The usual disclaimers apply for the strategies and the analysis on TrendInvestorPro. Past performance does not guarantee future performance. You and you alone are responsible for your investment and trading decisions. Do your own due diligence.
The Trend Trio150 is a trend-following indicator that aggregates signals in three trend-following indicators. It uses the principle of confirmation by requiring at least two trend signals to turn bullish or bearish. This also means it is not dependent on one indicator for signals, which is important because indicators sometimes miss signals.
Evolution of the Trend Trio
There is no such thing as the perfect indicator with the perfect settings. All trend-following indicators can catch outsized trends, but they are also prone to whipsaws (bad signals). Indicators based on 100 days catch signals early, but generate too many whipsaws. Indicators based on 200 days generate fewer whipsaws, but at the expense of larger drawdowns because signal lag. The longer the lookback period, the bigger the lag.
After much experimentation, I decided to split the middle and use 150 days for the Trend Trio, hence the Trend Trio150. This look-back period is long enough to catch the bigger trends, but also sensitive enough to signal in a timely manner.
There are five indicators in the Trend Composite: Bollinger Bands, CCI-Close, StochClose, Keltner Channels and ROC of MA, which is the direction of a simple moving average. After careful study and backtesting, I realized that the latter two were underperforming. The average gain/loss for the Keltner Channels was below average and the ROC of MA indicator was prone to whipsaws.
The Trend Trio is a slimmed-down version of the original Trend Composite. Kelter Channels and ROC of MA are out. Bollinger Bands, CCI-Close and Stoch-Close are in. This adjustment reduces whipsaws, extends the length of the uptrend signals and increases the average gain.
The chart below shows Caterpillar (CAT) with the Trend Trio150 and the original Trend Composite for comparison. The Trend Trio150 generated 10 signals (cross of the zero line), while the Trend Composite crossed the zero line 16 times.
Trend Trio Indicators and Signals
The Trend Trio aggregates signals in three trend-following indicators: Bollinger Bands (150,1), CCI-Close(150) and StochClose (150,5). Uptrends signal when at least two of the three indicators turns bullish. Downtrends signal when at least two of the three turn bearish.
- Bollinger Bands (150,1) signal uptrend with a break above the upper line, and downtrend with a break below the lower line.
- StochClose is the Stochastic Oscillator (150,5) based on closing prices. It signals up trend with a cross above 70 and downtrend with a cross below 30.
- CCI-Close is the Commodity Channel Index based on closing prices. It signals uptrend with a move above +100 and a downtrend with a move below -100.
The first chart shows the Technology SPDR (XLK) with these indicators using StockCharts ACP. Bollinger Bands are blue with StochClose and CCI-Close in the lower indicator windows.
The second chart shows Alphabet (GOOGL) with these indicators using StockCharts ACP. Bollinger Bands are blue with StochClose and CCI-Close in the lower indicator windows.
Charting the Trend Trio in StockCharts ACP
Using StockCharts ACP, you can create the Trend Trio by neutralizing ROC of MA and Keltner Channels in the Trend Composite settings. ROC of MA is neutralized by setting SMA Periods to 1, Bull Signal to 200, Bear Signal to -200 and ROC Periods to 1. Keltner Channel is neutralized by setting EMA Periods to 1, ATR Periods to 1 and ATR Multiplier to 20. With these two indicators neutralized, the Trend Composite becomes the Trend Trio that ranges from +3 to -3.
The usual disclaimers apply for the strategies and the analysis on TrendInvestorPro. Past performance does not guarantee future performance. You and you alone are responsible for your investment and trading decisions. Do your own due diligence.