Modulus Financial Engineering
“Trading Edge” Newsletter for July 2004
Issue 2-2003: "Consensus Trading... YOU have the Power!"
(Next issue: 3-2003: "How
I Made $2,000,000 In The Stock Market")
The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in consideration of your financial condition. In no event shall Modulus Financial Engineering be responsible for your trading losses.
Over the course of fifteen years, I have read nearly a hundred books on trading and have attended
several trading seminars, but I have seldom heard any mention about what I call "consensus trading".
What is consensus trading? Its simple, really. You go with the consensus of several popular technical
indicators. When most of them say "buy", you buy. Conversely, when most of them say "sell", you sell (or exit!). I like this trading system because
it is based on the KISS principle.
You may choose to stay in the market 100% of the time (swing trading) by entering a trade when the
consensus of signals cross the zero point, or you may be selective by entering a trade only when the
consensus enters a certain range, such as 70% short, or 80% long, etc. You might also create exit strategies in the same manner. It all depends on your style of trading
and risk tolerance.
If you really think about it, consensus trading makes sense. But the question is, why is it seldom
discussed or used?
My guess is that it is too difficult and time consuming! For most traders (even professionals), it would be
very time consuming to apply all the technical indicators (and there are many of them!) to hundreds of
symbols on a daily, hourly, or even minutely basis.
COULD YOU IMAGINE APPLYING EVERY TECHNICAL INDICATOR TO HUNDREDS OF
SECURITIES FOR A DAY TRADING SYSTEM? NEARLY IMPOSSIBLE! CERTAINLY DIFFICULT!
This is where fast computers come in handy. But unfortunately, there probably aren't many trading
programs that allow this type of analysis. In my opinion, this is where profits are to be made. Wherever technology allows you to have an edge that
the person holding the other side of the trade doesn't have, there stands a chance for profit. Especially when decisions must
be made quickly!
By using the Modulus Financial Engineering TA-SDK, you can scan hundreds or thousands of symbols on a minute-by-minute basis,
applying each technical indicator to form a consensus trade recommendation. This output signal may be used to enter and exit
trades and/or to evaluate risks.
Why does it work? I believe that technical indicators work only because other traders are using them, but that's another
topic. So with that, it makes sense to take the consensus of indicators and roll them into
one, therefore the market can tell you what traders are thinking and not just what one, two, or even three indicators are saying.
We have developed a consensus module for TA-SDK which can be downloaded using the URL below.
This module is free to use for licensed users of TA-SDK (TASDK.dll library is required to run the DLL). This report module is an ActiveX DLL compiled in
VB6. It outputs a consensus report in HTML format, although you can change this to another format that your trading system
understands. The same source code can be accomplished using TA-SDK for .net, C++, Java or Excel. There are 650 lines of
source code that makes use of approximately 90% of TA-SDK.
Enjoy!
Ron Lightfoot, PhD
Related files:
TA-SDK Consensus Report including compiled dll and source
TAREPORT.zip 21kb
Copyright(c) 2008 by Modulus Financial Engineering
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