VISUAL METHODS FOR TIMING
There is a body of knowledge that uses technical indicators in a graphical way to time the market. Like everything else, nothing is perfect, but some things work pretty well. The PRISM System is described briefly here, and also on Harry Larson's free site. There was also a long discussion about PRISM on the Fasttrack listserve, which I have reformatted and stored.
9/20/2006: I revised this page to be more extensive, and also to accommodate FT4WIN, which can put up 6 charts. These descriptions include a working knowledge of Fasttrack. I have revised the parameters in accordance with what seems to work best - pick your own. I decided to call this all PRISM, even though the orginal acronym no longer particularly makes sense.
4/17/2007: Early Sorenson and others wrote code to implement the original PRISM vidual method. This particular implementation uses the Russell 2000 as the base fund, and is also based on the DOS version of Fasttrack. You can use whatever fund you want, and vary the parameters if it seems useful. The backtest is since 1988, and it certainly beats buy and hold.
Fasttrack has two indicators that are designed to tell you when to switch from the fund (or stock) represented by the red line to the fund (or stock) represented by the green line. These are Accutrack and Relative strength. These may be used for general market timing if you put up a major index in the red line and the corresponding short index in the green line. For example the 2X funds: USPIX and UOPIX.
The VISUAL PRISM System
The original PRISM was developed by Roy Merwin. It was named for the 5 keystrokes in FT for DOS used to put up the screen:
Price, Relative strength, rsI, Stochastics, and Macd histogram.
Now that Fasttrack for Windows can put up 6 indicators, I will simply list the important indicators, together with the parameters I use. The parameters are all Fibonacci numbers, for what it is worth. There are more than 6 indicators - use what you like, and play with the parameters.
Price (34,8) - Applies to the red fund only - you want the short moving average above the long one.
Relative Strength (55,8) - Compares the red to the green - the short over the long says to be in the red fund.
RSI (13) - Applies to the red fund only - you want the indicator over the 50% line.
Stochastics (55, 13, 3) - Applies to the red fund only - you want the indicator to have moved above the 20% line.
MACD Histogram (89, 34, 13) - Applies to the red fund only - you want the histogram to be positive
Accutrack (55, 13) - Compares the red to the green - you want the indicator to be positive for you to be in the red fund.
Moving AVerage (21) - Applies to the red fund only - you want the indicator to be positive - the red fund is above its moving average.
And, of course, you have to put up the T chart so that Relative Strength and Accutrack can tell you when to switch from the Red to the Green. The J chart will give you the AdJusted retrun from your switching results.
Now ideally, you would like all of the indicators to be on the same side. And certainly, you do not want to trade on only one indicator. You need agreement of most, if not all, of the indicators before committing to a trade. This is particularly true if you are using this scheme for general market timing. And if you are long and the indicators for the major averages begin to go negative, perhaps it is best to lighten your long positions and see what happnes.
This is a subjective, heuristic method. It does not work all of the time. But then nothing else does either.
Sample Screen: Average of the long Ultra ProFunds
Between the lines the loss is about 12%. Afterwards it is safe to be long again.
Charts and Data by Fasttrack - www.fasttrack.net
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