Over 20% per year
The pattern below will allow you to verify the claims made on this website. The returns generated
by this pattern are lower than the returns generated by patterns used for our subscribers. You
choose the stocks to test against. You choose the timeframe over which to test.
Using a spreadsheet or any PC programming language such as Basic, C, or C++, the technical indicators below
can be tested against any
group of stocks over any time period. One source of historical data for US stocks is
http://finance.yahoo.com.
Be aware that our computers restrict their
analysis to issues that normally trade at least 250,000 shares per day and are traded on
the major US stock exchanges; we suggest that you adopt this restriction in your testing.
We prefer to test against higher volume stocks because the more thinly traded issues
are prone to sudden temporary price swings resulting from one or two large trades. These
skew the statistics that our computers rely on.
All calculations are performed after the market close. All buys and
sells are entered to execute at the next day's open.
This pattern uses 2 technical indicators: the first is based on when one moving average crosses
another moving average and the second is based on when a market trend exists. The
specifics for calculating these technical indicators are:
-
Technical Indicator 1: Crossing averages where the first average is an exponential moving average
with an interval of 4 days and a weighting factor of 0.75. Thus the formula for
any day t is
MAt = (Ct - MAt-4) * 0.75 + MAt-4
where Ct is the closing price on day t. The second moving average is a simple moving
average with 9 samples at an interval of 12 days. Thus, the formula for any day t is
MAt = (Ct + Ct-12 + Ct-24 + Ct-36 +
Ct-48 + Ct-60 + Ct-72 + Ct-84 + Ct-96)/9
If the second average is greater than the first average
(and it wasn't the day before) and the first average is rising (i.e., MAt > MAt - 4), then it is ok to buy.
If the second average is less than the first average then sell.
-
Technical Indicator 2: The moving average is an exponential moving average with an interval of 13
days and a weighting factor of 0.75. Calculate this technical indicator against the OEX, not against
the issues under test.
Plot the moving average. Peaks are local maximums
and valleys are local minimums on the graph of the moving average. If the current
value of the moving average is greater than the previous peak or the current value of
the moving average is greater than the last valley and the last valley is greater than
the valley that preceded it, then it is ok to buy; otherwise it is not ok to buy.
Trading: Buy if both technical indicators indicate that it is ok to buy and sell if the first
technical indicator indicates to sell.
By following this simple pattern, over 75% of your trades should be winning trades, your
average hold time should be less than one month, and your average yearly return should be
greater than 20%. This does assume that your test data include more than two years,
at least 300 stocks, and allow for holding at least 20 issues at any given time.
You can also pull up historical data on a stock such as Whirlpool (WHR) into a spreadsheet
and program the spreadsheet with the first technical indicator only. Even without using the second
technical indicator, the results approach 20% per year.
If you are happy with 20% per year, then you may program your own computer with the
pattern shown above and trade based on the signals that it generates. If you would
like even higher returns, then subscribe to our service and receive buy and sell signals as
they are generated by our systems.
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