TRADERS´ English I July 2014 - page 33

tools
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the individual analysis of different
pairs and the tracking of the orders
generated in realtime.
You can choose from all the
world’s stock exchanges and
compare all individual shares
using the ticker symbol. The user
can compare sectors, countries,
commodities, currency pairs and
indices. The main purpose of the
software is the automatic generating
of signals after extensive backtests.
The software needs online access
for the data history and realtime
data for generating signals. Traders
can use Yahoo! free data delayed
by 15 minutes or subscribe to the
provider’s iQFeed.
Single Analysis Welcome
The software can be used to
automatically generate trading
signals as well as for making extensive manual analysis.
Figure 1 shows the working screen as well as the
analysis of the stocks Red Robin Gourmet Burger Inc.
(ticker symbol RRGB) and The Wendy´s Company (WEN)
from the restaurant sector. On the left you find the signal
history and the right bigger part of the screen shows
four charts.
The signals are generated, if the difference between
the green ratio-line and the moving average is greater
than the 2,70 standard deviation – plus or minus. The ratio
equals the price of the first share divided by the price of
the second. If the green line returns below 1,0 standard
deviation, it is recommended to close the position. The
right part of the upper screen shows the current standard
deviation graph that triggered the entry. The left lower
corner shows the RSI indicator based on the ratio to
recognize divergences. Professional trader Joe Ross
introduced this technique years ago. The difference
between the two stock prices is shown as a line on the
right lower corner.
On 13th January 2014 an entry signal is generated.
Long RRGB (entry day green)/short WEN (entry day red).
We follow a common strategy in pairs trading, where
extreme differences in pairs are traded: You bet on the
approximation of the pair.
Eachposition shouldbe enteredwith the same amount
of money. Therefore you have to divide the amount by the
stock price. For example $2000 – the position is 30 stocks
You can analyse every pair based on different charts and backtest the signals on the left for a period of ten
years.
Source:
F1)
Single Analysis and Control Centre of Pairtradefinder
RRGB long and 222 stocks WEN short. You can also select
a predefined number of stocks, for example 100 stocks on
each side.
For about two months both stocks increased –
RRGB more than WEN. This stock generated a profit of
$277.80 whereas the stock WEN achieved a loss of
$24.42. The difference is nearly $250 – the profit
excluding trading fees, an ideal and profitable signal
that was generated based on backtests of stocks of
American restaurants.
Backtesting Preparations
You can choose endless shares for backtesting. You
name the catalogue, the stock market and with the help
of the ticker symbol you can download the appropriate
price history. Figure 2 shows a catalogue for advertising.
There are 13 stocks. There could be more of course,
but that would increase the necessary computing time.
The number of stocks to the second shows the number
of cycles because every pair is combined with another
one. For 100 stocks this equals 10,000 single calculations,
whereas there are only 169 necessary for the advertising
catalogue to filter the right candidates.
You can use the appropriate ticker symbols and
settings of the German stock exchange XETRA to
compare the 30 DAX-shares. It makes sense to analyse
the maximum number of years available. Ten years of
history are analysable – but the computer will need to
1...,23,24,25,26,27,28,29,30,31,32 34,35,36,37,38,39,40,41,42,43,...80
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