Defining Trend, Reversals, Trade Duration & Number of Contracts

If you have questions send us a message, or schedule an online, using these links we’ll walk you through this procedure enabling you to duplicate trades or experiment with your own criteria.

1) Procedure for defining trend, trade duration and number of contracts 

This program trades up to 5 contracts per $25,000 trading unit with the trend up or down using defined risk strategy

  • Up toshort-term positions with a trade duration of 2 to 10 days
  • Up tomedium-term positions with a trade duration of 11-29 days
  • Up to long-term position, trade with a duration of 30 to 90 days
  • Total margin requirement never exceeds $12,500 USD per $25,000 USD  trading unit because all trades are fully hedged.

2) Qualify the trend

Looking at the 1983 to 2018 chart linked here does it really look that difficult to identify the major up and down trends over the last 35 years?

2.1) One quick and reliable indicator out of the 13 this program uses is an Exponential Moving Average 9 (EMA9).

On the 2000 to 2013 chart below and linked here I’ve dropped in an EMA9 represented by the red line.

2.2) Whatever data period you’re using, 3 minutes or 3 months if price action is below the (EMA9) it’s telling you the market is in a downtrend.

2.3) Above the  (EMA9) an uptrend

2.4) By itself you’ll find it a quick and reliable way to initially qualify trend.

Below I’ve linked every Bull and Bear market since 1983 enabling you to review the the accuracy of the EMA9 as an indicator. These charts should also clarify the need to trade the market both long and short to maximize profitability.

2.5)  1983-2018 chart 
2.6) January 1983 – August 1987  Bull 139.72 – 337.89 =+141.83%
2.7) August 1987 – October 1987 Bear 337.89 – 216.47 =-35.94%
2.8) August 1987 – August 1989  Bear to recovery (2 years)
2.9) August 1987 – July 1990  Bull 216.47 – 369.78 = +70.82%
2.10) July 1990  October 1990  Correction  369.78 – 294.51 =-20.36%
2.11) July 1990 – February 1991  Correction to recovery (7 months)
2.12) October 1990 – July 1998  Bull 294.51 – 1,190.58 =+304.26%
2.13) July 1998 – October 1998 Correction 1,190.58 – 923.52 =-22.43%
2.14) July 1998 – November 1998  Correction to recovery (4 months)
2.15) October 1998 – March 2000 Bull 923.52 – 1,552.87 =+68.15%
2.16) March 2000 October 2002  Bear 1,52.87 – 768.63 =-50.50%.
2.17) March 2000 December 2007 Bear to recovery (7 years 9 months)
2.18) October 2002 – October 2007   Bull 768.63 – 1,576.09 =+105.05%
2.19) October 2007 –  March 2009  Bear 1,576.09 – 666.79 =-57.70%
2.20) October 2007-  April 2013  Bear to recovery (5 years 6 months)
2.21) March 2009 – January 2018  Bull 666.79 – 2,872.87 = +327.87%

Procedure for defining short, medium, long-term trends and number of contracts traded. 

3) Short-term trades with a duration of 2 to 10 days

In the example below is daily price action above or below the EMA9?

Above = buy
Below = sell

3.1) In the example below price action is below the EMA9
The EMA9 is telling us this market is in a short-term downtrend
Short positions are permitted 2 to 10 days in duration

3.2) Confirm the EMA9 short-term trend using the overall average and short-term technical opinion  linked here

In the example below the overall average is a 48% sell
The average of the 5 short-term indicators is a 60% sell

3.3) If  the EMA9, Overall average and short-term indicators all agree short-term trades of 2 to 10 days in duration are permitted

In this example,

EMA9 = sell
Overall average = 48% sell
5 short-term indicators = 60% sell

Short-term trades are permitted, if you’re already short, trades can be maintained, if you’re long reverse to short.

3.4) This program trades up to 2 short-term positions per $25,000 trading unit.

If the overall average and short-term indicators are less than 50% you’re are not permitted to add a second position.

Short positions
EMA9 using daily data = sell  (price action is below the EMA9)

Overall average =  less than  50% sell
5 short-term indicators =  less than  50% sell 
Does not permit a second contract

If the overall average and short-term indicators are greater than 50% you are permitted to add a second position

Short positions
EMA9 using daily data = sell  (price action is below the EMA9)

Overall average = greater than  50% sell
5 short-term indicators = greater than  50% sell
Permits a second contract  

Long positions
EMA9 using daily data = buy  (price action is above the EMA9)
Overall average = less than  50% buy
5 short-term indicators = less than  50% buy
Does not permit a second contract

Long positions
EMA9 using daily data = buy  (price action is above the EMA9)
Overall average = greater than  50% buy
5 short-term indicators = greater than  50% buy
Permits a second contract

3.5) If the EMA9, overall-average and short-term indicators disagree liquidate to neutral,

Example

EMA9 using daily data = buy (price action is above the EMA9)
Overall average = 27% Buy 
5 short-term indicators = 8% sell

Try to identify today’s short-term trend 

3.6) Today’s EMA9 (using daily data)

  • Is price action above or below the EMA9?
  • Above = BUY
  • Below = Sell

3.7) Today’s 12 indicators (Opinion)

  • Does the overall average agree with the EMA9?
  • Does the average of the 5 short-term indicators agree with the EMA9?
  • If they all agree positions are permitted
  • If the overall average and short-term indicators are greater than 50% a second position is permitted
  •  If they disagree liquidate to neutral

3.8) Once trend is defined “collar” the trade, using this procedure.

  • Collars objectively define risk on the trade and for the duration of the trading period
  • Eliminate any possibility of the position being stopped out
  • Eliminate any possibility of a margin call (risk is objectively defined when the trade is established)
  • In most cases reduces your margin requirement, if the maximum risk on the trade is $1,800.00 and the exchange margin requirement is $5,050.00, the margin requirement would be the lower of the 2, in this example the margin requirement would be the maximum trade risk of $1,800.00.
  • Properly set up a collar is premium neutral (does not waste investment capital on excessive purchases of option time premium to define risk)

4) Medium-term trades with a duration of 11 to 29 days

Is weekly price action above or below the EMA9?

Above = buy
Below = sell

4.1) In the example below price action is below the EMA9
The EMA9 is telling us this market is in a medium-term downtrend
Short positions are permitted with a trade duration of 11 to 29 days

4.2) Does the overall average, and medium-term technical opinion  linked here  agree with the EMA9?

In the example below Yes, the overall average is a 48% sell, medium-term 50% sell

4.3) If  the EMA9, overall average and medium-term indicators all agree medium-term trades of 11 to 29 days in duration are permitted

In this example,

EMA9 using daily data = sell
Overall average = 48% sell
5 medium-term indicators = 50% sell

Medium-term trades are permitted, if you’re already short trades can be maintained, if you’re long reverse to short.

4.4) This program trades up to 2 medium-term positions per $25,000 trading unit.

If the overall average and medium-term indicators are less than 50% you’re are not permitted to add a second position.

Short positions
EMA9 using daily data = sell  (price action is below the EMA9)

Overall average =  less than  50% sell
medium-term indicators =  less than  50% sell 
Does not permit a second contract

If the overall average and short-term indicators are greater than 50% you are permitted to add a second position

Short positions
EMA9 using daily data = sell  (price action is below the EMA9)

Overall average = greater than  50% sell
medium-term indicators = greater than  50% sell
Permits a second contract  

Long positions
EMA9 using daily data = buy  (price action is above the EMA9)
Overall average = less than  50% buy
medium-term indicators = less than  50% buy
Does not permit a second contract

Long positions
EMA9 using daily data = buy  (price action is above the EMA9)
Overall average = greater than  50% buy
medium-term indicators = greater than  50% buy
Permits a second contract

3.5) If the EMA9, overall-average and medium-term indicators disagree liquidate to neutral,

Example

EMA9 using daily data = buy (price action is above the EMA9)
Overall average = 27% Buy 
5 medium-term indicators = 8% sell

Try to identify today’s medium-term trend

4.6) Today’s EMA9  (using weekly data) 

  • Is price action above or below the EMA9?
  • Above = BUY
  • Below = Sell

4.7) Today’s 12 indicators (Opinion)

  • Does the overall average agree with the EMA9?
  • Does the average of the 4 medium-term indicators agree with the EMA9?
  • If they all agree positions are permitted
  • If the overall average and medium-term indicators are greater than 50% a second position is permitted
  •  If they disagree liquidate to neutral

4.8) Once trend is defined “collar” the trade, using this procedure.

5) Long-term trades with a duration of 30 to 90 days

Is monthly price action above or below the EMA9  linked here?

Above = buy
Below = sell

5.1) In the example below price action is above the EMA9 
The EMA9 is telling us this market is in a long-term up trend
Long positions are permitted 30 to 90 days in duration

5.2) Does the overall average and long-term technical opinion linked here  agree with the EMA9?

In the example below No, the overall average was a 48% sell, the long term indicators are generating a hold, new long trades would not be permitted.

5.3) If  EMA9, overall average and long-term indicators all agree 1 long-term trade of  30 to 90 days in duration is permitted

In this example,

EMA9 using monthly data = buy
Overall average = 48% sell
Long term indicators = hold

Long-term trades are not permitted, if you’re already long liquidate to neutral.

This program trades a maximum of 1 long-term contract per $25,000 trading unit.

Try to identify today’s long-term trend

5.4) Today’s EMA9  (using monthly data)

  • Is price action above or below the EMA9?
  • Above = BUY
  • Below = Sell

5.5) Today’s 12 indicators (Opinion)

  • Does the overall average agree with the EMA9?
  • Does the average of the 3 long-term indicators agree with the EMA9?
  • If they all agree positions are permitted
  •  If they disagree liquidate to neutral

5.6) Once trend is defined “collar” the trade, using this procedure.

6) To demonstrate the durability of the EMA9 & Opinion try using it on the related and unrelated markets linked below.

6.1) Last 10 EuroStoxx  
6.2) Opinion
6.3) Last 10 FTSE 100 monthly O/H/L/C
6.4) FTSE opinion
6.5) Last 10 DAX Index monthly O/H/L/C
6.6) DAX Index opinion
6.7) Last 10 Gold monthly O/H/L/C
6.8) Gold opinion
6.9) Last 10 Euro monthly O/H/L/C
6.10) Euro opinion
6.11) Last 10 British Pound monthly O/H/L/C
6.12) British Pound opinion
6.13) Last 10 Australian dollar monthly O/H/L/C
6.14) Australian Dollar opinion
6.15) Last 10 Canadian dollar monthly O/H/L/C
6.16) Canadian Dollar opinion
6.17) Last 10 Brazilian Real monthly O/H/L/C
6.18) Brazilian Real opinion
6.19) Last 10 Russian Ruble monthly O/H/L/C
6.20) Russian Ruble opinion
6.21) Last 10 on 2 year US Treasuries monthly O/H/L/C
6.22) 10 Year Treasury opinion
6.23) Last 10 Euro Bund  monthly O/H/L/C
6.24) Euro Bund opinion
6.25) Last 10 NY Crude Oil monthly O/H/L/C
6.26) Crude Oil opinion
6.27) Last 10 Copper monthly O/H/L/C
6.28) Copper opinion
6.39) Last 10 Lumber monthly O/H/L/C
6.30) Lumber opinion
6.31) Last 10 Cotton monthly O/H/L/C
6.32) Cotton opinion
6.33) Last 10 Orange Juice monthly O/H/L/C
6.34) Orange Juice opinion

Identifying the trend is only 1/3rd of the battle to win the war of becoming a profitable trader, the other 2/3rds is how you structure your trades, for full disclosure of how we set profit objectives and define risk on every trade and for the duration of every trading period  see this link.

If you have questions or comments send us a message or  schedule an online review .

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Disclosure

 

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Asset Investment Management

Family Office, Advisors