Rich Trend Trader's Blog

January 26, 2012

CASH Signal Explained, Fairly Complicated Concept

Filed under: Trend Timing Model — Rich Trend Trader @ 7:36 am

I will attempt to explain the CASH rule which implemented on 50% of invested capital.  It should be noted that it may not be appropriate for 401K accounts in every case given the trading rules that may not allow entry or exits based upon trade restrictions.  Also, these signals have about a 50/50 success rate of saving capital early in an apparent attempt of the market to begin a correction.  This particular signal is implemented in trend model BUY signals.  I have not even started the process of creating a companion CASH signal for trend model SELL signals.  Here it goes:

A CASH signal is issued after the following conditions occur:

– At least 1 index (RUT, SML, MID, SPX, COMPQ) close above its respective upper Bollinger (20,2) band

– At least 2 indices (RUT, SML, MID, SPX, COMPQ) close below its previous 5-Day low.

A BUY RE-ENTRY (CASH signal failure) is issued after the following conditions occur:

– At least 1 index (RUT, SML, MID, SPX, COMPQ) closes above its previous 10-Day high AND the high of the day in which it closed below is 5-Day low to initiate the CASH signal.

– All other indices close above its previous 5-Day high.

As an aside, I do not take the RUT and SML to be mutually exclusive given that they are small cap indices.  That is, if one of these indices meet the requirement then it is not required that the other does.  I will later explain an even more complicated re-entry signals based upon the previous 20-Day low and the lower Bollinger (20,2) band.  These are even more interesting with respect to the rule definitions as well as bookkeeping.


January 23, 2012

VIX/TNX (Volatility Index divided by the 10 Year Treasury Note) Closed Below Lower Bollinger Band – Trend Model BUY Signal Still In Effect

Filed under: Trend Timing Model — Rich Trend Trader @ 3:12 am

Another technical indicator showing the possibility of a market correction was triggered on 1/20/12.  The Volatility Index divided by the 10 Year Treasury Note (a technical that is used as a fear index in the trend model) has closed below the lower Bollinger (20,2) band.  Again, there are no gaurentees of a significant market correction but technical indicators are lining up for the potential.  There are many Elliott Wave blogs that are calling the current move up in the market the end of a wave 2.  That means that a monster drop in the market is just around corner requiring a wave 3 to drop well below 1000 or lower.  A couple of Elliott Wave blogs are calling this a minor 3 of major 3 up in which case a correction would be rather shallow with the market trading significantly higher going into the year.  Who is right?  We shall see but with a trend system I am not in the position to care one way or the other.


January 20, 2012

Feb 19, 2012: Market Indices Close Above Upper Bollinger (20,2) Bands – Trend Model BUY Signal Still In Effect

Filed under: Trend Timing Model — Rich Trend Trader @ 2:37 am

The Russell 2000 (RUT), S&P600 (SML), S&P400 (MID), and COMPQ all closed above their respective upper Bollinger (20,2) band.  This is the initial condition necessary for there to be a local top in the market potentially followed by a SELL signal.  Note, there have been many historical instances in which the market either has a small correction or just keeps on moving higher.  There is no change in the trend model signal based solely on this condition.

However, I have looked at signal rules for a potential CASH signal over the multiple months and have found a long term advantage.  The success rate of this signal is actually no better than 50/50 but those signals that do perform well allows preservation of capital above and beyond the traditional trend model signals for BUY and SELL.  A detailed explanation will be provided in another post and placed into the Terminology page.  To front run this information here given that the initial condition has been met, a close below the previous 5-Day low on any two trend model indices will trigger the CASH signal.  I have only looked at using this for 50% of the portfolio positions given the potential failures that do occur on a regular basis.


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