Index A pairs trading, 530 Acceleration, 382—386 product spreads, 531—537 Accumulation—bottoms and tops, 105—110 program trading, 525—526 Accumulative average, 258 ratio chart, 529—530 Adaptive techniques, 731—751 representative subset of an index, 527 Chande’s Variable Index Dynamic Average, 736 reverse crack, 534 comparisons, 741 single stock futures and underlying stock, 527—528 correlation coefficient, r2, 739—740 soybean crush, 532—533 dynamic index, 747—748 stock and futures relationships, 531 FAMA, 737—738 TED spread, 544 intraday breakout system, 748—749 ARIMA (Autoregressive Integrated ), Kaufman’s Adaptive Moving Average, 731—735 237—243 MAMA, 737—738 estimation: determining the coefficients, 240—241 Master Trading Formula, 745—746 first-order autoregression, 237 McGinley Dynamics, 742 forecast results, 241 MESA Adaptive Moving Average, 737—739 Kalman filters, 243 momentum calculations,740 second-order autoregression, 238 Parabolic Time/Price System, 742—745 trading strategies, 241—243 RSI programmed, 740—741 Arithmetic mean, 19—20, 26 process development example, 749—750 Arms’Equivolume, 490 trend-adjusted oscillator, 747 Arms Index, 504 stochastic, variable-length, 746—747 Artificial intelligence, 696—697. varying the trend period, 739—740 See also Pattern recognition, computer-based ADX (Average Directional Movement Index), 1015-1017 Aspects, planetary, 616—618 AD oscillator, 369—373 Aspray’s Demand Oscillator, 495—496 Advance-decline system, 508 Asset allocation. See Portfolio allocation Advanced techniques, 791—846 Astrology, financial, 612—625 chaotic patterns and market behavior, 826—827 Aspects, 616—618 entropy and conditional entropy, 827—829 Jupiter-Saturn cycle, 613—616 expert systems. See Expert systems lunar eclipses, 624—625 fractals. See Fractals lunar phases, 619—623 fuzzy logic. See Fuzzy logic moon, 615 genetic algorithms. See Genetic algorithms planetary clock, 615 measuring . See Volatility, measuring Saturn lines, 614 neural networks. See Neural networks solar eclipses, 623—624 price- distribution, 811—812 Attractors, 826 trade selection, 810—811 Autoregressive Integrated Moving Average. See ARIMA Bierovic’s On-Balance True Range, 810—811 Average, 19—22, 26—27 predicting volatility with trading ranges, 810 Also see Moving averages trends and noise, 812—815 averages, seasonal, 412—415 Agricultural patterns, 637. Average Directional Movement Index (ADX), 1015-1017 Also see Intraday patterns, Seasonality Average Maximum Retracement (AMR), 991—992 Allocation. See Optimal f, Portfolio allocation , 797 Annualizing, 39—40 Anti-Martingales, 957—958 B Anticipating a trend change, 346 Bands and channels, 292—299 Anticipating moves using price distributions, 756 Also see Confidence bands Arbitrage, 521—537 , 294—295, 299 Also see Spreads changing price objectives, 114—115 butterfly spreads, 536—537 compromise between reliability and delay, 298—299 carrying charge, 537—538 moving channels, 145—146 Class B, 525 profit targers, 113—115 commodities, storable, 521—522 rules for using bands, 295—297 crack spread, 533—534 , 754 crossrates, 523—525 timing the order, 297—298 forward rate parity, 523 volatility sensitive bands, 293—294 intercrop spreads, 534—536 Bar chart interest rate parity, 522—525 Also see Charting intermarket index spreads, 528—530 . See Dow Theory

Trading Systems and Methods, Fourth Edition Page 1 of 16 multiple signals, 123 Bolton-Tremblay, 503—504 pattern failures, 123—125 interpreting breadth systematically, 506—508 price objectives, 112—118 Is one better than another?, 505—506 bottom formation, 116 McClellan Oscillator, 504 channels, 113—115 Schultz A/T, 504 common elements, 113 Sibbett’s Demand Index, 503 consolidation areas, 113—115 Thrust Oscillator (TO), 505 flags, 116—117 TRIN, Arms Index. 504 head-and-shoulders, 116 Upside/Downside Ratio (UDR), 504 rule of seven, 117—118 Breakaway , 82—83 triangles, 116—117 Breakout systems tops and bottoms, 115 Also see Trend systems, event-driven, Day Trading reliability of trends, 122—123 1st hour, 723 testing your skill, 125—126 adaptive, 748—749 trends easier to see in retrospect, 122 intraday breakout systems, 720, 722—727 Bayes’ theorem, 49—50 N-day breakout, 200—207 Bear market, 66—71 modified, 203—204 seasonal patterns, 432 programmed, 324, 327, 330 Bear spread, 553—554 testing, 204—205 Bear trap, 124—125 risk profile, 309, 312 Behavior, modeling with neural network, 837—838 testing, 905—917 Behavioral techniques, 561—625 Bressart, Walt, 708 Commitment of Traders Report. Bullish Consensus, 582—583 See Commitment of Traders Report Bull and bear chart formations, 66—70 contrary opinion, 581—586 Bull market, 66—71 Elliott’s wave principle See Elliott’s wave principle seasonal patterns, 432 event trading. See Event trading Bull spread, 553—554 Fibonacci and human behavior, 587—590 Bull trap, 124—125 Financial astrology. See Astrology, financial Butterfly spreads, 536—537 Fischer’s Golden Section Compass System, 603—606 Buy and sell signals, 288—292 Gann. See Gann, W.D. news, trading on, 562—567 C market selectivity, 566 Cambridge Hook, 389 media indicators, 566—567 Candlestick charts, 118—122 ranking and measuring, 562—565 pivot points and candle charts, 121—122 price target constructions using Fibonacci ratio, 601 quantifying candle formations, 121 Benchmarks, 881—882 strategies, 118—122 Bernstein, Peter L., 1049 Caps, 87—88 Bias, 17, 873 Carrying charge spreads, 537—540 Bierovic’s On-Balance True Range, 810—811 Central tendency, measures of, 25 Binomial probability, 1037—1038 Chande’s Variable Index Dynamic Average, 736 Blau, William, 277 Chande, Tushar, 736, 1003, 1004 Block transactions, 586 Changing markets, 11 Bollinger bands, 294—295, 754—755 Channel breakout, 142—146 Bollinger, John A., 294 Channel projection, 144 Bolton-Tremblay approach, 503—504 Channels, 80—81 Bottoms and tops, 97—110 Also see Bands and channels danger of trading, 104 Chaotic patterns and market behavior, 826—827 double, 100—103 Charting, 59—127 extended rectangle bottom, 105—106 accumulation and distribution, 105—110 head-and-shoulders formation, 108—110 bar chart. See Bar chart trading rules for, 110 candlestick charts, implied strategies, 118—122 price targets, 115 channels, 80—81 rounded, 106—108 chart patterns, reasons for, 60—62 triple, 103—104 chart trend in retrospect, 73—74 V-bottoms, 100 consistent patterns, 60—62 V-tops, 97—100 consolidation patterns, 79—80 wedge patterns, 108 continuation patterns, 92—95 Breadth, 502—506 distribution—bottoms and tops, 105—110 Also see Volume, Open interest double and triple tops and bottoms, 100—104 advancing and declining volume, 503 Dow Theory, 63—72 Arms Index (TRIN), 504 episodic patterns, 111—112

Trading Systems and Methods, Fourth Edition Page 2 of 16 Also see Price shocks Commitment of Traders Sentiment Index, 584—585 flags, 94 Commodex method, 968—970 gaps, 82—84 Commodity cycle index, 479—480 Also see Gaps Commodity Selection Index (CSI). 1013, 1017 head-and-shoulders formation. 108—110 Compounding a position, 1025—1032 inside days, 90—92 adding equal amounts, 1026—1207 island reversals, 36—88 adding equal size, 1026 key reversal days, 89—90 comparison of compounding methods, 1028 major and minor formations, 96 maximum compounding, 1027—1028 major price moves and trends, 62—63 reflecting pyramid, 1028 noise, 96—97 upright pyramid, 1026 one-day patterns, 82—92 Computer, use and abuse of outside days, 90—91 acquiring data, 937—938 pattern evolution, 126—127 cleaning the data, 937—938 pennants, 94—95 combining standard techniques into a system, 938—939 price objectives for bar-charting. expectations, 943—944 See Bar chart, price objectives for it should work, but it doesn’t, 941 rectangle bottom, extended 105—106 isolating problems, 942—943, reversal days, 88—90 maybe it does in theory, 944—946 rounded tops and bottoms. 106—108 transparent or complex solutions, 942 run days, 96 vertical or integrated solutions, 941—942 spikes, 85—86 looking into the past, 940 lines, 75—76, 77, 78—79 paper trading, 940—941 systems and techniques. programming a new idea, 939—940 See Charting systems and techniques simple or complex?. 944 trading rules, 77—79 start slowly, 946 trendlines, 74—81 winner in disguise. 944 redrawing, 74—75 Confirmation, principle of, 70 triangles, 92—93 Confidence bands, 223—224, 214—215, 244—245 triple tops and bottoms, 100—104 Consolidation patterns, 79—80 V-bottoms, 100 Contingent probability, 45 V-tops, 97—100 Continuation patterns, 92—95 wedges, 95 Continuous forecasting, 132 wedge top and bottom patterns. 108 Conservation of captital, 291 wide-ranging days, 90—91, 728 Consolidation patterns, 79—80 Charting systems and techniques, 129—152 price targets, 113—115 action and reaction Contrary opinion, 581—584 Fibonacci ratios, 135—136 block transactions, 586 percentage retracements, 138—142 Bullish consensus, 582—584 Trident Commodity-Trading System, 136—138 Commitment of Traders Sentiment Index, 584—585 Tubbs’ Law of Proportion, 136 Dogs of the Dow, 585—586 basic principles of charting. See Charting basics Puppies of the Dow, 585—586 channel breakout, 142—145 put-call ratios, 585 combining techniques, 147 Small Dogs of the Dow, 585—586 complex patterns, 147—150 Corn-soybean relationship, 214—218 DeMark’s Sequential, 148—150 Correlation coefficient, r2, 220, 246—247 Dunnigan’s Thrust Method, 129—132 in adaptive trends, 739—740 One-Way Formula, 131—132 in portfolio allocation, 1049 Square Root Theory, 132 Correlation of systematic trading signals, 977—981 moving channels, 145—146 Countertrend. See Mean reversion Nofri’s congestion-phase system, 132—134 COT oscillator (COT Index), 579—580 outside days with an outside close, 134 Crabel, Toby, 720—722 study of, 150—152 Crack spread, 533—534 Chart patterns, computer recognition, 150—152 Crisis management, 952—954 Chi-square test (χ2), 1039—1042 Also see Price shocks Class B arbitrage, 525 Crossovers, moving average projected, 387 Cleaning data, 937—938 Crossovers, testing, 905—917 Cobweb charts, 54 Crossrate arbitrage, 523—525 Cohen, A. W., 172 Cups, 87—88 Commitment of Traders Report, 576—580 Curvilinear (second-order) approximation, 226—227 COT oscillator (COT Index), 579—580 Cycle analysis, 447—482 trading signals, 580 basics, 447—453

Trading Systems and Methods, Fourth Edition Page 3 of 16 cattle cycle, 448—449 reversal bar set-up, 729 commodity cycle index, 479—480 slippage costs, 704—706 cycle channel index, 478—480 support and resistance, 713—715 early identification, 450 Taylor trading technique. 718—720 Ehlers’ method, 471—473 trading using price patterns finding the cycle, 453—471 Also see Pattern recognition, Intraday patterns Fisher Transform, 476—478 Deflator, 56 Fourier analysis, 464—471 Demand. See Supply and demand Hilbert Transform, 473—476 Demand Oscillator, Aspray’s, 495—496 Hurst method, 480—482 DeMark’s projected ranges, 629—630 Kondratieff wave, 450, 452 DeMark’s Sequential, 148—150 maximum entropy, 471—478 DeMark, Thomas, 601 MESA (Maximum Entropy Spectral Analysis), Detrending, moving average, 420—423 471—473 Distributions. See Price distribution system observing the cycle, 448—450 Dogs of the Dow, 585—586 phase angle, 472—473 Dow Theory,, 63—72 phasing, 480—482 Directional indicator (PDI), 1015 removing the trend, 453—454 Directional Movement (DM), 1013—1020 spectral analysis, 464—466 Directional Parabolic System, 333—339 spectral density, 466 Dispersion, 27 Swiss Franc cycle, 450 Distribution—bottoms and tops, 105—110 terminology, 452—453 Distribution, price-volume, 811—812 triangular weighting, 453—454 Distributions. See Price distributions trigonometric analysis, 454—461 Divergence, 389—401 trigonometric regression, 2-frequency, 461—463 anticipating a divergence, 393 Tukey window, 467 double divergence, 394 MACD, 358—360 D momentum divergence, 389—401 Data and averaging, 17 using momentum peaks, 391—392 acquiring and cleaning, 937—938 programmed, 394—399 bias in data, 17 slope divergence, 399—401 data that is no longer useful, 18 trading rules, 392—394 economic data, 17 triple divergence, 394 how much data is enough? Diversification, 12, 1044—1048 law of averages, 16 balanced risk, 1047 quality of data used, 18 of markets, 1045 safety first, 19 test interval for portfolio allocation, 1082 sample error, 17—18 with multiple strategies, 1046 Data selection, 12, 853—858 DM (Directional Movement), 1013—1020 Data, synthetic, 857 Dogs of the Dow, 585—586 Davis and Thiel system tests, 901 Dogs of the Dow, Small, 585—586 Day trading, 699—729 Donchian’s 5- and 20-day moving average system, Also see Intraday patterns 336—337 choosing length of intraday bar, 712—713 Donchian’s Four-Week Rule, 202—203 intraday breakout systems, 720, 722—727 Double exponential smoothing, 276—278 liquidity, 702—704 Double and triple tops and bottoms, 100—104 mean-reverting strategies, 703 Also see Charting missed orders, 703—704 Double-smoothed stochastics, 377 moving averages, 711—712 Dow, Puppies of the, 585 uneven price bars, 712 Dow Theory, 63—72 opening range breakout, 722—727 averages, use of, 65 breakout ranges based on time, 722—724 basic tenets, 65—71 filtering opening range breakout, 727 bear market phase, 69 Fisher’s opening range breakout, 724—727 bull arid bear market formation, 66—68 Raschke trades Crabel, 722 bull market phases, 68 point-and-figure,709—710 confirmation, 70 time-of-day patterns, 707—709 futures markets and, 72 trading in wrong time zone, 709 interpreting today’s S&P using, 71—72 trading limits, 704 trends, 69—71 transaction costs, 700—706 secondary reactions, 69—70 set-up patterns for stocks volume, 70 day trades following wide-ranging bar, 728 Drop-off effect, 269

Trading Systems and Methods, Fourth Edition Page 4 of 16 Dunnigan, William forward chaining, 816—817 One-Way Formula, 131—132 technical expert system, 817—818 Square Root Theory, 132 Exponential curves, 228—229 Thrust Method. 130—131 Exponential smoothing, 269—278, 302—304 DX (true directional movement), 1015 Also see trend calculations and trend systems common form, 270—272 E comparison of exponential smoothing methods, Economic reports, reaction to 574 272—276 Eclipses, lunar and solar, 623—625 double smoothing, 276—278 Efficiency ratio, 731—735, 813 of price changes, 277—278 Efficient frontier, 987, 1059 Parabolic Time/Price system, 304—305 Ehlers’ cycle method, 471—473 Programmed, 322, 327, 330 Ehlers, John, 375, 737 risk profile, 309 Elasticity of demand, 52 smoothing and restoring the lag, 272 Elasticity of supply, 53 triple smoothing, 302—304 Elder-ray, 782 Extended rectangle bottom, 105—106 Elder, Dr. Alexander, 781—783, 1036 Extremes, identifying and fading, 354—357 Elder’s Triple-screen trading system, 781—783 profit targets, 357 Elliott’s wave principle, 590—601 Extreme spread levels, 551—552 automating Elliott’s wave analysis, 596—600 fitting the market to the patterns, 593 F oscillator, programmed, 597—600 FAMA, 737—738 sideways markets, 593 Fat tail, 286—287 supercycle, 596 Feedback, 845—846 trading Elliott, 595—596 in testing, 874 use of Fibonacci series, 594—595 Fibonacci ratio, 135—136, 587—590, 783 Eng, William F., 154 Elliott’s use of, 594—595 Entropy golden rectangle, 601 conditional entropy, 827—829 Golden Section Compass System, 603—606 Ehlers’ lateral shift in thinking, 472—473 golden spiral, 589 Fisher Transform, 476—478 human behavior, 587—590 Hilbert Transform, 473—476 profit targets, 601, 605—606 maximum entropy, 471—478 time-goal days, 604 MESA (Maximum Entropy Spectral Analysis), Fibonacci Trader, 785 471—473 Filters, 13 phase angle, 472—473 filtering highs and lows, 606 Episodic patterns. See Charting, Price shocks. filtering losing trades, 963—964 Equity trends, 1028—1029, 1031—1032 low-volume periods, 512—513 Equilibrium, Market Profile, 775 seasonal, 428—437 Equilibrium of supply and demand, 53—54 small price moves, 513 Equivolume, Richard Arms’, 490 volatility. See Volatility Error analysis, 251—255 volume, 512—513 Error, sample, 17—18 First-order autoregression, 237 Error in bias, 17 Fischer’s Golden Section Compass System, 603—606 Even numbers, trading on, 142 price goals, 605—606 Event-driven trends. See Trends, event-driven time-goal days, 604 Event lag, trading, 571 First hour breakout, 723 Event trading, 567—576 Fisher, Mark, 724—727 government reports, 570—57 1, 573 Fisher’s opening range breakout, 724—727 measuring an event, 569—570 Flags, 94 presidential election cycle, 574—576 price targets, 116—117 Raschke approach, 574 Fol1owing Adaptive Moving Average (FAMA), 737 reactions to reports, 568—569, 573 Force Index, 781 studies, 571—574 Forecast oscillator, 378—379 trading the event lag, 571 Forecasting and following, 249—255 volatility, 570 comparing errors of different time intervals. 253 Exhaustion gap, 83 error analysis, 251—253 Exiting a trade, 345 error analysis for trading, 255 high volatility exits, 805—806 explaining, not predicting, 212 Expectations, performance, 849—850, 943—944 forecast error and risk of trend trading, 255 Expected and actual results, 1036—1041 least-squares model, 251 Expert systems, 815—818 limiting forecast to direction, 253—254

Trading Systems and Methods, Fourth Edition Page 5 of 16 Forecasting trends. See Trend calculations Government reports, 570—571 Forward chaining, 816—817 Forward rate parity, 523 H Fourier analysis Hadady, Earl R., 581, 583 Excel’s Fourier analysis, 469—471 Harmonic mean, 21—22, 26 fast transform program, 468—469 Head-and-shoulders formation, 108—110 spectral analysis, 464—465 profit targets, 116 weighting factors, 466-468 Herrick Payoff Index, 381—382, 490 Four-Week Rule, 202—203 Hexagon chart, 608, 611 Fractals High-momentum trading, 357—358 Also see Efficiency ratio Highs and lows, projecting daily, 629—630 fractal dimension, 824—825 Highs and lows, system using ARIMA, 242 fractal efficiency, 825—826 Hilbert Transform, 473—476 Frequency distributions, 23—25, 33—34, 760—763 Hirsch stock market strategy, 443 Fundamentals versus technicals, 3—4 Historic volatility, 722 Fuzzy logic, 818—824 Hochheimer, Frank L., 1018 candlestick example, 821—824 Hochheimer’s system tests, 903—917 fuzzy reasoning, 819 Holiday effect for stocks, 437, 442 fuzzy solutions, 820—821 Holidays, 686 Horizontal count, 182—184 G Hurst method, 480—482 Gambling techniques, 954—963 anti-Martingales, 957—958 I complex Martingales, 961—962 Implied interest rate spread, 538—539 delayed countertrend entry into a run, 962—963 Index, 40—43 Martingales, 955—957 construction, 41 probability of a run, 954—955 cross-market and weighted index, 43 theory of runs, 958—961, 1041 leveraged long or short index funds, 41—42 trading daily sequences, 958, 960 U.S. dollar, 43 Gann, W. D., 606—612, 783, 785 Index funds, 41—42 geometric angles, 608 Indexing, 38 hexagon chart, 608, 611 Index, representative subset, 527 master chart of 360º, 608 Index spreads, 528—530 soybean square, 610 Index subsets, 527 Gaps, 82—84, 651—671 Inflation, adjusting for, 762 opening gaps, 655—670 Inflator, 56 overnight price gaps, 710—711 Inside days, 90—92 close-to-close gaps, 671 Institutional arbitrage, 525—527 trading method for stocks, 668—669, 671 Intercrop spreads, 534—536 Genetic algorithms, 838—844 Interest rate parity, 522—527 Also see Kaufman’s genetic algorithm solution Interest rate patterns. See Intraday patterns to portfolio allocation Intermarket spreads, 515—517, 543—547 converging on a solution, 844 Intraday fitness, 841 adaptive, 748—749 initial pool, 840—841 breakout systems, 720, 722—727 massive testing, 874—876 moving average, 711—712 mating, 843 patterns, 630—670 mutation, 843—844 point-and-figure, 709—710 portfolio allocation with. See Portfolio allocation volatility and volume, 801—802 propagation, 841—842 volume patterns, 510—512 representation, 839—840 W pattern, 485 simulated performance, 844 Island reversals, 36—88 Geometric angles, Gann, 608 Geometric mean, 20—21, 26 J Geometric moving average, 267—268 January effect for stocks, 443 Gold-Barrick Gold relationship, 218—219 Jiler, William L., 59, 576 Golden Section Compass System, Fischer’s, 603—606 Joint probability 45 Golden spiral, 589 Jupiter-Saturn cycle, 613—616 Also see Fibonacci ratio Golden rectangle, 601 K Also see Fibonacci ratio Kalman filters, 243 Gold/silver ratio, 541—543 Kaufman on stops, 1005—1006

Trading Systems and Methods, Fourth Edition Page 6 of 16 Kaufman’s Adaptive Moving Average, 731—735 straight-line fit., 212—218 volatility measurements, 734 Link relatives, seasonal method, 416—418 programmed, 735 Liquidity time period for ER, 733—734 day trading trading, 735 markets with trading limits, 701 Kaufman’s efficiency ratio, 731—735, 813 mean-reverting strategies. 703 Kaufman’s genetic algorithm solution to missed orders, 70:3—704 portfolio allocation portfolio constraints, 1064 Also see Porfolio allocation risk control, 988—990 constraining diversification, 1060 Liquidity Data Bank. See Market Profile genetic algorithm solution, 1060—1082 Livermore system, 158—160, 176 modern portfolio theory, 1054—1055 failed reversal, 159—160 objective function and target risk level, 1057—1058 Logarithmic curves, 228—229 optimal portfolio, 1058—1059 Long, Jeanne, 614—615 portfolio constraints, 1059 Lucas numbers, 594 special case for active trading, 1055—1057 Lunar eclipses, 624—62.5 Kaufman, Perry J., 337, 797, 831, 832 Lunar phases, 619—623 Kaufman’s strategy selection indicator, 1020—1022 Kelly, John L. Jr., 1034 M Keltner’s Minor Trend Rule, 163—164 MACD (Moving Average Convergence/Divergence), Keltner’s 10-day moving average rule, 302 358—360 Key dates, seasonal, 435—437 divergence, 392 Key reversal days, 88—90 MAMA, 737—738 Kondratieff wave, 450, 452 Marginal probability, 45 Krausz’s multiple time frames, 783—786 Market Facilitation Index, 513—514 Kurtosis, 32—33, 767—771 Market Profile, Steidlmayer’s, 771—778 equilibrium, 775 L quantifying the value area, 777 Lags and leads, 262—263 Time/Price Opportunities (TPO), 774—775 Law of averages, 16 trending markets, 777—778 Leads and lags, 262—263 what are buyers and sellers doing?, 775—777 Least-squares method, 212—214, 226—227, 236-237, 251 Market Sentiment Index, 582 Also see Linear regression Markov chains, 46—49 cycle analysis, 458—461 Martingales and anti-Martingales, 955—958, 961—962 Least squares, second-order, 226—227 Also see Gambling techniques Least-squares sinusoidal, 236—237 Master chart of 360º, 608 Legging in and out of a spread, 554—555 Master Trading Formula, 745—746 Leverage, 1000—1002 Mating, genetic algorithm, 843, 1070 spread, 559—560 Maxwell system tests, 902—903 Limited-risk spread, 539 Maximum entropy, 471—478 Limit moves, 972—975 Maximum price fluctuation, 796 Limits, trading, 704 McClellan Oscillator, 504 Linear correlation McGinley Dynamics, 742 Also see Least-squares McMillan, Lawrence G., 585 computer programs to find correlations, 222—223 Mean-reverting strategies, 547, 703, 966 correlation adjustments when using a time series, 223 delayed countertrend entry into a run, 962—963 forecasting using regression, 223—224 indicator using ARIMA, 242 confidence bands, 223—224 trade-offs with trend following, 966 Linear regression, 211—220 Media indicators, 566—567 Also see Nonlinear approximations, Regression Median, 25. 27 confidence bands, 223—224 Merrill, Arthur A., 437, 575, 590, 627, 632 corn explained by soybeans, 214—218 Merrill’s intraday patterns, 632—633 error analysis, 251—253 MESA Adaptive Moving Average, 737—739 error analysis for trading, 255 Missed orders, 703—704 explaining, not predicting, 212 Mode, 25—26, 30 forecast error and risk, 255 Modeling human behavior, 837—838. gold and Barrick Gold Corporation, 218—219 Also see Behavioral techniques least squares, 212—214 Momentum, 347—360, 401 programming and spreadsheet tools, 220, 323 Also see Oscillators risk profile, 312 acceleration. See Acceleration slope, 245—246 adaptive dynamic momentum index, 747—748 programmed, 323 Cambridge Hook, 389

Trading Systems and Methods, Fourth Edition Page 7 of 16 characteristics of, 349—351 types of combining a trend and an oscillator, 333—339 accumulative average, 258 difference between price and trend, 352 exponential. See Exponential smoothing Directional Parabolic System, 333—339 geometric, 267—268 double-smoothed momentum reset accumulative average, 258 double-smoothed stochastics, 377 standard deviation moving average, 262 Also see Stochastics truncated moving average, 259 extremes, identifying and fading, 354—357 weighted moving average, 259—261 Herrick Payoff Index, 381—382 weighting by groups, 261 high-momentum trading, 357—358 volume moving averages, 496—497 Moving Average Convergence/Divergence Moving Average Convergence/Divergence (MACD), (MACD), 358—360 358—360 moving average projected crossovers, 387 MPTDI (Major Price Trend Directional Indicator), percentage, 380 300—301 Also see Momentum rate of change Multiple time frames, 779—789 profit targets for fading extreme moves, 357 Elder’s Triple-Screen trading system, 781—783 rate of change (ROC), 351 Krausz’s multiple time frames, 783—784 , 352 laws of multiple time frames, 784—786 risk protection, 356 perspective on the three time frames, 786 scaling by a percentage or volatility, 380 Pring’s KST System, 786—789 timing an entry, 353 tuning two time frames to work together, 779—781 trend indicator, 353—354 Multivariate approximations, 231—237 TRIX, 378 generalized multivariate solution, 235—236 True Strength Index, 376—377 least-squares sinusoidal, 236—237 velocity. See Velocity Mutation, genetic algorithm, 843—844, 1071—1072 volume and momentum, 379—380, 382 volume-weighted RSI, 380—381 N Momentum divergence, 389—401 N-day breakout (rolling breakout). See Breakout, N-day Also see Divergence Negative Volume Index, 495 Monte Carlo sampling, 876—877 Neill, Humphrey, 581 Month-end effect for stocks, 442 Net momentum oscillator, 364 Moon, phases, 619—625 Neural networks, 830—838 programmed, 620—621 modeling human behavior, 837—838 Mother of Adaptive Moving Averages index (MAMA), 737 reducing number of decision levels and neurons, 837 Moving average, 255—267 selecting and preprocessing the inputs, 833—834 Also see Trend systems, time-based selecting the output, 834 10-day moving average rule, 302 terminology, 830 ARIMA (Autoregressive Integrated Moving Average). training example, 835—837 See ARIMA training process, 834—835 comparison of moving average methods, 264 News, trading on, 562—567 crossovers, moving average projected, 387 Nofri’s congestion-phase system, 132—134 testing, 905—917 Noise, 96—97, 812—815 Donchian’s 5- and 20-day moving average system, Also see Efficiency ratio 336—337 Noise and the frequency of stops, 1006 drop-off effect, 269 Nonlinear approximations for two variables, 224—226 Fol1owing Adaptive Moving Average (FAMA), 737 Nonlinear, transforming to linear, 228—229 intraday, 711—712 Notation used in this book, 14 Keltner’s 10-day moving average rule, 302 Kaufman’s Adaptive Moving Average, 731—735 0 lags and leads, 262—263 October effect for stocks, 444—445 MACD (Moving Average Convergence/Divergence), On-Balance True Range, Bierovic’s, 810—811 358—360 On-Balance Volume, 491—494 divergence, 392 One-Way Formula, 131—132 MAMA (Mother of All Moving Averages), 737—738 Opening direction. See Intraday patterns MESA Adaptive Moving Average, 737—739 Opening range breakout, 722—727 pivot-point weighting, 266—267 Also see Day trading programmed, 322, 327, 330 Open interest, 488—490 projected crossovers, 387 Opinion and contrary opinion. See Contrary opinion risk profile, 309 Optimal f, 1034—1036 seasonal method, 418—423 Optimal portfolio, 1058—1059 signal progression, 341—343 Optimal portfolio subsets, 1072—1074 triangular weighting, 264, 266 Optimization. See entry under Testing

Trading Systems and Methods, Fourth Edition Page 8 of 16 Optimizing directional movement, 1017—1020 PDI (directional indicator), 1015

Order entry, 14 - Pennants, 94—95 Oscillators, 360—375 Percentage R (%R) method, 373 Also see Momentum Percentage smoothing. See Exponential smoothing Elliott wave oscillator, programmed, 597—600 Performance criteria, 881—885 forecast oscillator, 378—379 benchmarks, 881—882 net momentum oscillator, 364 expectations, 849—850 (RSI), 361—364, 368 measuring test results, 882—885 Relative Vigor Index, 37-5 monitoring and feedback, 14 stochastics, 364—369 Peters, Edgar, 824 stochastic RSI, 368—369 Phase angle, cycle, 472—473 to distinguish between trending and sideways Phasing, 480—482 markets, 379 Pivot points, 87, 121, 266—267 trend-adjusted, 747 for candle charts, 121—122 Williams’ oscillators, 369—375 Pivot technique for projecting highs and lows, 629 AD oscillator, 369—373 Planetary clock, 615 %R method, 373 Platinum/gold ratio, 541—543 , 374—375 Point-and-figure method, 165—200 Outside days, 91 box size, 172—174, 186—187 Overfitting, 848 formations, 169—171 indexing and log scale, 196 P intraday, 709—710 Pairs trading, 517, 530—531 percentage box size, 196 Paper trading, 940—941 performance at different price levels, 199—200 Parabolic Time/Price System, 742—745 plotting prices using, 167—169 Parity, forward rate, 523 price objectives, 182—186 Parity, implied interest rate, 522—527 horizontal count, 182—184 Patterns and pattern recognition, 627—697 vertical count, 184—186 agricultural futures, 637—638 recent applications, 200 artificial intelligence methods, 696—697 rescaling, 187—189 computer-based, 691, 693—695 reversals, alternate treatment of, 181 gaps, 651—671 scaling by constant rate, 190—194 opening gaps, 655—670 selecting trades, 200 close-to-close gaps, 671 stock dividends and splits, 196—197 trading method for stocks, 668—669, 671 studies, 171—172 holidays, 686, 690 testing, 887—889 intraday patterns, 630—670 Trade Station Point-and-Figure System, 194—196 one-day patterns, 82—92 trading risk, 176—177 opening direction related to last bar of prior day, trading techniques, 177—181 643—645 trendlines, 171 projecting daily highs and lows, 629—630 variable-scale solution, 197—198 comparing the two ranges, 630 volatility patterns, 175—176 DeMark’s projected ranges, 629—630 Portfolio allocation, 1048—1082 pivot technique, 629 calculations,1048— 1050 Market Profile. See Market Profile genetic algorithm solution to portfolio allocation. Merrill’s intraday patterns, 632—633 See Kaufman’s genetic algorithm solution to seasonal patterns, 404—405, 432 portfolio allocation time-of-day patterns, 630—653 spreadsheet approach, 1050—1051 highs and lows, 645 test interval, 1082 programmed, 639—643, 651—653 using Excel’s Solver, 1050—1053 interest rate patterns, 636 Positive Volume Index, 495 trading, 649—651 Practical considerations, 935—981 trading, 638—639, 649—651 combining trends and trading ranges, 970—971 Tubb’s intraday patterns, 631—632 computers See Computer, use and abuse of reversal patterns, 671—693 Commodex method, 968—970 programmed, 690—693 data, acquiring and cleaning, 937—938 weekday patterns, 671—682 expectations, 943—944 programmed, 680—682 gambling techniques. See Gambling techniques weekend patterns, 682—683 limit moves, 972—975 programmed, 686—689 mean-reverting systems. See Mean-reverting weekend and weekday patterns, combined 683, paper trading, 939—940 685—686 price shocks See Price shocks

Trading Systems and Methods, Fourth Edition Page 9 of 16 programming, 939—941 Profit targets, 112—118, 196, 345 selective trading. See Filters Also see Bar chart, price objectives for similarity of systematic trading signals, 977—981 bar charting, 112—118 theory of runs. See Gambling techniques changing, 114—115 trade-offs, trend vs mean reverting, 964—965, 966—968 fading extreme moves, 357 trading limits, 972—975 for fading extreme moves, 357 trading ranges, 970—971 point-and-figure, 182—186 transparent and complex solutions, 942, 944 seasonal targets, 445—416 trend-following systems, 965—966 using Fibonacci ratios, 601—603, 605—606 too good to be true, 975—977 Program trading, 525—526 use and abuse of the computer. Programming, computer, 939—940. See Computer, use and abuse of See also Computer, use and abuse of Prechter, Robert R., 590, 596 Progression, moving average signals, 341—343 Presidential election cycle, 574—576 Propagation, genetic algorithm, 841—842, 1068—1070 Price changes, smoothing, 277 Puppies of the Dow, 585 Pring’s KST System, 786—789 Put-call ratios, 585 Price and Volume Trend, 495. Pyramiding. See Compounding a position Price distributions, 753—756 adjusting for inflation, 762 Q frequency distributions, 760—763 Quadratic mean, 21 long-term, 759—760 measuring distribution, 753—756 R medians and means, 762—763 Random walk theory, .5—7 patterns of market groups, 760 Ranking markets. See entry under Risk Control short-term distributions, 763—764 Raschke, Linda, 306—307, 574 standard deviations, 754—756 Raschke’s First Cross, 306—307 structural changes, 762 Rate of change (ROC), 351, 786—789 Price distribution systems, 756—778 Rate of return. See Return anticipating moves, 756 Ratio chart, 529—530 kurtosis and skew, trading system, 767—771 Ratios, gold/silver and platinum/gold, 541—543 programmed, 769—771 Ratio measurements, volatility, 798—799 skewness to identify a trend, 765—767 Reaction to economic reports, 574 standard deviation bands, 754 Rectangular formations, 105—106 Steidlrnayer’s Market. Profile, Regression analysis, 209—248 See Market Profile ARIMA (Autoregressive Integrated Moving Average). zone analysis, 756—758 See ARIMA zones for forecasting range and risk control, 758—759 basic trading signals using a linear regression model Price objectives. See Profit targets adding confidence bands, 244—245 Price shocks, 946—954 adding R2, 246—247 effect on testing, 920—922 linear regression slope, 245—246 episodic patterns, 111—112 components of a time series, 209—210 crisis management, 952—954 evaluation of two-variable techniques, 229—231 fooling yourself with hindsight, 947—951 direct relationships, 230—2:11 identifying, 951—952 linear correlation. See Linear corrrelation limit moves, 975 linear regression. See Linear regression money moves the markets, not fundamentals, 947 measuring market strength, 247—248 realistic distributions and, 997—998 multivariate approximations, 231—237 Value at Risk (VaR), 997—998 generalized multivariate solution, 235—236 Price targets. See Profit targets least-squares sinusoidal, 236—237 Pring’s KST System, 786—789 selecting data for an S&P model, 234—235 Pring, Martin, 90, 786—789 nonlinear approximations for two variables, 224—226 Programming, 939—941 price data characteristics, 210—211 Projecting daily highs and lows, 629—630, 800—801 calculation period selection, 211 Probability, 43—50 second-order least squares, 226—227 Bayes’ theorem, 49—50 transforming nonlinear to linear, 228—229 contingent probability, 45 Relative strength, 352 joint probability, 45 Relative Strength Index (RSI), 361—364 laws of, 44 adaptive, programmed, 740—741 marginal probability, 45 Relative Vigor Index, 375 Markov chains, 46—49 Research skills, 9—10 Probability density function, 476—477 Reset accumulative average, 258 Probability of achieving a return, 28—29 Retracements, 134—142

Trading Systems and Methods, Fourth Edition Page 10 of 16 Returns, calculation of, 36—40 Also see Statistics S Reversal, failed, 159, 160 S&P multivariate example, 234—235 Reversal patterns, 88—90, 177—180, 690—693 Sample error, 17—18 Reverse crack, 534 Saturn lines, 614 Richard Arms’ equivolume, 490 Scatter diagrams, 867—869 Risk calculations. See Risk measurements, Statistics Schabacker, R. W., 62 Risk characteristics of systems, 998—999 Schwager, J. D., 56 Risk control, 13—14, 356—357, 983—1041 Seasonality, 403—446 binomial probability, 1037—1038 averages, yearly, 412—415 chi-square test (χ2), 1039—1042 bear market patterns, 432 comparing expected and actual results, 1036—1041 bull market patterns, 432 compounding a position. See Compounding a position calculating, 405—428 efficient frontier, 987 program to create a table of monthly price changes, equity trends, 1028—1029, 1031—1032 411—412 individual trade risk, 1002—1012 calendar, 437 initial positions, 1003 comparison of different methods, 423—425 optimal f, 1034—1036 external factors, 446 Kaufman’s Strategy Selection Indicator, 1020—1022 filters, 428—437 leverage, 1000—1002 Hirsch strategy, 443 liquidity, 988—990 holiday effect for stocks, 437, 442 measuring. See Risk measurements Indexing, 406 mistaking luck for skill, 983—984 January effect, 443 pyramiding. See Compounding a position link relatives, 416—418 ranking markets for selection key dates, 435—437 Average Directional Movement index (ADX), moving average method, 418—423 1015—1017 month-end effect, 442 Commodity Selection Index (CSI). 1013, 1017 nonseasonal years, 446 Directional Movement (DM), 1013—1020 patterns, 404—405, 432 directional indicator (PDI), 1015 selecting data, 405—406 true directional movement (DX), 1015 similar characteristics, years with, 430—432 risk-adjusted returns, 999 targets, 445-416 risk aversion, 984—988 trading rules, 432, 434—435 risk of ruin, 1022—1025 trend, removing the, 415—416 risk preference, 986 volatile years, effects of, 411 stops. See Stops volatility, 425 utility versus wealth, 985 weather sensitivity, measuring, 426—428 Risk of ruin, 1022—1025 Winter’s method, 423 Risk measurements Second-order autoregression, 238 Average Maximum Retracement (AMR), 991—992 Second-order least squares, 226—227 it’s not the markets, it’s the money, 999—1000 Selective trading. See Filters largest loss, 993 Sell signals, 288—292 naive performance criteria, 991 Semi-variance, 994 potential risk, 993—994 Sensitivity testing, 885 return and risk, 990—1000 Sentiment Index, Commitment of Traders, 584—585 semi-variance, 994 Sequences, trading daily, 958, 960 Sharpe ratio, 991—992 Sequences, weekday patterns, 672—682 , 993—994 September effect for stocks. 444—445 Value at Risk (VaR), 995—998 Sharpe ratio, 991—992 Risk preference, 549, 986 Shocks. See Price shocks. Risk profiles, trading system, 309—312 Sibbett’s Demand Index, 503 Risk, September and October, 444—445 Sideways markets Robustness. See entry under Testing divergence to identify a sideways market, 385—386 ROC, (Rate of change), 351, 786—789 identifying with velocity and acceleration, 385 Rolling breakout. See Breakout, N-day Strength Oscillator, 379 Rounded tops and bottoms, 106—108 Signal progression, moving average, 341—343 RSI (Relative Strength Index), 361—364 Significance, testing of, 17 Ruggiero, Murray, 574, 579, 580, 597, 600, 820, 834, 1016 Similar situations, 827 Rule of Seven, 117—118 Similarity of systematic trading signals, 977—981 Runaway gap, 83 Single stock futures arbitrage, 527—528 Run days, 96 Skew and kurtosis, trading system, 767—771 Runs, Theory of. See Gambling techniques Skewness, 29—32, 765-771

Trading Systems and Methods, Fourth Edition Page 11 of 16 Slippage costs, 704—706 distributions, 22—36 Slope frequency distributions, 23—25 divergence, 399—401 median and mode, 25—26 linear regression, 245—246 probability. See Probability system using ARIMA, 212—243 returns and risk, 36—40 Small Dogs of the Dow, 585—586 annualizing risk, 39—10 Smoothing. See Exponential smoothing calculating returns, 37—38 Smoothing constants, 283—284 calculating risk, 38—39 Solar eclipses, 623—624 downside risk, 40 Soybean-corn relationship, 214—218 indexing returns, 38 Soybean crush, 532—533 Steidlmayer’s Market Profile. See Market Profile Soybean square, Gann’s, 610 Step-forward testing, 871-874 Spectral analysis, 464—465 Stochastic techniques Spectral density, 466 Also see Oscillators Spikes, 85—87 double-smoothed stochastics, 377 Spreads, 515—560 combined with trend, 780 Also see Arbitrage oscillators, 364—369, 377 aribitrage-spread relationships, 519 variable-length, 746—747 bull and bear spreads, 553—554 Stock dividends and splits, 196 butterfly spreads, 536—537 Stops, 1004—1012 carrying charge spreads, 537—540 conflicting with trading strategy, 1007 changing spread relationships, 540—544 Kaufman on stops, 1005—1006 comparisons, historical, 548—551 managing risk with and without, 1012 crack spread, 533—534 market noise and the frequency of stops, 1006 creating a spread to protect an outright position, 555 multiple time frames, 782—783 dyramics of futures intramarket spreads, 515-517 risk protection or false hope?, 1006 extreme levels, 551—552 Standard Deviation Stop, 1005 financial spreads, 543—544 testing, 1007—1011 gold/silver ratio, 541—543 total losses are constant, 1006—1007 implied interest rates, 538—539 trailing stop, 1004—1005 index spreads, 528—530 Straight-line fit, 212—218 intercrop spreads, 534—536 Strategy Selection Indicator, Kaufman’s, 1020—1022 intermarket spreads, 515—517, 543—547 Strength, measuring market, 247—248 legging in and out of a spread, 554—555 Strength Oscillator, 379 leverage, 559—560 Student t-test, 35—36, 886—887 limited-risk spread, 539 Subsets, optimal portfolio, 1072—1074 mean reverting, 547 Supercycle, 596 oscillator, use of, 552 Supply and demand, 50—58 pairs trading, 517, 530—531 building a model, 55—58 platinum/gold ratio, 541—543 cobweb charts, 54 product spreads, 531—534 demand, 50—52 ratios, 556—558 elasticity of demand, 52 relative extremes, 551—552 elasticity of supply, 53 reverse crack, 534 equilibrium, 53—54 risk, 547 supply, 52—53 risk reduction, 520 Support and resistance, 713—715 soybean crush, 532—533 Swing trading, 155—165 spread and arbitrage relationships, 519 Keltner’s Minor Trend Rule, 163—164 stocks, 517—519 Livermore System, 158—160 of spreads, 548—559 percentage swings, 160 trend analysis, 547, 552—556 programmed, 324, 327, 330 volatility and spread ratios, 555—556 rules for trading a swing method, 157—158 Square Root Theory, Dunnigan’s, 132 swing high and low points, programmed, 160—163 Standard deviation, 27—28, 753—756, 804 swing high and low points using Excel, 163 bands, 754 swing philosophy, 158 standard deviation and frequency distribution, 33—34 Synthetic data 857 standard deviation moving average, 262 System disconnect during a crisis, 953—954 standard deviation stop, 1005 Also see Price shocks Standard error, 34—36 System testing. See Testing Standard Deviation Stop, 1005 Statistical arbitrage, 530 T Statistics, 22—40 Targets. See Profit targets

Trading Systems and Methods, Fourth Edition Page 12 of 16 Taylor trading technique, 715—720 Tops. See Bottoms and tops TED spread, 544 Trade-offs, trend vs mean reverting, 964—968 Testing, 13, 847—934 Trading ranges, 970—971 arriving at valid test results, 879—887 Trade selection, 810—811 common sense versus statistics, 879—880 TradeStation Point-and-Figure System, 194—196 reading between the lines, 885 Trading range, 81, 800 searching for robustness, 880—881 Trading styles in stocks and futures, 2—3 systems that work in only one market, 885—886 Trading systems and methods assumptions, realistic, 926—927 adaptive techniques. See Adaptive techniques benchmarks, 881 advanced techniques. See Advanced techniques changing the strategy rules, 878 arbitrage. See Arbitrage comparing results of two systems, 389—395 basic concepts, 16—27 continuity, 860 characteristic of, 26—27 data selection, 853—858 data and averaging, 16—27 adjusted data series, 856 dispersion, 27 synthetic data, 857—858 frequency distribution, 33—34 which data series is best?, 856 kurtosis, 32—33 expectations, 849—850 mean deviation, 27 feedback, 874 probability of achieving a return, 28—29 genetic algorithm method, 874—876 skewness, 29—32 getting big picture through testing, 918—920 standard deviation, 27—28, 33—34 massive testing, 874—876 standard error, 34—36 Monte Carlo sampling, 876—877 variance, 27 optimal results, searching for, 858—860 charting. See Charting basics; Charting systems, optimization, 858—860 Bar charts anatomy of an, 922—925 cycle analysis. See Cycle analysis out-of-sample data, 871—874 day trading. See Day trading parameters, identifying, 850—853 distributions, price. See Statistics distribution of values to be tested. 851—852 diversification and portfolio allocation. See ranking by importance, 852 Diversification and portfolio allocation types of test variables, 852—853 event-driven trends. See Trends, event-driven performance criteria, 881—885 event trading. See Event trading benchmarks, 881—882 momentum and oscillators. measuring test results, 882—885 See Momentum and oscillators point-and-figure testing, 887—889 pattern recognition. See Pattern recognition price shocks, 920—922 practical considerations. See Practical considerations profiting from the worst results, 895—898 price distribution systems. See Price distribution systems retesting procedure, 878, 898—900 price distributions. See Statastics robustness, 313—314, 926, 928—933 regression analysis. See Regression analysis results, visualizing and interpreting, 861—871 risk control. See Risk control averaging the results, 870—871 seasonality. See Seasonality continuity in test results, 861—864 spreads and arbitrage. See Spreads and arbitrage measuring, 882—885 statistics. See statistics standardizing test results, 870 system testing. See System testing two-parameter tests, 864—869 time-based trend calculations. scatter diagrams, 867—869 See Time-based trend calculations sensitivity testing, 885 time-based trend systems. See Time-based trend systems size of test, 851 trends. See Trends step-forward testing, 871—874 trends, event-driven. See Trends, event-driven Student t-test, 886—887 volatility. See Volatility, measuring studies, 900—917 volume, open interest, and breadth. Davis and Thiel, 901 See Volume, open interest, and breadth Hochheimer, 903—917 indices, 40—43 Maxwell, 902—903 constructing an index, 41 targeted test results, 927—928 cross-market and weighted index. 43 Thrust Method, Dunnigan’s, 129—132 leveraged long or short index funds, 11—42 Thrust Oscillator, 505 U.S. dollar index, 43 Tick volume, 484 supply and demand. See Supply and demand Tick Volume Indicator, 496 Trading systems and methods, introduction to, 1—14 Time-of-day patterns, 630—653 fundamentals versus technicals, 3—4 Time series. See Linear regression, Cycles professionals versus amateurs 4—6 Time zone, trading in the wrong, 709 profile of a trading system, 11—14

Trading Systems and Methods, Fourth Edition Page 13 of 16 random walk theory, 5—7 TradeStation EasyLanguage code, 320—329 research skills, 9—10 return patterns, 317 trading styles in stocks and futures, 2—3 risk profiles, 309—312 Trailing stop, 1004—1005 robust testing, 313—314 Transaction costs, impact of, 320, 700—706, 891—892 similar systems give similar results, 313 Transformations, data, 31 trend philosophies, 309 Traps, bull and bear, 124—125 trading rules, 307 Triangles, 92—93, 116 transaction cost impact, 320 price targets, 116—117 varying speed of trend, 307 Triangular weighting, 264—266 which system is best?, 314—317 Trend-adjusted oscillator, adaptive, 747 comprehensive studies, 337 Trend analysis in spreads, 547, 552—556 Dow Theory Trend change, anticipating, 346 classifications, 69 Trend-following philosophy, 344—346 minor, 70 Trend-following systems, 965—966 persistence, 71 ARIMA, 242 secondary, 69—70 Trendlines. See Charting basics, trendlines exiting a trend trade, 345 Trends. See Dow Theory, Trend calculations, exponential smoothing, 302—304 Trend systems fat tail, 286—287 Trend calculations, 249—284 linear regression, 312 drop-off effect, 269 market maturity, 285—286 exponential smoothing. See Exponential smoothing Master Trading Formula, 305—306 forecasting moving average. See Moving average comparing errors of different time intervals, 253 moving average sequences: signal progression, error analysis, 251—253, 255 341—343 least-squares model, 251 MPTDI (Major Price Trend Directional Indicator), limiting forecast to direction, 253—254 300—301 geometric moving average, 267—268 multiple trends, 337 moving average, see Moving average Also see two trends relating exponential and standard moving averages, Parabolic Time/Price system, 304—305 278-284 Raschke’s First Cross, 306—307 smoothing constants, best approximation, 283 selecting the right moving average, 337—341 smoothing, residual impact, 283—284 single trends, 299—307 what do you average?, 257—258 profile, 290—292 Trend philosophy, 309, 344—346 10-day moving average rule, 302 Trend systems, comparison of, 307—332 trend speed, 338—339 Trend systems, event-driven, 153—208 triple exponential smoothing, 302—304 applied to stocks, 205—207 two trends, techniques using, 332—336 breakout. See Breakout systems dilemma of two-trend system, 346 Donchian’s Four-Week Rule, 202—203 Donchian’s 5- and 20-day moving average system, modified for the final three months, 203 336—337 swing system. See Swing trading volatility system, 301—302 N-day breakout, 200—207 why trend systems work, 285—287 Also see Breakout systems, Day Trading Trends and noise, 812—815 point-and-figure. See point-and-figure charting Trends, bar charting, 122—123 programmed, 325, 327, 330 Triangular weighting, 453—454 weekly breakout programmed, 205 Trident Commodity-Trading System, 136—138 Trend systems, time-based, 285—346 Trigonometric analysis, 454—461 anticipating a trend change, 289—290, 346 Trigonometric regression, 2-frequency, 461—463 ARIMA, 212 TRIN, Arms Index, 504 bands and channels. See Bands and channels. Triple-screen trading system, 781—783 buy and sell signals Triple tops arid bottoms. See Bottoms and tops price crossings, 288—289 TRIX. 378 for a simple moving-average system, 290—292 True directional movement (DX), 1015 trendline, 289 True range, 797 calculation period, 307 True Strength Index. 376—:377 Also see Testing Donchian’s 5- and 20-day moving average system, comparison of major trend systems, 307—322 336—337 expectations, 313 t-Test, student, 35—36 frequency of trades, 312, 317 Tubb’s intradav patterns, 631—632 programming six systems Tubbs’ Law of Proportion, 136 spreadsheet code, 330—332 Tukey window, 467

Trading Systems and Methods, Fourth Edition Page 14 of 16 Two-frequency trigonometric regression, 461—463 On-Balance Volume, 401—494 Positive Volume Index. 495 U Price and Volume Trend, 495 Ulcer Index, 993—994 Programmed EasyLanguage code, 499—502 Ultimate Oscillator, 374—375 Programmed volume indicators spreadsheet code, Unemployment reports, 573 497—498 Universal Clock, 615 Tick Volume Indicator, 496 Upside/Downside Ratio, 504 variable moving averages for volume, 496—497 U.S. dollar index, 43 Volume Accumulator, 494 Utility versus wealth, 985 volume momentum and percentage change, 491 volume oscillator, 491 V V-tops, 97—100 Value area. See Market Profile integrated probability model, 509—510 Value at Risk (VaR), 995—998, 1066 interpretation, 487—488 Variable moving averages for volume, 496—497 interpreting volume and breadth systematically Variance, 27 advance-decline system, 508 V-bottoms, 100 identifying a volume spike, 506—507 Vertical count, 184—186 moving average approaches, 507—508 Velocity, 382—386 intraday volume patterns, 510—512 VIDYA (Variable Index Dynamic Average), 736 Market Facilitation Index, 513—514 Villiers, Victor De, 166 volume moving averages, 496—497 Vince, Ralph, 1034 interpretation, 487—489 VIX trading system, 802 Is one better than another?, 505—506 Volatility, 791—799 interpreting volume systematically, 506—508 calculation period, 793—796 open interest, 488—490 Chande’s VIDYA, 736 spikes, 486, 506 constructing a volatility filter, 804, 807—809 tick volume, futures, 484 entry filter results, 804—805 variance, 485—486

filter or delay?, 803 variations from normal patterns for trade selection, 803—806 drop in volume, 486—487 high volatility exits, 805—806 W intraday pattern, 485 forecasting tomorrow’s trading range using VIX, volatility, volume is a predictor of, 490 800—801 volume and momentum, 379—380, 382 historic, 722 volume-weighted RSI, 380—381 intraday volatility and volume, 801—802 W pattern, 485 lognormal transformation, 796 V-tops and bottoms, 97—100 measuring, 796—799 predicting with trading ranges, 810 W seasonal, 425 Walk-forward testing, 871—874 spread ratios, 555—556 Weather sensitivity, 426—428 to determine base price, 792—793 Weekday patterns, 671—682 transforming components instead of price, 792—796 Also see Patterns volume is a predictor of, 490 Weekend patterns, 682—689 VlX trading system, 799—802 Also see Patterns volatility system, 802—803 Weekly breakout, 205 Volume Accumulator, 494 Wedge top and bottom patterns, 108 Volume Wedges, 95 advance-decline system, 508 Weighted average, 17, 19 breadth, 502—506 Weighted moving average, 259 Dow Theory, 70 Weingarten, Henry, 613 drop in volume, 486—487 Weymar, F. H., 58 Equivolume, Richard Arms’, 490 White noise, 812 filtering, 512—513 Wide-ranging days, 90—91, 728 Also see Filters Wilder, J. Welles, Jr. removing low-volume periods, 512—513 Average Directional Movement Index (ADX), removing volume associated with small price moves, 1015-1017 513 Commodity Selection Index (CSI). 1013, 1017 futures volume, 483—484 directional indicator (PDI), 1015 Herrick Payoff Index use of volume, 490 Directional Movement (DM), 1013—1020 indicators, 490—502 RSI (Relative Strength Index), 361—364 Aspray’s Demand Oscillator, 495—496 Swing Index System, 164—165 Negative Volume Index, 495 true directional movement (DX), 1015

Trading Systems and Methods, Fourth Edition Page 15 of 16 Williams, Larry, 370—374 X-11 seasonal adjustment method, 421—423 Williams’ oscillators, 369—375 Winter’s method for seasonality, 423 Z Wyckoff, Richard, 63, 171, 176 Zone analysis, 756—759 Zones for forecasting range and risk control, 758—759 X

Trading Systems and Methods, Fourth Edition Page 16 of 16