Stocks & Commodities V. 32:2 (8-9, 66): Letters To S&C by Technical Analysis, Inc.

Letters To S&C by Technical Analysis, Inc.

SWING TRADING WITH THREE INDICATORS

Editor,

I read Donald Pendergast’s December 2013 article on swing trading (“Swing Trading With Three Indicators”) and found it interesting. I would like to try using the strategy because this generally matches my approach to investing. My question is, which program did he use to format the strategy, as it seems to be a fairly straightforward approach?

By the way, the thinkorswim code (provided in the Traders’ Tips section of the same issue) that I entered does not show the high–low plots on the chart. Is there a need to see them? It seems to me the buy/sell triggers are indicated by the arrows.

My second question pertains to price. In the code, the closing prices are used to trigger a transaction. What about using the last price instead of the closing price? Using the last price would seem to be better on days where the price range is substantial; this, however, may present some other questions such as the aggregation period of the bars and so on. Thanks in advance.

Todd

Author Donald Pendergast replies:

Thanks for the kind comments. I used TradeStation 9.1 to develop the system. Some EasyLanguage code for TradeStation was provided in the Traders’ Tips section of that same issue (and also found at the Stocks & Commodities website at www.traders.com in the Traders’ Tips section) to help implement the system. Regarding the code provided in that issue’s Traders’ Tips section, I did notice that some of the Traders’ Tips contributors provided code that uses the current bar’s five-period SMA high/ low as the entry/exit triggers instead of the previous bar’s closing value for the SMA high/low.

To address your second question, you can use the last or current price, but you will have more whipsaws if the trend doesn’t follow through; only testing can prove which method is better. However, that is a bit more risky than using the previous bar’s closing value for the SMA trigger.

Remember that you are the key ingredient in this approach, since you still need to verify with your own eyes that a stock is capable of making relatively smooth, tradable swings. Try to use five to 10 years of historical data to verify this before going ahead with any testing. Some stocks have a consistent history of tradable swings and others do not; you will likely find that taking the time to visually verify whether it does may dramatically improve the overall results.