Combining Weekly and Daily Signals (Multiple Time Frames) |
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In John J. Murphy's book Technical Analysis of the Financial Markets he points out that signals on weekly charts are always more important than those on daily charts. He then goes on to suggest that the best way to combine weekly and daily signals is to use weekly signals to determine the market direction and use daily signals to fine tune entry. A daily signal is only acted upon when the weekly signal confirms it - in other words, the weekly signal is acting as a filter upon the daily signals. Using multiple time frames in this way should improve the reliability and profitability of the trading system.
The trading system below uses the MACD indicator (in histogram form) on weekly data. Only when the MACD histogram is positive are the daily signals acted upon. The daily signals use the Stochastics indicator.
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#A Stochastics trading system with a weekly filter based upon the MACD
#Sell if the %k crosses under the $d and if %k is greater than 80
#Buy if the %k crosses above %d and if %k is less than 20
#Get the Stochastics columns
my ($k,$d)=SS(14,3,3);
#Create a weekly filter based upon the MACD histogram
my $weeklyfilter=Today(Weekly->MACD(12,26,9));
unless (Position) {
#Buy if the %k crosses above %d and if %k is less than 20
#AND the weekly filter is positive
BuyOpen if Crossover($k,$d) and Today($k)<20 and $weeklyfilter>0;
}
else {
#Sell if the %k crosses under the $d and if %k is greater than 80
SellOpen if Crossunder($k,$d) and Today($k)>80;
}
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