TECHNICAL STRATEGIES€¦ · Paul Ciana, CMT [email protected] Ph: +1-212-617-8229 8 Greg...

TECHNICAL STRATEGIES QUARTER IN BRIEF: CORE ASSET ALLOCATION REVIEW Q1 // 2015

EOGHAN LEAHY, CMT, MSTA MAURIZIO PIETRINI, MSTA GUIDO RIOLO, MSTA OLIVER WOOLF, CAIA, CMT, MSTA PAUL CIANA, CMT GREG BENDER, CMT

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Bloomberg BRIEF: Technical Strategies Quarter in Brief Contributors Eoghan Leahy, CMT, MSTA [email protected] Ph: +44-20-7392-0599 Maurizio Pietrini, MSTA [email protected] Ph: +44-20-7073-3666 Guido Riolo, MSTA [email protected] Ph: +44-20-7330-7211 Oliver Woolf, CAIA, CMT, MSTA [email protected] Ph: +44-20-7073-3148 Paul Ciana, CMT [email protected] Ph: +1-212-617-8229 Greg Bender, CMT [email protected] Ph: +1-646-324-3169

“Given the increased volatility across the board over the past few months the first quarter of 2015 is likely to remain volatile. Bonds and gold may outperform during such uncertain market conditions.” CONTENTS

1. ABSTRACT AND CONTENTS Eoghan Leahy, Oliver Woolf, Guido Riolo

2. GLOBAL MARKET OVERVIEW Eoghan Leahy, Oliver Woolf, Guido Riolo, Greg Bender, Maurizio Pietrini, Paul Ciana

3. GLOBAL EQUITY MARKETS Eoghan Leahy, Oliver Woolf, Paul Ciana

4. FX AND RATES Oliver Woolf

5. COMMODITIES Oliver Woolf

6. BRIEF MARKET SPOTLIGHT Oliver Woolf 7. BLOOMBERG SENTIMENT SURVEY Guido Riolo

8. STRATEGIES IN BRIEF Eoghan Leahy 9. EXPERT BRIEFING Robin Mesch

10. APPENDIX AND DISCLAIMER

ABSTRACT As we predicted last quarter the major macro theme over the past few months has been a dramatic increase in volatility across asset classes and significant US Dollar strengthening. The dramatic decline in oil has alieved inflationary pressures resulting in an increase in bonds to new multi-year highs as interest rates drop once more. Meanwhile with lower rates and higher levels of uncertainty Gold and silver are showing signs of recovery. Core equity indices continue to test all time highs but are beginning to show signs of exhaustion as price volatility increases. Emerging markets have been very weak especially in Latin America with China the one exception. European indices (ex Greece) are improving on a relative basis versus the MSCI world index. Given the increased volatility across the board over the past few months the first quarter of 2015 is likely to remain volatile. Bonds and gold may outperform during such uncertain market conditions.

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OVERVIEW EQUITIES 3

1. Blue/red signals from Volstall indicator 2. Painted bars from triple moving average crossover 3. Lower panel is Fisher Transform with Squeeze

The TEMA on the weekly STOXX Europe 600 remains bullish as the market tests 52 week highs. The uptrend support continues to hold while the squeeze setup has fired to the upside.

The trend remains up for the S&P 500 however the increase in volatility is concerning. The recent high saw Volstall exhaustion signals and a bearish divergence on the Fisher. Caution is advised.

The daily TEMA has now turned negative and the Fisher which gave a bearish divergence at the high has now turned negative. A test of the December low looks probable.

The STOXX 600 has just broken above its 52 week highs, which occurred just as the Squeeze exhibited a bullish breakout signal. The Fisher is elevated but less so than at the August high.

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OVERVIEW FIXED INCOME 4


Trending sharply higher with the Fisher move surpassing 4 standard deviations. TEMA and Fisher confirm the strong upside trend move. Volstall signal warns of potential short term loss of momentum.

Following a lengthy sideways consolidation that saw a squeeze signal setup for most of 2014 the US Ten Year has broken sharply to new 52 week highs. TEMA is positive.

Strong surge higher has surpassed the October spike high and Fisher confirms the strong trend move higher. Volstall signals suggest potential near term exhaustion but the TEMA remains bullish.

Strong trend to the upside is testing the upper bound of the bullish channel. Fisher divergence suggests near term loss of momentum. Any pullback is likely to be temporary.

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OVERVIEW FX 5


Sterling continues to drive lower. In contrast to the Euro there is no Fisher divergence. A test of the 2013 lows looks imminent.

TEMA remains negative as the Euro continues to plummet to multi year lows. Divergence on Fisher suggests weakening downside momentum.

The sell off in the Euro continues and TEMA remains negative on the daily chart. The price action is now testing the bottom of the price channel which may offer some support. Fisher Divergence present.

Trend is down. TEMA remains negative and recent respite following the Volstall looks counter trend. Downward momentum waning on Fisher but low volatility suggests a low has not yet been made.

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OVERVIEW COMMODITIES 6


Copper has broken below the key multi year support at $300. TEMA is negative as the price action accelerates downwards. There are no clear signs of exhaustion. The $300 level may now act as resistance if tested.

The daily chart of oil also shows bullish Fisher divergence and a Volstall exhaustion signal. However TEMA still remains negative. Potential for exhaustion at but no confirmed reversal signals present as of yet.

The daily chart of copper shows how the move lower was sharp once the 300 level was broken. The recent price action looks like a bearish continuation pattern. TEMA remains negative.

Since recording a Volstall signal in late 2014 oil has collapsed and TEMA has remained negative throughout. The recent Volstall and divergence on the Fisher suggest downward momentum is waning.

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OVERVIEW PRECIOUS METALS 7


Like Gold, Silver is testing long term downtrends as the TEMA turns to neutral and the Fisher moves into positive territory. Currently testing resistance of previous low but showing signs of strength.

Gold broke below the $1200/1180 support zone only to rebound sharply higher. Weekly TEMA has turned back to Neutral and the Fisher is back in positive territory. A move higher looks likely.

Since breaking below support at $1200 gold has driven sharply higher. A Volstall signal marked the low nicely. TEMA is now bullish and the Fisher is registering levels not seen in years. Trend reversal looks likely. A move to test the $1400 level is an increasing possibility.

Silver has now made a higher high and higher low suggesting a reversal is at hand. The Fisher is showing a positive uptrend which is confirmed by the Fisher Transform.

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OVERVIEW VOLATILITY 8


Currency volatility has been trending higher since a slow summer. After the surprise SNB decision, CVIX is now at the highest level since June 2012.

There were two volatility spike in Q4 around the bond “flash crash” and the mid-December sell-off. Volatility remains elevated so far in 2015 – averaging almost 20 versus an average of 14 for all of 2014.

Implied volatility of Treasury options spiked above the +3SD Bollinger Band in October during the bond “flash crash” but quickly retraced towards average levels. After some whipsaws in December, implied volatility is on the rise again, nearing the +2SD Bollinger Band.

A strong bearish trend in oil prices has produced a strong bullish trend in the price of oil options. OVX has been above its +1SD Bollinger Band since the middle of October with shallow retracements.

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OVERVIEW VOLATILITY 9


September through October were busy months for gold volatility as GVZ spiked several times above its +2SD Bollinger Band. 2015 started with a sharp retracement under the 60 day moving average then a whipsaw 4 points higher.

Below is a normalized chart of the past quarter of the relative implied volatility of all five asset classed covered in this section. The theme across the board for Q4 2014 and the beginning of 2015 is higher volatility. The Fed’s QE exit and ECB’s QE entrance combined with deflationary pressures, like the strong bearish trend in the commodity complex, most notably oil, have roiled the markets. Options holders in oil and currencies have benefited with strong upward trends in implied volatility. Option holders in equities, gold and Treasuries were also rewarded but had to more tactical to monetize spikes followed by sharp retracements.

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OVERVIEW ASSET CLASS TRENDS 10

Bonds continue to trend higher as yields rise and the US Dollar strengthens. The inverse intermarket relationship between the US Dollar and commodities is holding firm with both Oil and Copper continuing to trend lower with the Euro and British Pound. Interestingly equity markets and precious metals are reversing higher as the correlation between equities and fixed income increases. This is likely due to the continued stimulus action of central banks with Europe set to join the party. The potential reversal higher in Gold and Silver is particularly interesting given the long term negative performance of the precious metals group.

5. World Trends Graph

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GLOBAL EQUITY MARKETS 11

6. Relative Rotation GraphsTM

European indices are starting to outperform having lagged for several quarters. However this is likely a function of the sharp strengthening of the US Dollar rather than optimism of economic growth. European peripheral markets (ex Greece) such as Portugal, Spain and Italy are showing relative improvement with Ireland the stand out performer. Emerging markets are underperforming as to be expected in a rising Dollar environment and Latin America looks particularly weak. China is the exception and is the leading Index both in terms of relative price and relative momentum versus the MSCI World Index.

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GLOBAL EQUITY MARKETS (BREADTH) 12

7. Scatter plot chart 8. Market breadth indicators

Above is a Scatter Plot Chart (GS <GO>) of global equity markets with several Bloomberg market breadth fields applied. We compare the % of companies in each index with new 52 week highs (Y axis) to the percentage of above their respective 50 week moving averages (X axis). As the new 52 week figure is quite volatile on a daily basis we have applied a one week average to smooth the data. The marker colour denotes a relative scale of the percentage of securities that have given MACD buy signals over the past 10 days and the size simply represents year to date return. As 2015 commences, European breadth stands out. The DAX which appeared weak back in early Q4 2014 now boasts the highest percentage of members at new 52 highs as it attempts to break the psychologically significant 10,000 barrier. It is closely followed by the SX5E, several of whose members have signalled bullish MACD crossovers in the last 10 days. The highest percentage of MACD Buy signals have occurred in the IBEX. Despite a recent correction the SHCOMP remains the index with the highest percentage of constituents above their 200 day averages.

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FX 13

The EUR net large speculator position remains at a very low level and the risk reversal has recently experienced a steep drop. The GBP risk reversal has also been declining, however, its net speculator position, although significantly below 0, is not quite so negative as at the lows of 2013.

The analyst consensus for end of Q1 for EUR is almost 4 big figures above both the forward rate and the mode of the implied probability curve which is slightly translated towards the upside. There is less discrepancy on GBP where none of the forward, implied probability or analyst consensus stray too far from the current spot. However, on balance they all favour marginally positive GBP movement.

9. Sentiment and positioning 10. Implied probability forecast

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COMMODITIES (BCOM INDEX) 14

The scatter plot from GS<GO> shows the 3 month percent change on the X axis versus the 60 day rate of change of aggregate open interest on the Y axis for the constituents of Bloomberg’s new BCOM Index (formerly DJ-UBS). Last quarter gasoline, soybean and cotton exhibited the greatest change in open interest over the previous 60 days. Since then cotton underwent a strong, positive reversal of fortune leading into year end, whereas gasoline has continued to plunge. Over the past 60 days gasoline has experienced a further increase in open interest, and there have been surges in demand for other energy contracts The colour scheme and sphere size represent the Bollinger %B (position within the bands) and 60 day realized volatility respectively. Natural gas stands out with regards to volatility, whilst gold and silver are both flirting with the upper Bollinger band.

6. Relative Rotation GraphsTM 11. BCOM Index

NG1 Nat Gas BO1 Soybean Oil LC1 Live Cattle CO1 Brent Crude HO1 Heating Oil C 1 Corn S 1 Soybean LH1 Lean Hogs LMNIDS03 Nickel XB1 Gasoline SM1 Soybean Meal GC1 Gold SI1 Silver KW1 Winter Wheat HG1 Copper LMAHDS03 Aluminium CL1 WTI Crude W 1 Wheat CT1 Cotton SB1 Sugar LMZSDS03 Zinc KC1 Coffee

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15 On December 17th, 2013, Bloomberg hosted the first Annual Technical Analysis Summit, in the London headquarters. During the course of the event we disseminated a questionnaire on views of the financial world for the quarter to come. As we go forward, we would like to ask you again about your views. Results will be available on the Bloomberg Quarterly Brief, which can be downloaded for free under the function BRIEF<GO>. If you are interested in taking part, please contact a member of the team listed on the front cover of this publication. The questionnaire was broken down by assets and regions, with 6 of each. In detail we asked: Risk (on or off), and up or down for the S&P500, oil, gold, dollar index and 10 year rates, without specifying the currency, leaving people to decide what was the most important rate in their mind. We then asked which regions were going to be most appealing in the next quarter: US, Europe, Japan, BRICs, Emerging markets and Frontier markets. In total we got 210 answers, from a universe selected without any statistical filter. The first picture is a breakdown of the view of the markets. The highest conviction was once more a bullish dollar, at over 78%, up 1.5% from 77% a quarter ago. DXY has gone up around 9% in the period between the two surveys and around 15% from the start of the high conviction. Unlike previous quarters, when most asset classes had a substantial equilibrium, this time we only have 1 item with bulls and bears within a 5 percent points interval, 10year rates. All other readings are quite directional, with bullish S&P500, Gold and risk in general and bearish oil. Last quarter only 46% of the respondents were bearish oil, which declined around 44% in the intervening 3 months.

BLOOMBERG QUARTERLY BRIEF (BQB) SENTIMENT SURVEY

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BLOOMBERG QUARTERLY BRIEF (BQB) SENTIMENT SURVEY 16

The US dominates once more the geographic breakdown, although it declined from over 58% to 52%.

The biggest positive jump comes from Europe, going from being the favourite region for 20% of the respondents, to a solid second place, with 36%. This is in spite of the collapse of the Euro, which lost around 10% since the previous survey, and the risk of political elections in Greece.

Japan’s bullish sentiment has increased somewhat, from around 10% to 13.5%, in spite of the Nikkei rallying around 16% from a quarter ago, but Japan is still below the Emerging Markets, which are favoured by around 16% of respondents.

BRICs are twice as popular as Frontier Markets, which have been the least popular in all surveys so far.

Obviously the sum is not meant to be 100, as multiple selections were allowed. The dollar bulls who chose the US as their favourite market dropped almost 10 percent points, to 41%, with Europe picking some of that, by going from 19% to 26% of respondents who saw DXY going up. EM remained quite stable at 14% and Japan gained a couple of points, being chosen by 12% of dollar bulls. BRICs remain as a marginal area for DXY bulls, with a meagre 5% of selections. A similar behaviour can be seen among rate bulls, with over US declined from 51% to 36%, but still being chosen as the favourite region. Again Europe is the big winner, by going from just above 10% to over 30%. Japan remains unloved by respondents who see the long end of the yield curves going up, by being selected by 11%, 2 percent points less than the Emerging Markets. Rates bulls continue to consider BRICs as marginal, with only 5% choosing them as one of their favourite regions. Frontier markets remain, roughly unchanged, at the bottom of the pile, with 3% See charts overleaf…

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Dollar Up Rates Up

Risk On Risk Off

US and Europe, in this order, are the favourite regions also for risk-on respondents. Us lost a few percent points, which were picked up by Europe, with a preference of 38% and 30% respectively. Emerging markets stay third choice among risk-on respondents, albeit a third lower and followed very closely by Japan and BRICs.

Risk-off respondents follow a familiar pattern with favourite area US, but lower than a week ago, Europe second, with more than twice as many percent points than last quarter, with EM, Japan following. BRICs and Frontier close the ranking with3% each.

BLOOMBERG QUARTERLY BRIEF (BQB) SENTIMENT SURVEY

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BRIEF MARKET SPOTLIGHT 18 The strongest sector performers of last year have started 2015 in the same vein, with health care, utilities and consumer staples offering the best returns. ETFs tracking health care (XLV US Equity), utilities (XLU US Equity) and consumer staples (XLP US Equity) are the only sectors with positive performance so far this year. Likewise, energy continues to underperform with a circa 5% loss since the start of the year. The scatter plot at right summarizes the past performance and future expectations for the SPDR U.S. equity sector funds. The X axis represents year-to-date returns and the Y axis measures a five day average of the net daily fund flows. The marker sizes depict the funds’ market capitalizations and the colours (red weaker, green stronger) illustrate one-year returns.

Fund money flows suggest that investors may been anticipating a reversal in the fortunes of the energy sector (XLE US Equity - yellow marker, top left) with a positive net average of creations over redemptions in the past week. The second chart shows the price and these flows over the past year. The lower panel is a cumulative total of the daily net flows multiplied by the daily return. Since the start of 2013 the cumulative fund money flow has mirrored the performance of the energy ETF itself. However, since mid-November (marked by the vertical dashed line) there have been net inflows into the fund despite its continued slump. A punt on the U.S. energy sector looks like a value trap given falling oil prices. Those invested can console themselves that the best contrarian opportunities tend to look this way.

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STRATEGY IN BRIEF 19 Backtesting the Relative Strength Breakout Strategy

Buying relative outperformers as they break to new 52 week highs proves to be a very profitable strategy over the past decade. By investing in the stocks that show persistent outperformance versus the index significant gains can be realised. Relative strength (not to be confused with RSI) involves dividing a security by its index to plot the relative outperformance or alpha that the stock earns versus its benchmark. In the August 21st edition of the bi-weekly Technicals Brief we outlined how the STDY<GO> function can be used to create ratio charts without the need for programming custom indices using the CIX<GO> function. It is now possible to create a study that will divide a security by its benchmark to create a relative strength chart. Technical studies can then be applied to this ratio and trading signals can be generated. The initial strategy identified new relative 52 week highs and lows of stocks in the S&P 500 versus the index.

In this edition of the Strategy in Brief we will modify this study to create a trend following strategy and then apply several new features available on the Bloomberg Advanced Backtesting tool (BT<GO>) to assess its effectiveness. The chart (right) shows a weekly price chart of Apple with the relative strength study below. This study has created a ratio chart of Apple divided by the S&P 500 and applied 52 week high value and 12 week low value channels to the ratio. The signals below occur when the market breaks to a new 52 week high or 12 week low.

12. Strategy creation and backtesting

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STRATEGY IN BRIEF 20


Using the Bloomberg Advanced Backtesting tool it is possible to build customised strategies and test them on past market data. For this strategy we will buy the underlying stock whenever it breaks to a new 52 week relative high versus the index. We will then remain long until it breaks to a 12 week relative low. A new feature available on the BT<GO> function is the ability to run a Multi-Security Analysis. By combining the custom study that we built in the STDY<GO> function with the Multi-Security Analysis feature we can test how successful it would have been to run our relative strength breakout strategy on every component stock in the S&P 500 over the past ten years on a weekly periodicity.

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Below we can see on a stock by stock basis the performance of our relative strength breakout strategy. The maximum total return is almost 18 times the size of the minimum return, while both the average and median returns are positive. The Sharpe and Sortino ratios are a very healthy 1.45 and 2.12 respectively, while over 300 of the stocks in the index were profitable over the ten year testing period. The chart in the bottom right hand corner shows the cumulative profit of all 500 stocks over the testing period.

The one cause for concern is the large % Max Drawdown seen by some of the securities, however the average % Max DD is still less than was experienced by the S&P 500 index itself over the period.

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Another nice new feature of the Multi-Security Analysis is the ability to see all, or a selection of, the securities tested in a scatter plot chart visualisation. This allows us to identify the outliers and assess the performance of the strategy across various metrics by selecting which measures to put on the X and Y axes. Overall the performance of the strategy was impressive suggesting that by investing in the stocks that show persistent outperformance versus the broader market significant gains can be realised.

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EXPERT BRIEFING 23 Robin Mesch, President of Robin Mesch Associates and Mesch Capital Management, is a leading market strategist, pioneer and educator in the field of technical analysis and market theory. She has developed a distinct body of market analytics and proprietary trading methodologies that empower portfolio managers and professional traders worldwide to consistently maximize profitability. Nationally acclaimed as one of the world’s top minds in technical analysis, Robin has been building breakthrough market models for more than twenty-five years. Her advice and market strategies are incorporated into financial portfolios by some of the leading investment firms and trading houses. She is a regular guest on CNBC’s financial segments and her unique approach to markets has been included in numerous books and publications. Her work is featured in two signature Bloomberg publications: Breakthroughs in Technical Analysis: New Thinking from the World’s Top Minds and New Thinking in Technical Analysis: Trading Models from the Masters.

She has been profiled in many books including Bulls, Bears, and Millionaires; The Outer Game of Trading; The Day Traders Advantage; The Tao of Trading; Women of the Pits; Investing and the Irrational Mind. Robin is a graduate of Brown University and currently resides with her family in Portland Oregon. ”My mission is to help you develop a comprehensive literacy in the language of the market that empowers you to trade effectively and profitably.” How would you describe who you are and what you do? In my early years, my focus was studying market theory and the underlying forces at play behind market activity. That work extended into development of trading models and proprietary analytics which I license to an elite circle of trading houses and asset managers . Outside of the trading arena, I also work with asset management firms and hedge funds who enlist my services to help construct and refine their portfolios. When my company, Mesch Capital

Management, Inc. (MCM), is brought in to support an investment management team, we offer our proprietary analytics and models to enhance the process of their market selection. MCM has built a sophisticated set of analytics and a pattern recognition platform that scans and filters thousands of trading and investment opportunities. At the core of our modelling is a unique form of data organization that discerns important structural shifts in the perception of value. What attracted you to the financial markets? I was first introduced to the markets while still in college at Brown University. I had taken a year off from school and landed an internship with a trader where I was exposed to technical analysis. Being a classically trained musician beginning at the age of 5, price organized on a page looked to me more like notes on a score with both an intonation and a rhythm that was readable rather than random. I found the markets so fascinating that when I resumed my studies , I created an independent major around the study of technical analysis through the guidance of the Dean of Engineering at Brown. I had the opportunity to learn a multitude of price and volume

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EXPERT BRIEFING 24 based methods of analysis that were available at the time. But the method most resonant to me was Market Profile which is the process of organizing the market into a bell curve. I was fortunate to work closely for many years with Peter Steidlmayer the original creator of Market Profile and a real master of auction theory. Please describe your approach to understanding the markets, do you use technical analysis, fundamental analysis or both, please explain why? I evaluate the market participants' willingness to use price, so that I can determine their level of acceptance of current value. The visual display that best captures this information is the bell curve using a method that is commonly called Market Profile in the industry. Market Profile organizes the market information on both the vertical axis of price and the horizontal axis of time spent at price which reveals how price is being used. This form of organization of the data allows us to track the progression of price becoming accepted as value through usage. The visual display of the bell curve I believe is one of the most efficient ways to drill into any security and capture it's perceived value. In

terms of whether this approach is fundamental or technical analysis, I don't know how one can separate intrinsic value from perceived value in terms of a practical approach. If they are not one in the same, they march in lockstep. What technical analysis techniques, if any, do you favour? I have built a number of my own models and analytics that are based on price usage and order flows. Usage of price is a significant reflection of a trader’s psychology of the acceptance of price as being fair. Once you depict the auction process in terms of how much usage occurs at a given price, we see that it graphically organizes itself into bell curves. The bell curve emerges as a reflection of the negotiation process between buyers and sellers at the moment they have determined fair value and have reached consensus. I have high regard for this method of organizing the market data. It was the genius of Peter Steidlmayer, the creator of Market Profile, who recognized that the auction naturally organizes into a bell curve and he understood all of its implications for reading the market.

Do you use automated systems or rely on judgment? I have built a number of automated systems, but for the most part I prefer using automation to do the work, not the thinking. So while I have a diverse arsenal of high probability patterns and conditions that are automated, I still like to be involved as the final filter before pulling the trigger. What timeframes do you favour, historical, intraday or a combination of both? I like to trade and create investment strategies based on significant shifts in perceived value. One of my patterns is when I can read the controlling order flow dry up. For this pattern to be significant, it requires a critical mass of market participation for there to be a reliable measurement of the change in consensus. I find intra-day activity more about trading noise and volatility than about trading a real shift in perception of value. So, in general I prefer structuring trades in larger, more significant, sample sizes of market information.

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EXPERT BRIEFING 25 How important are drawdowns and money management in your opinion? Who would argue against the merits of money management? It is one of the most critical aspects of successful trading. Money management is what determines if you will live to trade another day. What advice would you give to those who are new to the financial markets and want to become the next ‘You’? Trading is both an art and science that takes a very long time to master. So start young and find a mentor. Here are some "Be"s' I Believe: • Be Clear: Before you enter a trade

know what it would take to tell you you’re wrong.

• Be Prepared: The market is a game of strategy and your job is to envision as many scenarios for the buyer and seller to succeed or fail as you can prior to entering the trade.

• Be Disciplined: Never come up

with new reasons to stay in a bad trade once you are in it. Get out.

• Be Patient: there’s always another trade. Never chase the market.

• Be Defensive: Once you are in the trade, force yourself to see it from your opponent’s perspective

Can we have the name of someone who has impressed you during your career? I’ve been in the business for over 25 years and have been fortunate enough to have studied with some truly gifted market theorists. Peter Steidlmayer, who is one of my early mentors, was the first person that I am aware of to have the insight that the market auction would naturally organize itself into a bell curve. He developed an innovative way to display this organization which has influenced my own methodology, models and indicators. Our industry is fortunate to have had the benefit of his genius and contribution.

Is there anything you would do differently, if you were given a chance? No. In my business model, I choose to build a relationship based business as opposed to a customer based business and so I do not mass market my suite of analytics or proprietary trading models. Instead I create more

exclusive licenses and consulting services with people who share my values and who I would enjoy talking with over lunch. This has afforded me a life in which my work has brought me both significant pleasure and purpose. Is the future all into algo trading and automated systems or does human intuition still have a role? I have read that statistically the best discretionary traders still beat the best systems traders, but there is a role for automation to enhance any trading operation. My own analysis is based on a lot of research. That's what I do when I'm not trading. I'm always working toward automating my thinking. The computer is an incredibly useful tool for challenging my assumptions and perfecting my market understanding. For the present, the computer does all my grunt work in terms of scanning the global world of stocks ETFs and derivatives for pre-defined conditions and patterns. It is also a very effective tool for monitoring critical performance demands of market activity that will ultimately determine continuation or change of a strategy. This is a high percent of the work. However, while the computer is doing all the work I still have to do the thinking.

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APPENDIX 26 1. The red and blue signals in the Overview section are an indicator called Volstall. It is our own indicator created in STDY<GO>. It uses

the rate of change of the moving standard deviation of price to identify possible reversal points through decreasing momentum. A guide to STDY<GO> as well as a forum can be found within red toolbar in the function.

2. In the Overview section the bars are painted according to a triple exponential moving average crossover with averages of 4, 9 and 18. The blue and red Volstall signals and painted bars are created in the strategy events. From a chart click on the events flag ,+Add Event, Browse then select option17) Strategies & Studies.

3. The indicator below the charts in the Overview section is the Fisher Transform with Squeeze (Indicator outlined by John F. Carter) . The indicator uses a Gaussian probability density function (Gaussian PDF) as opposed to a more traditional bell-shaped probability density function to calculate the position of the price compared to its range (see TECH<GO>). Squeeze signals are shown as red bars and occur when the Bollinger bandwidth is less than the Keltner band with signalling low directional volatility.

4. On the volatility charts we have used Bollinger bands with a 60 period moving average with upside deviations of 1, 2, and 3. On the downside we have used 1,1.5 and 2 standard deviations from the average, to reflect the inherent skew in volatility indices.

5. World Trend Graph can be found at WT<GO> 6. Relative Rotation GraphsTM can be found at RRG<GO>. Relative Rotation GraphsTM of Relative Rotation Graphs Limited. See

www.RelativeRotationGraph.com . Please see DOCS 2063266<GO> for more information. 7. The scatter plot chart can be found at GS<GO> and allows for the visualisation of 4 unique sets of data. 8. More information on Bloomberg’s Market Breadth indicators across 54 different markets can be found at DOCS 2068663<GO> 9. Sentiment and positioning data can be located at IPSP<GO> 10. Implied probability FX forecasts are derived from FX options and can be found at FXFM<GO> 11. The Commodities in this section are taken from the Bloomberg’s new BCOM Index, part of the Bloomberg Commodity Index Family,

formerly known as the DJ-UBS. With reference to the selection of the both the selection of the constituents and the calculation methodology, the design of the index embodies four key principles: economic significance, diversification, continuity and liquidity. More information can be found at BCOM<GO>.

12. Use BT<GO> for the creation, backtesting and optimisation of strategies. It will integrate your own custom studies built in STDY<GO> and can also generate alerts. A guide to BT<GO> as well as a forum can be found within red toolbar in the function.

OTHER RESOURCES • CHART<GO> is the homepage for Bloomberg charts and technical analysis with links to a variety of functions and resources including

documents on Bloomberg’s own proprietary studies. • ‘Getting Started With Bloomberg Charts’ at DOCS 2069346<GO> for an introduction to what is possible. • ‘A Guide to Bloomberg Charts’ at DOCS 2065187<GO> for a more thorough walkthrough how to use our charting and technical analysis

functionality. DISCLAIMER - Read the full Bloomberg Tradebook disclaimer here: http://goo.gl/UewDb

http://www.relativerotationgraph.com/

http://goo.gl/UewDb

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TECHNICAL STRATEGIES€¦ · Paul Ciana, CMT [email protected] Ph: +1-212-617-8229 8 Greg...

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