As of yesterday, the print version of my new book "Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy
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Continue reading for the complete reviews on Amazon.
Divergences are simple conceptually. When prices are making higher highs and higher lows and a predictive indicator, such as market breadth, is making lower highs and lower lows, then the indicator has diverged from price and the upward price trend is probably unsustainable. Similarly, when prices are making lower lows and lower highs and a predictive indicator is making higher highs and higher lows, then a bullish trend reversal is likely.
Single instances of divergences are relatively easy to identify visually on a chart, but much more difficult to detect using computer algorithms. As a rule, I only trade strategies that have been proven to generate attractive risk-adjusted returns historically AND have some underlying foundation for those excess returns. I have been thinking about divergence indicators and strategies for years, but had never been able to identify a promising divergence algorithm.
After completing my new book, Option Strategy Risk / Return Ratios, I returned my attention to divergences. I devoted the past month to creating a standardized divergence metric that can be applied to any predictive indicator and used that new tool to develop two new trading strategies, one based on daily data and one derived from weekly data. This article will provide an overview of the framework for the divergence algorithm and will also provide several graphical examples using actual market data.
Readers repeatedly ask me for book and article recommendations, especially new traders who are interested in learning more about trading and investing. Education is the single most important prerequisite for trading success. Here are two new book recommendations from my personal finance library. A complete list of all past recommendations is available on the Recommended Reading page.
Options as a Strategic Investment
by Lawrence G. McMillan
Options as a Strategic Investment is considered by many to be the single best book on options ever written. It is a comprehensive work covering all aspects of options, option strategies, options trading, volatility, and many related topics. Every option trader should own this reference book and refer to it often.
by Lawrence G. McMillan
McMillan on Options is a practical guide to implementing, managing, and trading actual option strategies. Practical real-world trading examples are used to demonstrate pricing strategies, risk management, hedging, volatility trading, and McMillan's own personal option philosophy. This is an excellent companion to Options as a Strategic Investment.
The following article updates the diffusion index, recession slack index, aggregate recession model, and aggregate peak-trough model through April 2014.
This article presents the Trader Edge aggregate neural network model forecast for the April 2014 non-farm payroll data, which is scheduled to be released tomorrow morning at 8:30 AM EDT.
The April 30, 2014 AAR Strategy update is now available on the AAR Subscribers page. If you are not currently a subscriber and would like to learn more about the strategy, there is a detailed description on the AAR Strategy page.
The AAR strategy is a conservative, long-only, asset allocation strategy that rotates monthly among five large asset classes: large-cap U.S. stocks, developed country stocks in Europe and Asia, emerging market stocks, U.S. Treasury Notes, and commodities. The strategy was inspired by the Ivy League portfolio and uses trend and technical filters to reduce downside risk.
If none of the five candidates pass their respective trade filters, the AAR strategy remains in cash for the month. Stop-loss orders are used on every trade to control losses and to facilitate position sizing.
Brian Johnson
Copyright 2014 - Trading Insights, LLC - All Rights Reserved.
The early reviews for my new book "Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy
Continue reading for the complete reviews.
The Print and Kindle versions of my new book "Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy
Not everyone has a Kindle and many readers (including myself) prefer print versions of non-fiction books, which often makes it easier to review charts and tables, highlight references, and even dog-ear pages for future reference.
