Stock Timing Using
Perry KaufmanIntroducing KaufmanSignals.com
• The strategy shown here is one of three available on
• The strategies are fully disclosed.
• Two of the strategies apply to stocks, ETFs, and futures.
This one applies only to stocks and ETFs.
• Today’s presentation is a slightly simplified version of the
full program, but is excellent as is.
• You will receive a working (not protected) TradeStation
program which you can modify or run as is. The program
is described at the end of this presentation.
• The website takes this strategy further, creating dynamic
portfolios and processing a large list of stocks and ETFs.Arbitrage
• Arbitrage is one of the great strategies of all time.
• It finds two similar markets that are moving apart
and buys the cheaper and sells the more
expensive, exiting when the come back together.
It’s been done for centuries but now it’s faster.Traditional Approach
To identify trading opportunities, we can
1. Use the ratio (or difference) of two prices
2. Find two stocks (or ETFs or Futures markets) with
correlations between 0.30 and 0.80 (not too strong
or too weak)
3. Use cointegeration (the real method) to decide if
these two stocks move in generally the same
But we won’t. It’s unnecessarily complicated.
We’ll use the Stress Indicator that I introduced in
Example: Ford(top) v GM(middle) using the ratio (bottom)
• Buy Ford and sell GM when ratio is low
• But what is high and what is low? And what is “normal?”
• Each pair has a different ratio
Using the Stress Indicator
• The Stress Indicator is made up of 3 simple stochastic
calculations (“raw stochastic”), over a 60-day period
• The stochastic is important because it doesn’t lag
• Stochastic 1 (F) = (C(today) – L(60))/(H(60) – L(60))
• Stochastic 2 (GM) = (C(today) – L(60))/(H(60) – L(60))
• Stochastic difference (D)
D = Stochastic1 – Stochastic2
• Stress = (D(today) – L(60)) / (H(60) – L(60))
• Ford is oversold relative to GM when the Stress Indicator
is below 10.
• It is neutral at 50.
Now, well it is worth a thought what does this term WANDER LUST have to do with the Stock Markets.
Well, this is one of the first drawbacks of any trader , especially a day trader. A day traders lifestyle is very much the main aspect of his hold over his work.
Now this word WANDER LUST can be elaborated upon as wandering around the lust of trading which most of the beginners to a trade do. I don’t claim that waiting with a hope for an opportunity will help a trader in his trade but neither will the wandering around the lust to trade.
Greed to make a quick buck may be the main drive behind this , which leads the traders sometimes to even overtrade, which is one of the main reasons for an unsuccessful trade.
This atitude of one makes one more a gambler in the stock market than a calculative trader with strict stop losses.
Thus , i can only say understanding ones trade is equally important to understanding the micro & macro aspects of the market.
( VIEWS EXPRESSED PURELY BASED ON ONES OBSERVATION & UNDERSTANDING OF INDIAN EQUITY MARKETS ALONE)
Recent posts have taken a look at relative market indicators, including those from fixed income and from different stock market sectors. In this post, we look at the relative performance of international stock markets and what that might be telling us.
The top post charts U.S. large cap stocks (SPY); a broad list of non-U.S. shares from Europe, Australasia, and the Far East (EFA); European stocks (FEZ); and shares from emerging markets (EEM). All have been set to a value of 100 for the start of 2012 for easy visual comparison.
When all international equity markets are rising, we clearly see indications of global economic expansion. When performance among international markets is mixed, we see that economic performance is uneven across the globe. It’s the latter that we are facing presently.
Note how U.S. stocks (SPY) have been strongly outperforming the other international markets. Indeed, emerging market shares have made relatively little headway over the past three years, and European shares have collapsed in 2014 relative to the U.S. Given the uneven economic recovery implied by these markets, we now see the U.S. winding down its quantitative easing, even as monetary stimulus has been ramped up in Japan and is being pursued by the European Central Bank.
A result of this relative economic strength and the handoff of monetary easing from the U.S. to the international central banks is that major overseas currencies have been weakening relative to the U.S. dollar. Indeed, take a look at the bottom chart, which shows how an portfolio consisting of U.S. stocks and short the currencies in the U.S. dollar index has performed since 2012. Particularly note the recent, near-vertical ascent. U.S. assets have been massively outperforming those abroad.
What does all this mean? With weak economic conditions abroad; monetary policy continuing to weaken the yen and euro; and interest rates in the U.S. still meaningfully higher than in Japan and Europe, it is difficult to see what, in the near term, will keep investors away from U.S. assets. Those macro dynamics are an important underpinning of the significant strength in the U.S. stock market. Gauging those dynamics by tracking the relative performance of international markets is quite helpful in understanding global macroeconomic shifts
Originality – Every successful young trader I’ve observed and worked with has been “out of the box”. They do not look at the same things as other traders, and when they do look at the same things, they see them in different ways. Their originality might show up in trading unique markets, unique strategies, or finding unique expressions of ideas. While they learn a great deal from mentorship, their creativity enables them to absorb the *process* of the successful mentor, but apply that process in ways that make it entirely their own. They do not follow the herd and they have enough confidence in their judgment that they can act on their unique views.
This is the perspective drawn by @steenbab, which he concludes as below:
I believe the combination of these factors helps explain why success eludes many new traders. Some lack diligence and look to trading as a way to avoid working for a living. Others are hard-working, but have not found the mentorship needed to guide their development. Still others are easily swayed by media and those around them and fail to cultivate signature strategies with an edge.
2) Mentorship – Every single young trader I’ve seen go from zero to hero, where I directly observed the evolution, has benefited from a high degree of mentorship. I am not talking about taking trading courses, reading trading books, or working with “coaches”. Rather, I’m referring to working side by side with a talented senior trader; observing their preparation, research, trading, and risk management; and absorbing the lessons of those observations. There is a reason mentorship is embedded in most professional training programs, from the apprenticeships of master plumbers and electricians to the clinical rotations of medical students and the training of fine artists. Role modeling channels and accelerates performance development.
Now , role modeling channels & accelerating performance development, this aspect when elaborated to strategising, we can come out with comparision. Comparision when considered amounts to a chain re-action, creating a viscious circle to or towards ones learning curve, thus again bringing us back to the first point of discussion “diligence”.
1) Diligence – All of the successful young traders were workhorses and not show horses. They put significant time into studying markets, learning from others, and learning from their mistakes. All spent much more time in preparation, research, and idea generation than in trading. They also displayed diligence in managing their capital. All were very good at being open-minded, recognizing when a trade was not working out, and limiting losses. This diligence in preserving capital helped them not lose too much money during their learning curves.
Now , to elaborate on learning curves : With repetition of almost any motor task, learning occurs, and a person becomes more efficient or effective at carrying out a task. In the pursuit rotor tasks, time spent on the metal dot increases. In the mirror-tracing task, the tracing becomes more accurate. Progress in skill learning commonly follows an S-shaped curve, with some measure of skill on the Y axis and number of trials on the X-axis. Progress is slow at first, then a subject may experience a burst of learning that produces a rapid rise on the graph.
People often speak of a steep learning curve when they mean the opposite. A steep learning curve is one in which skill improves quickly, meaning something is easy to learn.However, what most people mean by “steep learning curve” is difficult learning experience. No doubt they are thinking of steep hills and steep mountains which make climbing difficult In actuality, the steepest part of the learning curve is the portion where learning is fastest and easiest.