By Michael Wuetherick, P.Eng. User Group Leader: Red Deer Alberta April 7, 2015
Do you want to TURBOCHARGE your returns? Add some technical parameters to your UniSearch parameters and unlock some big wins!
Without doubt, one of the most impressive features of the VectorVest platform is the powerful UniSearch capabilities. Users are limited only by their own creativity and personal risk profile to create successful trading strategies. Combining the fundamental strengths of VectorVest analysis (i.e. RV, RT, RS, CI, etc.) with some technical indicators can deliver a solid, robust trading plan capable of delivering impressive results.
Over the past 6 months, the Red Deer UserGroup has dedicated a portion of our monthly meetings to taking an in-depth look at some key technical indicators supported by VectorVest through the ProTrader module. Specifically we have studied MACD, ADX, Stochastics, ATR, Bollinger Bands, OBV and Fibonacci theory. Many investors in our group reported a noticeable improvement in their trading success by incorporating some of these tools into the regular stock selection strategy.
At our last Usergroup meeting held on March 18th, 2015 we focused on “Putting it all together” where we tested a strategy I developed called the AXS Kicker Strategy that combines several key technical indicators and the power of the VectorVest stock ranking system:
NOTE: You will require VectorVest’s add-on ProTrader module in order to duplicate the technical parameters in the search screen. Call Support for a 2-week free trial 1-888-658-7638.
The key elements of this strategy are:
- Find stocks with a bullish ADX +DI(10) crossover above the –DI(10) within the last 5 days. The ADX indicator measures the degree or strength of the current trend. ADX values rising above 25-30 are considered to indicate a strong trend and support buying stocks with this set-up.
- Focus on industries and stocks that are BOTH exhibiting Bullish X-over of moving averages:
- Industry price must be greater than the Industry Price SMA(40)
- Stock price EMA(4) must be above the EMA(9). In the search I used the relative moving average (RMA) parameter available in the ProTrader to emulate Petra’s highly recommended EMA(3)/EMA(8) cross-over technique. The EMA 4/9 setting is the closest parameter available to Petra’s preferred setting.
- Look for stocks that have made a recent strong bullish move using a Slow Stochastic crossover of %K moving about 70% in the past 5-days. Stochastics are used to measure the short-term momentum relative to recent highs/lows. Stocks with Stoch(14,3) crossing 70% are in the midst of a powerful short-term upswing, yet still below the overbought situation when Stochastics dip below 80% from higher values.
- The sort criteria is RT * CI descending. This parameter combines the strength of the VectorVest RT signal and will move the “smoothest” stocks to the top of the list using the Comfort Index.
- The stop criteria uses the Average True Range ATR(3,15) which implies 3 times multiplier on the ATR(15). ATR is a useful filter to gauge the difference between market “noise” and statistically meaningful swings in price action. In using the 3X multiplier, only trades that are OUTSIDE +/- 3 standard deviations will trigger an exit.
- Market Timing is based on the Primary Wave system which does generate a fairly active trading plan with an average of 10-15 trades per month. However the best back-test results came from buying at or near the close so you won’t need to sit at your PC all day long, but you will need to be ready to buy at the close. In putting this strategy to work I typically run the strategy throughout the day and watch for a fade at the end of the market close (usually around 3-3:30 pm Eastern) and put on my positions just before the close.
Despite the fast market timing and commissions costs, this system delivers huge ARR of 76.06%, CROR of 55.84% with a reasonable maximum drawdown of 8.2%. This search lends itself to BULLISH market conditions, but by combing the Primary Wave and 3XATR stops, it avoids the painful drawdowns and volatility we have seen in Canada since September 2014. I like to test all strategies on an annual basis to get an indication of how they will respond to different market conditions. As outlined below, this strategy didn’t work as well pre-2013 however still had positive results for each year except for 2011 when the market was weak overall.
To further enhance the results, I added buying ContraContra ETF’s (sorted by RT descending) to hedge the portfolio on a change in timing. By using the 3X ATR(15) stop criteria, many of the long positions will ride through the market cycles, but when things get ugly they are sold and replaced with the ContraContra ETF with the highest short-term momentum. As you can see the results are very strong even compared to more prudent hedged strategies like Jake’s Patent Winners/Hindenburg and Safe and Sound/Crash Landers model portfolios.
Using the VectorVest strategy scoring system, I get the following results for these three variations of the AXS Kicker Strategy:
I have been actively trading this plan in my margin account in 2015 and have had some big winners so far including MSL, ESP, NRI, XTC, MG, CLR, CFX and PHM, each delivering more than 10% gains.
While this trading plan might be too aggressive for some, hopefully it can spark your creativity to use the technical trading toolkit available in VectorVest.
May the trend by with you….
YOUR COMMENTS PLEASE: What strategies and market timing are you using? What stocks are in your Watchlist?
BACKTEST SETTINGS ATTACHED – Click on the little arrow at the bottom of the document to open a menu. You can choose to download a PDF or print a copy.
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