DJIA

[oldtimer]

You are right about the inflation figure. It is a pretty solid bet at this time that rates will be rising not falling.

[artto]

Yes, it was interesting.

I want to play devil's advocate for a second..... This ERS is a canned formula in software, but you can set some of the parameters. So, being that it the case, how is it that you think that formula will allow you to substantially beat the market consistently? If it is as proven a method as that, it is certainly readily available to all the traders and outlets, etc. It makes me wonder two things: If the other folks in the game - indeed, having it as their jobs - are not "big" on this method, why? If they are "big" on this method, then why isn't the "efficient market" theory dragging down returns back to average?

I never said nobody else or the pros or whatever aren't doing it. In fact this is the way its done. That's why the big guys are always beating the pants off the little guy and taking his money, especially over the long term. There's this chart in a market sentiment newsletter I subscribe to called the "Smart Money/Dumb Money Index. It's almost funny to watch the positions change as the market progresses.

However, it hasn't been until fairly recently that someone like myself can do it, and not only that, but alter it to fit my strategy, or simply mimick something like Investers Business Daily's ranking system. The advantage here is I don't have to subscribe $$$ to Value Line's or IBD's premium services, only to still have to toil through the charts on MetaStock anyway. Or maybe I don't like the fact that IBD includes too many smaller cap stocks. Here I can use my own universe of stocks.

This takes some serious computational power which, quite frankly, wasn't really available on "affordable" PC's 5 - 10 years ago. Example: I have an old Dell workstation that my wife now uses, 2x1GhzP3, 4GB RamBus RAM. If I run backtest calculations for one of my custom ICE systems, for say a 20 year period, that machine will run for about 2-3 days. And then the tests have to be re-run for optimization. Now how many trading systems per year can I try and develop for individual stocks, especially when you need 5 to 7 to choose the best from after further testing? Its not practical. The big boys have had the horsey power for a long time, and they will give the information ~ at a price.

At any rate, I think you have a valid point, and so I did some thinking and digging around. After giving it some thought I was pretty sure I could come up with a formula for calculating ERSA, but I did find a few things. The one I've posted below it probably what is in my FIRE program on MetaStock. The basic formula(s) for a lot of this stuff aren't all that complicated. Putting all together is where the work comes in.

((((C - C63) / C63) * .4) + (((C - C126) / C126) * .2) + (((C - C189) / C189) * .2) + (((C - C252) / C252) * .2)) * 100

The ".4" is for the weighting (40%) of the closest time segment, there are four time segments. Notice that the next three groups show ".2" (20% weighting)

The "63" & "126" etc. are the number periods in that time segment. Notice that the last group show "252". This is the "total" number of periods (bars, trading days) used in the calculation. I use 500.

Here is another one. As you can see it's similar.

Per = Param("Per",63,5,250,1);

IBDroc = ((C-Ref(C,-63)/Ref(C,-63))*0.4 + (C-Ref(C,-126)/Ref(C,-126))*0.2 + (C-Ref(C,-189)/Ref(C,-189))*0.2 + (C-Ref(C,-252)/Ref(C,-252))*0.2)*100;

IBDrocMA = EMA(IBDroc,Per);

Plot(IBDroc,"IBD Weighted ROC",colorBlue,styleLine);

Plot(IBDrocMA,"EMA of IBDroc",colorBlue,styleDashed);

Hope that explains a few things.

[Colin]

thanks, artto, but that is a lot of calulations for something that merely tells you if a stock is up

I don't think this market is anticipating, it seems to be reacting to current news (Crude price, last quarter results, etc.)

[artto]

thanks, artto, but that is a lot of calulations for something that merely tells you if a stock is up

Colin, not quite right. It tells me which sectors, and industry group(s)/subsectors, and which stock(s) in those industry groups, and indeed the entire market are strongest, and how strong they are. There's a big difference between a "stock that is going up", and a stock (or mutual fund, whatever) that is going up more strongly than all the others! In broad terms this basically tells you where the money is flowing into, and out of. If you are a buyer, then you want to put your money where the demand is greatest, this reduces risk. If you are a seller, then you want to sell the weakest, to reduce your risk.