Friday, April 17, 2009

How Time Stretches Can Provide An Edge

While it seems the S&P has hardly pulled back at all since the March lows, one market that has made it the entire time without a single close below the 10-day moving average is Singapore. EWS has now closed above its 10-day moving average for 25 days in a row. When a stock or ETF spends an extended amount of time on one side of a moving average it creates what I refer to as a “time stretch”. I’ve discussed time stretches on the blog before but not for quite a while.

When a time stretch gets large, such as the current 25-day 10ma time stretch for EWS, you can often expect a move back to the other side of the moving average in the near future. I have found time stretches to be useful in system building.

To demonstrate, looking at the current EWS situation I set up the following criteria among my list of about 115 liquid ETF’s. (This list excludes all inverse and leveraged ETF’s.)

1) ETF must have closed above its 10-day ma for at least 25 days.
2) Today it closes at the highest level of the upswing.

Selling short under those conditions and then covering on a close below the 10-ma provided the following results over the last 10 years across my list of ETF’s:

Trades: 211
Wins: 167
Losses: 43
% Wins: 79%
Avg Win: 1.8%
Avg Loss: -2.1%
Avg Trade: 1.0%

As you can see, although the concept is simple, the results can be quite powerful. Traders may want to consider including time stretches in their bag of tricks. I use them for a few systems tracked in the Gold members section of the website and in Quantifiable Edges Subscriber Letter.


Unknown said...

Rob, what's the exit trigger for the stop losses on the losing trades?

Rob Hanna said...

There is no stop. The system is just as described.

The exit signal is always a cross below the 10 period moving average. Losers occur when the trade goes against you long enough that the average moves above your entry point.

SRSFinance said...

Do you have any advice how to set up a scan to find stocks with this criteria?

I use both Prophet charts and TC2000.


Anonymous said...

Hallo Rob
I did not see your March results for the system trades.
( subscriber level )
Am I missing sth.or did you not publish them til today?

ebaypoet said...

@SRSFinance for telechart:
( C > AVGC10 AND C1 > AVGC10.1 AND C2 > AVGC10.2 AND
C3 > AVGC10.3 AND C4 > AVGC10.4 AND C5 > AVGC10.5 AND
C6 > AVGC10.6 AND C7 > AVGC10.7 AND C8 > AVGC10.8 AND
C9 > AVGC10.9 AND
C10 > AVGC10.10 AND C11 > AVGC10.11 AND C12 > AVGC10.12 AND
C13 > AVGC10.13 AND C14 > AVGC10.14 AND C15 > AVGC10.15 AND
C16 > AVGC10.16 AND C17 > AVGC10.17 AND C18 > AVGC10.18 AND
C19 > AVGC10.19 AND C20 > AVGC10.20 AND C21 > AVGC10.21 AND
C22 > AVGC10.22 AND C23 > AVGC10.23 AND C24 > AVGC10.24)
(C > C1 AND C > C2 AND C > C3 AND C > C4 AND C > C5 AND
C > C6 AND C > C7 AND C > C8 AND C > C9 AND C > C10 AND
C > C11 AND C > C12 AND C > C13 AND C > C14 AND C > C15 AND
C > C16 AND C > C17 AND C > C18 AND C > C19 AND C > C20 AND
C > C21 AND C > C22 AND C > C23 AND C > C24)