Trading with an Index Filter

[pavilion103]

Looking at the XAO the past week or so and seeing the carnage in some stocks, got me thinking again about Index filters.

In Nick Radge's latest book "Unholy Grails" there seemed to be consistent mention of the importance of being out of the market at the right (or wrong) time to protect capital and maximise returns.

I'm interested to know how people on here trade based on the position of the Aussie Index.

- Do people analyse the Index like a regular stock and determine whether it is in a weak or strong (short term and long term) position and the base their stock selection/exposure on this?
- How much time to people spend out of the market all together?
- How strong (or weak) does the Index have to be to warrant taking any positions?

Maybe if people could just share some general thoughts (either answers to the above or something else) it would be a huge help.

Thanks.

[CanOz]

Looking at the XAO the past week or so and seeing the carnage in some stocks, got me thinking again about Index filters.

In Nick Radge's latest book "Unholy Grails" there seemed to be consistent mention of the importance of being out of the market at the right (or wrong) time to protect capital and maximise returns.

I'm interested to know how people on here trade based on the position of the Aussie Index.

- Do people analyse the Index like a regular stock and determine whether it is in a weak or strong (short term and long term) position and the base their stock selection/exposure on this?
- How much time to people spend out of the market all together?
- How strong (or weak) does the Index have to be to warrant taking any positions?

Maybe if people could just share some general thoughts (either answers to the above or something else) it would be a huge help.

Thanks.

Pav, how can you tell if the trend is up?

[pavilion103]

Pav, how can you tell if the trend is up?

I know that this can be subjective and people can have different thoughts on it.

I guess I'm not so much asking "when is it trending up, so I can get in" or "when is it trending down so I can get out", but moreso: If a person's analysis indicates a bullish or bearish position for the XAO, do they increase their exposure to the market? do they exit completely? just how bearish does the analysis need to be to warrant withdrawing all exposure?

[johenmo]

- Do people analyse the Index like a regular stock and determine whether it is in a weak or strong (short term and long term) position and the base their stock selection/exposure on this?

Yes. Some do.

- How much time to people spend out of the market all together?

All depends on your system.

- How strong (or weak) does the Index have to be to warrant taking any positions?

Again. All depends on your system.

I use an MA and use resistance/level support (discretionary) for decisions. Hasn't made me more but has certainly saved me more.

In recent times it's been up and down and I have been out far far more than previously. Which is fine with me.

[Gringotts Bank]

I'm thinking of shorting the asx200 cfd when my equity curve crosses below its MA.

I think it would give me quite a few false signals for small losses, and some massive gainers, like 2008 and 2011 for example.

[skc]

I'm thinking of shorting the asx200 cfd when my equity curve crosses below its MA.

I think it would give me quite a few false signals for small losses, and some massive gainers, like 2008 and 2011 for example.

What size would you use? How long will you hold? When will you close the hedge?

If your stocks are high beta you can get some pretty severe falls even when the ASX200 isn't going down that much. That last 2 weeks are perfect example.

[Gringotts Bank]

I haven't really worked it out yet skc.

I suspect I'd hold for the entire time my curve is under the MA, then cover it as it crosses back above.

Here's my curve with MA overlaid. See what you think. x axis is is 2003-2012. What I can't work out is how to backtest it properly.

[skc]

I haven't really worked it out yet skc.

I suspect I'd hold for the entire time my curve is under the MA, then cover it as it crosses back above.

Here's my curve with MA overlaid. See what you think. x axis is is 2003-2012. What I can't work out is how to backtest it properly.

- Pick out the dates where the MA crosses.
- Look back at the CFD (or XJO will probably do) values around those times.
- Look at percentage change in the XJO.
- Calculate portfolio value on those dates
- Look at percentage change to your portfolio during the hedge period.
- Calculate the average historical hedge ratio.

My guess is your hedge will need to be some multiple of your stocks, unless you are trading exclusively ASX20 or something like that.

Also, I am guessing if you run a faster MA over a slower MA on the equity curve and remove your hedge when that crosses you might get slightly better performance.

[CanOz]

I agree with SKC here GB, i think the MA cross may be a better switch. Did you check out the links to articles we had on the thread here?

Also, this thread was started by PAV to discuss index filters, which may be used a switch but are a different method of portfolio management. Just so those reading understand.

Cheers,


CanOz

[Gringotts Bank]

Thanks sk,can.
Takes forever doing it manually.

The MA's all gave me a headache with too many crosses. I tried a 10% zig zag (valid -10% from peak) and it worked ok.

4 losers totaling: -770 points
3 winners totaling: +2750 points

Portfolio didn't lose out too much during the shorts, which was pleasing.

So basically 2000 points of short profits - that would have been nice at $1000 a point!

Whether this is repeatable - possibly not. A lot of that profit came from 2008.

Might be better just exiting and going cash. Can't find a good index filter.

[CanOz]

Might be better just exiting and going cash. Can't find a good index filter.

Well that is a index filter right? have you tried an optimized MA as a filter? Curious as to the results. There's always the standard 200, 100, and 50...every insto would even use the standard MAs.

CanOz

[Gringotts Bank]

The 10% zig zag was actually applied to my equity curve.

If I apply an optimized MA index filter, the curve is smoother (except for 2011) and the profit about the same, so probably worth doing. But I'd miss out on being able to short 2008, because the equity doesn't drop off enough to trigger the -10% on the zig. Also the 2011 short is a big loser.

So I'd either do the original curve and short the index when the zig indicates, or do this curve with an index filter and no shorts.

[tech/a]

There are many you can use the index as a filter.

ATR
ADX
Trend lines Short Medium long terms.
M/A s particularly 120 days and longer.
Even Zig Zag say 20%
above or below HHV or LLV for X periods.

[Monkeyzu]

I've seen meantioned a couple of times
If todays 200 SMA < yesterdays 200 SMA (XJO) then don't take new positions and tighten stops on open positions.

[CanOz]

I've seen meantioned a couple of times
If todays 200 SMA < yesterdays 200 SMA (XJO) then don't take new positions and tighten stops on open positions.

Slope...night be better with a > n degree of slope.

[grubram]

Looking at the XAO the past week or so and seeing the carnage in some stocks, got me thinking again about Index filters.

In Nick Radge's latest book "Unholy Grails" there seemed to be consistent mention of the importance of being out of the market at the right (or wrong) time to protect capital and maximise returns.

I'm interested to know how people on here trade based on the position of the Aussie Index.

- Do people analyse the Index like a regular stock and determine whether it is in a weak or strong (short term and long term) position and the base their stock selection/exposure on this?
- How much time to people spend out of the market all together?
- How strong (or weak) does the Index have to be to warrant taking any positions?

Maybe if people could just share some general thoughts (either answers to the above or something else) it would be a huge help.

Thanks.

Alan Hull uses an index filter in his book which is a 10 and 30 EMA on a weekly chart,if the 10 is above the 30 you can go shopping and if below you sit on your hands

[pavilion103]

Alan Hull uses an index filter in his book which is a 10 and 30 EMA on a weekly chart,if the 10 is above the 30 you can go shopping and if below you sit on your hands

I'll play around with that on the XAO and my stocks and see how it looks.
I've been very inactive of late. This market doesn't seem to have afforded me the opportunities that I am looking for. Maybe it's a smart move to be on the sidelines for a bit at the minute.

[joea]

Just wondering if anybody has found the XEC index list of stocks.
I want to use it to filter the appropriate stocks.
Cheers joea