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It’s the end of a tumultuous year for the markets I trust most of you have survived and are wondering what is in store over the New Year. Our end-of-year newsletter features an article by Daryl Guppy on ‘Using a Private Index’. A private index is a tool for monitoring the effectiveness of your selected trading techniques. Click here to read the full article.
We follow this article with a BodhiGold Tip, on 'How to Create a Private Index'.
If you missed Daryl Guppy’s seminar this year then don’t despair, we have put together, for a limited time only, two bundles packed with value so you can benefit from his teachings and trading techniques.
On behalf of everyone at JustData we thank you for your support in 2009 and wish you all the best for Christmas and the New Year.
Regards,
Jenny Beardmore
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Daryl Guppy Bundles
Bundle 1:
» 3 Seminar DVD's:
- E.W.S. (Early Warning System): The E.W.S. trading
approach alerts traders to developing opportunities. With
over 45 minutes of quality teaching, Guppy explains how
to identify the five chart patterns you must know …
- GMMA Trend Volatility: Make volatility your friend using
these advanced trend volatility methods to manage trade
entry and trade exit. Trend volatility delivers better trade
management and avoids false exits from profitable
trades.
- Catching the Bounce: Trading the bounce is a reliable,
successful and simple strategy in a bull market. In a bear
market the rules change. Momentum trades from the
long side behave differently.
+ GTE Charting Software containing Daryl Guppy and Alan
Hull tools and indicators.
Bundle 2:
» All of Bundle 1
+ Annual Australian Securities Exchange data subscription to
BodhiGold with historical data.
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Using a Private Index
A private index is a tool for monitoring the effectiveness of your selected trading techniques. It is sometimes confused with a portfolio tracking tool which tracks the success of individual trades. The private index helps you to understand how well you are doing in relation to the market. Are you in touch with the market, or are you losing touch? Is the failed trade part of a pattern, or just a normal part of the balance of probabilities in trading? The private index helps to answer these questions.
Usually, at the end of any selection process, we have to make an intuitive choice between two or more equally valid trading candidates. Luck sometimes plays a role and we select the best, or worst, performing of these three candidates. When the trade fails, we may assign the result to bad luck, but this failure may mask a developing failure in our selection technique. When a trade succeeds, we assume this is due to our skill, but even this may be due to luck and mask a failure in our selection techniques. The Private index provides a way to monitor the ongoing success of our selection and analysis process.
The starting point for a private index is our personal selection processes. For simplicity, we assume traders have just a single selection process. In reality, traders often have several distinct selection methods and these can all be tracked with individual private indices. A selection process is a consistent series of steps used to identify and select stocks for further analysis. We could use a technical search that selects stocks where the 7 day moving average has crossed above the 21 day moving average sometime in the past 5 days. Filter these results to eliminate those where the degree of separation between the averages is less than 3% or more than 8%. Further filter the results to remove stocks where the average 10 day value of trading has been less than $100,000 per day. Finally, focus only on those stocks where price is between $0.40 and $1.50.
This is not a particularly complex search technique, but like all technical searches, it reflects our belief about the market and opportunity. This search tells us that the trader believes the market offers trending opportunities in stocks with consistent liquidity and that these opportunities are best exploited using a reasonable level of price leverage. Further, this search is interested in finding newly established breakout opportunities as a new uptrend emerges. Armed with this approach, the trader searches for just this particular type of opportunity, because he believes this is the best way to trade the market at this time. But is it?
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BodhiGold5 Tip
How to create a Private Index
BodhiGold has a built-in private index builder. This index builder allows you to specify the securities you wish to track and then save them as an index. You can also choose to weight your securities by entering numbers into the Weight column. If you are making an index from the securities you own you could weight them according to the volume or total price they hold in your portfolio.
BodhiGold creates the index by averaging the prices (open, high, low, close, volume and open interest) of your group of securities. This index is treated like any other security that comes directly from the Stock Exchange.
Private Indexes can be used as a valuable indication of your personal trading portfolio. Once created you can use simple moving average techniques (included in your charting software) to see if your portfolio is in an up or down trend. You can compare your index against other ASX Indexes created from Market Capitalisation as opposed to price volatility. You can create indexes based on a watchlist of securities or break down the ASX Industry sectors to smaller nominations.
Personal Indexes are created when BodhiGold is exporting information. You can change what securities are used in any of your personal Indexes by simply changing the securities in the saved ticked list.
Creating a Bank Personal Index
- Open BodhiGold and click on the Configure button.
- Click on the + next to Australia, then the + next to Australian Securities Exchange then double-click on Equity.
- Tick the box next to these Bank securities: ANZ; BEN; BOQ; CBA; NAB and WBC. When finished, the Ticked section of the screen should display 6.
- From the menu, click on Tick then Save. The Save Tick List box will appear. Enter a name in the drop-down box (i.e. Banks) and tick the Create Custom Index box. Then exit [x] the box.
- The Weightings screen will now appear. This screen displays the list of symbols you selected with the weighting set to 1. If you leave the weighting set to 1, BodhiGold will weight your securities evenly. Exit [x] this screen.
- If you do not have any Equities selected (ie. Bundle = none), tick one (your new index will not appear until after Catchup).
- Put your Imported and Exported dates back to the date you want to start exporting data for this index.
- To ensure that your new index will display in the list, select AdvDec from the View menu.
- Exit the Equity screen by clicking the [x] button.
- Exit [x] the Configuration screen.
- Connect to the Internet and click Catchup. When finished, go back into your Equities list. Your new index will be at the top of the list with a symbol starting with an exclamation mark (!).
For more detailed instructions which include pictures, go to this tutorial.
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