INDICATORS



Just How Long Will A Trend Go On?

Trend Continuation Factor

by M.H. Pee
 


Yes, trends are important: They help you make money and they help you recover your losses.

Because trends are an important component of the market, it is imperative you can detect them. However, it's not enough to just identify a trend. It's also crucial to be able to tell the direction of the current trend. Although trends can make you the most money in the shortest time when you are in sync with them, they can also cause you to sustain heavy losses if your position is in the opposite direction. To avoid getting caught in such a situation, I created the trend continuation factor (TCF), an indicator that identifies the trend and its direction.

CALCULATING IT

Calculating the TCF involves the difference between the closing prices of the last two days. (See sidebar "Excel codes for the TCF" for a detailed explanation.) In this example, the TCF for 35 days is calculated. You must first obtain the change in two consecutive closes: the difference between today's close and yesterday's close.

Next, separate these changes into two groups, namely the positive changes (+change) and the negative ones (-change). If today's close is greater than yesterday's close, you will have a +change value equal to the difference and a -change value of zero. In the same way, if today's close is lower than yesterday's close, it will result in a -change value equal to their difference and a +change value equal to zero.
 

FIGURE 1: Testing results. These results were generated when the TCF was applied to these 15 markets.


...Continued in the March 2002 issue of Technical Analysis of STOCKS & COMMODITIES


M.H. Pee resides in Singapore and can be reached via e-mail at p6608136@magix.com.sg. He specializes in mechanical trading and has developed several indicators and systems. Some of his systems are currently being tracked by Futures Truth (www.futurestruth.com).


Excerpted from an article originally published in the March 2002 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.



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