An Important Novel Indicator (AboySetup1)
October/03/2008 21:26 Filed in: Proprietary Indicators
The chart below shows a new indicator that is very useful to determine setup conditions for futures, commodities, and also individual stocks. The indicator on the top (blue line) shows the COT Commercial Indicator based on the positions of the commercials obtained from the Commitment of Traders report (the indicator is developed as a stochastic function of the commercial positions). The positions of the commercials are very useful to determine setup conditions and we will use them extensively in the development of our mechanical trading systems. The commercials have a very good track record of buying lows in the market and selling highs.
The main limitation of the COT indicator is that it requires an additional data service (COT data) and that this information is only available for selected commodities in the US. The indicator shown in red (AboySetup1) shows a setup indicator developed exclusively using the price time-series (i.e. it does not require the COT positions as an input). It is important to note that it is very correlated with the action of the commercials and serves to determine setup conditions for both futures and stocks. High values of the AboySetup1 indicate that a market uptrend turn may be near (setup condition) and low values indicate the opposite. A rough entry point that typically works well is to wait until the AboySetup1 crosses below 80% as shown in the chart. The specific entry should be determined using specialized entry techniques once this setup market condition is met. The AboySetup1 is designed to help us determine short and intermediate term setup conditions. Thus, it helps us enter at a local minima in the price time-series but we still have to use an appropriate exit technique to get out of the trade and take our profit successfully.
To my knowledge only Larry Williams has developed a similar indicator which he refers to as a COT proxy indicator. The AboySetup1 indicator was developed independently and uses a different underlying formula. At the moment we have developed 12 different versions of this COT proxy indicator relying on different formulas. This indicates that there are many possibilities to obtain similar indicators but this specific one is the one I found to perform the best.
I personally establish setup conditions based on 6 indicators. The first one (AboySetup1) is described here. The other 5 will be described on future entries.
The main limitation of the COT indicator is that it requires an additional data service (COT data) and that this information is only available for selected commodities in the US. The indicator shown in red (AboySetup1) shows a setup indicator developed exclusively using the price time-series (i.e. it does not require the COT positions as an input). It is important to note that it is very correlated with the action of the commercials and serves to determine setup conditions for both futures and stocks. High values of the AboySetup1 indicate that a market uptrend turn may be near (setup condition) and low values indicate the opposite. A rough entry point that typically works well is to wait until the AboySetup1 crosses below 80% as shown in the chart. The specific entry should be determined using specialized entry techniques once this setup market condition is met. The AboySetup1 is designed to help us determine short and intermediate term setup conditions. Thus, it helps us enter at a local minima in the price time-series but we still have to use an appropriate exit technique to get out of the trade and take our profit successfully.
To my knowledge only Larry Williams has developed a similar indicator which he refers to as a COT proxy indicator. The AboySetup1 indicator was developed independently and uses a different underlying formula. At the moment we have developed 12 different versions of this COT proxy indicator relying on different formulas. This indicates that there are many possibilities to obtain similar indicators but this specific one is the one I found to perform the best.
I personally establish setup conditions based on 6 indicators. The first one (AboySetup1) is described here. The other 5 will be described on future entries.