Systematic Trading Strategies and Next Level Trading Setups
System Trader – Reports
Stocks plunged into early April and surged into early May, suggesting that a “V” reversal is in the making. With the recent gains, SPY is back near the 200-day SMA and 61.8% retracement, which puts this key benchmark at an “interesting” juncture. Interesting? Yes. Bull market? No. What does it take to go from an interesting juncture to a bull market?
Stocks plunged into early April and surged into early May, suggesting that a “V” reversal is in the making. There are two parts to the V reversal. First, there is the V, which is the plunge and the rebound. Second, there is the breakout move that completes the reversal. SPY fulfilled the V part, but
Besides the Zweig Breadth Thrust, chartists can identify bullish thrusts using short-term breadth indicators, such as the percentage of stocks above their 20 and 50 day SMAs (simple moving averages). Breadth thrust signals reflect a sharp turnaround in participation that can foreshadow an extended uptrend. Thrust signals start with a setup that shows very few stocks
Developed by the late great Marty Zweig, the Zweig Breadth Thrust uses advance-decline data to identify material shifts in participation. This indicator sets up with when the advance-decline data becomes oversold and triggers when there is a sharp broadening in upside participation (advancing stocks). It is a time sensitive indicator that must trigger within a 10 day window.
Successful trading strategies use filters to improve the odds. Market filters tell traders when to trade and when not to trade. Trend filters decide which names to trade and which to avoid. For equity strategies, traders can improve their odds by trading only in bull markets, and only trading names that are in uptrends. This report first covers market and trend filters, and then shows how the Trend Trio indicator can reduce whipsaws.
Price and breadth indicators are hitting panic levels as investors indiscriminately dump stocks. Several key indicators already reached extremes that could foreshadow a bounce. However, these extremes result from strong selling pressure and increasing downside momentum, which is bearish. The vast majority of stocks moved into long-term downtrends and new lows surging. Such serious technical damage is unlikely to be reversed with the first bounce.
The market gods smiled upon us in 2024 as stocks advanced throughout the year. 2025 is turning out differently as the major index ETFs reverse their long-term uptrends and two of the three market models turn bearish. As painful as they are, bear markets and corrections are part
2024 was a good year, even though it finished with a drawdown in December. The rotation trader strategies put in solid performances, especially RO-Trader-SPX. The rotation investor strategies started off well in November, but took a hit in December as the market fell. Momentum rotation strategies follow the ebb
Not all pullbacks result in long-term trend changes and not all drawdowns lead to bear markets. The odds favor the bulls as long as the bull market signal is valid and drawdowns provide opportunities during bull markets. Today’s report will analyze the drawdowns in the Rotation Investor strategies. We will show the Maximum Drawdown, Median Drawdown and a drawdown range for putting money to work.
Momentum-Rotation strategies get their edge from upward momentum. More often than not, this means there will be entry signals for stocks that seem overbought. Not all overbought stocks continue higher and some correct hard after becoming overbought. Can we improve performance by avoiding stocks that are extremely overbought? Today’s report will discuss the recency bias, show some overbought examples and puts an overbought filter to the test.
It is important to understand the ebb and flow of the equity curve when trading a strategy. How long is the strategy flat or down? How often do we see strong momentum runs? How often does the strategy experience double-digit drawdowns? How can we take advantage of drawdown? We will answer these questions and more.
Buying stocks that seem overbought is difficult, but this is often required when trading a momentum-rotation strategy. By design, these strategies buy the strongest stocks and many seem “overbought”. Momentum is all about buying high and selling higher. This report will test the original Rotation Investor strategies with the addition of an overbought filter. In other words, we will avoid stocks that are overbought. Does this filter help or hurt performance?
This report explains the difference between the Rotation Trader strategies and the Rotation Investor Strategies. Key difference include: market timing models, trend indicators, rank indicators, positions, holding times and profit factors. In short, RO-Trader trades more often, has short holding periods and generates smaller average profits. RO-Investor trades less often, has longer holding periods and generates larger average profits.
Everyone has a trading plan until they go into drawdown. The Dual Momentum Rotation Strategies are off to a great start here in 2024. This is the easy part. Don’t forget that RISK is always lurking in the equity markets and this is something we must always take into account. There is no reward without risk.
The Dual Momentum Rotation Strategies started out with a bang this year and produced big gains in the first three months. Market action then turned mixed with tech-related stocks falling sharply. The Nasdaq 100 strategy moved into a deep drawdown the last five weeks (NDX update here). The S&P 500 strategy is holding up well because