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.
