it is not just you analyzing the their limits and usability in different wheel turns.
price moves with such a tool in the situations.
market. Systems are representations Or put another way, even with all
The TraderS’ MagaZINe SINCe 1982 www.traders.com JuNe 2019
THE TRADERS’ MAGAZINE SINCE 1982 www.traders.com SP BONUS ISSUE 2019 the tRaDeRs’ MagaZine since 1982 www.traders.com May 2019
EC
IAL
The Traders’ MagaZine sinCe 1982 www.traders.com MarCh 2019 TR The Traders’ MaGaZine sinCe 1982 www.traders.com aPril 2019
AD
ER
S’
ISS
UE
Model The MarkeT

The 21sT-CenTury WITh a FourIer The BesT CharT
Covered Call SerIeS INdICaTor Backtesting a PaTTern enTry
How to kill two birds Capture cyclic activity 8
Mean-ReveRsion Better entry timing? 6
with one option 8 stRategy in Python
Here’s a step-by-step guide 8 adaPTive eMa
does hisTory eleCTIoN eFFeCTS oN An indicator to help know
repeaT iTself? The SToCk MarkeT DouBle BottoM when a trend is a trend 10
Looking for time-based And how you can play it 18 PatteRn: selling
patterns for a trading edge 12 inerTia & MoMenTuM
The V-Trade eaRlieR? in The MarkeT
Trading Different exit scenarios 16 A different perspective 16
Part 11: Expert
The fakeouT manual trading 26
Keep an eye on these a visual inDicatoR a reliaBle seT
winning patterns 18 Instant, multi-timeframe of TeChniCal
INTerVIeW trend detection 22 indiCaTors
inTerview Talking volatility with Try this simple set 22
Claudio Demb and John Bollinger 36 inteRvieW
the psychology of trading 34 inTervieW
Creating trading strategies
Breakaway gaps
TradINg MISTakeS with David Pieper 30 Linda Bradford Raschke 30
Testing them for reliability To aVoId The v-Trade

and profitability 38 Be mindful of these 44
the v-tRaDe
Part 10b: Expert Part 10: Trading with
trading system 36 leverage 38
reVIeW
n The 3S Code
MARCH 2019 APRIL 2019
BONUS ISSUE 2019
DISPLAY UNTIL 10/31/2019 MAY 2019
JUNE 2019
Also in this issue: ■ A Challenging Year
■ What’s Controlling The Market? ■ The US Long Wave Revisited
■ The Kondratieff Wave Revisited ■ Forecasting A Market Recovery
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THE TRADERS’ MAGAZINE SINCE 1982

www.traders.com JANUARY 2023

Buy and sell signals in the

presence of strong trends 22

ALSO RECEIVE A FREE✝ BOOK

Email: [email protected] • Phone: 206-938-0570 facebook.com/STOCKSandCOMMODITIES @STOCKSandCOMM

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6 Explore Your Options the Foundation For The Study Of

4 • January 2023 • Technical Analysis of Stocks & Commodities

there are two other things

Clever Use Of Modern Optimizer Algorithms

“interesting” often means that there are quite a few

by René Koch, PhD

SMAC optimizer algorithm.) Function Evaluations per Iteration 6

Step 2: Fitting a model

The SMAC algorithm creates four random mutations in

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Then “expected improvement” for each neighbor is

calculated using the model created in step 2.

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Scan the QR code to learn more

Setting up the rules for this trading strategy is shown

For the test, I used two different optimization algorithms

Explore Your Options

Matching The Markets

by Perry J. Kaufman Noise

sterling, and Euribor interest rate futures would be the

drawdowns and only part of the bull market that started

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January 2023 • Technical Analysis of Stocks & Commodities • 21

True Range Adjusted

multiplier. Other values

justed exponential moving

The TRAdj fluctuates between 0 and 1. If the current Trend identification

Here is the MetaStock formula for the TRAdj TL:=If(Ref(C,-1)<L,Ref(C,-1),L);

24 • January 2023 • Technical Analysis of Stocks & Commodities

EMA crossovers (green arrows) can be used as entry

2011 for comparison. Additional bearish TRAdj EMA

January 2023 • Technical Analysis of Stocks & Commodities • 27

Cycle Price Projection Developer, Market Analyst, Trader, Newsletter Author,

the Foundation For The Study Of Cycles.

28 • January 2023 • Technical Analysis of Stocks & Commodities

Do you use any technical indicators

to confirm your projection zones?

January 2023 • Technical Analysis of Stocks & Commodities • 35

call a market bottom with the Covid crisis was sharp

The Metaverse’s Rosy Future

Listing Exchange Cboe BZX US

cause of this lack FMET 48.75% 40.42% 10.59%

44 • January 2023 • Technical Analysis of Stocks & Commodities

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6 Explore Your Options the Foundation For The Study Of

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F TRADINGVIEW: JANUARY 2023

F OPTUMA: JANUARY 2023

HD if hasdatafor(Periods2+1) > Periods2. —Richard Denning