This forum is for GO and PRO members to discuss the content in the Fundamentals in Trading library.

Bear Market Filter

9 replies, 6 voices Last updated by Dave Parson 1 month, 2 weeks ago
Viewing 4 reply threads
  • Author
    Posts
    • #16794

      Dan Shaw
      Participant
      @dkshaw@gmail.com
      Points: 826
      Rank: Freshman

      Just to piggyback on this topic, I wanted to see if this filter that John made would work well with the downturn that we had this year in Feb/March. Looking at it, it does do a good job at indicating the market downturn as expected, showing 3 red arrows at the end of Feb. The market started going back up in the middle of March. The stochastic indicator shows a green ghost arrow at that time along with green months on the RUT, but the MACD continues to show red for another 4 months. Going off of the “3 arrow rule” would mean that we would not start trading the bull strategy until August/September.

      Do I have that right? My concern is the missing 5 months in the green by protecting myself from 1 month in the red, but then again maybe that is the price you pay for being a 1-trick pony and only using the bull strategy. πŸ™‚

       

      • #17491

        Dave Parson
        Participant
        @dparson55@hotmail.com
        Points: 163
        Rank: Newbie

        I did a lot of back testing and came to the same conclusion as you pointed out, the filter will lag the market after a big down move and miss some of the initial recovery.Β  I think this is just the nature of these types of simple indicators and we’ll need to add our own, much more complex subjective indicators when deciding on market conditions πŸ™‚

        Here are some of the results and comparisons I did related to the filter:

         

      • #17493

        Dave Parson
        Participant
        @dparson55@hotmail.com
        Points: 163
        Rank: Newbie

        Here is a jpg image of the results instead of a png since the png is unreadable.

        Here is the bear filter along with a weekly ATR chart.Β  Using the combination of the two really helps to identify times when a bull vs a super bull might be better for the market conditions.Β  Just for an example, if ATR is above 40 it might be better conditions for a super bull.

      • #17503

        John Locke
        Keymaster
        @john-locke
        Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

        Dave,

        Just a few my observations.

        The bear filter’s intent is to filter out longer term Bear Markets.

        The down shifts in the markets in recent years have been large but only very short term. This has created a series of false bear market signals where we would drop the strategy at the bottom and then miss the v reversal. This is where combining the bear filter with the ATR filter should help.

        Of course any stagnant indictor is always of limited use because it cannot take the general context of the market into consideration. Therefore, our ultimate goal should be to understand the market context and how our strategy relates to it.

      • #17507

        Dave Parson
        Participant
        @dparson55@hotmail.com
        Points: 163
        Rank: Newbie

        I’m slowly getting up to speed hearing you repeat this sentiment in the OTFI meetings.Β  I started watching them from the beginning of this year and focusing on market conditions is a common theme.Β  I’m starting to back test more subjective trading and will keep expanding my thought process when using objective indicators.Β  Thanks again.

    • #16795

      Dan Shaw
      Participant
      @dkshaw@gmail.com
      Points: 826
      Rank: Freshman

      Just to piggyback on this topic, I wanted to see if this filter that John made would work well with the downturn that we had this year in Feb/March. Looking at it, it does do a good job at indicating the market downturn as expected, showing 3 red arrows at the end of Feb. The market started going back up in the middle of March. The stochastic indicator shows a green ghost arrow at that time along with green months on the RUT, but the MACD continues to show red for another 4 months. Going off of the “3 arrow rule” would mean that we would not start trading the bull strategy until August/September.

      Do I have that right? My concern is the missing 5 months in the green by protecting myself from 1 month in the red, but then again maybe that is the price you pay for being a 1-trick pony and only using the bull strategy. πŸ™‚

      I’m having trouble uploading images, so here is a link to reference what I am talking about.

      -Dan

      • #16798

        Sherri Locke
        Keymaster
        @KDAKSj4ux
        Going to The Trading Triangle LIVE 2016Ultimate Income Trader Workshop

        Hi Dan, Thank you for your posts! Most posts that include pictures must be approved by an admin. I have found your posts and approved it. It is now posted above. In the future, if you make a post with a picture, I will approve it within 24 hours or so. So not to worry, it isn’t lost, it just needs to be approved.

        Thank you, Sherri

    • #16694

      Ron van Steenoven
      Participant
      @ronvs@rvsa.ca
      Points: 327
      Rank: Freshman

      In Lesson #18 on the Bear Market Filter, the slow stochastic settings are stated as 80/20/14/5 but the video indicates a “6” as the last setting. Can you please confirm which is the correct setting; 5 or 6? Thanks.

      • #16695

        John Locke
        Keymaster
        @john-locke
        Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

        I just rewatched that. I said 5 but mistakenly chose the 6 when showing how to do the settings. The intended setting is 5 and that’s what I use. That said, it is not going to make a significant difference if you use 6.

    • #16521

      John Locke
      Keymaster
      @john-locke
      Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

      With the bear market filter, the idea is that you would be looking at a monthly chart. Therefore, the signal is always after the month closes ONLY. From there, you would or would not enter the following month based on that signal or lack of signal.

    • #16520

      Jason Krautkramer
      Participant
      @jkrautkramer@gmail.com
      Points: 282
      Rank: Freshman

      I am trying to figure out the bear market filter and have a few questions. What day do you evaluate to make your decision about whether to enter a trade? Is it the first day of the month you plan to enter the trade? This would make sense to me since it would show the entirety of the last month. Yet there are still approximately 20 days into the month prior to entry. Should you be watching those days as well?

       

       

       

       

Viewing 4 reply threads
  • You must be logged in to reply to this topic.