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|Subject: Exploring TRIX (& Exploring Oneself)||Date: 2/9/2013 4:26 PM|
|Author: globalist2013||Number: 34769 of 35498|
Take a look at this chart. http://stockcharts.com/h-sc/ui?s=JNK&p=D&yr=0&mn... The security plotted doesn’t matter. But notice that the shorter version of TRIX has you getting out just about when the longer version would be getting you in. That divergence could be useful. The default parameters for TRIX are (15, 9) where the first value is an EMA that is then triply smoothed and the second value is a MAV of the 1-period change of that.(1) Obviously, the relationship between the two parameters is (5x, 3x). Therefore, faster (or slower) versions of TRIX can be created by varying the value of “X”. E.g., (10, 6), (30, 18), etc.
Chande puts trading-systems into one of four categories (2) according to the speed of its entry and exits. E.g, ‘Brute-force trend-following’ is characterized by slow entries and slow exits, and doing a faster entry could create an ‘Early-bird’ system. But what cannot be done is to switch between systems in mid-stream unless you want to blow up your account. Either you’ve decide you’re most comfortable trading the short-term trend, or you’ve decided that another time-frame better suits your personality. If the former, then you can’t express regrets about not having captured the profits that staying with the trade might have given you. If the latter, you can’t express regrets about the profits you gave back to the market for not having gotten out sooner. One or the other. You’ve gotta choose which time-frame you’re going to work in and then stick to that investing/trading plan, or you’ll chop your account to pieces for always being on the wrong side of the move, aka, death by ‘whipsaw’. (3)
By reputation, bond funds tend to be less volatile than stock funds, and they tend to trend better (once the data has been adjusted to reflect divs). So all I was doing with charts of JNK is varying the time-frames and then the parameters of the indicators. Then I stumbled onto the divergence created by applying a fast version of TRIX and a much slower one to the same chart. I’ve never seen such a clear example of the choices that have to be made about which piece of the price moves one intends to capture. Lots of little pieces? Just the biggest pieces?
Frequent turnover generates huge commission costs. Infrequent turnover means that draw-downs become huge. There are no good choices, only compromises. But, possibly, there are some workarounds. These days, many ETFs can be trading commission-free and --in some cases-- the mandatory holding-periods aren’t onerous. Also these days, there are NTF mutual funds that could be turned over as frequently as daily without paying short-term redemption fees. So the constraints on what could be done really do come back to the personality of the investor/trader and what he/she would be most comfortable doing and, therefore, probably most successful doing. There are no ‘right’ answers. There are no 'good' answers, only compromises. Choose well for yourself. Your profits (and loses) depend on the choices you make and the consistency and discipline with which you can stick to your plan.
(1) TRIX is explained here. http://stockcharts.com/help/doku.php?id=chart_school:technic...
(2) Obviously, the four types are 'fast-in/fast-out', 'fast-in/slow-out', 'slow-in/fast-out', and 'slow-in/slow-out'.
(3) What to do about whipsaws is covered by Ed Seykota. http://www.youtube.com/watch?v=LiE1VgWdcQM He has an audited track-record of turning $5k into $12 million in 15 years using an end-of-day, trend-following system. And there are other traders that few investors have heard of who've done similar things. Their methods aren't hard to reverse-engineer, and in some cases, they are fully disclosed. E.g., the methods of "The Turtles". http://en.wikipedia.org/wiki/Richard_Dennis But using the methods would require more courage than most people have. Explanation: the draw-downs of trend-following exceed most investors' comfort level. So they do what humans are inclined to do by genetic 'hard-wiring'. They sell their profits too soon, and they hold their losers too long. The FB fiasco is a classic example of Fear and Greed being played out rather than rational planning. The recent furor as AAPL's price crashed is another.
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