Stocks & Commodities V. 31:4 (30-34): Low-Frequency Trading by Ron McEwan

Low-Frequency Trading by Ron McEwan

Low-Tech, Low-Stress

Here’s one way you can combat the high-frequency traders. The best part is, you can sleep well at night, using the oneyear moving average of the cumulative advance-decline data.

Is Wall Street turning your 401k into a 201k? Maybe you don’t have a bank of supercomputers in your garage cranking out high-speed trading algorithms. Maybe you don’t golf with a member of the Federal Banking Committee who can offer “insights” into upcoming market-moving decisions. Or maybe your neighbor isn’t a ranking member of the US Treasury Department with wealth-creating tips. If you’re an individual retail trader who doesn’t have access to the information that moves the markets, then you may be a candidate for low-frequency trading.

Low-frequency trading?

You’ve heard of high-frequency trading. Low-frequency trading is the alternative to the gut-wrenching, career-ending, thrombosis-inducing 200 trades a millisecond technology called high-frequency trading. Low-frequency trading lets you sleep at night and spend time with your family, friends, and real-life interests. With this method, you only need to update your data and check your signals a few times a year (or as often as you like). All you will need is a pencil and paper, a newspaper, or a personal computer with a spreadsheet program. The data you need can be found in the daily business section of most newspapers or available online.

Here’s how it works

The low-frequency trading strategy is simply to be in the stock market when the cumulative advance-decline line is above its one-year moving average and to be out of the market when the cumulative advance-decline line falls below the one-year moving average.

A longstanding and time-tested stock market indicator is the measure of advancing issues versus declining issues. This data has been available for analysis since before the advent of the desktop PC. It is the data source that has been the basis for generations of in-depth analysis and given birth to a vast list of technical indicators. This article covers a basic technique that is the simple one-year moving average of the cumulative advance-decline data.