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CONTENTS JULY 2023, VOLUME 41 NUMBER 8
6 Explore Your Options

by Jay Kaeppel
The Traders’ MagazineTM Got a question about options?
9 Algo Q&A
EDITORIAL by Kevin J. Davey
editor@traders.com
Got a question about system or algo
Editor in Chief Jack K. Hutson trading?
Production Manager Karen E. Wasserman
Graphic Designer Wayne Shaw FEATURE ARTICLE
Webmaster Han J. Kim 10 Stay On Track With
TIPS technical analysis training and
Contributing Editors John Ehlers, The Supertrend Indicator education to individuals. In 2010
Anthony W. Warren, PhD.
by Barbara Star, PhD he launched Alphatrends.net,
Contributing Writers Thomas Bulkowski, Martin providing stock trading education
The supertrend indicator combines
Pring, Barbara Star, Markos Katsanos, Leslie N. to traders and swing trading
price and volatility information
Masonson, Karl Montevirgen ideas to subscribers. Stocks &
to help traders stay in tune with
Commodities contributing writer
the larger trend. Find out how to
Leslie Masonson interviewed him
calculate and use it.
OFFICE OF THE PUBLISHER about his three decades of market
Publisher Jack K. Hutson
17 Wide-Range Gap Continuations experience, his technical trading
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60 Trading Perspectives
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28 A Conversation With Brian Shannon world.
Technical Analysis of Stocks & Commodities™, The
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4 • July 2023 • Technical Analysis of Stocks & Commodities

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risk capital should be used for trading and only those with sufficient risk capital should consider trading.
Explore Your Options
GOT A QUESTION ABOUT OPTIONS?
Jay Kaeppel has over three decades of experience in the options markets. He
was a head trader for a CTA firm, an options trading software developer,
and was a portfolio manager for an investment management firm. He is
presently Senior Research Analyst for Sentimentrader.com. He is the author
of several books, including The Four Biggest Mistakes In Option Trading;
The Option Trader’s Guide To Probability, Volatility, And Timing; and
Seasonal Stock Market Trends. Send your questions or topic suggestions
to Jay Kaeppel at jay@sentimentrader.com. Selected questions will appear
in a future issue of S&C.
Jay Kaeppel
CATCH A FALLING SAFE just three months amid a series of selloff caused IV (the black line) to
I think that bank stocks are due for bank failures. In the latest fortnight, “spike.” This tells us that there is
a bounce, but I am hesitant to try KRE attempted to form an island an above-average amount of time
to “catch a falling safe” by buy- bottom with a gap down on May 4, premium built into the price of KRE
ing shares. I wanted to purchase 2023 and a gap up on May 5. options—and alerts us to the potential
call options but noticed that option Figure 2 shows that the recent for profiting from selling premium.
premiums were very high. Is there a
better play?
It depends to some extent on how
much of a bounce you want to play for.
If you expect a significant advance,
a call option offers unlimited profit
potential even if volatility—and
time premiums—decline. However,
your hesitation to buy calls is well-
founded. When a stock or sector falls
sharply, option implied volatility (IV)
often “spikes,” building a lot of time
premium into the price of the options.
When the price eventually rebounds,
IV almost invariably falls hard, and FIGURE 1: SPDR S&P REGIONAL BANKING ETF (KRE). KRE dropped 47% over three months amid a
call buyers see a lot of time premium series of bank failures.
evaporate. So unless you are playing
for a considerable price rebound,
there may be a higher probability
trade using options.
The bull put spread

strategy
The bull put spread strategy we will
discuss involves selling an out-of-the-
money put option to collect option
premium and simultaneously buying
a further out-of-the-money put option
to limit risk. To illustrate, let’s con-
OPTIONSANALYSIS.COM
sider a specific example using options

on the SPDR S&P Regional Banking
ETF (ticker KRE). Figure 1 shows
that KRE plummeted over −47% in FIGURE 2: KRE, IMPLIED VOLATILITY. The recent selloff caused IV (the black line) to spike.
KRE bull put spread
example
With KRE shares trading at $37.58,
the option trade we will consider
involves the following:
• Selling the KRE Jun16 2023 32

strike price put @ $0.99
• Buying the KRE Jun16 2023 28 FIGURE 3: TRADE DETAILS, BULL PUT SPREAD. This shows the particulars for the example bull put
strike price put @ $0.47 spread trade using KRE as the underlying.
The particulars for this trade appear

in Figure 3, and the risk curves appear
in Figure 4.
Things to note:
• The maximum profit potential on

a one-lot is $52
• The cost to enter the trade—and
the maximum risk—is $348
• The breakeven price is $31.48 a
share for KRE
• There are 39 calendar days left
until option expiration
• KRE shares are trading at $37.58,
and the recent “island” low is FIGURE 4: RISK CURVES, BULL PUT SPREAD EXAMPLE. The breakeven price for the trade is below the
$34.52 recent island low, so shares have a potential support level that must be taken out before the breakeven
price is threatened.
With KRE shares trading at $37.58
and a breakeven price of $31.48, this
trade is a bet that KRE shares will not
decline another −16% in the next 39
calendar days. As long as that does
not happen, the trader stands to earn
14.94% ($52/$348) in just 39 days. If
you are uncomfortable making that
bet, you should not enter the trade.
One important technical thing to note
is that the breakeven price is below the
recent island low. So the shares have
a potential support level that must be
taken out before the breakeven price
is threatened.
FIGURE 5: RISK CURVES, BULL PUT SPREAD EXAMPLE. This zooms in on the risk curves from Figure
4. Notice that the risk curves cross below the trade’s breakeven price of $31.40 a share, so the worst-case
The first and foremost scenario is if KRE immediately drops below $31.40.
consideration for a
trader in this position Managing the trade focus on “where a trade lives.” This
is if and where to cut a Figure 4 shows the “big picture” risk trade “lives” from the breakeven
loss. curves for this trade. However, in price of $31.48 up. This is reflected
real-world trading, it is essential to in Figure 5, which “zooms in” on the
July 2023 • Technical Analysis of Stocks & Commodities • 7
risk curves from $31 a share through trade is entered. The blue and green
$50 a share. lines represent two subsequent dates When a stock or sector
The first and foremost consideration leading up to options expiration, and
for a trader in this position is if and the black line represents the expected
falls sharply, option
where to cut a loss. Given that the P/L as of option expiration day. If implied volatility (IV)
maximum risk of $348 is much we look at where these lines cross often “spikes,” building
greater than the profit potential, it is below $31.40 a share, we find that a lot of time premium
logical to set an “uncle” point to exit our worst-case scenario occurs if into the price of the
the trade before risking too much. KRE (the red line) immediately drops
One possibility is to exit the trade below $31.40. In this case, the trade options.
if the recent low of $34.52 is taken would be stopped out with a loss of
out. However, the reality is that this roughly −$110. The amount of loss until expiration and wait for both
trade can still be profitable even if that would be incurred decreases as options to expire worthless or to take
the recent low is exceeded—as long time goes by (thanks to time decay) an early profit (if, say, 50% to 80% of
as KRE does not drop below $31.48. to approximately −$105 by May the profit potential is realized before
So let’s assume the trader will exit the 21 (the green line), −$90 by June option expiration).
trade if KRE drops below $31.40 a 3 (blue line), and −$10 by June 16
share. Now let’s zoom in on the risk (black line).
curves in Figure 4. If KRE shares do not decline, the
The red line represents the ex- trader can wait for time decay to work
pected P/L for the bull put spread at in their favor. The only decision to
a given price for KRE on the day the make is whether to hold the position
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Algo Q&A
ALGORITHMIC TRADING
Have a question about system or algo trading? Kevin J. Davey has over
30 years of system trading experience. Kevin is a full time trader, and also
teaches and consults via his Strategy Factory® online workshop (https://
kjtradingsystems.com). He is the author of 5 bestselling trading books, in-
cluding “Building Winning Algorithmic Trading Systems” and his latest
book “Algo Trading Cheat Codes.” Send your questions or topic suggestions
to Kevin Davey at kdavey@kjtradingsystems.com. Selected questions will
appear in a future issue of S&C.
Kevin J. Davey
TOO GOOD TO BE TRUE… you jump through hoops to get any If I was to pick a trading room or
I’d like to algo trade, but the de- verified trading results. That should signal service, I’d try it with limited
velopment and testing of a strategy raise red flags. capital (maybe trade the micro emini
seems daunting. So, right now I am Next, realize that making trading S&P 500 futures contract [MES])
considering subscribing to a signal an “income stream” is not easy at and see how it did after a month
service or a trading room to create all. Just search some of the famous of real trading. Most importantly,
some “side hustle income.” Do you futures traders out there (such as Jim I’d compare my actual results to
have any recommendations? Simons, John Henry, and others). You what the signal provider shows. If
I congratulate you on asking some will see they have nice long track there is a big difference in your
good questions before you jump into records, but they have had significant performance compared to vendor-
buying signals or subscribing to a drawdowns along the way. stated performance, that is another
trading room. Most people just jump red flag. To be on the safe side, I’d plan
right in, and usually pay the price via on losing money for this “test.”
market losses.
A majority of trading There are some good signal
A majority of trading rooms and rooms and signal services out there, but even that can
signal subscription services are subscription services be tricky to navigate. Striker.com is
absolute garbage (or outright scams), are absolute garbage one source of signals, and the system
and probably will not get you where (or outright scams), and results shown are based on actual
you want to go. The motto “if it sounds trading. Just realize that even with a
too good to be true, it probably is”
probably will not get you good track record, you never know
will save you lots of money if you where you want to go. if a trading system will continue to
follow it. perform as well into the future.
If you decide to go with any paid Sometimes your anticipated Losing streaks and drawdowns
service, ask for some verification regular income stream will become are the bane of any trader looking
that the person/group actually trades a (hopefully temporary) river of at a trading room or signal service.
with real money. You’ll find very few, losses for you. Could you handle Couple those expected losses with
if any, who share this info. That is 3–6 months of losses, and a >20% some unrealistic expectations (such
because either 1) they do not trade, or drawdown, in the hopes that things as making money every day, or even
2) they trade, but do not make money will turn around for you? Most people every week) and most traders end up
from trading (they make money from can’t, and they end up quitting at the constantly switching from system to
selling their services). worst time. system or room to room. Impatience
They’ll make up all sorts of excuses All that said, you can be successful rules the day, and a majority of traders
for not sharing real money trading at trading, but you have to spend time never stick with something long
results or statements. I spoke to and effort to get there. You could go it enough to be profitable.
one vendor who required a certified alone and learn to trade. Or you could It is true that building your own
“police clearance” before turning invest with a professional commodity strategy is very difficult. But trading
over trading records. Another re- trading advisor (CTA) with a track rooms and signal services are not easy
quired a nondisclosure agreement record (such as IASG at iasg.com), alternatives, either. Trading is hard,
and a noncompete agreement. In or a trading room or signal service no matter how you approach it!
other words, many vendors make with a track record.
INDICATORS
Keeping With The Larger Trend
Stay On Track With

The Supertrend Indicator
The supertrend indicator combines price and volatil- actual price range often is not as easy as it sounds.
ity information to help traders stay in tune with the For instance, what is the actual price range when the
larger trend. Find out how to calculate and use it. stock gaps up or down from the current bar’s close?
T
Or has an inside range day? Or a commodity moves
he ability to recognize trend is a key com- limit up or down?
ponent of trading. Usually, traders rely on Those types of questions led Wilder to create an
price structure and/or moving averages to indicator that he named true range. It measures the
identify, and remain in, the trend. Recently, I current daily range plus any gap from the closing price
learned of another indicator with the intriguing name of the preceding day. Its value is based on the greatest
of supertrend, which combines price and volatility to distance of 1) the current high minus the current low,
help traders stay in tune with the larger trend. or 2) the current high minus the previous close, or 3)
Background information on the creation of the su- the current low minus the previous close. True range
pertrend indicator is sparse. Its development is credited reveals information about the volatility of a stock or
to a French forex trader named Olivier Seban, who commodity. Large true ranges indicate high volatility
based its calculation on J. Welles Wilder’s average true whereas small ranges represent low volatility.
range (ATR) instead of on moving averages. Wilder then created the average true range, which
The supertrend indicator is shown in Figure 1 and is an average of the true range values that indicate
illustrates the way the indicator identifies both direc- whether volatility is high or low over a given time
tional bias and volatility. It often produces a stairstep period. The default found on most charting platforms
effect as it moves in response
to volatility expansion and
contraction.
The supertrend
difference
Unlike moving averages
that are based on past open,
high, low, or close prices,
the average true range is
LIGHTSPRING/PTGREGUS/SHUTTERSTOCK
based on the past values of

the price range. Price range
METASTOCK
computes the distance from

high to low or low to high, FIGURE 1: SUPERTREND INDICATOR. The supertrend indicator, displayed on a chart of Blackrock (BLK), uses the
which is a measure of price average true range instead of a moving average to measure both directional bias and volatility. It often produces a
volatility. But discovering the stairstep effect as it moves in response to volatility expansion and contraction.
by Barbara Star, PhD

uptrend and when price is below
the indicator line it designates
a downtrend. Trend reversals
are signaled when price closes
outside of the opposite ATR
multiplier range.
Some charting packages that
include the supertrend indicator
plot the upper and lower lines
separately. For this article I am
using the MetaStock charting
platform and am plotting the
supertrend indicator as a single
line. The single line moves
above and below price in rela-
FIGURE 2: AVERAGE TRUE RANGE (ATR). The ATR, shown here with a price chart of Adobe (ADBE), is customarily tion to the volatility created by
plotted in a separate pane under the price plot. Unlike the supertrend indicator, the ATR does not measure price direc- directional price changes. This
tion, only price volatility.
allows me to see more clearly
where the actual supertrend
is a 14-period ATR that is usually placed as a separate crossover signals take place.
indicator under a price chart as seen in Figure 2. This article uses daily stock charts to illustrate the
The ATR indicator movement identifies the degree of concepts being presented, but the supertrend indicator is
price volatility, regardless of price trend. For instance, using applicable to all markets and all timeframes.
a 14-period ATR, the chart of Adobe in Figure 2 shows
the volatility spikes that occurred following a price rise Trading with the supertrend indicator
and island reversal in late January 2023 and again during The supertrend indicator’s primary function is to provide
a downtrend in the last week of February 2023. a broader perspective of directional bias that helps traders
remain in an upward or downward trend despite some
Calculating the supertrend indicator price disruptions. The most recent supertrend line position
Unlike the ATR indicator, the supertrend indicator is
plotted as an overlay on the price chart rather than as an SUPERTREND INDICATOR, IN METASTOCK FORMULA
indicator in a panel under the price chart. It requires the LANGUAGE
creation of both an upper line and a lower line. Note: The
Following is coding in the MetaStock formula language
supertrend indicator resembles a chandelier stop-loss,
for plotting the supertrend indicator as a single plotline,
which also incorporates the ATR. However, the variables
as is used in this article.
in the formulation differ.
The calculations for the supertrend indicator are simple © 2023 MetaStock
and straightforward. Here are the formulas for the upper
and lower line: a1:= Input("Number of periods in ATR",2,100,10);
a2:= Input("Multiplier for ATR",1,10,3);
dis:= a2 * ATR(a1);
Upper line: (high + low)/2 + multiplier × ATR bTop:= MP() + dis;
Lower line: (high + low)/2 − multiplier × ATR bBot:= MP() - dis;
Top:= If( (bTop < PREV) OR (Ref(C, -1)) > PREV, bTop, PREV);
The formula substitutes the median price in place of Bot:= If( (bBot > PREV) OR (Ref(C, -1)) < PREV, bBot, PREV);
the closing price and adds that value to a multiplier of an sti:= If( PREV = Ref(top,-1),
average true range. In the original formula, the default If( C<=Top, Top, Bot),
If( PREV = Ref(bot,-1),
multiplier is 3 and the ATR period used is 10. If( C>= Bot, Bot, Top), top));
See the sidebar, “Supertrend Indicator, In MetaStock sti
Formula Language,” for coding to plot the supertrend
indicator as a single plotline. —William Golson, MetaStock
When price is above the indicator line it signifies an
even identifies the price level at
which the trend change would
occur. However, the indicator
also offers traders several other
helpful guides for understanding
price behavior and providing
locations for entries, exits, and
stop-loss placement.
Trading signals—The cross-

overs that identify trend
changes create a simple trad-
ing strategy. For example,
a trader could enter a long
position when price initially
jumps above the supertrend FIGURE 3: SUPERTREND CROSSOVER SIGNALS. The arrows on this daily chart of Amgen (AMGN) point to the peaks
line and exit when it falls and valleys often formed by the supertrend indicator at price crossovers when it signals a trend change.
below the line. Or, for less
aggressive traders, wait for
the first pullback after the
trend change signal before
entering a long position.
Stop placement—Even though
supertrend is a lagging in-
dicator that does not catch
price tops and bottoms, the
crossover signals often create
sharp angles at trend change
points that form peaks when
switching from high to low
and V shapes when switching
from low to high, as shown
by the arrows on the chart of FIGURE 4: SUPERTREND CONSOLIDATIONS. In this chart of Cisco Systems (CSCO), the vertical gray shading shows
Amgen in Figure 3. When a where the supertrend indicator line moves horizontally during periods of contraction and shallow retracements.
supertrend crossover occurs,
it is rare that a subsequent price retest of the high or low helps form a distinct stairstep pattern within the current
exceeds the peak or valley, which makes them excellent trend. This gives traders an opportunity to add to an
locations for initial stop-loss placements. Once a trend existing trade or enter a new trade in the direction of
is in progress, the supertrend indicator line can serve as the trend as price breaks out of the consolidation zone
a trailing stop-loss or support/resistance level. to form the next level up or down. The horizontal line
Consolidation—The indicator line rises or falls in the also provides a price level suitable for placing an initial
direction of the main trend but forms a horizontal line
when prices contract and begin moving sideways or make
shallow-to-moderate retracements. The horizontal lines
warn of a change in price behavior and help eliminate
The supertrend
some potential whipsaw action by quickly identifying indicator’s primary
when price begins to consolidate. A transparent gray function is to provide a
vertical wash on the chart of Cisco Systems in Figure broader perspective of
4 illustrates those areas of price consolidation and directional bias.
retracement within the prevailing trend.
Consolidation breakouts—Very often, the horizontal line
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Sullivan, et al. v. Barclays plc, et al. No. 13-cv-2811 (PKC)
SUMMARY NOTICE OF PROPOSED CLASS ACTION SETTLEMENT

If you transacted in Euribor Products1 between June 1, 2005 and March 31, 2011, inclusive
(“Class Period”), then your rights will be affected by a pending class action settlement,
and you may be entitled to a portion of the settlement fund.
The purpose of this Notice is to inform you of your rights in Thomson Reuters falsely reported banks’ costs of borrowing in order
connection with the proposed settlement with Settling Defendant to financially benefit their Euribor Products positions. Plaintiffs also
Société Générale in the action titled Sullivan, et al. v. Barclays plc, et al., allege that Defendants requested that other Defendants make false
13-cv-2811 (PKC) (S.D.N.Y.). The settlement with Société Générale Euribor submissions on their behalf to benefit their Euribor Products
(the “Settlement”) is not a settlement with any other Defendant and positions.
thus is not dispositive of any of Plaintiffs’ claims against other Plaintiffs further allege that Defendants continuously conspired
Defendants. to fix the prices of Euribor Products in the over-the-counter market to
The Settlement has been proposed in a class action lawsuit financially benefit their own Euribor Products positions. In addition to
concerning the alleged manipulation of the Euro Interbank Offered coordinating Euribor submissions and agreeing on where to price
Rate (“Euribor”) and the prices of Euribor Products during the Class Euribor Products, Plaintiffs allege that to effectuate their alleged
Period. The Settlement provides a total of $105 million to pay claims manipulations of Euribor and Euribor Products during the Class
from persons who transacted in Euribor Products during the Class Period, Defendants engaged in “pushing cash,” transmitted false bids
Period. If you qualify, you may potentially receive benefits from the and offers, used derivative traders as submitters, and rigged bids and
Settlement if you (a) previously submitted a Proof of Claim and offers for Euribor Products.
Release form (“Claim Form”) in connection with prior settlements in Plaintiffs have asserted legal claims under various theories,
this Action or (b) submit a Claim Form by the deadline set forth including the Sherman Act, the Commodity Exchange Act, the
below. You can also choose to exclude yourself from the Settlement, Racketeering Influenced and Corrupt Organizations Act, and
or object to the Settlement. common law.
The United States District Court for the Southern District of Société Générale has agreed to enter into this Settlement
New York (500 Pearl St., New York, NY 10007-1312) authorized Agreement, while denying the allegations brought in this action
this Notice. Before any money is paid, the Court will hold a and maintaining that it has meritorious defenses to Plaintiffs’
Settlement Hearing to decide whether to approve the Settlement. claims of liability and damages, in order to avoid further expense,
inconvenience and the distraction of burdensome and protracted
Who Is Included? litigation, and thereby to resolve this controversy and avoid the
You are a “Settlement Class Member” if you purchased, sold, risks inherent in complex litigation.
held, traded, or otherwise had any interest in Euribor Products during
the Class Period, and during the Class Period were either domiciled in What Does the Settlement Provide?
the United States or its territories or, if domiciled outside the United Under the Settlement, Société Générale agreed to pay a total of
States or its territories, you transacted in Euribor Products in the $105 million into the Settlement Fund. If the Court approves the
United States or its territories during the Class Period. “Settlement Settlement, eligible Settlement Class Members who either previously
Class Members” include, but are not limited to, all persons who during submitted a Claim Form in connection with an earlier settlement in
the Class Period traded CME Euro currency futures contracts and the Action or submit a valid Claim Form before the claims filing
options, all persons who during the Class Period transacted in NYSE deadline may receive a share of the Settlement Fund after they are
LIFFE Euribor futures and options from a location within the United reduced by the payment of certain expenses. The Settlement
States, and all persons who during the Class Period traded any other Agreement, available on the Settlement Website, describes all of the
Euribor Product from a location within the United States or its details about the proposed Settlement. The exact amount each
territories. qualifying Settlement Class Member will receive from the
Contact your brokerage firm to see if you purchased, sold, held, Settlement Fund cannot be calculated until (1) the Court approves the
or traded or otherwise had any interest in Euribor Products. If you are Settlement; (2) certain amounts identified in the full Settlement
not sure you are included, you can get more information, including Agreement are deducted from the Settlement Fund; and (3) the
the Settlement Agreement,2 the Notice of Proposed Class Action number of participating Class Members and the amount of their
Settlement, September 7, 2023 Settlement Hearing Thereon, and claims are determined. In addition, each Settlement Class Member’s
Settlement Class Members’ Rights (the “Settlement Notice”), Plan of share of the Settlement Fund will vary depending on the information
Allocation, Proof of Claim and Release, and other important the Settlement Class Member provides on their Claim Form.
documents, at www.EuriborSettlement.com (“Settlement Website”) or The number of claimants who send in claims varies widely from
by calling toll-free 800-492-9154. case to case. If less than 100% of the Settlement Class sends in a
Claim Form, you could get more money.
What Is This Litigation About?
Plaintiffs allege that during the Class Period, Defendants (including How Do You Ask For a Payment?
Société Générale) conspired to manipulate and manipulated Euribor If you timely submitted a Claim Form pursuant to either: (1) the
and the prices of Euribor Products. Plaintiffs allege that Defendants November 29, 2017 Notice (the “2017 Notice”) related to the $94
did so by using several means of manipulation. For example, Plaintiffs million settlement with Defendants Barclays plc, Barclays Bank plc,
allege that panel banks that made daily Euribor submissions to
Continued on Next Page
1 “Euribor Products” means any and all interest rate swaps, forward rate agreements, futures, options, structured products, and any other instrument or transaction related
in any way to Euribor, including but not limited to, New York Stock Exchange (“NYSE”) London International Financial Futures and Options Exchange (“LIFFE”) Euribor
futures contracts and options, Chicago Mercantile Exchange (“CME”) Euro currency futures contracts and options, Euro currency forward agreements, Euribor-based
swaps, Euribor-based forward rate agreements, and/or any other financial instruments that reference Euribor.
2 The “Settlement Agreement” means the agreement between Plaintiffs and Société Générale entered into on March 31, 2023, and filed with the Court in this action.
Continued from Previous Page
stop when entering a breakout trade or as a place to raise
and Barclays Capital Inc. (collectively, “Barclays”), the $45 or lower a stop-loss during an ongoing trade.
million settlement with HSBC Holdings plc and HSBC Bank
plc (collectively, “HSBC”), and the $170 million settlement
with Deutsche Bank AG and DB Group Services (UK) Ltd. Confirm other indicator signals
(collectively, “Deutsche Bank”); (2) the December 19, 2018 Traders could also use the supertrend indicator in conjunc-
Notice (the “2018 Notice”) related to the $182.5 million
settlement with Citigroup Inc. and Citibank, N.A. (collectively, tion with other technical analysis tools such as moving
“Citi”) and JPMorgan Chase & Co. and JPMorgan Chase Bank, averages or momentum oscillators to confirm a trade entry
N.A. (collectively, “JPMorgan”); and/or (3) the June 8, 2022
Notice (the “2022 Notice”) related to the $55 million settlement or exit. One such example presented in Figure 5 shows the
with Crédit Agricole S.A. and Crédit Agricole CIB supertrend indicator plotted on the daily chart of the SPY
(collectively, “Crédit Agricole”), then YOU DO NOT HAVE
TO SUBMIT A NEW CLAIM FORM TO PARTICIPATE in the
ETF along with a stochastic oscillator in the upper panel.
Settlement with Société Générale. Any Settlement Class Arrows point to the stochastic overbought and oversold
Member who previously submitted a Claim Form in connection levels. The shift from overbought to oversold in August
with the 2017 Notice, the 2018 Notice, and/or the 2022 Notice
will be subject to and bound by the releases set forth in the 2022 was confirmed a short time later when the supertrend
Settlement Agreement with Société Générale, unless such signaled a change of trend after price flipped from above
to below the supertrend line. The indicator also confirmed
member submits a timely and valid request for exclusion,
explained below.
If you are a Settlement Class Member and have not the stochastic reversal to the upside in October when price
previously submitted a Claim Form, you may seek to crossed above the supertrend line.
participate in the Settlement by submitting a Claim Form to the
Claims Administrator at the address in the Settlement Notice
As is true of many oscillating indicators, stochastic
postmarked no later than October 9, 2023. You may obtain a oscillators are notorious for generating false signals dur-
Claim Form on the Settlement Website or by calling the ing trending markets. The supertrend was able to prevent
toll-free number referenced above. If you are a Settlement
Class Member and do not file a Claim Form, you will still be untimely exits or entries as price continued to decline
bound by the releases set forth in the Settlement Agreement if into October and remained below the supertrend indica-
the Court enters an order approving the Settlement Agreement.
tor while the stochastic crossed above its 20 level during
What Are Your Other Options? price retracements in September and again in October.
All requests to be excluded from the Settlement must be Because price remained below the supertrend line, these
made in accordance with the instructions set forth in the
Settlement Notice and must be postmarked to the Claims countertrend forays, identified on the chart with yellow
Administrator no later than July 27, 2023. All requests for circles, were not confirmed.
exclusion must comply with the requirements set forth in the
Settlement Notice to be honored. The Settlement Notice, The supertrend indicator also prevented a false exit dur-
available at the Settlement Website, explains how to exclude ing the uptrend from October through November when it
yourself or object. If you exclude yourself from the Settlement
Class, you will not be bound by the Settlement Agreement and
did not confirm the November retracement that pulled the
can independently pursue claims at your own expense. stochastic below its overbought level in November.
However, if you exclude yourself, you will not be eligible to
share in the Net Settlement Fund or otherwise participate in the
Settlement. Create an early warning alert
The Court will hold a Settlement Hearing in this case on An indicator line that is three times the ATR does remove
September 7, 2023 at 2:00 p.m. (ET), to consider whether to market noise and gives price room to move but, unfortu-
approve the Settlement and a request by the lawyers
representing all Settlement Class Members (Lowey nately, does not reverse in a timely way, often giving back
Dannenberg, P.C. and Lovell Stewart Halebian Jacobson LLP) too much of the gains. Changing the multiplier setting is
for an award of attorneys’ fees of no more than sixteen percent
(16%), or $16,800,000, of the Settlement Fund for investigating
one way to adjust the sensitivity of the ATR. Smaller set-
the facts, litigating the case, and negotiating the Settlement, and tings make the indicator more reactive to price.
for reimbursement of their costs and expenses in the amount of By maintaining the 10-period ATR but reducing the
no more than $500,000. The Plaintiffs may submit an additional
request for service awards in light of their continued multiplier from 3 to 2, it is possible to create an early
commitment and contributions that led to this Settlement for the warning system that alerts to an imminent change in trend
benefit of the putative class, but have agreed to limit any such
request to no more than $150,000. The lawyers for the
Settlement Class may also seek additional reimbursement of
costs and expenses in connection with services provided after
the Settlement Hearing. These payments will also be deducted
from the Settlement Fund before any distributions are made to
The supertrend indicator
the Settlement Class. combines price and volatility
You may ask to appear at the Settlement Hearing, but you
do not have to. For more information, call toll-free
to help traders stay in tune
800-492-9154 or visit the website www.EuriborSettlement.com. with the larger trend.

ample, a trader could wait for
the blue indicator line to cross
the red line for trade entries but
exit when price crosses the blue
indicator line.
Summary
The ability to follow the adage
of “staying with the trend until it
ends” is much easier to do when
applying the supertrend indica-
tor because it ignores minor price
fluctuations. And, as identified in
this article, it also offers many
other functions that could pro-
FIGURE 5: SUPERTREND CONFIRMATIONS OF OTHER INDICATORS. The supertrend indicator helps to confirm vide a trading edge. However,
reversal signals and prevent premature exits in other indicators. Here, the supertrend indicator is used on a daily chart a word of caution: Stocks are
of the SPY to confirm or reject reversal signals given by a stochastic indicator.
not always in a trending mode
and the supertrend indicator
will produce whipsaw buy and
sell signals during nontrending
periods. It’s a good idea for trad-
ers to become familiar with the
supertrend indicator’s behavior
in varying market conditions.
Barbara Star, PhD, is a retired

university professor and a Con-
tributing Writer for Technical
Analysis of Stocks & Com-
modities magazine. Currently,
she trades part-time and pro-
vides individual instruction and
FIGURE 6: DUAL SUPERTREND EARLY WARNING SYSTEM. Using two supertrend indicators with different multipli- consultation to those interested
ers can serve to warn of a potential change in direction (here, on a chart of General Electric, GE) when price is captured in the technical analysis of the
between the shorter-term and longer-term indicators prior to the crossover.
financial markets. She lives in
Woodland Hills, CA, and can
as price transitions from one directional bias to another. be reached at 818 224-4070 or by email at star4070@
[If help is needed with changing this setting, contact the aol.com.
article’s author.]
The chart of General Electric in Figure 6 displays two The code given in this article is available in the Article
supertrend indicators—the original one in red and the Code section of our website, Traders.com.
shorter, more responsive supertrend setting in blue. The
arrows identify the potential transitional trend change See our Traders’ Tips section beginning on page 46 for
areas where price is captured between the two indicators. implementation of Barbara Star’s technique in various
Using this type of dual indicator setup not only offers trad- technical analysis programs and trading platforms. Ac-
ers a heads-up to a potential directional change, but also companying program code can be found in the Traders’
serves as a place to raise/lower stops more aggressively Tips area at Traders.com.
in an ongoing trade. ‡MetaStock
And, for some traders, it might even offer an additional ‡See Editorial Resource Index
strategy for determining trade entries and exits. For ex-
TRADING ON MOMENTUM
Tall Candles, Big Gaps
Wide-Range Gap Continuations

A sequence of taller-than-average both your entry and exit for strong- You can see the first wide candle on
range candle days can be a technical trending stocks. March 28, followed by a second wide
breakout signal. Here’s how to find candle two days later on March 30. A
and use it for a swing trade. Tall candles, big gaps sequence of taller-than-average range
A wide-range day, illustrated with a candle days like this is a technical
by Ken Calhoun tall candle, tells us that exceptional breakout signal.
O
buying pressure is found in the chart.
ne pattern that is easy to When this day occurs following a gap, Step-by-step action plan
scan for is gaps that have a it tells us that buying may continue Here’s how you can start using this
larger-than-average range on upwards, as seen in Figure 1, a chart of strategy:
the day of the gap. Entering Viking Therapeutics, Inc. (VKTX).
your trade above the high of this gap Step 1: Identify a chart with a gap
day can often produce a successful up, for which the gap day has a
swing trade. A unique exit signal Wide-range days indi- range of at least twice the average
is found using a 25-period simple cate strong demand, range, as seen in Figure 1.
moving average (SMA) line. This which increases price.
month, I’ll show what to look for in Continued on page 37
eSIGNAL
FIGURE 1: GAP CONTINUATION. This gap continued up following a wide-range candle day.
Drilling Down For More Perspective
Looking At Minute-By-Minute
Stock Option Data
Part 2: Short Margins
Can retail traders make more money using straddles or 3. It is very hard to make money with many option
strangles than by just buying a call or put? Can retail strategies that use margin-hungry shorts or that buy
traders make money using option strategies that include stocks for covered calls/puts.
margined short option positions? We explore these
questions here using the minute-by-minute option data Not providing investors with these warnings up front is,
introduced in part 1. in my view, dishonest if not dangerous to retail investors.
I think it’s important for investors to understand these
I
by Greg Aharonian issues before adding option trading to their toolkit.
To explore these warnings and put some real numbers
believe that all literature on option trading in to demonstrate, I’ll return to the option chain data I
should start out with these three warnings: discussed last time in part 1 in the June 2023 issue. As
ALEKSORE/MUSICMAN/ARCADY/SHUTTERSTOCK
I discussed in part 1, I used a data dump of minute-by-

1. If you can’t already make money using minute option chain data to get an empirical feel for
or trading your stock signals, then adding option option strategies before relying on the so-called greek
trading to your plan won’t provide much benefit. variables to obtain metrics.
2. It is hard to make money with most long option For example, one question I asked and was able to
strategies, so it’s probably best to just buy calls or answer using such minute-by-minute data is: “How
puts using a good trading system that gives you much does the option premium drop in one hour while
stock signals. the stock price remains the same?” For some SPY op-
OPTION TRADING
tions data on October 12, 2022, the answer was: Time: 9:37 am 10:17 am
“If the SPY is at the same price at two different Strike price Option type Ask price Bid price % Change
times, the option premium drops about one cent 362 Call $2.26 $1.37 −39.4%
($0.01) every three minutes.” You can translate 363 Call $1.72 $0.94 −45.3%
that into deltas and thetas, but I like thinking with 364 Call $1.29 $0.63 −51.1%
simple numbers.
365 Call $0.94 $0.40 −57.4%
This article offers another good use of the
exercise of collecting minute-by-minute option
362 Put $1.63 $1.73 +6.3%
chain data. In this article, I will use the minute-

363 Put $2.10 $2.30 +9.5%
by-minute option data to consider the above three 364 Put $2.65 $2.98 +12.4%
warnings and explore the questions of whether 365 Put $3.29 $3.72 +13.0%
retail traders can be more profitable by using op- FIGURE 1: OPTION CHAIN DATA. This shows SPY option chain data for October 10, 2022
at 9:37 am and 10:17 am.
tion spreads or margined short option positions
than by simply using long calls or puts. Here, I’ll
share what I found. can increase the win rate to over 90% by seeking less
profit, for example, grabbing a $0.50 move in a stock.
Comparing several option strategies This simple option strategy, which is quite profitable by
The SPY option data I’m using here are for options with this example, entails buying a put option if your trading
zero, one, two, or three days to expiration (DTE). I used system generates a short sell signal for the underlying
data from October 10 for October 10th options. For this stock, or buying a call option if your trading system gen-
date, one of my systems generated a sell signal for the erates a long signal for the underlying stock. The above
SPY at 362.62 at 9:37 am, with an exit target of 361.62. percentages may be lower depending on the time of day
Forty minutes later, at 10:17 am, the SPY dropped to the option was purchased, the number of days from expiry,
361.62, for a $1 gain on the SPY short. For your average and the duration of the option trade, but this won’t affect
$200 stock (ignoring the margin to short the SPY, since the following comparisons by very much.
you could have bought one of the inverse ETFs based To be clear, while buying a put doesn’t have a margin
on the SPY to avoid the short margin), the return on the requirement, for multiple day trades, you still have the
short stock trade is 0.5%. problem of time decay, so make sure your stock trading
Now, if you could do this type of trade once a day, for signals are for trades with large stock movements.
200 trading days, that is a 100% annual return. Not bad, You might wonder if you can gain some risk reduction
but what a grind. Is there an option strategy we could use by buying both a put and a call (such as in a straddle, a
instead, given the leverage power of options, to obtain a strangle, and some other hedged or spread-type of op-
higher return with a smaller number of trades? tion strategies). I’d say not likely, so I choose to pass on
The table in Figure 1 shows some real-time option that approach. I can quote from different writings on
chain data for the SPY at 9:37 am and 10:17 am from the topic that say as much. For instance, Carley Garner
October 10,, 2022. I’ll use this data to explore several wrote about strangles and some other similar types of
option strategies. option strategies in her January 2014 article of her regular
column in this magazine, and she put it bluntly: “In truth,
Option strategy 1: Buy put or call the odds of success in trading long option strangles are
options rather dismal.” She continues, “Specifically, before they
Buying a put option is a simple approach and requires can make money on the favorable side of the trade, they
no margin. For one morning trade using a put based on
the data in Figure 1, the return is 10%. This is 20 times
better than the 0.5% return for the earlier example of
trading a stock. After allowing a stop-loss that is twice I used minute-by-minute option
as great for the losing option trades, this averages to an chain data to get an empirical
8% return per option trade (based on a system with a feel for option strategies before
90% win rate on the underlying stock moves). Done once relying on the so-called greek
a day, compounded, this is more than a 400% return a
month (if you use all your capital each trade, which is
variables to obtain metrics.
very ambitious to do). For a target return of 1% day, we
discussed here—that is, before margin requirements. The
authors go on to state some dour conclusions: “We find
I will use the minute-by-minute that the presence of margin requirements greatly impacts
option data to explore the the profitability of strategies. For all the portfolios, the
questions of whether retail mean return diminishes by substantial amounts.” And,
traders can be more profitable by “Together, transaction costs and margin calls pose a
formidable barrier to shorting options, preventing inves-
using option spreads or margined tors to arbitrage the good deals that seemingly exist in
short option positions. option prices.” They further write, “Overall, the evidence
presented in this section suggests that the margin require-
ments adopted by the exchanges impedes the ability to
must overcome the losses on the unfavorable.” And in a short sell options.”
June 2001 article titled “Expected Option Returns” pub- So it seems that the approach of shorting put or call
lished in The Journal Of Finance, authors Joshua Coval options has significant costs to overcome before it can
and Tyler Shumway conclude much the same regarding become profitable for the trader. Thus, it’s another ap-
complex option strategies: “Expected call returns exceed proach I choose to pass on.
those of the underlying security … However, zero-beta,
at-the-money straddle positions produce average losses Option strategy 3: Use a short call/put
of approximately three percent.” What about using far- butterfly
out-of-the-money options? Well, some jokingly refer to What about combining both long and short options? Un-
them as “lotto options,” so you get the point. like option strategies that buy multiple option contracts
(such as different puts, calls, with same/different strike
Option strategy 2: Short put or call prices, same/different expiries), there is another set of
options strategies that involves trading both long and short op-
The call options in Figure 1 have much bigger changes tions. In this approach, you can reduce the cost through
than the put options, experiencing an average loss of about the short sales, and thus become balanced, eliminating
−50%, five times the average gain of the put options in the need to use margin for the shorts.
this data. That sounds great, and time decay works in One such strategy, the short put/call butterfly, is an
your favor here. However, you have to put up 20% of the option strategy that requires no extra margin (which
underlying stock price as margin for the naked short. For was the problem with strategy 2 above). But it seems to
the SPY averaging $400 a share, that’s $80 to capture an provide very small returns. A lot of books and articles
average of $0.80 in the price gain of the option, resulting tout such combination trades where the entry cost is
in a 1% gain, which is double the return compared to even lower (due to money earned from the shorts), and
trading the SPY itself. Perhaps for lower-priced stocks, where most brokerages don’t charge for margin because
the percentage gain would be higher (since the stock price the short is covered.
is lower, but the stock moves are also smaller). But even Consider a short call butterfly strategy, using the same
at 2%, 3%, or 4%, this is less of a return than for strategy October 10th data:
1 (which uses long put or call options).
I can’t see how to generate big profits with naked shorts Sell 1 call at: 362 +39.4%
of calls or puts, since the margin kills returns. Indeed, Buy 2 calls at: 363 −45.3% (×2)
this problem was well researched in a 2004 paper out of Sell 1 call at: 364 +51.1%
UCLA titled “Option Strategies: Good Deals And Margin
Calls” (see “Further reading” at end). In the paper, the The net return is (39.4 + 51.1 − 2 × 45.3), or (90.5 − 90.6),
authors tested a variety of strategies on options based or a loss of −0.1%. That is a worse return than any of
on the S&P 500, including calls, puts, covered calls, the earlier strategies gave. While the butterflies get rid
protected puts, straddles, and strangles, both at-the- of the margin requirement, the buy-2/sell-2 seems to
money (ATM) and out-of-the-money (OTM). In section lead to profit-nullifying or small-profit trades, at least
4.2 of their report, they document the severe penalty for small movements in stock prices that don’t move the
of margins. Before margins, they report that “the most option prices much.
rewarding strategies all involve a short position in one This is consistent with the findings in a 2012 article
or more contracts.” This is seen in my option strategy 2 that presented research on option pairs trading. (In option
pairs trading, the long position is in a first stock and a profits and losses, and most brokerages don’t require
short position is in a second stock that are temporarily margin for the short position.
correlated). The authors studied pairs trading from 1963 Jay Kaeppel, in his excellent March 2023 article in his
to 2009. In the article, authors Binh Do and Robert Faff regular column in this magazine titled “Explore Your Op-
write: “Specifically, we document a risk-adjusted return tions,” discusses this option strategy. Let me emphasize
of about 0.3% per month. … Notably, [this type] of con- that these option strategies don’t require margin for the
trarian investing is largely unprofitable after 2002.” short positions. For many other strategies, the margin is
This finding of unprofitability is consistent with a just too much of a killer. But it isn’t for strategies such
more recent (April 2023) report titled “Betting On as these types of vertical spreads.
Elusive Returns: Retail Trading In Complex Options.” Next time in part 3 of this article series, I’ll use option
The authors state, “Overall, our findings suggest that chain data to explore such vertical spreads, in particular,
retail investors are playing a losing game by betting on the bear put spread.
complex [mulitleg] option strategies because of their
lottery-like payoffs.” Conclusion
In my experience, I can’t see how to generate any I am a retail trader of options, so I am not saying here
profits with long and short option strategies such as the that retail traders should not trade any options. But I have
short call butterfly. found that some types of option strategies, particular those
involving short options and margin, are too difficult to
The risk /difficulties with options make money with.
It seems these disappointing observations about option Based on the short analysis presented here, it seems
trading are shared by authors of other studies too. like the best approach for retail traders to profit with
A December 2022 report titled “Losing Is Optional” is options is to have the following in place:
quite blunt about it: “Retail [option] investors display a trio
of wealth-depleting behaviors: they overpay for options 1. First, have a very good stock-picking system, and
relative to realized volatility, incur enormous bid–ask 2. Use those stock signals to just buy put or call options
spreads, and sluggishly respond to announcements [which that exit before time decay erodes all of the profits
they might use to profit from volatility spikes].” (that is, using strategy 1 described above).
In 2022, financial analyst Larry Swedroe wrote an
article titled “How Profitable Is Retail Options Trading?” Despite the allure of bigger potential profits by in-
and is just as skeptical. He writes, “Retail investors… corporating short option positions in your strategy, the
are uninformed amateurs who act more like gamblers in margin requirement seems to kill most profit opportuni-
casinos. … Their option trading is highly unprofitable… ties. Which is why I believe that chapter 1 of any book
but highly profitable for the wholesalers making markets on options should be: “Margins and time decay.”
in the options and paying for the order flow.” About
this order flow payment problem, a March 2023 paper Gregory Aharonian is founder of KukaXoco Finance, a
published out of the London Business School concludes: startup that works with growers of coca leaf, cannabis,
“Retail investors prefer cheaper, weekly options, with the cacao, coffee, and caña in Colombia, most with limited
average bid–ask spread of a whopping 12.6%, and lose financial resources, to assist them with leveraging their
money on the average.” crops for extra income. He can be reached at greg.aha-
Are shorter-term options better for retail traders? Maybe ronian@kukaxoco.org.
not. Here’s an April 21, 2023 headline from Bloomberg:
“Day Traders Lost $358,000 Per Day Gambling On
Zero-Day Options.” Continued on page 23
How about bull call/bear put spreads?

There is at least one type of option strategy that doesn’t
require margin for the short position. This is the bull Are shorter-term
call or bear put (vertical) spread. The bull call spread,
for example, consists of one long call with a lower strike
options better for retail
price and one short call with a higher strike price, for traders? Maybe not.
the same stock and same expiration date. It limits both
Futures For You
INSIDE THE FUTURES WORLD
Want to find out how the futures markets really work? Carley Garner is
the senior strategist for DeCarley Trading, a division of Zaner, where she
also works as a broker. She has written five books on futures and options
trading, with the latest being Trading Commodity Options...With Creativ-
ity (July 2020), as well as A Trader’s First Book On Commodities (third
edition, October 2017) and Higher Probability Commodity Trading (July
2016). Garner also authors widely distributed e-newsletters; for a free
subscription, visit www.DeCarleyTrading.com. To submit a question, email
her at info@carleygarnertrading.com or via www.DeCarleyTrading.com.
Selected questions will appear in a future issue of S&C.
Carley Garner
COMMODITY PRICES AND INFLATION used to transport nearly all goods argue the index overstates inflation
What is the relationship between we consume or utilize daily. Further, due to the noted flaws, we could also
commodity prices and consumer these products are needed to heat argue that it understates it due to
inflation? and cool our homes, which much of the weighting of its components. In
Consumer inflation is generally the population considers a necessary economics, nothing is simple; it is an
measured by the Consumer Price burden to bear. Similarly, the bulk art, not a traditional science.
Index (CPI) issued by the Bureau of the food we consume is tied to During the commodity boom that
of Labor Statistics (BLS); CPI is a grain prices; soybeans and corn spanned from about 2003 through
weighted average of a set basket of traded in the futures markets are 2008, the US BLS reported an 83%
goods and services the BLS deems used for livestock feed, and wheat is increase in crops, a 26% increase
to be representative of consumer a primary ingredient in most cuisines. in animal slaughter & processing,
spending. Although this is the most Thus, it makes sense to assume that a 232% increase in oil & gas,
common benchmark, it is somewhat higher commodity prices will lead and a 34% increase in dairy via
flawed. For instance, it doesn’t to a higher CPI, and it does. But it the respective components of the
account for changes in the quality probably doesn’t move the CPI needle Producer Price Index. Yet, during the
of goods purchased, it doesn’t as much as we would expect it to. same period, the CPI increased by just
consider differences in spending 19.70%—an abnormally large figure
habits between households, it does but reasonable after considering
not measure price changes in regional There is a widespread the commodity bubble. Analysis
or rural areas, nor does it address belief that commodity suggests that only energy prices
substitutions. Because of these issues, prices are at the heart have a considerable impact on CPI
it is believed to overstate annual inflation; thus, even large increases
inflation by about a percentage point.
of inflation. and decreases in the prices of crops,
For those consumers who are able and animal slaughter and processing,
willing to adjust their purchase habits This is because the CPI consists and dairy, do not necessarily alter
according to pricing, the CPI might of items such as apparel, medical the CPI in a meaningful manner.
be even more overstated. In other care, shelter, education, and new or This is ironic, because we witnessed
words, demand for most products is used vehicles. The diversification grains like corn and soybeans soar
elastic. If beef prices are high, pork of the index is designed to mitigate unreasonably higher in the early
or chicken might be a viable protein delivering sticker shock to the public, 2020s as speculators and investors
substitute. If bread and grain products and it is successful at doing that. bid up prices with aggressive inflation
are expensive, bananas are cheap and But it also seems to mask what is hedges.
full of healthy carbs. really going on when it comes to Although it isn’t something many
With all of that said, there is a squeezing the consumer. After all, like to admit, inflation is, to a certain
widespread belief that commodity most consumers refrain from buying degree, a self-inflicted wound. As
prices are at the heart of inflation. new clothes or a new car when things prices increase, consumers panic
This is because energy products are tight, but shelter and food are and hoard assets and commodities.
such as crude oil and gasoline are non-negotiable. Thus, while we can Similarly, in the futures markets,
Futures For You
speculators and investors scramble to the CPI reversal. Yet, although the
buy commodities such as crude oil, CPI has slowly made its way lower Although it isn’t
gasoline, corn, and the like to hedge in recent months, the commodity something many like to
inflation. As you can imagine, these markets are showing signs of deflation
human reactions intensify an already rather than inflation. Speculator admit, inflation is, to a
challenging situation. liquidation and the running off of certain degree, a self-
In fact, it seems as though the hoarded cash market inventories inflicted wound.
underlying commodity markets during the boom have left prices
outpace actual inflation in both below the production cost in some
directions. We saw this in the early arenas. The good news is this should is flawed, even a corrected version
2000s and again in the 2020s; keep some downward pressure on would likely reveal similar results.
commodities lead the way higher and prices at the consumer level. The In short, lower commodity prices
lower with intense volatility while bad news is, despite conventional are a good start, but it isn’t a magic
the CPI quietly trails behind. In the wisdom, commodity prices haven’t wand against inflation.
latest cycle, commodity indices such historically been the primary driver
as the Bloomberg Commodity Index of CPI inflation (or deflation). While
peaked in June 2022, in line with it should be recognized that the CPI
AHARONIAN/OPTION DATA tion Trading And Earning Announcement Volatility,”

Continued from page 21 SSRN Report 4050165. Retrieved from: https://papers.
ssrn.com/sol3/papers.cfm?abstract_id=4050165
Swedroe, Larry [2022]. “How Profitable Is Retail Op-
FURTHER READING tions Trading?” June 17. Retrieved from: https://
Aharonian, Greg [2023]. “What I Learned When I www.evidenceinvestor.com/how-profitable-is-retail-
Looked At Minute-By-Minute Stock Option Data, options-trading
Part 1,” Technical Analysis of StockS & commodi- Bryzgalova, Svetlana, et al. [2023]. “Retail Trading In
tieS, Volume 41: June. Options And The Rise Of The Big Three Wholesalers,”
Garner, Carley [2014]. “Strangling For Profits?,” Futures London Business School, March 23. Retrieved from:
For You, Technical Analysis of StockS & commodi- https://papers.ssrn.com/sol3/papers.cfm?abstract_
tieS, Volume 32: January. id= 4065019
Kaeppel, Jay [2023]. “Bull Call And Bear Put Spreads: Wang, Lu [2023]. “Day Traders Lose $358,000 Per Day
Filtering For Trend And Liquidity,” Explore Your Op- Gambling On Zero-Day Options,” Bloomberg, April
tions, Technical Analysis of StockS & commoditieS, 21. Retrieved from Yahoo News: https://finance.ya-
Volume 41: March. hoo.com/news/day-traders-lose-358-000-134503874.
Santa-Clara, Pedro, and Alessio Saretto [2004]. “Option html
Strategies: Good Deals And Margin Calls,” UCLA, Naranjo, Andy, et al. [2023]. “Betting On Elusive Returns:
November. Retrieved from: https://escholarship.org/ Retail Trading In Complex Options,” University of
content/qt0499w44p/qt0499w44p.pdf Florida, April 17. Retrieved from: https://papers.ssrn.
Coval, Joshua, and Tyler Shumway [2001]. “Expected com/sol3/papers.cfm?abstract_id=4404393
Option Returns,” The Journal Of Finance, June 2001.
Retrieved from: https://www.jstor.org/stable/222539
Do, Binh, and Robert Faff [2012]. “Are Pairs Trad-
ing Profits Robust To Trading Costs?” Journal Of
Financial Research, June 2012. Retrieved from:
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-
6803.2012.01317.x
da Silva, Tim, et al. [2022]. “Losing Is Optional: Retail Op-
Mitigating Risk By Balancing Positions
Hedging In Swing Trading

Hedging is a good way to beat the challenge of watching traders to capture larger price movements than do day
a potential gain slip away. You can use a countertrend traders, who typically close their positions at the end
trade to hedge. Here’s an example using swing trades of each trading day. Swing traders can hold positions
in cryptocurrencies. overnight and over weekends, which allows them to profit
from longer-term price movements. However, swing
by Azeez Mustapha trading comes with its challenges. It can be painful for
S
swing traders to watch the market move against their
wing trading is a popular approach to trading predicted direction for a very long period. The retrace-
that involves buying and holding an asset for ments can make some traders very emotional, leading
a period from a few days to (usually) a few them to make errors in judgment.
weeks in order to profit from price movements. Retracements, also known as pullbacks, are a com-
Swing traders aim to capture the “swings” or mon occurrence in trading, and they can be difficult for
fluctuations in an asset’s price as it moves up traders who are not prepared for them. A retracement
and down. is a temporary reversal in the direction of an asset’s
Swing traders use technical analysis to identify price price movement, which can occur after a significant
trends and patterns in the market, such as support and price trend.
EAMESBOT/SHUTTERSTOCK
resistance levels, moving averages, and chart patterns. The pain felt by traders during retracements stems from
They use this information to determine the entry and a few different factors. First, retracements can result in
exit points for their trades. losses for traders who have open positions in the asset
One key advantage of swing trading is that it allows that experiences the pullback. This can be particularly
TRADING METHODOLOGY
timeframes such as
the four-hour or one-
hour chart. These
shorter-term trends
can be influenced
by news events, eco-
nomic data releases,
or other short-term
factors that may not
have a significant
impact on longer-term
trends.
W hen different
TRADINGVIEW
timeframes show dif-

ferent trends, it can
FIGURE 1: HEDGING DURING A RETRACEMENT. This shows a daily chart of bitcoin/US dollar (BTCUSD). A long position trade create trading op-
was taken around the start of July 2022. The asset ascended then consolidated throughout August. The 5-period and 8-period portunities for traders
moving averages crossed to signify a retracement on the higher timeframe and a reversal on the lower timeframe (see Figure who use a multi-time-
2). A hedging trade was taken in September. frame analysis ap-
proach. For example,
difficult for traders who have taken on leverage or who a trader might identify a long-term bullish trend on the
have a significant amount of capital invested in the weekly chart and look for short-term buying opportuni-
position. ties on the daily or four-hour chart.
Second, retracements can cause emotional distress The moving average cross is a popular technical trading
for traders, particularly if they have a strong bias or at- strategy that involves using two different moving averages
tachment to a particular asset. The fear of losing money to identify potential buy and sell signals. This strategy is
or missing out on potential profits can cause traders to based on the concept that when a shorter-term moving
make irrational decisions or hold onto losing positions average crosses above a longer-term moving average, it
for too long. can signal a buy point, and when a shorter-term moving
The hedging approach is a good way to beat the chal- average crosses below a longer-term moving average, it
lenge of watching a potential gain slip away. can signal a sell point.
Using hedging to contend with Examples of hedging

retracements To explain the usefulness of using a hedging approach,
Hedging is an approach used to reduce the risk of poten- I’ll provide two scenarios.
tial losses by taking an opposing position to an existing
investment. This approach is also applicable in crypto Example 1: Hedging during a retracement
trading, where traders often use a variety of hedging The first example is a successful and profitable trade
techniques to minimize their risk exposure. in bitcoin (BTCUSD) (Figure 1). In July 2022, a long
It is common for an asset to have different trends on position trade was taken. (Longer than a swing trade, a
different timeframes. For example, an asset might be in position trade can last for weeks to months or more.) The
an uptrend on the daily chart but in a downtrend on the
four-hour chart. This can happen because different time-
frames represent different levels of market participation
and can have different types of traders and investors. Hedging is an approach used to
For longer-term trends, traders often look at higher
timeframes such as the weekly or monthly chart. A reduce the risk of potential losses
longer-term uptrend on these higher timeframes may by taking an opposing position to
indicate a strong bullish bias, while a downtrend may an existing investment.
indicate a strong bearish bias.
For shorter-term trends, traders often look at lower
trade was entered just
before the start of July.
During this trade, the
trader might have felt
stressed since first
executing the trade,
since it took almost
a month before the
asset started ascend-
ing in the direction
of the trade from
the demand (support)
level. The market con-
solidated all through
August. The faster
moving averages (pe- FIGURE 2: HEDGING DURING A RETRACEMENT. This shows the BTCUSD trade from Figure 1 on a lower timeframe, a four-hour
riods 5 and 8) crossed chart. The market retraced with a 20% drop. The trader could take advantage of this retracement by using a hedge trade here.
to signify a retrace-
ment on the higher timeframe and a reversal on the A trader who hedges must have good countertrading
lower timeframe. skills. Traders entering a countertrend trade must never get
After an impulsive move at the end of August, the market greedy. Since overall, the market usually has an upward
was ready for a correction. The trader took advantage trend and would be expected to rise over the long term,
of the retracement. Since no trader is 100% certain of the trader should use the closest support or demand level
what the market will do, it is best to maximize gains as as the place to close short trades. The trader could also
well as risks properly. close the stop-loss and take off 80% of the trade and level
Retracements in the market are potential reversals. the rest to run in case of a complete reversal.
Apart from the stated cross of the moving averages, other In this example scenario, which was a profitable and
confirmations such as chart patterns can be used to iden- successful trade that eventually fulfilled the trader’s
tify a retracement or reversal. Here, a head & shoulders expected outlook for the first trade, the hedge that was
was spotted. For many traders, the consolidation and taken increased the trader’s profits and also saved the
reversal might make their stomach churn because of the trader from the emotional stress of the retracement.
fear of losing their gain. Instead of panicking, a hedged Figure 2, a four-hour chart of BTCUSD, shows the
trade was taken in September. This hedge allowed the trade on a lower timeframe. The market retraced with a
trader to watch his profit increase in another trade as the 20% drop. A trader who hedges would take advantage
retracement reduced his gain in the first trade. of this retracement.
The signal for this trade is as follows:
Example 2: Hedging during a reversal
Stop-loss: 12526.24 The second scenario is the situation of a failed trade or
Entry: 11823.91 a complete reversal in the market. Say the trader has
Take-profit: 914.53 a bullish bias toward Ethereum (ETH) and expects it
to rise. The market did rise for a short period. While
the trader must have been very excited about this, a
retracement eventually kicked in. The trader might hold
When different timeframes show and wait for a continuation of the bullish ascent. But
ultimately, the market reversed and the trade became
different trends, it can create a loss.
trading opportunities for traders While losses in trading are inevitable, there are ways
who use a multi-timeframe to mitigate such losses. One good way to mitigate losses
analysis approach. is to hedge.
See Figure 3, a four-hour chart of ETHUSD. After the
cross of the moving averages (periods 5 and 8) to signify
risks associated with
the hedged positions.
This involves assess-
ing the potential risks
that may arise from
the positions taken in
the hedging strategy,
as well as the poten-
tial losses that may
result from adverse
price movements.
Risk management
is essential in hedg-
ing since hedging
involves taking active
FIGURE 3: HEDGING DURING A REVERSAL. This shows a four-hour chart of Etherium/US dollar (ETHUSD). This time, a retracement positions to offset po-
turned into a complete reversal, and the first trade became a loss. After the cross of the 5-period and 8-period moving averages tential losses in other
to signify a retracement (or a potential reversal as it is here), the trader entered short at the break of the previous resistance, active positions.
which may turn into support. This counter trade saved the trader from the loss on the first trade. Overall, risk man-
agement is crucial
a retracement (or a potential reversal as it is here), the in trading. Investors need to protect themselves from
trader entered short at the break of the previous resis- potential losses. Using hedging approaches such as
tance, which ought to turn into support. The gain made countertrend trades can help traders to manage their
from the shorts is sufficient to make up for the trader’s portfolios and manage risk. Then, investors can focus
incorrect outlook that led to a failed trade. In this case, on achieving their investment goals without being overly
the trader doesn’t have anything to lose because of the exposed to potential risks.
small gain made from the counter trade.
The signal for this trade is as follows: Azeez Mustapha is an analyst at Instaforex Companies
Group and a blogger at Advfn.com, and as well as a
Stop-loss: 1321.39 freelance author for various trading publications. He
Entry: 1294.72 is a trading signals provider at some websites. He can
Take-profit: 1242.81 be reached via email at azeez.mustapha@analytics.
instaforex.com.
If the trader had left 20% to run after closing the major
part of the trade and closing the stop-loss, there would ‡TradingView
have been even more gain. ‡See Editorial Resource Index
While other traders may distress over the losing trade
in this scenario, a trader who hedges would be counting
his small gain, or he would at least be flat on the trade.
It is important to close countertrend trades at the closest
key level because the market can utilize such key levels
to continue the major trend.
This hedge allowed the
Managing risk trader to watch his profit
Hedging is an approach that can help investors protect increase in another
their investments from price fluctuations or other unfore-
seen events that could result in significant losses. However,
trade as the retracement
the investor still needs to use their usual risk management reduced his gain in the
techniques to help protect their hedged positions as well first trade.
as their primary positions. The purpose of risk manage-
ment in hedging is to identify, measure, and manage the
INTERVIEW
Trader, Author, Educator, Founder of AlphatTrends.net
A Conversation With
Brian Shannon
Brian Shannon, CMT, has been in- Technical Analysis Using Multiple
volved with Wall Street for over three Timeframes (2008) and Maximum
decades. He began watching the TV Trading Gains With Anchored
show Wall $treet Week With Louis VWAP (2023). Shannon believes
Rukeyser with his father before dip- that multiple timeframe analysis is
ping his toe into the market at age 13. one of the keys to finding low-risk,
At age 15 he saw his money double high-probability trade candidates.
over a few months when he started The other is focusing on price
stock-picking. That dual experience movement using the volume-
was instrumental in propelling him weighted average price (VWAP)
into the investment arena. coupled with the anchored VWAP,
After graduating from Merri- which is detailed in his latest book.
mack College with a BA in business In 2010, he expanded his focus
management, he worked for a small by launching the website Alpha-
brokerage firm before landing as a trends.net, providing stock trading
stockbroker at Lehman Brothers in education to traders and swing
Boston. While at the firm, he was trading ideas to subscribers.
exposed to technical analysis, which Over the years, Shannon has To make money in the
he quickly discovered was a valuable made appearances on broadcast markets, you must
tool for analyzing the market and TV, provided educational sessions
selecting stocks. at industry events, and is a frequent
understand the cyclical
In 1992, he changed firms to work guest on various YouTube channels. flow of money before
at Tucker Anthony, and then moved He enjoys presenting his approach doing any other analysis.
to Denver and switched to Dain and advocating for a rules-based This is the bedrock of
Bosworth for four years ending in approach to trading. His anchored what I do.
1998. Shannon was lead trader and VWAP is currently available on
director of research at MarketWise over a dozen platforms including
Securities from 1999 to 2006, where TC2000 and TradingView. Shan- about his three decades of market
his focus was providing technical non can be reached at support@ experience, his technical trading
analysis training and education to alphatrends.net. approach focusing on VWAP and
individuals. Around that time he Stocks & Commodities contrib- anchored VWAP, his approach to
began blogging educational posts uting writer and ETF columnist Les- using charts that focus on price, the
about trading. lie N. Masonson interviewed Brian key psychological aspects of trading,
Shannon is the author of two books: Shannon via email in April 2023 and his books.
Did you have any interest the stock market was the reason that At Lehman, you learned about
in the stock market prior I got into the career that I did. My technical analysis. Did you have
to entering the financial interest began when I was about 15 any mentors at the firm?
PESHKOVA/SHUTTERSTOCK
arena as a stockbroker years old and I made my first trade Yes, I was fortunate enough to
at Lehman Brothers in in LoJack stock. The stock doubled work for the top-producing broker at
Boston in 1992? in a short period of time, and I was Lehman. He was successful because
Yes, an early interest in hooked from that point on. he made money for his clients. He
bought the stocks of companies that would buy a stock expecting it to go individual stocks. I do daily analysis
reported better-than-expected earn- higher and if it didn’t, I would think of ETFs but do not provide specific
ings and were backed up by a strong the market was wrong, not my opin- detailed trade plans for them. The
chart pattern. ion of what should happen with the reason is that I want to encourage
stock. But now, I never argue with the investors to use the educational
After leaving Lehman and working market. As soon as the market gives concepts I provide for the ETFs and
at four other firms, did you continue me feedback that my idea is wrong to trade them in the timeframe they
your fundamental and technical and I’m losing money, I cut the trade prefer. Once in a while, when an
analysis education? immediately, no questions asked. ETF shows up as a strong setup, I do
Of course; I’m still learning to this provide swing trade ideas.
day. I keep my fundamental analysis In 2010 you started Alphatrends.
very simple. Basically, I want to know net. What were the goals you had Do you personally trade regular
two things. First, I want to know if the in mind? or leveraged ETFs in your own
revenues are increasing, and second, My goal with launching Alpha- account?
I want to see an increase in earnings trends.net was to help other traders Yes, I trade both, mostly when the
as well. With technical analysis, I’ve avoid many of the mistakes that I market is in a downtrend because I
pretty much refined my technique. I’m had made and teach them how to find it easier and less stressful to gain
always open-minded to new ideas, objectively identify trade candidates. short exposure with the ETFs than
but after 32 years of trading, I know We also help traders establish a risk- through individual equities.
what works for me. reward plan and to follow through
on that plan. Can you briefly explain when you
What was your goal in writing were introduced to volume-weighted
Technical Analysis Using Multiple Initially, your site focused solely average price (VWAP) and how it
Timeframes in 2008? on financial education, but it has is calculated?
The goal of that book was to help evolved to provide swing trade ideas In 2003 I noticed a chart setting
others realize how multiple time- and twice-a-day market commen- for the VWAP on Realtick software.
frame technical analysis could be tary. Do you have plans to add any I didn’t know what this indicator was
used together for lower-risk, higher- more content to the website? And but after a short while it made sense.
probability trades. who are your typical subscribers? The calculation is similar to dollar
Alphatrends has always been cost averaging. It is the total dollars
How do these timeframes comple- educationally focused and continues traded for each transaction (price ×
ment each other in your work? to be so. My goal is to help others volume) divided by the total shares
Everything I do is based on the develop the strategies that make the traded. It builds from the first trade
concepts of trend alignment. I need most sense for their personality. It is of the day and continues through
to identify the larger timeframe to never my intent to tell people what to the close.
find my trade candidates. I use the do but instead to help them be better
intermediate-term timeframe to at what comes natural to them. The Are institutions heavy users of
establish my risk-reward plan. The typical subscriber has had success VWAP?
shortest timeframe is used to fine- in a different area of business and In his testimony to the US Con-
tune my entry and then to manage wants to conquer the challenge of gress in February of 2021 during
risk in the trade. the stock market. the hearing on trading in GameStop,
Ken Griffin stated that, “Virtually all
What were your biggest trading On your website you provide about trades executed by institutional inves-
mistakes in your early years? Have a dozen tickers of swing trade ideas; tors are in the form of program trades,
you overcome all of them? however, after reviewing multiple such as VWAP and other algorithm
Early on, my biggest mistake was days of recommendations, I haven’t trades.” Griffin’s firm, Citadel Trad-
that I thought the market traded based noticed any ETFs. Is that because ing “…executes approximately 35%
on logic. I thought that you could you only focus on stocks and not of all US-listed retail volume, making
simply buy a good company and ETFs? us the industry’s top wholesale market
hold on. Buy and hold is what I was When it comes to laying out a maker.” In 2023 Ken Griffin made
taught. I wish I never learned that. I trade plan I focus on the action of the $4.1 billion, the most of any hedge
TC2000
FIGURE 1: VOLUME-WEIGHTED AVERAGE PRICE (VWAP). A daily and 30-minute chart of Squarespace are shown with the VWAPs clearly displayed. The green
dot shows where the ideal purchase would be made as it breaks above the consolidation zone.
fund manager in history. I will take mand shock like this, it is a valuable human involvement to really succeed
his word for it! place to set an anchor, particularly with the tool. I am sure there are some
with a fundamental event. After the programmers out there who could test
Figure 1 shows a VWAP chart of first couple days of volatility, the various VWAP strategies. I have seen
Squarespace. Can you explain what stock settled under anchored VWAP firsthand how well they help identify
we’re seeing in the chart? (AVWAP) from the earnings (blue key levels in the market; a backtest
The company reported earnings line). The green dot shows where would not increase my confidence.
in early March 2023 and the stock the ideal purchase was made as it
gapped up on strong volume. This broke above the consolidation zone When and why did you develop the
move took the stock past resis- and made a higher high above the anchored VWAP?
tance that had been in place for the earnings AVWAP. Once in the trade, I did not develop the anchored
prior eight months. The chart using the initial stop goes under the “most VWAP; the credit goes to the late
30-minute candles on the left is recent and relevant higher low” in- Paul Levine. His work began with
constructed with daily candles and dicated by the black arrow. As the it in 1992. My personal experience
on the right is the reaction from the stock progressed higher, the job is to began in 2003 when I had access to
earnings gap. raise stops up under the successive the standard VWAP (one-day) on
On the daily chart there are three higher lows. RealTick software. I learned how to
simple moving averages (SMAs): manipulate the software so I could
20 (red), 50 (blue), and 200 (black). Did you perform any backtests on see it for more than one day, but it
When the stock cleared resistance and VWAP to see if its performance was cumbersome. In 2015, at a trade
all these moving averages, it indicated over time compares well to other show, I spoke to Michael Thompson
buyers had taken control of the longer- indicators or moving averages? of TC2000. We discussed using their
term trend. Of course, there was no All my experience with VWAP/ software in my YouTube videos. I told
way to know if they would maintain AVWAP comes from real-life trad- him that if TC2000 could create a
in control, but it is the type of stock ing. I do not have the mindset of a point-and-click anchored VWAP that
to take a closer look at. backtester, and with the subjective I would switch to their program. A
The 30-minute chart shows the nature of where to anchor the VWAP, couple of weeks later, they showed
price action after the earnings were it does not always lend itself well to me a beta version and it was flaw-
released. The stock gapped up, and backtesting. I personally find comfort less! This is when I could finally use
anytime there is a large supply/de- in that because it shows the need for AVWAP on my charts with ease. In
reaches that level.) This buy point is
indicated by the green dots. Because
we purchase when buyers are back
in control, we then have a logical
place for our stop, below the most
recent higher low, indicated by the
blue arrows.
This purchase allows us to elimi-
nate the guesswork of when buyers
are in control. A purchase here puts
us in a position of strength from the
start. A purchase at this level also
gets us in ahead of the “breakout”
buyers who wait for the prior high
to be overcome.
FIGURE 2: ANCHORED VOLUME-WEIGHTED AVERAGE PRICE (AVWAP). This daily candle chart cover-
ing 1.5 years shows several AVWAPs from significant swing highs in the stock’s uptrend. The buy point is Isn’t the volume data represented
indicated by the green dots. The purchase is made when buyers are back in control. A logical place for setting on a chart only a portion of the
a stop is below the most recent higher low, indicated by the blue arrows. actual volume traded, as there
are many exchanges that handle
the next year of using AVWAP on that has always bothered me because transactions?
TC2000, I learned more about how it assumes the stock will continue There are rules about reporting
it works than I did in the 12 prior higher. Further, it does not allow all data to the primary exchange
years on RealTick. us to have a logical exit level if the so eventually it is all represented
stock does not reverse. When you in the chart. The bottom line is, we
What are the m ost com m on buy the dip, it exposes the account never know for sure how people are
anchor points, and is any one more to too much risk. positioned in the market—they may
important than any other one? It is better to buy strength after be hedged with options, convertibles,
I describe the best anchor points the dip. The chart shows several swaps, or whatever… If you have a
as areas where there is a clear shift AVWAPs from significant swing data package with the composite tape,
(often sudden) in the supply and highs in the stock’s uptrend. Up un- then you have the same information
demand dynamics for a stock or til the last pullback, the dip buyers that other people make their decisions
market being studied. Some of the would eventually have been correct, on, so it is the best resource available.
best anchor points occur when there but they would have to experience Nothing is infallible, which is why
is a fundamental catalyst such as an large drawdowns unless they were risk management is the cornerstone
earnings report or a Federal Reserve somehow lucky enough to purchase of any profitable market approach.
meeting. Some of my other favorite the exact low.
anchor points are the first trade of Rather than buy during the uncer- I understand that you don’t use
an IPO, price gaps, swing highs and tainty while prices declined, it is bet- volume as a timing tool but rather
swing lows. I also like time-based ter to buy when we know with 100% more as confirmation or rejection
anchors such as week-to-date, month- certainty that buyers had regained of price direction. Is that right?
to-date, and year-to-date. control. When the stock is able to For me that is true. The typical
climb back above the AVWAP from pattern we want to see for volume is
Could you provide another chart the prior peak, it tells us the average for it to expand in the direction of the
example, this time with a few buyer, since that high is now in a trend, peak at near-term turn points,
different AVWAPs and how to winning position. At the same time, and then diminish on retracements.
interpret them? the average short seller is in a los- The AVWAP takes the subjective re-
Figure 2 is constructed with daily ing position. This shows the supply/ lationship between price and volume
candles for a period of approximately demand shift has taken place and we and tells me with 100% certainty
one and a half years. We have all then want to buy at the cross point who has control from a certain start
heard the mantra “buy the dip” but (as long as it is not extended as it point. This helps make more objec-
Yes, it took a long time. included the anchored VWAP in their
Fortunately, I wasn’t writ- program. I am humbled to say that
I am a trend trader, so I ing every day. I wanted to many of them refer to it as the “Al-
want to be certain that the make sure it was a defini- phatrends anchored VWAP” as a nod
trend is in my favor in all tive guide to trading with to my work in helping show the value
anchored VWAP, and that of the tool (and because I constantly
timeframes. goal was met. Most of badgered them to add it.)
what I have written about
came as a result of me us- On your website and in your
tive decisions about the timing, which ing these techniques every day with YouTube videos and Twitter posts,
ultimately leads to more profitable my own money. Writing a book is a you use only a single chart style
trade results. long-term project, which is in stark over a few timeframes with a few
contrast to my preferred swing trade moving averages, volume, VWAP
In your recently published book timeframe for trading. Therefore, I and AVWAP. Why have you not
Maximum Trading Gains With had to develop a more patient mindset added another chart style with more
Anchored VWAP, you cover in to get it done. traditional technical indicators
detail the workings of and benefits such as Bollinger or Keltner bands,
of using AVWAP. What benefit do In a six-page appendix in the book, MACD, RSI, stochastics, or ADX to
you expect the average reader to you mention the four stages of use as confirming indicators?
gain by reading your clearly written, market structure that are based I am a big proponent of each
heavily illustrated book with easy-to on Stan Weinstein’s stage analysis person doing what works best for
read color charts? technique. How is that integrated them. I like to remind people to
1. To understand why the anchored into your analysis? “make the trade your own!” I have
VWAP is the most objective To make money in the markets, you looked at all the popular oscillators
and powerful measurement of must understand the cyclical flow of and indicators over the course of
supply and demand from any money before doing any other analy- my career and what always makes
point. sis. This is the bedrock of what I do. sense for me is simplicity. Someone
2. To learn why and how institu- I am a trend trader, so I want to be once told me, and I completely agree,
tions use AVWAP programs to certain that the trend is in my favor in “Simplicity is the market’s greatest
gain confidence in the supply/ all timeframes. Briefly, I use a longer disguise.” My simplicity comes from
demand clues they leave. term (weekly or daily timeframe) to looking at the three most important
3. To provide specific strategies identify the primary trend. I then look variables in the market, price, time,
that will help them to make bet- to a 65- or 30-minute timeframe to and volume. It is no coincidence that
ter timed entries into trends; to prepare my trade plan, taking into ac- the AVWAP is determined by these
determine where to set stops on count my assessment of risk-reward. three components.
a trade to protect initial capital The final timeframe is the short term,
and lock in profits. and it is not always the same. If I can Price—the final arbiter; only price
4. To provide examples where find clarity on a 15-minute timeframe, pays!
trades did not work and how then I will use that, and buy more Volume—gives us clues about the
to handle them. Most books liquid names. Moreover, I might go urgency of buyers and sellers.
focus only on winning trades; down to a 2- or 5-minute timeframe Time—the subjective element in
I wanted to show that losing to fine-tune my entry. AVWAP. The key is to identify the
trades are a part of the business times where supply and demand
and that you need to plan for Anchored VWAP is now available shocks occur so that crowd behav-
them as much or more than for on at least a dozen platforms. ior is measured and price memory
the winners. Doesn’t that validate your work on is determined.
its real value for market analysis?
In 2016 you were talking about Absolutely. TC2000 was the first Your focus is primarily on price
writing a book on anchored VWAP. to add “anchored VWAP by Alpha- action and then secondarily on
How long did it take to write such trends” in 2015 and since then, most volume. Is the reason you don’t use
a comprehensive book? of the major charting platforms have too many indicators because they
mostly lag price? for the unexpected event
Everything is lagging, includ- to occur?
ing AVWAP; there is nothing that I always have a risk Traders need to be open-
can predict the future accurately. management plan in place, minded to immediate price
Fundamental analysis and technical which includes setting stop-
analysis share this trait; it is all back- loss orders and using proper
feedback from the market
ward-looking. We make projections, position sizing. Addition- and a willingness to accept
anticipate how other participants will ally, I stay informed about being wrong.
act at key inflection points, and then news events and market
wait for price to confirm our thesis developments that could
before we buy or sell. After that, the impact my trades, so that I am able a flat/advancing 5-DMA I get
focus switches to risk management, to react quickly and make informed ready to buy. I set alerts on the
protection of capital base, and locking decisions. stock just ahead of the price
in profits along the way. that I think I want to own it at,
In 2013, you received the Chartered and when the alert is triggered,
You provide a Monday webinar Market Technician designation. I watch it closely on a shorter
to subscribers providing market Why did you find the need to take timeframe.
insights on the major indexes that exam, as you were established 4. I then purchase the stock as it
and trade ideas. How useful have at that point and well-known? makes a short-term higher high
subscribers found that market The CMT Association is the largest above the consolidation zone
insight? and most widely respected techni- (not the prior high) if the stock
Many members tell me it is the most cal analysis organization. It was my did not have to expend a lot of
important part of their subscription intent to rise to the top of this field energy to get to that breakout
because the real focus of that session and the designation provided me point.
is not only on the markets and action with a professional recognition that 5. I set my initial protective stop
of individual stocks, but education. I value. I believe that learning about based on the definition of trend.
These sessions are designed to clarify the market is a continuous process It goes under the most recent
any concepts that might not be clear and earning the CMT designation and relevant higher low.
and to get live feedback with real was an opportunity for me to further 6. Once the stock begins to move,
market examples. It is an opportunity enhance my knowledge and skills in I will look for a place to reduce
to make the learning more personal- the field. I want to challenge myself my risk by selling one-third of
ized one on one at a time. and stay up to date with the latest the position.
developments in the industry. 7. I continue to hold the stock if
Do you recommend that investors the definition of trend for my
and traders use hard stop-losses to What specific market conditions timeframe still exists. I manage
limit their losses? If so, where do you must line up for you to recommend this by raising the stop up under
suggest the stops be placed? going long? the higher lows as the short-term
Absolutely! Risk management is 1. The stock must be in an uptrend develops.
always job number one. For me, as trend on the daily and weekly
a trend trader, it is simple to identify timeframes. That is defined as Which charting software and
where to set my stop. It is always being above the rising 50- and screening platform s do you
based on the definition of trend. I 200-day moving averages, at a currently use?
raise my stops up under “the most minimum. There are so many good ones
recent and relevant higher low” for my 2. The stock has pulled back from out there to choose from. My main
timeframe in long trades. For shorts, a recent leg higher and begins charting software is TC2000. They
it is the opposite: The stop gets set to digest the gains through were first to implement the anchored
above “the most recent and relevant sideways consolidation. This VWAP as a point-and-click tool, and
lower high” for the timeframe I am is when I prepare for my pur- they continue to make improvements
engaged in. chase. to their already excellent program.
3. When the stock is just about For a “fundo-technical” approach,
As a trader, how do you prepare to make a higher high above I like to use Market Smith from In-
trend is for the targeted but successful trading requires a level
stock, as well as the trend of head and a good bullshit detector.
I never argue with the the market (for position siz- The abundance of information allows
market. As soon as the ing). It should also include people to find more specialized infor-
a clear identification of the mation that can help them be better at
market gives me feedback expected timeframe for techniques. The real problem might
that my idea is wrong and the trade. The plan should not be the availability of so much
I’m losing money, I cut the include a well-defined entry information, but a lack of wisdom
trade immediately. and exit plan that includes on the part of both the provider and
the possibility of a loss. consumer of the information.
Once in the trade, there
vestor’s Business Daily. Their charts needs to be a clearly defined way to Do you believe that the average
include key fundamental data that I manage the stops to ensure profits investor should use exchange traded
can look at quickly to help me with are not allowed to slip away. funds instead of trying to pick
position sizing. stocks, since there is now a universe
What are your rules for avoiding of 3,000 ETFs that provide a wide
I don’t see any relative strength big drawdowns and staying on the array of choices and provides more
analysis or money flow in your work. right side of a bear market? diversification?
Is that because you feel they do not I accept that it is more difficult ETFs are one of the most important
offer useful information? (for me) to make money in a bear financial products invented. They can
I look for absolute strength. To me market. I trade smaller and keep very be useful tools for those who are new
it makes sense to take each trade on high cash balances. I tend to keep to investing or prefer a more hands-off
its own merits. When you look at as my timeframes shorter than when approach. ETFs offer a low-cost way
many charts as I do each day (several the market is bullish. I just find bear to gain exposure to a broad range of
hundred), the good ones reveal them- markets difficult to have conviction stocks, bonds, or other assets, which
selves before they become relative in, so I try not to tempt fate and play reduces the impact of an individual
strength leaders. I want to anticipate a strong defense. stock on a portfolio.
where buyers will go and then when Some investors (and traders) prefer
that is confirmed, I participate and What personality traits do you the potential for higher returns from
then manage risk. believe that a self-directed investor individual stocks. It is fun to do the
needs to be successful? work of picking a winning stock!
You describe yourself as discre- Investors should be curious about There is room for both ETFs and
tionary momentum-based trend new techniques but confident when individual stocks in the accounts of
trader. Can you explain what that they find something that works for traders and investors.
means? their mindset. They need to be open-
The market is always changing minded to immediate price feedback You’ve been in the markets since
and morphing in very subtle ways. from the market and a willingness 1991. What are the deadliest mis-
It is important to have some basic to accept being wrong. Discipline takes investors keep making?
rules of engagement and to know is a much-talked-about attribute When they fight the primary trend
when to stay away from the market. for traders and that means knowing and buy a stock because they think it
I use technical analysis to identify when to be patient enough to wait for is “down too much” or short a stock
trends in the market but I also make opportunities as much as it means because it is “up too much.” The
my decisions based on my judgment following rules. other one is to hold onto losing trades
and experience. because their ego will not allow them
Do investors and traders today suffer to accept they were wrong about the
You are a big believer of having from having too much information stock. They might hold onto a stock
a well-thought-out trading plan. coming at them, especially on the because they think the company is a
What are the key components of internet, compared to a decade or good one, but a good company is not
that? two ago? always a good stock.
A trading plan should be simple. It can be easy to get caught up in
It should identify what the primary the hype and frenzy of the markets, Do you believe that the market is
more difficult to trade successfully source of satisfaction and
in the past decade compared to motivation for me.
earlier periods? I’m always open to new
No, just the opposite! One of the We’re in early April 2023; ideas, but after 32 years of
most difficult periods for me in the do you believe that we are trading, I know what works
markets was approximately 2010– in a cyclical bear market
2011, which was about the height in the context of a secular for me.
of the race to zero in the program bull or in the beginning of
traders’ search for speed latency for a new bull run?
HFT programs. That was a frustrat- I don’t really care for any of those S&C Contributing Writer and ETF
ing time. classifications. My interest is to cor- columnist Leslie N. Masonson is
The one thing that has helped rectly listen to the message of the president of Cash Management
me make more sense of the market market, so that I can consistently Resources, a firm focusing on ETF
moves is the evolution of the anchored identify and trade the lowest-risk, strategies. He is an active NASDAQ
VWAP. Being able to point-and-click highest-probability trades l overall futures and ETF trader, and the
anywhere and know with 100% cer- trend. I employ a strict “bottom- author of six books, including Buy—
tainty who has control of the trend up” approach to stock trading and I Don’t Hold: Investing With ETFs
makes my job much easier. I am now believe each trade should be taken Using Relative Strength To Increase
in my fourth decade of full-time on its own merits. During periods Returns With Less Risk, and All
trading, so my experience makes it of heightened market uncertainty, I About Market Timing (two editions).
easier too. respond with smaller position sizes He can be reached at lesmasonson@
and sit with high cash balances. yahoo.com or 845 323-7276.
What accomplishments are you
most proud of? Living in Denver since 1992, what Further reading
I am most proud of the impact I activities do you enjoy engaging Shannon, Brian [2008]. Technical
have had on the trading community in when not focusing on the Analysis Using Multiple Time-
through educating tens of thousands markets? f rames: Understand Market
of traders about the value of the an- I like to take advantage of all the Structure And Profit From Trend
chored VWAP, helping them avoid outdoor activities with my wife and Alignment, Alphatrends Publish-
fighting market trends and introduc- dog. Backcountry skiing has been my ing, LLC.
ing them to the concept of multiple favorite activity the last few years. I [2023]. Maximum Trading
timeframe analysis. I have also helped also like to hike, flyfish, bike, and go Gains with Anchored VWAP: The
people realize the importance of us- to concerts at Red Rocks and other Perfect Combination of Price,
ing equal time periods of study on venues. Time & Volume, Alphatrends
their charts (such as the 65-minute Publishing, LLC.
timeframe versus 60 minutes). With Brian, thank you for sharing your
AVWAP and the five-day moving trading insights, your technical
average, I have seen traders improve trading methodology, and above all,
their performance and profitability your unique contributions related to
through my teachings. That is a great VWAP and anchored VWAP.
YOUR ONLINE RESOURCE

FOR TECHNICAL ANALYSIS
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The Savvy Technician
CHARTING THE MARKETS
Stella Osoba, CMT, Esq., is an attorney, trader, and financial writer in New York,
NY, and is also the Senior Editor, Trading and Investing, for Investopedia.com. Her
work in financial litigation involving regulatory bodies and large multinational
corporations led to an interest in the financial markets, then technical analysis
and the psychological aspects of market behavior. She earned a CMT charter
in 2013 and was a director-at-large on the board of the CMT Association for
four years. This column will focus on recognizing and applying technical chart
patterns to trading with flexibility and astuteness for better decision-making in
trading. She can be reached at stellaosoba@gmail.com. Stella Osoba
SIDEWAYS MARKETS ARE DANGEROUS it break higher or fall lower? No one that are hard to trade.
We all know that when it comes to really knows. Pundits will give their Sideways markets might look fairly
markets, there are three trends: up, opinions, but market participants are predictable in hindsight. But when
down, and sideways. I like to think hardly convinced. Some are staking reading the chart, it would have
of it as two trends, really; up and out a position, waiting for a breakout been impossible to predict the exact
down. Sideways is not really a trend, in a direction they have determined point at which prices would pause as
it is congestion, it is stalling, it is a looks set to happen. But as the tug- they moved up from the March 2023
drifting market. It is when traders of-war continues, those trading in lows. (See Figure 1: SPX daily chart).
hoping for the trend to reveal itself smaller timeframes might experience Rising prices halted at the touch
are likely to do the most damage to the danger that comes with markets of the upper trendline (red dotted
their accounts.
This article will explore some of
the facets of sideways markets and
discuss whether it is better to sit them
out or attempt to trade them.
So, what is a sideways

market?
A sideways market is a range-bound
market. It has an upper and lower
boundary between which prices
bounce. There should be at least two
touches of each boundary line. These
two lines create a channel and price
is locked in a range between these
two levels. Often, a sideways market
is a listless market. It is one in which
market participants cannot determine
direction and the bulls and bears
seem equally matched. The balance
between optimism and pessimism is
about equal. There is no consensus
about what the market will do. Will
STOCKCHARTS.COM
Sideways markets might

look fairly predictable in
hindsight. FIGURE 1: S&P 500 INDEX, DAILY. Sideways markets demonstrate uncertainty in market participants.
It can look like a tug-of-war on the chart.
The Savvy Technician
line) for the first time in mid-April traders’ accounts is because when
and then reacted down to the lower trading daily price action, the moves The reason it is
trendline over seven days. Price then are often too short. It is possible damaging to many
bounced up off the lower trendline for the nimble trader using shorter traders’ accounts is
and formed two strong bullish rising timeframes to be in and out of the
candles. However, the optimism of the market with the speedy execution a
because when trading
price rise soon gave way to hesita- market of this type would necessitate, daily price action, the
tion, causing the gravestone doji to but not many can do it. Guessing moves are often too
form, breaching the upper trendline direction and then executing with the short.
intraday, but then closing just below speed and mental fortitude necessary
it. The following day saw the bears to be in this market and stay profitable they are not trending, they go side-
take over again, pushing price back to is the province of the few. ways. They are in congestion zones.
the prior lows over three days. Bulls They are locked in battle from which
came back into the market and after So, what should a trader neither the bulls nor the bears have
one strong bullish day retreated as do? emerged victorious. One side will
bears came in and locked them in a A long time ago, a mentor of mine eventually emerge and it will be clear
fight neither side has as yet emerged gave me some words of advice that I which, when it happens. Until then,
victorious from. Then, over the most try to heed. He said, “If you ever find why participate in the fight? Better
recent five trading days in the chart, yourself in a situation and you are to watch and prepare to reenter when
we have a selection of dojis and unsure what to do, do nothing.” This the winner emerges victorious. There
long lower-tailed candles indicating is the advice I will give to the trader is an old proverb that says, “When
the uncertainty that pervades the wondering how to recoup losses in elephants fight, it is the grass that gets
market. a sideways market. Maybe sit on the trampled.” Don’t be the grass.
This is a classic sideways market. sidelines for now and do nothing.
The reason it is damaging to many Markets trend, but not always. When
CALHOUN/MOMENTUM iNSiGhtS: why thiS this trade by adding shares during

Continued from page 17 teChNiQue workS the uptrend. In extensive testing, I
Wide-range days indicate strong found that using a loss of the 25SMA
Step 2: Enter your trade on any demand, which increases price. This produces optimal trade management
day following the gap day, as long acts as a long breakout signal to both results.
as price is higher than the high of institutional and retail traders. As
the gap day. long as the uptrend continues, trad- Ken Calhoun moderates a popular
ers continue to buy, which confirms live trading room for active traders.
Step 3: Set your stop-loss just the uptrend. He is the founder of TradeMastery.
under the loss of the 25-period com, an interactive webinar site
simple moving average. Alterna- trade maNaGemeNt tiPS for active traders, and is a UCLA
tively, you can sell if price action The initial stop-loss at or above the alumnus.
MARKET RAP
touches this line, as seen on May high of the wide-range gap day is
16 in Figure 1. important. You can also scale into
TOMASINI/MARKET RAP continuous, not one with price spikes of success. This means that even less
Continued from page 56 or upward and downward gaps. sophisticated technical analysis tools
With some practice, you will be and trading systems will be more
tion of a low-noise price series tells able to tell at a glance whether a price effective.
us what an ideal price series to trade series is noisy. In the end, you will be
looks like, and we can learn to recog- able to easily detect which markets
nize it. A good price series to trade are better to trade. Lower-noise price
is one that is smooth and linear and series give you higher probabilities
Enjoying Life’s Food And Beverages Pleasures
Food And Beverage ETFs:

A Satisfying Investing Opportunity
Or Gorging On Junk?
Food and beverage ETFs have experienced less vola- market declines and bear markets. Many of the stocks in
tility than the general market over the years, with the these ETFs are domiciled in the consumer staples sec-
component companies housed in the consumer staples, tor, which usually outperforms during recessions due to
materials, and industrial sectors. Are these ETFs ready inelastic demand—everyone eats and drinks no matter
to provide a delectable opportunity or will they languish what the economic conditions are at the moment. Consider
in the years ahead? Take a look at ten ETFs to see if they just three examples: As the markets tumbled in 2022, the
offer a portfolio diversification opportunity. Coca-Cola stock price advanced 10.6%, PepsiCo was up
6.77%, and Campbell Soup soared 35%.
by Leslie N. Masonson Now that the COVID-19 peak has passed, especially in
A
the US, everyone is still consuming food and beverages
common investment strategy put forth by leg- though maybe at a less voluminous pace when compared
endary and former Fidelity Magellan portfolio to when they were house-bound for months with not many
manager Peter Lynch, who racked up a 29% options for enjoyment. The food and beverage companies’
annualized return starting in 1977, is to invest bottom lines definitely benefitted from this home confine-
in the products and services you know about ment with sales ramping up. The share prices of the ten
and use. That means that millions of investors who drink ETFs in this category ran up between 70% to 128% from
Coke or Pepsi, or snack on the same comfort foods, can March 20, 2020 through early May 2021 before going
easily invest in well-known companies and reap the re- sideways or slightly downward until January 2022, for
wards of a long-term buy-and-hold approach. Now, with a quick four-month advance. They then trended lower
the availability of food and beverage ETFs, investors can while treading water for the last 12 months.
own a portfolio of top companies instead of trying to pick Year-to date through April 21, 2023, these ETFs have
WESTLIGHT/SHUTTERSTOCK
and choose among individual companies. gained or lost between 1% to 2%, with EATV, the outlier,
Moreover, all these ETFs (except for FTAG) offer much up 7.2%. In comparison, the S&P 500 is up 8.2% and the
less volatility than the S&P 500 index, whose beta is heavily tech-weighted QQQs gained 19.1%, crushing the
pegged at 1.00. These ETFs can act as a buffer in both performance of those ETFs. A forecasted recession in the
WHY TRADE ETFS?
US would probably not dent the earnings of the stocks in Ticker Fund Name
these ETF portfolios, as food and beverages are staples MOO VanEck Agribusiness ETF
and are purchased in all economic conditions, good and FTXG First Trust Nasdaq Food & Beverage ETF
bad. Interestingly, the companies in this category have PBJ Invesco Dynamic Food & Beverage ETF
continued to raise their prices to cover the inflated prices VEGI iShares MSCI Agriculture Producers ETF
of their raw materials, which they have passed on to con- FTAG First Trust Indxx Global Agriculture ETF
sumers. And consumers continue to absorb them without IVEG iShares Emergent Food and AgTech Multisector ETF
much pushback. Private-label merchandise is flying off KROP Global X AgTech & Food Innovation ETF
the shelves as shoppers try to save money when they can. EATV VegTech Plant-based Innovation & Climate ETF
The dollar stores are seeing more customers with tight YUMY VanEck Future of Food ETF
budgets buying less-expensive food as they trade down KCAL Subversive Food Security ETF
a bit on brand and quality. Moreover, consumers always
FIGURE 1: FOOD AND BEVERAGE ETFS. The tickers and names of ten ETFs in
need to buy staples such as toothpaste, toilet tissue, and this category are shown. The ETFs include diverse companies. Both VanEck and
diapers for children, but there has also been a shift to First Trust have two ETFs in this space.
more discretionary purchases such as restaurant meals,
travel, and cruises. Auto and appliance sales have fallen According to ETFAction.com, there are ten ETFs in
off with increased pricing and higher interest rates. the food and beverage category, with total assets under
management (AUM) of $2.9 billion as of April 14, 2023,
Food and beverage ETF overview with an average expense ratio of 0.60% and year-to-date
There are ten ETFs in this category, with three coming outflows of $131 million. Figure 1 shows the ETFs in
to market in 2021 and two in 2022, all with less than this grouping.
$6 million in AUM, coupled with limited performance Common characteristics of these ETFs include: open-
data. Not included here are two restaurant ETFs (PEJ ended; 100% equity-based; US or global focus; sector,
and EATZ), which offer food for sale. Moreover, there industry, or thematic composition; eight focused on
is not a very high degree of homogeneity in this group, agriculture and two (FTXG and PBJ) focused on food
as there are many companies represented among the and beverages; passively managed except for EATV and
portfolios. Although they represent one specific market YUMY; five listed on NYSE Arca and five on Nasdaq;
sector, it is important that each ETF’s portfolio be closely no leverage or currency hedging used; 1099 tax report-
examined to ensure that the portfolio and objectives are ing used.
clearly understood.
All the ETF
data tables Ticker MOO FTXG PBJ VEGI FTAG IVEG KROP EATV YUMY KCAL
shown here, Van Eck
First Trust
Invesco BlackRock
First Trust
BlackRock Global X
VegTech
Van Eck
Subversive
Capital
unless oth- Issuer Name Associates Corp.
Advisors LP
Capital
Mgmt. LLC
Fund
Advisors
Advisors LP
Fund
Advisors
Mgmt. Co.
LLC
LLC
Associates
Corp.
Advisor
erwise men- Inception Date 8/31/2007 9/20/2016 6/23/2005 1/31/2012 3/11/2010 4/25/2022 7/12/2021 12/28/2021 11/30/2021 12/22/2022 LLC
tioned, are AUM ($MM) $1,269 $997 $326 $265 $19 $6 $6 $5 $4 $1

from ETF Expense Ratio 0.52% 0.60% 0.63% 0.39% 0.70% 0.47% 0.50% 0.75% 0.69% 0.75%
Action.com, % in Top 10
Holdings 49 30 30 158 50 37 29 41 39 30
a comprehen- Stocks
55.09% 60.44% 46.40% 60.53% 58.32% 41.97% 82.18% 51.41% 46.42% 47.59%
sive fee-based Volume

Average Daily
68,342 162,162 58,593 41,251 5,206 484 2,359 662 1,135 162
website that Dividend Yield 2.04% 2.25% 2.86% 2.23% 2.72% 2.16% 0.88% 1.45% 1.86% 3.71%
has under- DividendFrequency
Annually Quarterly Quarterly
Semi-
annual
Quarterly Annually
Semi-
annual
Annually Annually Annually
gone signifi- Performance −17.35% −3.43% −2.26% −15.24% −14.20% −29.21% −14.37% −17.75%
cant enhance- 1Performance
Year
ment since its 3 Years 18.63% 14.21% 16.78% 23.68% 21.33%
inception and Performance

5 Years
8.62% 7.87% 8.68% 9.17% 3.49%
since my re- Flows
ETFACTION.COM
view in the 1 Year ($mm)

($303) $1,016 $103 $79 $2 $2 $2 $2 $2 $1
May 2 02 0 ($mm)
Flows- 3 Years
$544 $1,025 $232 $253 $17 $2 $9 $6 $2 $1
issue of this FIGURE 2: FOOD AND BEVERAGE ETF COMPARISON. MOO and FTXG are the AUM leaders, but trading volume is low as is the dividend
m a g a z i n e . yield. Flows are a mixed bag over the past year, while price performance is negative.
va r ies a mong
these ETFs. Here,
there is a tight
range, as seven
ET Fs provide
dividend yields
r a ng i ng f r om
1.86% (YUMY)
STOCKCHARTS.COM
to 2.86% (PBJ).
Moreover, seven
offer annual divi-
FIGURE 3: ETF PERFORMANCE, OCTOBER 10, 2016 THROUGH APRIL 14, 2023. The five ETFs with the longest common time- dends while only
frame show worse price performance than the S&P 500. Both MOO and VEGI at 94% were 20 basis points below the S&P. The other
three offer quar-
three ETFs were only at 50% or so.
terly ones. KCAL
Basic key numbers: AUM, expense ratios, is highest at 3.71% and KROP is the lowest at 0.88%.
holdings, and yield
Figure 2 provides each ETF’s individual data points. Cash inflows, trading volume, and
AUM is the first key number and is one of the most criti- performance comparison
cal factors for an ETF to maintain and grow to remain Incoming cashflow is the lifeblood for an ETF to remain
viable. Both MOO and FTXG dominate this space with a viable investment vehicle and to grow its footprint in its
a massive 78% of the total assets. Next up, both PBJ and category. Believe it or not, the one-year flows for the top
VEGI have pulled in $591 million in AUM (20% of the MOO, the AUM leader, was negative $330 million, while
total) with $326 million and $265 million, respectively. all the others had positive cash flow, with FTXG pull-
Thus, 98% of the AUM are held by just four ETFs in this ing in an astonishing $1.02 billion, PBJ at $103 million,
grouping. They are the clear winners, scooping up the VEGI at $79 million, and the newbies at $2 million or
assets while the latest entrants are getting the leftovers. less. Strangely, FTAG, around for 13 years, only snagged
Those late to the show include four ETFs with $6 million $2 million, but with a total AUM of only $19 million,
or less in assets for a grand total of a measly $22 mil- that number doesn’t look that bad. These numbers need
lion. These five newbies will have a tough time gaining to reverse or this entire category could face extinction
traction or even existing in a few years. over a few years. Moreover, many of these ETFs will
The second critical factor is the annual expense ratio. be no longer be viable for their sponsors to cover their
Here, the highest ratios are between 0.69% and 0.75% costs let alone make a profit. The three-year timeframe
while the remainder are lower, ranging between 0.47% for shows positive flows for all these ETFs. In this case,
IVEG to 0.63% for PBJ, with the others are in a tighter MOO captured $544 million and FTXG accumulated
range of nearly 0.50%. Overall, there is not a huge vari- $1.03 billion. Both PBJ and VEGI did well, with $232
ance in these ratios. million and $253 million, respectively.
The last critical factor is the annual dividend yield, which This entire category has low daily trading vol-
ume, indicating
a lack of investor
interest. FTXG
leads the pack at
162,000 shares,
followed by MOO
at 68,000 and PBJ
at 59,999. All the
newest ETFs, as
well as FTAG,
had volumes of
FIGURE 4: ETF PERFORMANCE, MARCH 20, 2020 THROUGH APRIL 14, 2023. Since the market low in March 2020 brought on 5,200 or much
by the start of the pandemic, five of these ETFs have beaten the S&P 500, with iShares MSCI Agriculture Producers (VEGI) leading by less (for exam-
far with a 380 basis point advantage. ple, KCAL at 162
shares). This vol-
ume is extremely
d isapp oi nt i ng,
and investors and
traders may ex-
perience higher-
than-normal bid-
to-ask spreads
due to a potential
lack of liquidity.
Figure 3 pro-
vides the price FIGURE 5: PERFORMANCE OF TOP THREE ETFS VS. FOUR SECTORS AND S&P 500 INDEX FROM OCTOBER 16, 2016 THROUGH
APRIL 14, 2023. The materials, industrials, and healthcare sectors outperformed PBJ and FTXG while MOO outpaced the other EETs
performance of
and consumer staples. Nonetheless, the S&P 500 beat them all with a 114% advance.
the five ETFs
available since Ticker Holdings US Dev. ex- US Emerging Frontier Large cap Mid cap Small Cap Micro cap
October 16, 2016. MOO 49 51.89% 38.88% 8.38% 0.00% 70.57% 27.16% 2.24%
FTXG 30 99.98% 0.00% 0.00% 0.00% 86.30% 13.68%
Surprisingly, none PBJ 30 97.43% 0.00% 0.00% 0.00% 54.52% 29.82% 15.60%
of them exceeded VEGI 158 59.06% 25.07% 12.70% 2.26% 69.33% 22.39% 6.64% 1.35%
the 114% S&P FTAG 50 34.67% 45.37% 15.42% 3.93% 73.68% 22.31% 3.39%
50 0 price ap- KROP
IVEG 37 56.88% 41.68% 0.00% 0.00% 60.80% 36.72% 2.04%
29 42.68% 30.39% 26.75% 0.00% 40.08% 16.16% 33.43% 10.20%
preciation. Only EATV 41 66.15% 31.72% 0.17% 0.00% 16.62% 37.43% 31.78% 6.41%
MOO and VEGI YUMY 39 51.64% 40.57% 4.75% 0.00% 58.54% 24.96% 11.91% 1.52%
at 94% ca me KCAL 30 61.93% 29.35% 4.12% 0.00% 27.72% 18.58% 23.26% 20.11%
close. Observing FIGURE 6: ETF COMPOSITION. The largest portfolio holdings were concentrated in US stocks with a large-cap tilt. Next in line was
non-US developed countries and mid-cap stocks. Frontier market holdings were almost nonexistent.
the price perfor-
mance (Figure 4) from the market low in March 2020, below 3%. In summary, the S&P 500 index appears to
after the rapid and large drop that took place at the start offer a more reliable performance track record than any
of the COVID-19 pandemic, we find that three ETFs of these ETFs, but with a beta of 1.00 (by definition), it
(MOO, FTXG, and PBJ) outpaced the S&P 500 during exceeded the beta of all these ETFs except for FTAG at
the entire period through April 14, 2023. The other two 1.03, meaning that these ETFs (except for FTAG) were
(VEGI and FTAG) consistently underperformed. less risky over time. Notably, both FTXG and PBJ had
Comparing the three largest ETFs from October 10, much lower betas near 0.57.
2016 through April 14, 2023 (Figure 5) against the S&P
500 and against the consumer staples, materials, health- ETF market cap and global composition
care and industrial Select SPDR ETFs (which contain most Figure 6 provides a comparison of the broad composition
of the companies held in the ETF portfolios) demonstrates of all of these ETFs. As with all the other variables, there
that they all underperformed not only the S&P 500 but is a wide variance here of the distribution of assets among
also the materials and industrials sector. Only MOO market cap and domestic versus international allocations.
performed equally to those two sectors. Clearly, investors First of all, notice that there is a heavy concentration in
gained no performance advantage by being invested in each ETF’s top-10 holdings that hovers overall between
these ETFs compared to viable alternatives. 42% to 82% but with most of the readings in the 47%
Let’s look at the three- and five-year performance of to 61% range. KROP at 82% was an outlier on the high
these ETFs with a track record. Over the last five years, side, whereas IVEG was at 42% on the low side. US
the S&P 500 advanced 11.1% compared with VEGI at stocks dominate the portfolio with a wide range of 33%
9.17% and PBJ at 8.68%, the two best performers. Looking to 100%. Seven ETFs were in the 50% to 65% band.
at three years, the S&P 500 advanced 15.0% compared Non-US developed countries provide a tighter correlation,
with 23.7% for VEGI and 21.3% for FTAG, the two best with a 35% to 42% portfolio exposure, except for FTXG
performers. Moreover, both PBJ at 16.8% and MOO at and PBJ who have no exposure to that asset class. Only
18.6% also topped the S&P 500’s performance. Year-to- KROP at 27% for emerging markets had the highest al-
date in 2023, the S&P 500 gain of 8.27% trounced these location there, with four others at 0%, and YUMY and
ETFs with the best being EATV at 65% and all others KCAL at about 5%.
a mixed picture, with MOO (49 holdings) having the
largest percentage of consistency in common names
with percentage overlap of 25% to 51% with five ETFs.
One would think that with a fairly limited number of
companies in this business that there would be a higher
correlation of stocks in their portfolios. However, this
did not turn out to be the case. VEGI, with a portfolio
of 158 equities, the largest portfolio by far, had a 44%
overlap with FTAG and about 25% with YUMY, KCAL,
and KROP.
FIGURE 7: ETF OVERLAP. Viewing the table from a top-down view indicates
the lack of consistency in common names among these ETFs. The highest overlap ETF top common holdings
percentage was shown by MOO, YUMY, and FTAG. FTAG and MOO as well as FTAG Figure 8 provides a listing of the top holdings of this
and VEGI were 50% overlap combinations, while FTXG and PBJ were at 44%. entire ETF category combined. In total, there are over
150 stocks. Corteva and Archer-Daniels Midland were
held by eight ETFs, while Deere & Company and FMC
were held by seven. Only Ingredon Inc. and Bunge Ltd.
were held by six. Seven companies were held by five
ETFs including: Kellogg Company, Mosaic Company,
and CF Holdings, Inc., among others. Six ETFs held four
securities in common, shown on the bottom of the list.
Observing the sectors and industries that these compa-
nies are part of indicates a heavy concentration in the
chemicals industry, which is part of the materials sector.
Also represented was food products, which is part of the
consumer staples sector. The machinery industry was
also represented, which is part of the industrials sector.
All in all, the companies in these portfolios represent a
diverse segment of the economy that has had periods of
FIGURE 8: TOP STOCKS HELD IN COMMON. There was a wide variance in the expansion and contraction and is a slow-moving mix of
portfolios of these ETFs, but the top six holdings in at least six ETFs were CTCA, companies compared to, say, technology firms.
ADM, DE, FMC, INGR, and, BG. Seven ETFs held five stocks in common. Ten of Here are the largest holdings of the top ETFs in order
these top dozen stocks were domiciled in the US. of percent of portfolio assets:
Reviewing the distribution among different market MOO: ZTS, BAYN, DE, CTVA, NTR, ADM
caps, there is a definite tilt toward large-cap, with six FTXG: MDLZ, GIS, PEP ,KO, ADM, HSY, K
ETFs in the vicinity of 54% to 86%. EATV and 18% and PBJ: MDLZ, HSY, GIS, PEP, KO, SYS, KHC,
KCAL at 32% were at the low end. The tightest spread ADM
was in the mid-cap space where the average was about VEGI: DE, CTVA, ADM, NTR, LW, FMC, MOS
25%. Small-cap holdings were all over the map, with a FTAG: BAYN, DE, BAS, CTVA, NTR, FMC,
few ETFs at 2.5%, while four others were in the range MOS, BG
of 12% to 34%. Lastly, only five ETFs held any micro IVEG: BN (France), BAYN, ECL, PKG, CTVA,
caps, with KCAL having the highest percentage at 24% FMC, K
and both VEGI and YUMY near 1.5%. KROP: CTVA, NTR, BYND, TITN, DE, TTCF,
GRWG
ETF overlapped holdings EATV: LW, INGR, DOLE, ELF, FDP, SXT, COCO,
Figure 7 provides a bird’s-eye view into the number of CROX
common securities held by all ten ETFs compared to
each other. Most ETFs had holdings between 30 and Notice the wide variation in the portfolio components of
50, with six in the 30s area. The outlier was VEGI with these ETFs. Even though they are all in the same ETF
158. Viewing the table from the top vertically indicates category, it is clear that the portfolio composition will
greatly impact their future performance. That is why the both consumer staples and materials accounted for 31% of
savvy investor will analyze the top 10% of the portfolio the holdings each, followed by industrials and healthcare
holdings independently to determine which ones have at around 19%. Turning to market-cap share, large-cap
the best fundamental and technical attributes before at 71% was the dominant component with mid-cap at
investing in any of these. 27%. Around the globe, the US allocation stood at 52%
compared to 39% for non-US developed countries, with
In-depth review only 8% in emerging markets.
Let’s delve into this ETF category in more depth by
reviewing the key attributes of the five that have been First Trust Nasdaq Food and Beverage ETF (FTXG)
in existence for five years. Moreover, the remaining five This passively managed ETF tracks a liquidity-selected;
ETFs have AUM of $6 million or less, so the likelihood multi-factor-weighted index of US food and beverage
of their continued existence in the next few years is companies. It tracks the proprietary Nasdaq US Smart
minimal. Based on the number of competitors already Food and Beverage Index. With a start date of September
in this space, coupled with the poor performance of the 20, 2016, it has been able to grab $997 million in assets,
recent entrants, I wouldn’t expect any new ones going only second to MOO, which had a nine-year head start.
forward. Let’s start the evaluation with MOO, which is Moreover, it has brought in over $1 billion in one-year
the dominant player. flows while MOO has been bleeding cash. Also, its
trading volume of 162,000 is more than twice that of
VanEck Agribusiness ETF (MOO) MOO, but that number is still not very impressive for
This passively managed ETF tracks a market-cap- an ETF of that size. FTXG is rebalanced quarterly and
weighted index of companies that obtains revenue from reconstituted annually.
the agribusiness sector. MOO was the second ETF in Its three-year performance of 14.2% is a bit better than
this space with a launch date of August 31, 2007, but the S&P 500, but the worst of the five largest ETFs in the
was able to accumulate the most AUM at $1.27 billion, food & beverage category. Its five-year performance at
clearly outpacing Invesco Dynamic Food and Beverage 7.9% pales in comparison to the 11% of the S&P 500 and
with AUM of only $326 million with a two-year head is fourth out of the top 5. FTXG offers a 2.3% dividend
start. yield and a 0.60% expense ratio, which are representa-
Its three-year performance of 18.6% beat the S&P 500 tive of the others.
by 360 basis points, but was still only third best in the There are only 30 stocks in this concentrated portfolio.
group. However, over one and three years, MOO has un- Moving on to its sector allocation, consumer staples
derperformed the S&P 500 and a few other ETFs. MOO accounts for a massive 96% of the total, with materials
offers a 2% dividend yield and a 0.52% expense ratio, accounting for the remaining 3.8%. Typically, food and
which are representative of the others. One big negative beverage firms are better able to handle inflation than other
was the $303 million of outflows in the past one year, the consumer staples entities such as tobacco and products
only ETF in this category with a negative flow. This is a for the home. Turning to market-cap share, large-cap at
troubling sign of investor disinterest. The average daily 86% was the dominant component and the highest of
trading volume of only 68,000 is pathetic for an ETF all ETFs reviewed here, while mid-cap at 14% was the
of this size and
shows the lack of
investor interest.
There are 49
stocks in the con-
centrated port-
folio. The per-
formance of this
ETF’s holdings
year-to-date are
shown in the Fig-
ure 9 heatmap. FIGURE 9: HEATMAP OF MOO HOLDINGS. Year-to-date through April 14, 2023, the best-performing stock sector was healthcare
Moving on to its with 20%+ winners (ZTS and BAYN), while the other sectors had mixed performance. Consumer staples had two 20 percenters in
sector allocation, MOWI and BYND. Heatmaps for days, weeks, and months are easy to pull up on most software packages.
lowest of all. Around the globe, the US allocation stood iShares MSCI Agriculture Producers ETF (VEGI)
at 100%, the highest of all, with no assets overseas. This passively managed ETF, born on January 31, 2012,
tracks a market-cap-weighted index of companies sus-
Invesco Dynamic Food & Beverage ETF (PBJ) ceptible to agricultural commodity prices. It has amassed
This passively managed ETF tracks a multi-factor, tiered, $265 million in assets, the fourth best in the category,
equal-weighted index of US food industry stocks. PBJ has certainly a faster growth rate than PBJ with a 6.5-year
30 portfolio positions that are picked based on their price lead. Its portfolio of 158 is a major outlier compared to
and earnings momentum, quality, and value. That is the the range of 37 to 50 positions of its competitors. It sports
same portfolio size as FTXG. Half the names are held in the lowest expense ratio of 0.39%. And the top 10 stocks
common between these two ETFs, which is the second- represent 61% of the portfolio, which is second highest
highest overlap among these ETFs. Its trading volume of the group. The average daily volume of 41,000 is low,
of 59,000 is on the low side but just 10,000 shares shy while the dividend of 2.23% is in line with the others.
of MOO, and more than 100,000 lower than FTXG. PBJ VEGI was not only the best three-year performer
offers a 2.86% dividend yield, which is second-highest advancing 23.7% annualized, but also the best five-year
for this group, with only KCAL topping it at 3.71%. performer, up 9.17%. One-year inflows were weak at $79
Since PBJ’s inception in June 2005, it has captured only million, but $253 million over three years was third best.
$326 million in AUM, which on the surface appears to VEGI has 61% of its funds in the top 10 stocks, which is the
be a decent amount, but with a two-year head start on second-highest concentration in the group with KROP at
MOO and an 11-year head start on FTXG, PBJ is only in an exceedingly high 82%. The portfolio contains familiar
third place in AUM. It was able to pick up $103 million names such as Deere & Company (20.2% of portfolio),
of inflows in the past year while MOO lost $300 million Corteva Inc. (8.2%), Archer-Daniels-Midland Company
and FTXG gained over $1 billion. In terms of five-year (8.1%), and Nutrien Ltd. (6.8). Note that Deere’s weighting
performance, PBJ has returned 8.7% annualized, virtually is the highest one among all ETFs reviewed here.
the same as MOO. Over three years it is in the middle of Moving on to its sector allocation, three sectors shared
the pack at 16.8%. Note that overall price performance almost equally the portfolio mix, with materials hold-
of PBJ and FTXG are almost identical when looking at ing 35.9% of the assets, followed by consumer staples
a chart from October 2016 to present. This means that at 33%, and industrials at 30.7%. Turning to market-cap
FTXG can be used as a tax-harvesting partner. share, large-cap at 69% was the dominant component
Looking at PBJ’s top holdings, we see familiar names and in the top percentage of all ETFs reviewed here,
such as Mondelez International, Inc., General Mills, while mid-cap at 22% was in the middle of the group.
Archer-Daniels-Midland, PepsiCo, and Kraft. Interest- Small-caps were present at only 6%. Around the globe,
ingly, Coca-Cola is not among them. Moving on to its the US allocation stood at 59.1%, with non-US developed
sector allocation, consumer staples accounts for a massive countries at 25%, emerging markets at 12.7%, and frontier
97.4% of the total, with consumer discretionary account- markets at 2.26%.
ing for the remaining 2.8%. Turning to market-cap share,
large-cap at 54% was the dominant component and in the First Trust Indxx Global Agriculture (FTAG)
middle of all ETFs reviewed here, while mid-cap at 29% FTAG, with an inception date of March 11, 2010, is the
was in the upper range of all. Small-caps were present at third oldest of this group, and tracks a global market-cap-
16%. Around the globe, the US allocation stood at 97.4%, weighted index of firms engaged in improving agricultural
the second highest of all, with 2.6% elsewhere. yields. Although this is the second First Trust ETF in this
grouping, over its 13-year life, it has only been able to
capture $19 million in AUM. This can only be described
as a “failure to launch” compared to the younger TFXG
Many of the stocks in these ETFs with nearly a billion dollars in AUM. Its expense ratio
at 0.70% is the second highest, and the average daily
are domiciled in the consumer volume of 5,206 shares is underwhelming. The 2.72%
staples sector, which usually dividend beats that of seven of its competitors.
outperforms during recessions Its portfolio of 50 stocks is second highest but close to
due to inelastic demand. the others, who average about 35 positions. Interestingly,
FTAG has the highest beta of all at 1.03 and the only
ETF that had a reading above 1.00, which is the S&P
500’s defined level. The 58% concentration in the top 10 of poor management or issues out of their control. Even
stocks is fourth highest in the grouping with a position though a potential US and/or global recession in 2023
in Bayer AG (11.1%), Deere & Company (9.3%), BASF cannot be ruled out, coupled with higher-than-normal
SE (8.5%), Corteva Inc. (7.8%), and Nutrien Ltd. (4.1%). inflation, it appears that food and beverage companies may
Performance-wise, FTAG had the worst five-year return be able to successfully ride the wave to more profits.
at 3.5% but the second best three-year return of 21.3%. Based on the analysis presented here, none of these
Looking at cashflows over one year, FTAG captured $2 ETFs really offer an attractive investment opportunity
million, which is minor. based on their performance since inception, limited asset
Checking out sector allocation, we find that 51.4% of inflows, low trading volumes, and widely varying port-
the portfolio was allocated to the materials sector, the folio composition. One of these ETFs may fit into your
highest of the group, while the 27.0% allocation to in- portfolio as a defensive play with an allocation up to 5%
dustrials was the second highest of all. In third position for the long haul. Of all these ETFs, if I had to pick one,
was healthcare at 11.1%, with only 6.6% in consumer it would be FTXG based on all the data reviewed. On the
staples (the lowest of all ETFs), and the remaining 3.3% other hand, PBJ is the most viable purchase candidate
to consumer discretionary. Clearly, FTAG’s distribution based on an evaluation using the VectorVest platform
of assets among sectors was not in the same ballpark as with their proprietary evaluation software. Be aware
its rivals. that five of these ETFs are not tracked in VectorVest’s
Turning to market-cap share, large-cap at 73% was the database including FTXG, which was surprising based
dominant component matching its rivals, which was also on its five-year life and near $1 billion in AUM.
the case with mid-caps at 22%. Small-caps at only 3.3% Another way to play this space is to just buy a hand-
was well below average. Around the globe, the US alloca- ful of the big players that have a “buy” rating from your
tion stood at only 34.7%, the lowest of all, with non-US platform or source you trust (again, I use VectorVest):
developed countries at 45.4%, the highest of all, while PEP, MDLZ, HSY, GIS, and LW, among a few others.
emerging markets came in at 15.4%, the second highest, You can let these stocks sit in a portfolio or in a watch-
and 4% in frontier markets, which was the highest. Thus, list using your technical tools to determine the most
FTAG also was the outlier in these areas, as it was with appropriate time to buy. Make sure to check their latest
sectors, placing this ETF way out in left field. earnings and industry news, and review their available
background material before investing a penny.
Others
The remaining ETFs in this category—IVEG, KROP, S&C Contributing Writer and ETF columnist Leslie N.
EATV, YUMY, and KCAL—will not be reviewed here Masonson is president of Cash Management Resources,
individually because of their minimal performance track a firm focusing on ETF strategies. He is an active
record and assets. However, they can easily be checked out NASDAQ futures and ETF trader, and the author of six
by going to the issuer’s website if you are interested. books including Buy—Don’t Hold: Investing With ETFs
Using Relative Strength To Increase Returns With Less
Conclusions and a look ahead Risk, and All About Market Timing (two editions), as
As we have seen with the recent experience of other well as Day Trading On The Edge. He can be reached
category-specific ETFs like crypto, cannabis, and meta- at lesmasonson@yahoo.com or 845 323-7276.
verse, most all of the new entrants coming to market in
the past two years have been received poorly by inves- • www.vaneck.com • www.ftportfolios.com
tors, as evidenced by the low AUM inflows and trading • www.ishares.com • www.globalxetfs.com
volumes. That scenario has been the case with the new • www.subversiveets.com • eatv.vegtechinvest.com
entrants into the crowded food and beverage space. There
is a high probably that most of these newer ETFs will be Further reading
shut down within a year or two if they can’t make major Masonson, Leslie N. [2020]. “ETFAction.com,” product
headway, which doesn’t appear likely. review, Technical Analysis of Stocks & Commodi-
Every industry has risks that investors should be con- ties, Volume 38: May.
cerned about, especially where a “black swan” event like
a COVID-19 virus can obliterate the profit picture caused
by lack of consumer demand. Any company may unable
to handle the supply chain or production issues because
The focus of Traders’ •
Traders.com  S&C Magazine 
Tips this month is Traders’ Tips
Barbara Star’s article
in this issue, “Stay On At Traders.com you can also right-click on any
Track With The Super- chart to open it in a new tab or window and view
trend Indicator.” Here, the chart at a much larger size.
we present the July
2023 Traders’ Tips code The Traders’ Tips section is provided to help readers
with possible imple- implement a selected technique from an article in this
mentations in various software. issue or another recent issue. The entries here are con-
The code for the following Traders’ Tips selections is tributed by software developers or programmers for
posted here: software that is capable of customization.
or Close[1] < Bottom[1], BBottom, Bottom[1]);
if Close < ST[1] then

F TRADESTATION: JULY 2023 TRADERS’ TIPS CODE begin
In her article in this issue, “Stay On Track With The Super- ST = Top;
trend Indicator,” author Barbara Star describes the supertrend PlotColor = DownColor;
end
indicator and how it can be used as means for traders to stay else
in sync with the larger trend. She explains how J. Welles begin
Wilder’s average true range (ATR) forms a foundation for ST = Bottom;
supertrend calculations. The ATR does not measure price PlotColor = UpColor;
end;
direction, but rather provides a measure of volatility over a
specified period. The supertrend indicator, on the other hand, if NumPlotLines_1_or_2 = 2 then
provides a wider viewpoint into trend direction. Additionally, begin
the indicator provides price levels where a change in trend Plot1(Top, "Upper Line", PlotColor);
Plot2(Bottom, "Lower Line", PlotColor);
would occur. end
The EasyLanguage version of the indicator provided here else
can be adjusted to plot either one line or two lines by adjust- begin
ing the input NumPlotLines_1_or_2. Plot3(ST, "Supertrend", PlotColor);
end;
Indicator: Supertrend
// TASC JUL 2023 A sample chart is shown in Figure 1.
// Supertrend This article is for informational purposes. No type of
// Barbara Star trading or investment recommendation, advice, or strategy
inputs:
UpColor( Green ),
DownColor( Red ),
ATRLength( 10 ),
Multiplier( 3 ),
NumPlotLines_1_or_2( 1 );
variables:
ATRValue( 0 ),
BTop( 0 ),
Top( 0 ),
BBottom( 0 ),
Bottom( 0 ),
ST( 0 ),
PlotColor( 0 );
ATRValue = AvgTrueRange(ATRLength);
BTop = MedianPrice + Multiplier * ATRValue;

BBottom = MedianPrice - Multiplier * ATRValue;
Top = Iff(BTop < Top[1]

or Close[1] > Top[1], BTop, Top[1]); FIGURE 1: TRADESTATION. This daily chart of the S&P 500 ETF SPY shows
a portion of 2022 and 2023 with the supertrend indicator applied with an ATR
Bottom = Iff(BBottom > Bottom[1]
length of 10 and a multiplier of 3.
is being made, given, or in any manner provided by TradeS- H else L
tation Securities or its affiliates. };
enum ENUM_PLOT_LIST
—John Robinson {
TradeStation Securities, Inc. PLOT_LINE_ONLY, // Line Only
www.TradeStation.com PLOT_FILLING_ONLY, // Filling Only
PLOT_ARROWS_ONLY, // Arrows Only
PLOT_LINE_FILLING, // Line and Filling
F METAQUOTES: JULY 2023 TRADERS’ TIPS CODE PLOT_LINE_ARROWS, // Line and Arrows
In “Stay On Track With The Supertrend Indicator” in this PLOT_FILLING_ARROWS, // Filling and Arrows
PLOT_ALL // All
issue, Barbara Star discusses the supertrend indicator. Shown };
here is coding to implement the indicator on the MetaQuotes //--- input parameters
platform. input int inp_atr_period = 10; // ATR Period (min
val: 1; step val: 1)
In addition to coding for the indicator, I am also provid- input double inp_atr_multiplier = 3.0; // ATR Multiplier
ing coding for a function (which is not shown here but is (min val: 0.1; step val: 0.1)
available on the magazine’s website at Traders.com in the input int inp_shift = 0; // Shift Indicator along
Traders’ Tips section). Time Axis (Bars)
input ENUM_RATES_LIST inp_rates = RATES_MEDIAN; //
//+------------------------------------------------------------------+ Price Source
//| Supertrend.mq5 | input ENUM_PLOT_LIST inp_plot_style = PLOT_ALL; // Plot
//| Copyright © July 2023, Shaun Bosch | Styling
//| shadavbos@gmail.com | //--- indicator buffers
//+------------------------------------------------------------------+ double filling_up[];
#property copyright "Copyright © July 2023, Shaun Bosch" double filling_down[];
#property link "shadavbos@gmail.com" double supertrend_line[];
#property version "1.00" double supertrend_colors[];
#property indicator_chart_window double signal_buy[];
#property indicator_buffers 11 double signal_sell[];
#property indicator_plots 4 double rates[];
//--- plot Filling double supertrend_calc[];
#property indicator_label1 "Up Trend;Down Trend" double temp1[], temp2[], temp3[];
#property indicator_type1 DRAW_FILLING //--- indicator variables
#property indicator_color1 clrGreen,clrRed int atr_period;
#property indicator_style1 STYLE_SOLID double atr_multiplier;
#property indicator_width1 1
//--- plot Supertrend Line //+------------------------------------------------------------------+
#property indicator_label2 "Supertrend" //| Custom indicator initialization function |
#property indicator_type2 DRAW_COLOR_LINE //+------------------------------------------------------------------+
#property indicator_color2 clrDodgerBlue,clrMagenta int OnInit()
#property indicator_style2 STYLE_SOLID {
#property indicator_width2 2 //--- check input parameters
//--- plot Buy Signal atr_period = inp_atr_period < 1 ? 1 : inp_atr_period;
#property indicator_label3 "Buy Signal" atr_multiplier = inp_atr_multiplier < 0.1 ? 0.1 :
#property indicator_type3 DRAW_ARROW NormalizeDouble(inp_atr_multiplier, 1);
#property indicator_color3 clrDodgerBlue //--- indicator buffers mapping
#property indicator_style3 STYLE_SOLID SetIndexBuffer(0, filling_up, INDICATOR_DATA);
#property indicator_width3 1 SetIndexBuffer(1, filling_down, INDICATOR_DATA);
//--- plot Sell Signal SetIndexBuffer(2, supertrend_line, INDICATOR_DATA);
#property indicator_label4 "Sell Signal" SetIndexBuffer(3, supertrend_colors, INDICATOR_COLOR_INDEX);
#property indicator_type4 DRAW_ARROW SetIndexBuffer(4, signal_buy, INDICATOR_DATA);
#property indicator_color4 clrMagenta SetIndexBuffer(5, signal_sell, INDICATOR_DATA);
#property indicator_style4 STYLE_SOLID SetIndexBuffer(6, rates, INDICATOR_CALCULATIONS);
#property indicator_width4 1 SetIndexBuffer(7, supertrend_calc, INDICATOR_CALCULATIONS);
//--- enumerations SetIndexBuffer(8, temp1, INDICATOR_CALCULATIONS);
enum ENUM_RATES_LIST SetIndexBuffer(9, temp2, INDICATOR_CALCULATIONS);
{ SetIndexBuffer(10, temp3, INDICATOR_CALCULATIONS);
RATES_OPEN, // Open O //--- accuracy of drawing of indicator values
RATES_HIGH, // High H IndicatorSetInteger(INDICATOR_DIGITS, _Digits);
RATES_LOW, // Low L //--- setting a code from the Wingdings charset as the property of
RATES_CLOSE, // Close C PLOT_ARROW
RATES_MEDIAN, // Median (H+L)/2 PlotIndexSetInteger(2, PLOT_ARROW, 164);
RATES_TYPICAL, // Typical (H+L+C)/3 PlotIndexSetInteger(3, PLOT_ARROW, 164);
RATES_WEIGHTED, // Weighted (H+L+C+C)/4 //--- Set the vertical shift of arrows in pixels
RATES_AVERAGE, // Average (O+H+L+C)/4 PlotIndexSetInteger(2, PLOT_ARROW_SHIFT, 0);
RATES_MEDIAN_BODY, // Median Body (O+C)/2 PlotIndexSetInteger(3, PLOT_ARROW_SHIFT, -0);
RATES_TREND_BIAS, // Trend Bias if C > O then (H+C)/2 else //--- set indicator name display
(L+C)/2 string rates_name = inp_rates == RATES_OPEN ? "Open" : inp_rates
RATES_EXTREME_TREND_BIAS // Extreme Trend Bias if C > O then == RATES_HIGH ? "High" : inp_rates == RATES_LOW ? "Low" : inp_rates

== RATES_CLOSE ? "Close" : inp_rates == RATES_MEDIAN ? "Median" supertrend_colors[i] = EMPTY_VALUE;
: inp_rates == RATES_TYPICAL ? "Typical" : inp_rates == RATES_ signal_buy[i] = EMPTY_VALUE;
WEIGHTED ? "Weighted" : inp_rates == RATES_AVERAGE ? "Average" signal_sell[i] = EMPTY_VALUE;
: inp_rates == RATES_MEDIAN_BODY ? "Median Body" : inp_rates == }
RATES_TREND_BIAS ? "Trend Bias" : inp_rates == RATES_EXTREME_ else
TREND_BIAS ? "Extreme Trend Bias" : " "; {
string short_name = "SUPERTREND (" + IntegerToString(atr_period) filling_up[i] = inp_plot_style == PLOT_FILLING_ONLY || inp_plot_
+ ", " + DoubleToString(atr_multiplier, 1) + ", " + rates_name + ")"; style == PLOT_LINE_FILLING || inp_plot_style == PLOT_FILLING_AR-
IndicatorSetString(INDICATOR_SHORTNAME, short_name); ROWS || inp_plot_style == PLOT_ALL ? close[i] : EMPTY_VALUE;
//--- show indicator name on screen filling_down[i] = inp_plot_style == PLOT_FILLING_ONLY ||
Comment(short_name); inp_plot_style == PLOT_LINE_FILLING || inp_plot_style == PLOT_FILL-
//--- shift of indicator plotting along the time axis in bars ING_ARROWS || inp_plot_style == PLOT_ALL ? supertrend_calc[i] :
PlotIndexSetInteger(0, PLOT_SHIFT, inp_shift); EMPTY_VALUE;
PlotIndexSetInteger(1, PLOT_SHIFT, inp_shift); supertrend_line[i] = inp_plot_style == PLOT_LINE_ONLY ||
PlotIndexSetInteger(2, PLOT_SHIFT, inp_shift); inp_plot_style == PLOT_LINE_FILLING || inp_plot_style == PLOT_
PlotIndexSetInteger(3, PLOT_SHIFT, inp_shift); LINE_ARROWS || inp_plot_style == PLOT_ALL ? supertrend_calc[i] :
//--- an empty value for plotting, for which there is no drawing EMPTY_VALUE;
PlotIndexSetDouble(0, PLOT_EMPTY_VALUE, EMPTY_VALUE); supertrend_colors[i] = inp_plot_style == PLOT_LINE_ONLY || inp_
PlotIndexSetDouble(1, PLOT_EMPTY_VALUE, EMPTY_VALUE); plot_style == PLOT_LINE_FILLING || inp_plot_style == PLOT_LINE_AR-
PlotIndexSetDouble(2, PLOT_EMPTY_VALUE, EMPTY_VALUE); ROWS || inp_plot_style == PLOT_ALL ? rates[i] > supertrend_calc[i] ?
PlotIndexSetDouble(3, PLOT_EMPTY_VALUE, EMPTY_VALUE); 0.0 : 1.0 : EMPTY_VALUE;
//--- display candlestick / bar / line chart above all indicators signal_buy[i] = inp_plot_style == PLOT_ARROWS_ONLY ||
ChartSetInteger(0, CHART_BRING_TO_TOP, 0, true); inp_plot_style == PLOT_LINE_ARROWS || inp_plot_style == PLOT_
//--- successful initialization FILLING_ARROWS || inp_plot_style == PLOT_ALL ? rates[i] > super-
return(INIT_SUCCEEDED); trend_calc[i] && rates[i - 1] < supertrend_calc[i - 1] ? supertrend_calc[i]
} : EMPTY_VALUE : EMPTY_VALUE;
signal_sell[i] = inp_plot_style == PLOT_ARROWS_ONLY ||
//+------------------------------------------------------------------+ inp_plot_style == PLOT_LINE_ARROWS || inp_plot_style == PLOT_
//| Custom indicator deinitialization function | FILLING_ARROWS || inp_plot_style == PLOT_ALL ? rates[i] < super-
//+------------------------------------------------------------------+ trend_calc[i] && rates[i - 1] > supertrend_calc[i - 1] ? supertrend_calc[i]
void OnDeinit(const int reason) : EMPTY_VALUE : EMPTY_VALUE;
{ }
Comment(""); // clear the chart from comments after deleting the }
indicator //--- return value of prev_calculated for next call
} return(rates_total);
}
//+------------------------------------------------------------------+
//| Custom indicator iteration function | //+------------------------------------------------------------------+
//+------------------------------------------------------------------+ //| Get Rates from ENUM_RATES_LIST (RATES) |
int OnCalculate(const int rates_total, //+------------------------------------------------------------------+
const int prev_calculated, // //--- System bar_index references:
const datetime &time[], int fu_RATES(const int rates_total,
const double &open[], const int prev_calculated,
const double &high[], //--- Input variables and arrays:
const double &low[], const ENUM_RATES_LIST rates_list,
const double &close[], const double &open[], // Open Price
const long &tick_volume[], const double &high[], // High Price
const long &volume[], const double &low[], // Low Price
const int &spread[]) const double &close[], // Close Price
{ //--- Output arrays:
//--- populate rates buffer double &result[])
fu_RATES(rates_total, prev_calculated, inp_rates, open, high, low, {
close, rates); //--- bar index start
//--- populate supertrend calculation buffer int bar_index;
on_SUPERTREND(rates_total, prev_calculated, atr_period, atr_multi- if(prev_calculated == 0)
plier, rates, high, low, close, temp1, temp2, temp3, supertrend_calc); bar_index = 0;
//--- bar index start else
int bar_index; bar_index = prev_calculated - 1;
if(prev_calculated == 0) //--- main loop
bar_index = 0; for(int i = bar_index; i < rates_total && !_StopFlag; i++)
else {
bar_index = prev_calculated - 1; switch(rates_list)
//--- main loop {
for(int i = bar_index; i < rates_total && !_StopFlag; i++) case RATES_OPEN:
{ result[i] = open[i];
if(i < atr_period) break;
{ case RATES_HIGH:
filling_up[i] = EMPTY_VALUE; result[i] = high[i];
filling_down[i] = EMPTY_VALUE; break;
supertrend_line[i] = EMPTY_VALUE; case RATES_LOW:

result[i] = low[i];
break;
case RATES_CLOSE:
result[i] = close[i];
break;
case RATES_MEDIAN:
result[i] = (high[i] + low[i]) / 2.0;
break;
case RATES_TYPICAL:
result[i] = (high[i] + low[i] + close[i]) / 3.0;
break;
case RATES_WEIGHTED:
result[i] = (high[i] + low[i] + close[i] + close[i]) / 4.0;
break;
case RATES_AVERAGE: FIGURE 2: METAQUOTES INPUTS—PLOT STYLING
result[i] = (open[i] + high[i] + low[i] + close[i]) / 4.0;
break;
case RATES_MEDIAN_BODY:
result[i] = (open[i] + close[i]) / 2.0;
break;
case RATES_TREND_BIAS:
if(close[i] > open[i])
result[i] = (high[i] + close[i]) / 2.0;
else
result[i] = (low[i] + close[i]) / 2.0;
break;
case RATES_EXTREME_TREND_BIAS:
if(close[i] > open[i])
result[i] = high[i];
else
result[i] = low[i];
FIGURE 3: METAQUOTES—PRICE SOURCE
break;
}
}
return(rates_total);
}
//+------------------------------------------------------------------+
//| Supertrend Indicator - Single Line (SUPERTREND) |
//+------------------------------------------------------------------+
//--- by Barbara Star (TASC Magazine July 2023)
// //--- System bar_index references:
int on_SUPERTREND(const int rates_total,
const int prev_calculated,
//--- Input variables and arrays:
const int atr_length, // ATR Period (min val: 1; step val: 1;
FIGURE 4: METAQUOTES—PRICE SOURCE
default val: 10)
const double atr_multi, // ATR Multiplier (min
val: 0.1; step val: 0.1; default val: 3.0)
const double &source[], // Source
const double &high[], // High Price
const double &low[], // Low Price
const double &close[], // Close Price
//--- Calculation arrays (3):
double &atr[],
double &top[],
double &bot[],
//--- Output arrays:
double &result[])
{
//--- bar index start
int bar_index;
if(prev_calculated == 0)
bar_index = 0;
FIGURE 5: METAQUOTES. This demonstrates the supertrend indicator on a daily chart of EU-
else RUSD.
bar_index = prev_calculated - 1;
{
//--- main loop
atr[i] = 0.0;
for(int i = bar_index; i < rates_total && !_StopFlag; i++)
top[i] = 0.0;
{
bot[i] = 0.0;
if(i < atr_length)
result[i] = EMPTY_VALUE;

} (trend change).
else
3. Sell at limit of the entry price + 2 × 10-day ATR.
{
double alpha = 1.0 / double(atr_length); 4. Sell at stop of the two-day’s lowest low.
atr[i] = fmax(high[i] - low[i], fmax(fabs(high[i] - close[i - 1]),
fabs(low[i] - close[i - 1]))) * alpha + (MathIsValidNumber(atr[i - 1]) ? atr[i Countertrend system (short):
- 1] : 0.0) * (1.0 - alpha);
double dis = atr_multi * atr[i];
1. If the close is above the supertrend and its line on the
double btop = source[i] + dis; chart is horizontal, wait for two or more rising lows to
double bbot = source[i] - dis; short on a stop tomorrow at today’s low.
top[i] = btop < (MathIsValidNumber(result[i - 1]) ? result[i - 1] : 0.0) 2. If the close is above the supertrend, cover the short
position (trend change).
|| close[i - 1] > (MathIsValidNumber(result[i - 1]) ? result[i - 1] : 0.0) ?
btop : (MathIsValidNumber(result[i - 1]) ? result[i - 1] : 0.0);
bot[i] = bbot > (MathIsValidNumber(result[i - 1]) ? result[i - 1] : 0.0) 3. Cover at limit of the entry price − 2 × 10-day ATR.
|| close[i - 1] < (MathIsValidNumber(result[i - 1]) ? result[i - 1] : 0.0) ? 4. Cover at stop of the two-day’s highest high.
bbot : (MathIsValidNumber(result[i - 1]) ? result[i - 1] : 0.0);
result[i] = (MathIsValidNumber(result[i - 1]) ? result[i
- 1] : 0.0) == top[i - 1] ? close[i] <= top[i] ? top[i] : bot[i] : See Figure 6 for some sample trades from the indicator
(MathIsValidNumber(result[i - 1]) ? result[i - 1] : 0.0) == bot[i - 1] ? on a daily chart of SPY, which shows some recent sideways
close[i] >= bot[i] ? bot[i] : top[i] : top[i]; movement. A transparent blue vertical wash illustrates the
} areas of price consolidations. This example confirms the low
}
return(rates_total); exposure to the market that was seen in backtested results.
} On average, a trade is held for four days.
//+------------------------------------------------------------------+
using WealthLab.PowerPack;
using WealthLab.Backtest;
Figures 2 through 4 show the input menus for the indica- using System;
tor. Figure 2 shows the dropdown menu for the plot styl- using WealthLab.Core;
ing. Figures 3 and 4 shows the dropdown menu for the price using WealthLab.Data;
source. Figure 5 shows an example of the indicator plotted using WealthLab.Indicators;
using System.Collections.Generic;
on a daily chart of EURUSD.
—Shaun Bosch namespace WealthScript1
shadavbos@gmail.com {
public class MyStrategy : UserStrategyBase
{
UpDown ud;
SuperTrend st;
public override void Initialize( BarHistory bars)

F WEALTH-LAB: JULY 2023 TRADERS’ TIPS CODE {
Wealth-Lab aims to please the trader looking to implement st = SuperTrend.Series(bars, 10,3.00);
a trailing exit, offering different flavors of them such as the ud = UpDown.Series(st, 1,0.00);
chandelier exit, the NRTR, or ATRTrail. For users of the PlotIndicator( st, WLColor.FromArgb(255, 220, 20, 60), Plot-
supertrend indicator, we’ve got you covered: just install the Style.Dots);
PowerPack extension. PlotIndicator( ud, WLColor.FromArgb(255,220,20,60), Plot-
Barbara Star’s article in this issue, “Stay On Track With Style.ThickHistogram);
}
The Supertrend Indicator,” brings some thought-provoking
ideas to explore. Here, we’re going to focus on trading dur- public override void Execute( BarHistory bars, int idx)
ing consolidations. We can observe that while the indicator {
forms a horizontal line, prices have begun moving sideways.
One tactic for when price begins to consolidate is to stand
aside or simply stick to a long position. As an improvement,
a second system can be added to support the trend-follow-
ing system while the supertrend trailing stop hasn’t been
breached. For example, here are two sets of rules that could
be used to take both long and short trades during a consoli-
dation:
Pullback system (long):

1. If the close is above the supertrend and its line on the
chart is horizontal, wait for two or more declining highs FIGURE 6: WEALTH-LAB. A transparent blue vertical wash on a chart of SPY
to buy on a stop tomorrow at today’s high. with the supertrend indicator illustrates areas of price consolidations. Data pro-
2. If the close is below the supertrend, sell the long position vided by Wealth-Data.
double atr = ATR.Series(bars, 10)[idx];
bool bullishConsolidation = (bars.Close[idx] > st[idx]) &&
ud[idx] == 0;
bool bearishConsolidation = (bars.Close[idx] < st[idx]) &&
ud[idx] == 0;
bool decline = ConsecDown.Series(bars.High, 1)[idx] >= 2;
bool rise = ConsecUp.Series(bars.Low, 1)[idx] >= 2;
if(bullishConsolidation)
SetBackgroundColor(bars, idx,WLColor.FromArgb(15,
WLColor.Blue));
/* long trades */
if (! HasOpenPosition (bars, PositionType.Long))
{
if(bullishConsolidation && decline)
PlaceTrade( bars, TransactionType.Buy, OrderType.Stop,
bars.High[idx]);
}
else
{
if(!bullishConsolidation && (bars.Close[idx] < st[idx]))
PlaceTrade( bars, TransactionType.Sell, OrderType.Mar- FIGURE 7: NINJATRADER. The supertrend indicator is shown on a daily
ket, 0, "Trend change");
else chart of the emini S&P (ES) in recent months.
{
PlaceTrade( bars, TransactionType.Sell, OrderType.Limit,
LastPosition.EntryPrice + 2.0 * atr, "Fast track"); NinjaTrader 8: www.ninjatrader.com/SC/July2023SCNT8.zip
PlaceTrade( bars, TransactionType.Sell, OrderType.Stop,
Lowest.Series(bars.Low, 2)[idx], "Stop"); Once the file is downloaded, you can import the indicator
}
} into NinjaTrader 8 from within the control center by select-
ing Tools → Import → NinjaScript Add-On and then select-
/* short trades */ ing the downloaded file for NinjaTrader 8.
if (! HasOpenPosition (bars, PositionType.Short))
You can review the indicator source code in NinjaTrader
{
if (bullishConsolidation && rise) 8 by selecting the menu New → NinjaScript Editor → In-
PlaceTrade( bars, TransactionType.Short, OrderType. dicators folder from within the control center window and
Stop, bars.Low[idx]); selecting the file.
}
else
A sample chart displaying the supertrend indicator is
{ shown in Figure 7.
if(!bullishConsolidation && (bars.Close[idx] > st[idx])) —NinjaTrader, LLC
PlaceTrade( bars, TransactionType.Cover, OrderType. www.ninjatrader.com
Market, 0, "Trend strenghening");
else
{
PlaceTrade( bars, TransactionType.Cover, OrderType.
Limit, LastPosition.EntryPrice - 2.0 * atr, "Fast track");
PlaceTrade( bars, TransactionType.Cover, OrderType. F TRADINGVIEW: JULY 2023 TRADERS’ TIPS CODE
Stop, Highest.Series(bars.High, 2)[idx], "Stop");
} Here is TradingView Pine Script code for plotting the super-
} trend indicator as a single plotline, following the approach
} demonstrated in the article by Barbara Star in this issue, “Stay
} On Track With The Supertrend Indicator.” Additionally, our
}
code enhances the visualization by dynamically coloring the
—Gene Geren (Eugene) supertrend line in green when the price is above it, indicating
Wealth-Lab team an uptrend, and in red otherwise.
www.wealth-lab.com
// TASC Issue: July 2023 - Vol. 41, Issue 8
// Article: Stay On Track With
// The Supertrend Indicator
// Article By: Barbara Star, PhD
// Language: TradingView's Pine Script® v5
// Provided By: PineCoders, for tradingview.com
F NINJATRADER: JULY 2023 TRADERS’ TIPS CODE
The supertrend indicator, which is described in “Stay On //@version=5
Track With The Supertrend Indicator” in this issue by Bar- string title = 'TASC 2023.07 Supertrend Indicator'
bara Star, is available for download at the following link for string stitle = 'Supertrend'
indicator(title, stitle, true)
NinjaTrader 8:
FIGURE 8: TRADINGVIEW. Shown here is an example of the supertrend
indicator (3,10) plotted on a daily chart of the S&P 500 index for a portion of
2022 and 2023. The supertrend line is colored in green when price is above it,
indicating an uptrend, and colored in red when price is below it. FIGURE 9: NEUROSHELL TRADER. This demonstrates a reversal trading
system based on the supertrend indicator on a chart of Blackrock (BLK).
float multi = input.float(3.0, 'Atr Multiplier:')
int length = input.int( 10,'Atr Length:')
string cT = 'Colors:'
color cUp = input.color(#ff5252ff, '', '', cT, cT)
color cLo = input.color(#4caf50ff, '', '', cT, cT)
[st, dir] = ta.supertrend(multi, length)
color col = dir > 0 ? cUp : cLo
ps1 = plot.style_stepline
plot(st, ‘Supertrend' , col, 3, ps1)
The indicator is available on TradingView from the Pine-

CodersTASC account: https://www.tradingview.com/u/ FIGURE 10: OPTUMA. This shows an example of using Optuma’s built-in su-
PineCodersTASC/#published-scripts pertrend indicator to trade sector ETFs.
An example chart is shown in Figure 8.
—PineCoders, for TradingView
www.TradingView.com
®
F NEUROSHELL TRADER: JULY 2023 TRADERS’
TIPS CODE F OPTUMA: JULY 2023 TRADERS’ TIPS CODE
A trading system based on the supertrend indicator The supertrend indicator is a default tool in Optuma and is
can be easily implemented in NeuroShell Trader by combining available for all clients, so there’s no need to code it. The 10/3
some of NeuroShell Trader’s 800+ indicators. To implement default settings can be easily adjusted in the tool’s properties,
a reversal trading system based on the supertrend indicator, and signals/tests can be created using the ST() function, for
select new strategy from the insert menu and use the trading example, CLOSE() CrossesAbove ST() for when the super-
strategy wizard to create the following strategy: trend switches to long.
An example of using the supertrend’s signals for ETF
Long trailing stop prices: trading is shown in Figure 10.
TrailPriceATR(Trading Strategy,10,3)
—support@optuma.com
Short trailing prices:
TrailPriceATR(Trading Strategy,10,3)
F ZORRO: JUNE 2023 TRADERS’ TIPS CODE
Users of NeuroShell Trader can go to the Stocks & Com- In “Stay On Track With The Supertrend Indicator”
modities section of the NeuroShell Trader free technical in this issue, Barbara Star discusses the indicator
support website to download a copy of this or any previous named the supertrend indicator (STI).
Traders’ Tips. Here is a direct translation of the MetaStock code pro-
—Ward Systems Group, Inc. vided in the article’s sidebar to C:
sales@wardsystems.com
www.neuroshell.com var STI(int Periods, var Mult)

{
var Dis = Mult * ATR(Periods);
var Top = MedPrice() + Dis;
var Bot = MedPrice() - Dis;
vars Tops = series(Top,2),
Bots = series(Bot,2),
Stis = series(priceC(0),2);
Tops[0] = ifelse(Top < Tops[1] || priceC(1) > Tops[1],Top,Tops[1]);
Bots[0] = ifelse(Bot > Bots[1] || priceC(1) < Bots[1],Bot,Bots[1]);
return Stis[0] = ifelse(Stis[1] == Tops[1],
ifelse(priceC(0) <= Tops[0],Tops[0],Bots[0]),
ifelse(Stis[1] == Bots[1],
ifelse(priceC(0) >= Bots[0],
Bots[0],Tops[0]),Tops[0]));
}
Figure 11 shows the STI(10,3) and STI (10,2) applied on FIGURE 11: ZORRO. This shows the supertrend indicator with parameters
chart of GE, replicating the chart in the article. STI(10,3) and STI (10,2) applied to a chart of GE.
You can use the following coding if you want to put the
supertrend indicator to the test. The coding uses crossings
above the indicator to create a simple trading system that en-
ters a long position in an upward trend change, and reverses
the position on a downward trend change. The code is in C:
void run()
{
BarPeriod = 1440;
StartDate = 2010;
EndDate = 2023;
assetAdd("GE","STOOQ:*");
asset("GE");
vars Signals1 = series(STI(10,3));
vars Signals2 = series(STI(10,2));
FIGURE 12: ZORRO. Shown here is an equity curve for a very simple trading
if(crossOver(Signals2,Signals1))
enterLong(); system based on the supertrend indicator.
if(crossUnder(Signals2,Signals1))
enterShort();
}
The resulting equity curve for this simple trading system

is shown in Figure 12. We can see that the supertrend indica-
tor detects trend changes quite well in 2010 through 2014 but
quite poorly in 2014 through 2016. However, this example
trading system is only the simplest possible approach to us-
ing the indicator in a trading system. Walk-forward optimi-
zation and some filtering could likely improve it. We leave
that to the reader to experiment with.
The supertrend indicator and the example simple trading
system can be downloaded from the 2023 script repository
on https://financial-hacker.com. The Zorro platform for C/ FIGURE 13: TRADE NAVIGATOR. This shows an example of the supertrend
C++ algo trading can be downloaded from https://zorro- indicator on a daily chart of GE.
project.com.
—Petra Volkova
To add the indicator to a chart in Trade Navigator, open
The Zorro Project by oP group Germany the charting dropdown menu and select the add to chart
https://zorro-project.com command. On the indicators tab, scroll down to find the su-
pertrend indicator, click to select, then click add. This will
plot the indicator in its own pane under the price chart. Re-
F TRADE NAVIGATOR: JULY 2023 peat to add a second supertrend indicator. You can then click
TRADERS’ TIPS CODE on the indicator name in the lower pane and drag it into the
The supertrend indicator, which is price pane.
discussed in the article “Stay On Track With The Supertrend Once you have them in the price pane, open the chart set-
Indicator” in this issue by Barbara Star, is already an existing tings window by hitting the “E” key on your keyboard. Click
indicator in Trade Navigator. on the indicator name in pane 1: price. Adjust the settings
for the indicator on the right-hand side of the window. the most control over what you are willing to allow as price
If you need assistance, our friendly technical support staff “breathing room” before the indicator signals a trend change
will be happy to help via phone or via live chat through our (Figure 15).
website. The calculations to derive the STI, as demonstrated in the
—Genesis Financial Data article’s sidebar code, are quite simple. So I thought it might
Tech support 719 884-0245 be interesting to graphically work through the layers of this
www.TradeNavigator.com calculation.
The basis of the supertrend calculation is the ATR (av-
F EXCEL: JULY 2023 TRADERS’ TIPS CODE erage true range). As shown in Figure 16, an ATR with a
In “Stay On Track With The Supertrend Indicator” in this shorter lookback shows wider, sharper swings. But those
issue, Barbara Star discusses a trend-following indicator sharper swings align well with the high and low points of a
to overlay on a price chart. She notes that the supertrend longer, smoother ATR.
indicator (STI) behaves somewhat like a chandelier stop-loss The next step is building upper and lower bands (bTop and
in that it tracks upward trends from below and downward bBot in the article sidebar’s code) around the median price
trends from above (see Figure 14). of each bar by adding or subtracting a “distance” calculated
Two simple user specifications allow us to dial in the sen- as a user-specified multiple of the ATR at that bar. While not
sitivity of this indicator to changes in trend. Having played easy to see in Figure 17, the width of the basic bands varies
with this indicator a bit in testing, I will say that the user- with the value of the ATR at each price bar.
defined ATR lookback period is a contributor. Next, we need to derive some tighter limits to help us
However, small changes to the user-specified ATR multi- see when a price excursion should be called a trend turning
plier make far more significant differences in the sensitivity point.
of the indicator. This ATR multiplier is where you will have In Figure 18, the upper green band is derived from the up-
per basic band using the following rules:
• If the close price is above the previous bar’s value

of the upper green band, then step the green band
all the way up to the value of the upper basic band
(a sudden jump up).
• If the upper basic band falls below the previous
bar value of the green band, then step the green
band value down to the upper basic band value
FIGURE 14: EXCEL. The supertrend indicator shifts to uptrend when the close exceeds (the green tracking basic band).
the previous bar supertrend indicator value and shifts to downtrend when the close falls • Otherwise, hold the upper green bar value (the
below the previous bar supertrend indicator value. horizontal upper green segment).
The lower green band inverts these rules by using

a close price below the lower green band to move
to the lower basic band value and subsequently track
the lower basic band as it rises.
In Figure 19 we see that the supertrend indicator
pictured in Figure 14 is actually an overlay of ap-
propriately chosen segments of the upper and lower
green supertrend bands.
FIGURE 15: EXCEL. The second superrtrend indicator (dots) uses an ATR multiplier of 4 The beginning of an uptrend is signaled when
and generally sits farther away from the price bars. Price has to exhibit a larger up or down the current bar close is greater than the previous bar
excursion to intercept the indicator and signal a trend change. value of the upper supertrend band. Here we begin
tracking the lower supertrend band.
The beginning of a downtrend occurs when the
close of the current bar is lower than the previous bar
value of the lower supertrend band. In the downtrend,
we track the upper band.
In closing: The user controls area on the left and
the charting selection checkboxes on the right will
allow you to put up to two different supertrend in-
FIGURE 16: EXCEL. ATR(10) has sharper swings than ATR(30) but the peaks and valleys dicators along with your choices of their pieces and
tend to align. And the resulting STI plots are nearly identical. parts on the price chart at the same time.
Pick your favorite symbol and play a bit with lon-
ger and shorter ATRs and with full and fractional
ATR multipliers above and below 3.
To download this spreadsheet: The spreadsheet
file for this Traders’ Tip can be downloaded from
www.traders.com in the Traders’ Tips area. To suc-
cessfully download it, follow these steps:
• Right-click on the link to the Excel file, then FIGURE 17: EXCEL. Basic bands located the same ATR-x-multiplier distance above and
• Select “save target as” to place a copy of the below the median price of each bar.
spreadsheet file on your hard drive.
—Ron McAllister
Excel and VBA programmer
rpmac_xltt@sprynet.com
F AIQ: JULY 2023 TRADERS’ TIPS CODE

The importable AIQ EDS file based on Bar-
bara Star’s article in this issue, “Stay On Track
With The Supertrend Indicator,” can be obtained on FIGURE 18: EXCEL. This shows the supertrend bands as derived from the basic distance
request via email to info@TradersEdgeSystems.com. bands.
The code is also available on this magazine’s website
at Traders.com in the Traders’ Tips section.
Code for the author’s indicator is set up in the AIQ
EDS code file. The code is also shown below. Figure
20 shows a chart of the NASDAQ 100 index (NDX)
with the supertrend indicator overlayed.
! THE SUPERTREND INDICATOR
! Author: Barbara Star, TASC July 2023
! Coded by: Richard Denning, 5/18/2023 FIGURE 19: EXCEL. The supertrend indicator tracks the upper or lower supertrend band
per trend reversal determination.
!INPUTS:
a1 is 2*10-1. !Convert exponential avg to Wilder avg
a2 is 3.
!AVERAGE TRUE RANGE CODE:

Dailyrange is [high]-[low].
YcloseL is abs(val([close],1)-[low]).
YcloseH is abs(val([close],1)-[high]).
Trange is Max(Dailyrange,Max(YcloseL,YcloseH)).
ATR is ExpAvg(Trange,a1).
!INDICATOR CODE:
dis is a2 * ATR.
mp is ([high] + [low]) / 2.
bTop is mp + dis.
bBot is mp - dis.
!CODE TO PLOT BANDS: FIGURE 20: AIQ. This shows an example of the supertrend indicator on a daily
daysInto is ReportDate() - RuleDate(). chart of the NASDAQ 100 index (NDX.
stop if daysInto > 30.
stopTop is iff(stop,[close], Top).
Top is iff( bTop < valresult(stopTop,1) OSD is offsettodate(month(),day(),year()).
or val([close],1) > valresult(stopTop,1), bTop, barsBup is scanany(BreakUP,100) then OSD.
valresult(stopTop,1) ). barsBdn is scanany(BreakDN,100) then OSD.
stopBot is iff(stop,[close], Bot).
Bot is iff( bBot > valresult(stopBot,1) STI is iff(^barsBup < ^barsBdn,Bot,Top).
or val([close],1) < valresult(stopBot,1), bBot,
valresult(stopBot,1) ). —Richard Denning
rdencpa@gmail.com
BreakUP if [close] >= Top and valrule([close]<Top,1). for AIQ Systems
BreakDN if [close] <= Bot and valrule([close]>Bot,1).
stopSti is iff(stop,[close], sti).

MARKET RAP
THE WORLD OF RETAIL TRADING
Emilio Tomasini is an adjunct professor of corporate finance at the
University of Bologna in Italy and is a professional trader. He has au-
dited over 5,000 accounts of traders during 13 years of a real-money
trading competition, giving him unique insights into what helps a retail
trader to succeed. He has expertise in technical analysis and trading
Emilio Tomasini
system design. In this column, he shares his sometimes “unserious”
thoughts on serious topics in finance. In his writings, he hopes to help the retail trader better understand the leap
from unprofitable to profitable trader, firmly believing that the right answers can come only if the right questions
are asked. At his website at www.emiliotomasini.com, he offers some of his expertise in a free video course.
BEFORE YOU CAN AVOID NOISE IN YOUR of promising paper trading. Pierre Orphelin. I can tell you, his
DATA, YOU FIRST MUST DEFINE IT As Charles Schwab used to say, views on quant trading are truly inno-
What is the trader’s worst foe? A deep “Scalpers are like fireflies; they vative. His book provides a scientific
drawdown? A flat equity line? Low av- arrive in one season and depart in framework for you to develop your
erage win/average loss per trade? Low the next one.” And why would they trading ideas. And the best part of all
percent profitable? If you are thinking disappear? The answer is noise. Noise is his explanation of noise.
about these challenges, it means that changes price series’ repetitive pat- Do you know what is a good way
you are already at an advanced point terns. The trader facing a noisy data to show the effect of noise on a price
in the trading journey. However, if you series is like a driver changing cars: series? Orphelin gives you the key to
reply “noise,” then you are already Everything feels new and unfamiliar, open this door: You substitute in the
standing in traders’ paradise. he no longer talks to his car like he average open price for the real open
Noise in a price series is the trader’s used to, and things don’t feel under price, you substitute in the average
most merciless enemy. But this brings his control. close price for the real close, and do
up a question you must answer first: the same with the highs and the lows.
How do we define “noise”? Noise in a price series In this way, you are changing the real
In statistical terms, you can say price series into a new “ideal,” low-
that noise is the deviation from the
is the trader’s most noise price series, where every bar is
average. But unless you are a space merciless enemy. made up of four average prices (open,
engineer, this explanation is mean- close, high, low). This ideal price se-
ingless, since you could then ask The same can happen with a trad- ries will have the same visual shape
what is an “average” and question ing system. You can trade a pattern as the real, noisier price series.
whether it is really useful in trading. for 20 years and then suddenly the Now that you are in an ideal world
The retail trader might spend a great pattern disappears. Again, noise is where prices are not noisy, magically,
deal of time contemplating how many the culprit. But that brings us to the you can now just apply whatever
days should make up the average predicament of blaming noise for trading system you happen to have
and which formula should be used every failure in trading even if we on hand (say, a CCI bands trading
to calculate the average. But if it’s still have not precisely defined it. system, a parabolic trading system,
difficult to define the “average,” then Nobody in the trading industry can or even the most basic moving aver-
it’s difficult to define what deviation explain the concept of noise without age system, or what have you) and
from the average is. Which means it referring to complicated formulas and everything will result in a beautiful
is difficult to explain in simple terms concepts. Except one. He is a French upward-sloping equity line with
what noise is. trader by the name of Pierre Orphelin. perfect system report metrics.
Even if we can’t explain what noise He is the author of Les systèmes de Unfortunately, such a price series
is in simple terms, we know its effects. trading (Gualino Editeur, 2004). The does not exist in the real world. Trad-
We could say that noise is what makes book is unfortunately out of print ers every day still have to contend
your otherwise successful trading (but you can purchase it second-hand with noise in their price data.
system falter. We could say that noise online; of course, it helps if you read But at least having this ideal depic-
is what makes you lose money on the French).
first real trade you place after months I’ve had the good fortune to meet Continued on page 37
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FUTURES LIQUIDITY
T
rading liquidity is often over- very high volumes. The greatest number three-year period. Thus, all numbers in
looked as a key technical of dots indicates the greatest activity; this column have an equal dollar value.
measurement in the analysis futures with one or no dots show little Columns indicating percent margin
and selection of commodity activity and are therefore less desirable and effective percent margin provide
futures. The following explains how to for speculators. a helpful comparison for traders who
read the futures liquidity chart pub- Courtesy of CBOT wish to place their margin money ef-
lished by Technical Analysis of Stocks ficiently. The effective percent margin
& Commodities every month. is determined by dividing the margin
value ($) by the three-year price range of
Commodity futures contract dollar value, and then multiply-
The futures liquidity chart shown being by one hundred.
low is intended to rank publicly traded
futures contracts in order of liquidity. Stocks
Relative contract liquidity is indicated Trading liquidity has a significant ef-
by the number of dots on the right-hand fect on the change in price of a secu-
side of the chart. rity. Theoretically, trading activity can
This liquidity ranking is produced by serve as a proxy for trading liquidity
multiplying contract point value times All futures listed are weighted equally and equals the total volume for a given
the maximum conceivable price motion under “contracts to trade for equal dol- period expressed as a percentage of the
(based on the past three years’ historical lar profit.” This is done by multiplying total number of shares outstanding. This
data) times the contract’s open interest contract value times the maximum pos- value can be thought of as the turnover
times a factor (usually 1 to 4) for low or sible change in price observed in the last rate of a firm’s shares outstanding.
Trading Liquidity: Futures

Contracts to
Effective
Commodity Futures Exchange % Margin Trade for Equal Relative Contract Liquidity
% Margin Dollar Profit
S&P 500 E-Mini (Jun ’23) CME 6.4 21.7 3 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • >>
10-Year T-Note (Jun ’23) CBOT 2.2 9.2 8 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •>>
Ultra T-Bond (Jun ’23) CBOT 5.3 7.5 2 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • >
5-Year T-Note (Jun ’23) CBOT 1.7 10.6 12 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • >
Ultra 10-Year T-Note (Jun ’23) CBOT 2.9 8.2 5 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • >
30-Year T-Bond (Jun ’23) CBOT 3.6 8.2 4 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
2-Year T-Note (Jun ’23) CBOT 0.8 9.6 13 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Russell 2000 E-Mini (Jun ’23) CME 3.8 10.3 3 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Nasdaq 100 E-Mini (Jun ’23) CME 6.7 21.2 2 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Crude Oil WTI (Jul ’23) NYMEX 8.7 11.1 4 • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Natural Gas (Jul ’23) NYMEX 17.6 5.9 3 • • • • • • • • • • • • • • • • • • • • • • • • • • • •
3-Month SOFR (Jun ’23) CME 0.4 7.4 16 • • • • • • • • • • • • • • • • • • • • • •
Euro FX (Jun ’23) CME 2.2 14.9 11 • • • • • • • • • • • • • • • • •
Soybean (Jul ’23) CBOT 2.3 6.3 4 • • • • • • • • • • • • •
Soybean Meal (Jul ’23) CBOT 0.9 3 3 • • • • • • • • • • • •
30-Day Fed Funds (Jul ’23) CBOT 0.2 2.8 10 • • • • • • •
Corn (Jul ’23) CBOT 6.9 14.7 15 • • • • • • •
Gasoline RBOB (Jul ’23) NYMEX 7.6 11 3 • • • • • • •
Gold (Jun ’23) COMEX 4.6 25.1 6 • • • • • • •
Japanese Yen (Jun ’23) CME 4.5 13.1 7 • • • • • • •
ULSD NY Harbor (Jul ’23) NYMEX 8.8 7.2 2 • • • • • • •
Wheat (Jul ’23) CBOT 9 7 5 • • • • • • •
Sugar #11 (Jul ’23) ICE/US 5.1 8.8 12 • • • • • •
3-Month Eurodollar (Jun ’23) CME 0.4 7.1 15 • • • • •
Dow Futures Mini (Jun ’23) CBOT 5.3 20.4 5 • • • •
High Grade Copper (Jul ’23) COMEX 7.9 20.9 6 • • • •
S&P 500 VIX (Jun ’23) CFE 46 40.8 9 • • • •
British Pound (Jun ’23) CME 4 24.4 16 • • •
Live Cattle (Aug ’23) CME 2.7 6.3 7 • • •
Silver (Jul ’23) COMEX 8.9 30.8 6 • • •
Australian Dollar (Jun ’23) CME 3.1 14.6 15 • •
Coffee (Jul ’23) ICE/US 10.6 20.9 6 • • CBOT Chicago Board of Trade, Division of CME
Cotton #2 (Jul ’23) ICE/US 8.8 10.1 6 • • CFE CBOE Futures Exchange
Hard Red Wheat (Jul ’23) KCBT 7.3 11.5 8 • • CME Chicago Mercantile Exchange
Canadian Dollar (Jun ’23) CME 1.9 15 22 • COMEX Commodity Exchange, Inc. CME Group
Canola (Jul ’23) ICE/CA 6.9 9.3 20 • ICE-EU Intercontinental Exchange-Futures—Europe
Cocoa (Jul ’23) ICE/US 5.2 17.5 23 • ICE-US Intercontinental Exchange-Futures—US
Crude Oil Brent (F) (Jul ’23) NYMEX 8.3 10.6 3 • KCBT Kansas City Board of Trade
Feeder Cattle (Aug ’23) CME 2.8 6.3 4 • MGEX Minneapolis Grain Exchange
Lean Hogs (Jul ’23) CME 5.9 11.5 12 • NYMEX New York Mercantile Exchange
Mexican Peso (Jun ’23) CME 6 26.1 33 •
Palladium (Jun ’23) NYMEX 15.2 11.4 1 • 2307
Trading Liquidity: Futures is a reference chart for speculators. It compares markets “Relative Contract Liquidity” places commodities in descending order according to
according to their per-contract potential for profit and how easily contracts can be bought how easily all of their contracts can be traded. Commodities at the top of the list are easi-
or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only est to buy and sell; commodities at the bottom of the list are the most difficult. “Relative
when compared to others in the same column. Contract Liquidity” is the number of contracts to trade times total open interest times a
The number in the “Contracts to Trade for Equal Dollar Profit” column shows how volume factor, which is the greater of:
many contracts of one commodity must be traded to obtain the same potential return In volume
as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price 1 or exp –2
In 5000
Excursion).

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Trading Perspectives
SOME PERSPECTIVES ON THE EQUITIES WORLD

Rob Friesen is a professional trader and president & COO of Bright Trading
(www.stocktrading.com), a proprietary trading firm hosting independent
trader/members, an online trading school, and utilizing the StockOdds
database (www.mystockodds.com). This column shares his thoughts and
outlooks on trading, locating opportunity, probabilistic outcome, and
maintaining perspective throughout industry changes. He can be reached
at robfriesen@brighttrading.pro or via stocktrading.com.
Rob Friesen
THE TURN-OF-THE-MONTH EFFECT IN Methodology: To analyze the TOME, anomaly. Here, I’ll focus on the last
EQUITIES AND MARKET ETFS I employed historical data for the 96 months of data, which is relevant
Are there patterns related to the how market ETFs and each of the 11 for today’s market conditions. Key
the stock market behaves at certain S&P 500 sectors, represented by the findings include:
times of each month? Are there no- sector SPDR ETFs. I then calculated
ticeable and quantifiable differences daily and monthly returns for these • The sectors with the most sig-
in performance between sectors at ETFs, focusing on the last few trad- nificant TOME are: Financials,
these times? Are there certain stocks ing days and the first few trading Energy, Basic Materials, and
that would be more prone to these days of each month. The analysis Communications, with Financials
influences? includes the assessment of average being the highest average perfor-
In this article, I will focus on one returns, standard deviations, maxi- mance and Sharpe. This is from
particular pattern or anomaly that is mum favorable excursion (MFE) and the close of the second-to-last
well-documented: the turn-of-the- maximum adverse excursion (MAE), trading day of the month until
month effect (TOME). Typically, the close of the first trading day
this is viewed as the performance at of the month.
the end of a month and the begin- Traders can find the • Real Estate (XLRE) is a very slight
ning of a new month where stock performer, and Utilities (XLU) are
prices exhibit abnormal returns. I
best stocks within the negative, which means they do not
will present details on this through best-performing turn- have a positive TOME but rather
the lens of S&P 500 stocks, sectors, of-the-month (TOME) the opposite. This makes sense, as
and corresponding ETFs. sectors. Utilities are the lowest correlation
Typically, the TOME refers to a of all sectors with the S&P 500.
consistent pattern of higher stock XLU is up on average on the last
returns during the last few and the and risk-adjusted performance (using trading day of each month and
first few trading days of each month. the Sharpe ratio) during these periods. down slightly on the first trading
But is this true for each month of the Additionally, I performed statistical day, so it actually does the opposite
year, or does this vary throughout tests to determine the significance from what nine of eleven sectors
the year? in terms of odds, which would be do. XLRE is down on both days,
As for this “bump” that has been the likelihood of either the positive but down less on the first trading
well-documented, explanations re- or negative performance occurring day of the month.
volve around portfolio rebalancing, on the next upcoming seasonality
payroll deposits, and human and window. In viewing Figure 1, you can see
institutional behavioral factors. that you have to be selective on the
To explore the above questions Findings: My analysis revealed markets and sectors when using the
and to pursue how traders might the presence of the TOME across TOME, as not all of them perform
best employ any potential edge that most S&P 500 sectors, with varying at the same rate of return. There is
the turn-of-the-month effect offers, I degrees of strength. Some sectors one TOME (August into September)
performed a study. The following is exhibit more pronounced effects, po- that you need use caution for, as there
a summary of how I examined this tentially offering greater opportuni- is no apparent payoff. Other TOME
effect and what the analysis found. ties for investors to capitalize on this events range from slight to excellent
per for ma nce.
For March into
April as well
as July into Au-
gust, we see the
reverse of the
standard behav-
iors for TOME.
W hat do es
Figure 1 pro-
vide us with? It
provides a map
of the historic
behavior that
occurs on the
last trading day
of one month
in context with
the first trading
day of the next
month. From
this, we can see
that on average
MYSTOCKODDS.COM
a n d b r o a d ly
speaking, the
t rader m ight
go short from FIGURE 1: EXAMINING THE TURN-OF-THE-MONTH EFFECT (TOME). Shown here are the average performances (up to the most
the close of the recent 96 months) of the last trading day of one month and then the turn-of-the-month effect into the first trading day of the next
month. This analysis serves to provide a map of historic behavior as a guide to possible future behavior.
second-to-last
trading day of
one month into the last trading day of for even higher returns. FIGURE 2: AVERAGE
the month; then, flatten into the close In Figure 2 we can see PERFORMANCES. If
of that last day, and reverse long into that if you added together you add up all the
the first trading day of the month. all the average perfor- average performances
Note that there may be opportunity to mances for the last trading for the last trading day
of the month and the
hold past the close of the first day of day of the month and added
average performances
the month due to a one- to three-day together all the average for the first trading
deployment of capital at the begin- performances for the first day of the month and
ning of most months. trading day of the month, then combine those
From Figure 1, we can see that then combined those totals, totals, you can better
there is a general edge in the shotgun you would have +3.41% see the TOME histori-
approach of going short for the last annual performance by cal pattern. With such
day and long for the first day, but we shorting every ETF in the information, you can
also observe that using a “sniper” ap- list on the last trading day potentially design
proach could propel us to be on target of the month, covering, and a trading approach
around these days.
You have to be selective on the markets and sectors when

using the TOME, as not all of them perform at the same
rate of return.
then going long into the first trading Implications for traders days), there could be elevated risk,
day of the month. Understanding the TOME and its and it is advised to check for news,
This return of +3.41% is only about sector-specific behaviors can provide earnings reports, and macro head-
a third of the total annual average valuable insights for traders. Potential winds. It is also important to note
performance of the S&P 500 since strategies the trader might use to that the information that I have
1993, but in this case, the return is capitalize on this research include: provided here is what has occurred
gained by only being active for 24 to date, but over the long sample,
trading days a year. • Sector plays: Traders can find performances could change.
Note also that a group such as the the best stocks within the best-
Financials (XLF) far exceeds the performing TOME sectors. After We can observe that Industrials,
combined total of all the showcased all, we might as well work with the Consumer Staples, Real Estate, and
ETFs, coming in at +6.376% for the flow of traffic here. Healthcare have lower TOME returns.
TOME. So here is where a sniper • Market timing: Active traders The most likely reason is that they
approach comes into play. We can may attempt to time their buy and are more defensive and less sensitive
select our targets and improve on the sell decisions around the turn-of- to market fluctuations. Sectors with
combined averages. the-month period to benefit from higher volatility are more subject to
Also note that we have Utilities the expected higher returns in risk appetites and behavioral factors
(XLU) knocking down our averages certain sectors. There are also like the “fresh start effect” at the
due to that sector doing the opposite certain months that are ideal for beginning of a month. In general,
of the others. It is up on last day and TOME and other months of benign the softness of all sectors at the end
down on first day, so we need to do performance. of the month suggests a deleveraging
something different with Utilities component more so than the window
other than the shotgun approach that dressing of the past.
might be used on the other sectors. Instead of using a In summary, the varying degrees
Accordingly, we could drill down statistically muted of the TOME across different sectors
to identify the symbols within the Fi- can be attributed to a combination
nancial Sector that have the best odds,
ETF, focus instead on of factors, including sensitivity to
average performance, and Sharpe the components that macroeconomic news, cash flow
ratio to employ for the XLF turn-of- can provide the best patterns, sector-specific trading
the-month effect. So instead of using a payoff. strategies, market capitalization,
statistically muted ETF, focus instead liquidity, seasonality, cyclical trends,
on the components that can provide risk appetite, investor sentiment, and
the best payoff. At Bright Trading, to • Premium/discount: In approach- behavioral factors. Understanding
explore symbols to use, we use our ing any seasonality window, the these drivers can be important, but
StockOdds database, which provides edge is in what sectors (and stocks the opportunity is reflected with an
insights into the behavior of stocks within those sectors) are in an actual data-driven approach.
after streaks, indicators, seasonality, elevated or discounted position It is comforting to know in this
and technical patterns and which can relative to the expectations for ever-changing world with crisis and
provide probabilities and odds based the TOME. Think about what confusion across many platforms that
on past performance. stocks in each sector might be we still have elements of the TOME
Another approach could be to more impacted by this seasonal- to employ through the use of robust
take the market out of it by being ity window and why. A tool such strategies. The TOME is an edge that
long the best odds and short the as our StockOdds database can can be taken seriously.
worst odds within that same group. assist you in identifying these
Another approach is to embrace a statistically, but it is good to think
bit more risk but still take larger about the underlying conditions
market event–based risk (especially that play into it.
on overnight trades) by being long the • Risks: If you choose to play the
best Financials and short the worst TOME by carrying positions
Industrials. overnight (potentially the biggest
payoff within these two to three
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THE TRADERS’ MAGAZINE SINCE 1982

www.traders.com JULY 2023

STAY ON TRACK WITH THE

FOOD AND BEVERAGE

Article Code Digital

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8 • July 2023 • Technical Analysis of Stocks & Commodities

Keeping With The Larger Trend

Stay On Track With

based on the past values of

computes the distance from

by Barbara Star, PhD

Trading signals—The cross-

Sullivan, et al. v. Barclays plc, et al. No. 13-cv-2811 (PKC)

SUMMARY NOTICE OF PROPOSED CLASS ACTION SETTLEMENT

July 2023 • Technical Analysis of Stocks & Commodities • 15

Barbara Star, PhD, is a retired

Tall Candles, Big Gaps

Wide-Range Gap Continuations

I discussed in part 1, I used a data dump of minute-by-

chain data. In this article, I will use the minute-

How about bull call/bear put spreads?

AHARONIAN/OPTION DATA tion Trading And Earning Announcement Volatility,”

Hedging In Swing Trading

timeframes show dif-

Using hedging to contend with Examples of hedging

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July 2023 • Technical Analysis of Stocks & Commodities • 35

So, what is a sideways

Sideways markets might

CALHOUN/MOMENTUM iNSiGhtS: why thiS this trade by adding shares during

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• If the close price is above the previous bar’s value