Market Timing with Signals

January 10, 2010

Many of these signals need revision, since some funds have disappeared.  It is best to check at Dexter French's site for new versions.

I have not had the time to take care of this myself.

 

Over a period of several years, different people in the Fasttrack Community, most notably Don Bell, Dave Serbin, and Josef Porinchak, have developed market timing signals for use in making the decision of whether or not to be in the market. When the signal is in buy state you should be in the market, and when it is in sell state you should be in cash or short. Over a period of time, these signals have become somewhat dependent on each other. On an earlier version of this web page, I produced code that, when applied to a set of loosely correlated signals, got you into the market when the first signal bought, and out of the market when the first signal sold. This code only worked if all of the signals went to a buy before any of them went to a sell, but this usually happened, and the code was good for demonstration purposes.

Since at this time, so many of the signals are inter-dependent, there seems to be little justification for such an approach. Nevertheless, it is worthwhile to follow the different signals together as a set, and to pay attention when any one of them changes state.

In general, these signals are trend-following.  That is to say, they look for an uptrend or a downtrend in the market or the part of the market being timed, and when they sense the trend they issue a buy or sell recommendation.  Hence these signals will never get out at the very top or in at the very bottom.  They are, in a sense, self-correcting.  That is, if the trend reverses, the signal will also reverse.  Sometimes the signal reverses before you can make money, and this is called a whipsaw.  In general, if there is a whipsaw, then the tolerance of the parameters in the system is too tight.  

Some of the timing systems, such as the Thrust Signals, use market internals, like new highs and new lows, to time the market.  While these signals are not on a buy for nearly enough of the time for you to make good money during the buy periods, it is almost impossible to lose money when they are on a buy.  Hence they do make good no-sell conditions, and have avoided whipsaws during 2003.  Don Bell has earned my thanks for figuring that out.

The current market has been more or less flat for periods of time.  This confuses the signals, and may make them perform poorly.  Signals have failed for various reasons, and have had to be rewritten.

Remember that the signals should be used only as a guide. As the market changes, they will need to be tuned. The key is to get results that are excellent in the recent past, and acceptable in the longer term.  In addition, by all means read the Trade Manual, available with the Trade download.  See my links page. Make sure that you know what the code does before you try to use it to make money.

Before executing any of the signals, PBCRG.TXT, should be placed into the FT directory.  It should then be copied to PRCRG.FNU, which is used in certain signals written by Don Bell.  This is for historical reasons only.  This file must be in the FT directory.

It is wise to delete all signals and .fnu files before you execute any of the signals below, and also to execute them in the order below, since some depend on others.

MC2XTS6.INI - TWO COMBINATIONS OF MICROC2X AND TS6.  CONSERVATIVE, FOR LONGER TRADES.

RUTTRFT.INI - RECENTLY CONSTRUCTED

MC2X25.INI AND MC2X28.INI - COMBINATION SIGNALS

MMCFX.INI - TO CREATE MMCFXSIG.

FUBTST.INI - EXPERIMENT WITH THREE NO-SELL CONDITIONS AND FUBAR.  CAN DO THE SAME THING WITH MMCFX.INI.

Finally, let me say that at one time TimingCube gave the best results for simply trading the indices.  At this time, however, Timing Cube has been a dismal failure.  I do not recommend TimingCube at all.  If you use any of the above signals, you should go into the market only when one signal confirms others.

As you can see from looking at the code, many of these signals combine other signals. The results of such combinations are not intuitively obvious. I have written a page with some simple examples that explains how combining signals works.

You can build consensus signals which are simply a voting mechanism – take 3 or more out of 5, or 2 or more out of 3. This helps when all of the signals are targeted towards the same area of the market.  Whether you do this explicitly or not, I strongly recommend trading on consensus.

Let's take a look at some results.  Most of these signals are tuned to trade small caps, so we will look at the Russell 2000 as represented by IWM, with distributions re-invested.  The T chart shows a red and green line. When the signal is on a buy then the Adjusted Return chart shows what happens if you buy the red line; when it is on a sell it shows what happens if you sell and buy the green line, in this case a money market fund.  As you can see, the signals are not perfect, but they do a good job of beating buy and hold.

IWM Traded with MC2X28

This signal has shows some improvement

Data and charts provided by www.FastTrack.net.

IWM Traded with MMCFSIG

This looks pretty good

Data and charts provided by www.FastTrack.net.

IWM Traded with RUTTRFT

Recently not bad, but not a good earlier record.

Data and charts provided by www.FastTrack.net.

 

Note about the .INI files.

If you download any of these files from the site, you may see a <PRE> at the beginning and a </PRE> at the end. These are HTML tags, and not Trade code. They make the file display properly for some browsers, depending on the settings of the HTTP server. Delete if you want to run in Trade.

Again, be sure you understand the code before risking any money on these signals.  There are not infallible, in any case.

It is best to keep up with what is posted on FT-Talk by reading that message board and by accessing Dexter French's site.

Finally, let me say that the signals are better suited for trading mutual funds as opposed to knowing when to be in and out of stocks.  Even when the signals are on a sell, there may well be parts of the market that are doing well.  If you can find those stocks, you can trade profitably.  

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