regression 33–9derivatives 3–4, 10–15, 42, 378see also futures; optionsdesign concepts, trading systems 147–73,179–81, 211–13Deutsche Bank 203Deutsche Börse 41–2see also DAXDeutsche Telekom 203diamonds 291directional bias, market movements 139–40disclaimers 173, 292discounting mechanisms, financial markets7, 217–18discretionary traderssee also technical analysisconcepts 147–8emotions 147, 161, 166, 173disparity 124–7, 177, 185–7, 202–13,224–33, 269–77, 298, 305–7, 327–9,331–2, 359–60
396
disparity (Continued)artificial neural networks 224–33, 359–60concepts 124–7, 177, 185–7, 269–77definition 125–6MetaStock code 298, 305–7, 327–9,331–2divergencessee also double . . . ; LRS . . . ;multiple . . .bias factors 132–3concepts 7–8, 123–38, 176–87, 190–9,201–13, 218–33, 240–2, 245–6,269–77, 295, 297–9, 300, 303–5,314–16, 373MACD 139–40, 197–9, 203–13, 273–4,375, 381diversificationsee also riskasset classes 9–10, 247–60, 294–5back-testing 152concepts 5–6, 9–15, 60, 152, 247–60,287, 294–5conclusions 294–5correlation uses 9–15, 294critique 5–6, 152, 294–5dynamic asset allocations 247–60,294effective methods 6examples 11–15, 248–60forex 9–10, 11–15, 247–60, 263,294–5futures 10–15, 249–60, 294–5statistics 11–15trading systems 152, 247–60, 294–5DJ see Dow Jones . . .DJ-30 see Dow Jones Industrial AverageDJIA see Dow Jones Industrial Averagedollar index (DXY) 20–2, 34–5, 49–55,58, 79–82, 86, 95–9, 101–9, 121–7,134–8, 175–87, 236, 269–77,289–91see also euro; US . . .AUD 289–91Bretton Woods 54concepts 50–5, 79–82, 103–4, 236,269–77, 289–91
Index
gold 95–9, 101–9S&P 500 79–82, 236, 269–77uses 50–1double LRS divergenceconcepts 132–3, 178, 184–7, 240–2,299–300, 316–20MetaStock code 299–300, 316–20DOW e-mini futures, intraday correlations111–19Dow Jones Euro Stoxx 50 index (ESTX50)33, 36–8, 45, 47–51, 70–6, 85–92,111–19, 194–9, 201–13, 216, 249,278–85concepts 45, 85–92, 111–19, 194–9,201–13, 216, 278–85DAX 85–92, 111–19, 201–13euro 278–85intraday correlations 111–19S&P 500 72–6, 194–9trading DAX futures 201–13Dow Jones Industrial Average (DJIA) 10,49–50, 56, 64, 70–6, 86S&P 500 70–6VXD 64Dow Jones Stoxx 50 index (STXX50) 45,47–51, 86drawdownsconcepts 161–5, 176–87, 191–9, 205–13,219–33, 237–46, 274–7, 283–5, 295,372definition 162, 372types 162–5DST see daylight saving timedurable goods orders, forex 267DXY see dollar indexdynamic asset allocationsassessments of results 255–60buy conditions 254–5, 259concepts 15, 247–60, 294relative strength 247–60sell conditions 254–5, 259testing procedures 248–55uses 247–8, 294EBS see Electronic Broking ServiceECB see European Central Bank
Index
Ecclesiastes, Bible 293economic cycles 7–8, 77–82, 94–5, 139–40,262, 265–77economic news 7, 262, 265–8efficiency metrics, trading systemevaluations 157–8Efficient Market Theoryconcepts 147–8, 372risk considerations 148time lags 148efficient portfolios 11–15Einstein, Albert 1Electronic Broking Service (EBS) 261–2EMA see exponential moving averageemerging markets 4, 5–6, 248–60, 268emotions, trading systems 147, 161, 166,173, 295entry efficiency metrics, trading systemevaluations 157–8, 277E.ON 203equities 3–4, 7–8, 9–15, 41–67, 69–83,161–5, 242, 244–6, 247–60, 372bonds 77–82, 189, 247diversification 10–15, 247–60drawdowns 161–5, 372gold 94–9, 242, 244–6interest rates 77–82ES see S&P 500 e-miniEST see US Eastern timeESTX50 see Dow Jones Euro Stoxx 50indexEta see coefficient of nonlinear correlationETFs see exchange-traded fundsEtrade 246EUR/USD 262, 283–6, 355Eurex Exchange 42, 85euro 53–6, 130–1, 249–60, 262, 269–71,277–85, 289–91, 355see also dollar indexAUD 278–84concepts 277–85correlations 278–85, 289–91CRB 278–86ESTX50 278–9evaluation of test results 283–5GBP 278–85
397
gold 130–1, 278–9historical background 277–8interest rates 278–9launch date 277opt-out countries 277testing procedures 271–4, 282–5trading 279–85yen 269–71, 278–85Euro (EURO-USD) daily MA-intermarketsystem, MetaStock code 355Euronext 9, 42–4, 215see also CAC40European Central Bank (ECB) 266,277–8European markets 7, 74–5, 82–3, 85–92,116–19, 194–9, 216–33, 248–60see also CAC40; DAX; Dow Jones . . . ;FTSE . . .futures 87–92, 194–9, 201–13intraday correlations 116–19leading/lagging analysis 116–19times of the day 7European Union, membership 277Excel 12, 20–2, 34–8, 143, 151, 159–62excess returns, Sharpe’s ratio 164, 206–9,219, 255–9, 275, 283–5, 377exchange rates see foreign exchangeexchange-traded funds (ETFs) 47–50, 55,59, 61–3, 82–3, 93, 121–9, 131, 134–8,175–87, 189–99, 238–44, 248–60,344–7, 372see also S&P ETF (SPY)definition 372GLD 79–82, 121–9, 131, 175–87MetaStock code 344–7TradeSim 344–5exhaustive search technique, optimizationfactors 153, 154–5, 224–9exit efficiency metrics, trading systemevaluations 157–8, 277, 295exponential moving average (EMA)concepts 121–4, 177–87, 218–33,250–60, 373definition 373exports 265–6, 269, 288–9, 291–2Exxon Mobil 56–7
398
fat tails 27–30, 38FCHI 42–3see also CAC40FDAX 88, 202–13see also DAXfear, wisdom 41, 215Federal Open Market Committee (FOMC)266Federal Reserve 77–82, 93, 96–7, 266financial instrumentsintermarket relations 9–10, 295types 3–4Financial Market Solutions (FMS) 262financial marketsback-testing 152concepts 3–15discounting mechanisms 7, 217–18high correlation 4–6intermarket relations 9–10, 168–71, 295,357–65mergers and acquisitions 9Financial Times 45see also FTSE . . .Finite Volume Element Indicator (FVE)242, 369, 373floating exchange rates 261–92see also foreign exchangeFML . . . 380FOMC see Federal Open MarketCommitteeforeign exchange (forex) 3, 6, 9–10, 11–15,50–5, 77–83, 85–92, 247–60, 261–92,294–5, 348–55advantages 261, 263–5, 294–5AUD 54–5, 249, 262, 268–9, 278–84,285–92back-testing 264, 271, 280–1BOE rate decisions 266bonds 269–77buy conditions 272–3, 282–5carry trade 264–5, 268–77, 287–8central banks 261–2commissions 263, 272concepts 261–92, 294–5conclusions 294correlations 269–77, 278–85, 287–92
Index
critique 261, 263–5, 294–5DAX 85–92definition 261disadvantages 263–5diversification uses 9–10, 11–15, 247–60,263, 294–5driving forces 265–8durable goods orders 267EBS 261–2ECB 266, 277–8economic news 262, 265–8EUR/USD 262, 283–6, 355the euro 53–6, 130–1, 249–60, 262,269–71, 277–85, 355evaluation of test results 274–7, 283–5fixed/floating rates 261–2FOMC meetings 266fundamentals 261–8GBP/USD 13–14, 262GDP figures 267gold 93–109housing markets 267inflation 265, 266–7interest 263, 264–9, 278–9, 287–9intermarket analysis 261–92leverage issues 263, 268–9liquidity issues 261–2, 263market fundamentals 261–8MetaStock code 348–55money supply 265news events 267–8opening hours 262, 263, 271–2payroll factors 267point spreads 263politics 265–8popular currencies 262Reuters 261–2, 273–4rules 263S&P 500 77–83, 269–77statistics 261–2testing procedures 271–4, 282–5trade balance factors 265–6, 269,288–9trading systems 262USD/CAD 262USD/CHF 262
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USD/JPY 4–5, 79–82, 95–9, 249,262–92, 348–55volatility (random noise) 263, 271–7winning/losing trades 274–7yen trades 4, 268–77fourteen technical systems for trading gold78, 175–87France 37–8, 42–4, 47–51, 327, 333, 334,357–65Frankfurt Stock Exchange 41–2FSS 216–33FTSE 100 10, 12–15, 20–4, 44–5, 47–51,70–6, 82–3, 86–7, 215–33, 249concepts 44–5, 82–3, 215–33DAX 86–7Internet bubble value of 1999 44list of companies 44S&P 500 70–6, 82–3FTSE All Share Index 44–5FTSE systemartificial neural networks 215–33, 357–65concepts 44–5, 215–33MetaStock code 332–4futures 10–15, 42–6, 64–5, 87–92, 111–19,194–9, 201–13, 249–60, 294–5, 378CAC40 43–4, 201–13commodities 294conclusions 294–5correlation example 11–13CRB 60, 294DAX 5, 10, 42, 85–92, 201–13, 327–32diversification 10–15, 249–60, 294–5European futures 87–92, 194–9, 201–13GSCI 60–1Nikkei 46S&P 500 e-mini 88–92, 111–19, 189–99,324–7, 377stock index futures 111–19, 378FUTURES system, MetaStock code 341–4fuzzy logic, concepts 171–2FVE see Finite Volume Element IndicatorFX see foreign exchangegas 45, 55, 58–9, 235–46, 249, 291Gaussian distributions see normaldistributions
399
GBP 13–14, 53–5, 58, 216–33, 249, 262,268, 278–91see also UKAUD 289–91euro 278–85GBP/USD 13–14, 262GDAXI 41see also DAXGDAXIL 42GDP figures 267gems 291genetic algorithmconcepts 154–5, 172, 215, 222–33, 373definition 154, 373NeuroShell Trader 231Genetic Optimizer 154–5geometric weighted averages 50–1, 59German Bund 278–85German DAX see DAXGerman IFO index 267GLD see Gold ETFglobalization effects 3–5, 75–6GLOBEX 268–9, 350–2glossary 371–81GNP see gross national productgold 3, 11–15, 34–5, 48–50, 54–6, 58, 59,61–3, 78–82, 86, 88–92, 93–109,121–9, 130–3, 134–8, 175–87,215–33, 235–46, 250, 278–85, 287–8,289–92, 301–23, 335, 339–41see also precious metalsAUD 287–8, 289–92Canada’s Venture Index 101–7capital per trade 246commodities 94–109concepts 93–109, 175–87, 215–33, 235,242, 244–6, 289–92correlation 78–82, 88, 93–109, 215–33,244–6CRB 95–107, 278–85critique 93–4DAX 88dollar index (DXY) 95–9, 101–9equities 94–9, 242, 244–6euro 130–1, 278–9forex 93–109
400
gold (Continued)fourteen technical systems for tradinggold 78, 175–87HUI 63jewellery industry 98–9leading/lagging analysis 99–109MetaStock code 335, 339–41oil 95–9returns 93–4S&P 500 78–82, 94–6seasonal patterns 98–9time factors 106–9trading stocks 235, 244–6, 335, 339–41uses 93–4, 244–6World Gold Index 95–107, 302XAU 49–50, 55, 61–3, 79–82, 95–109,129, 134–8, 175–87, 289–91yen 95–9Gold Bullion data 302gold comparison tests, MetaStock code301–23Gold ETF (GLD) 79–82, 121–9, 131,175–87Goldcorp Inc. 62–3Goldman Sachs Commodity Index (GSCI)59, 60–2, 248–9, 259concepts 60–2list of commodities 60–1weighting method 60Goodman, Joseph D. 175gradient descent method, optimizationfactors 154Greenspan, Alan 93gross national product (GNP) 54GSCI see Goldman Sachs CommodityIndexH 380Hang Seng (HSI) 12–15, 46, 47–51, 70–6,86, 249, 259concepts 46S&P 500 70–6Harris, Michael 156HDAX 42hedging 10–11, 269, 294, 376Hess Corp. 57
Index
heteroscedasticity, concepts 31HHV . . . 380hidden neurons 223, 225–33, 374histogram of frequencies, normality tests 38historic volatility, definition 374HOLDRS . . . 252–3homoscedasticity, concepts 31Hong Kong 46–7, 249see also Hang SengHOUR() 380housing markets, forex 267How to Make Money in Stocks (O’Niel)121HSI see Hang SengHubbert, M. King 56HUI see Amex Gold BUGS Indexhybrid strategy, artificial neural networks172, 226–33, 363–5IBD 100 stock list 121ICE see Intercontinental ExchangeIMO see momentum oscillatorimplied volatility 42imports 265–6, 269, 288–9, 291–2independent variables, regression 33–9India 55–6indicator based stop condition, concepts 166inflation 77–8, 94–6, 265, 266–7information, Efficient Market Theory147–8, 372initial stop-loss condition, concepts 165–6integrated markets, telecommunicationsdevelopments 3, 4, 10–11Interactive Brokers 246, 248Intercontinental Exchange (ICE) 55interest rates 4, 54–5, 77–82, 216–33, 263,264–77, 287–9carry trade 4, 264–5, 268–77, 287–8concepts 4, 77–82, 264–5, 268–77, 287–9equities 77–82euro 278–9forex 263, 264–9, 278–9, 287–9S&P 500 77–83intermarket analysissee also correlationbenefits 7–8, 293–5
Index
concepts 3–15, 69, 261–92, 293–5conclusions 293–5definition 3–4forex 261–92Intermarket Analysis . . . (Murphy) 8, 103intermarket indicatorsBollinger bands 123–4, 177, 184–7,218–33, 271–7, 297–8, 310–12, 372,379–80CI 139–43, 196–9, 203–13, 280–6, 301concepts 121–43, 175–87, 190–9,218–33, 297–301disparity 124–7, 177, 185–7, 202–13,224–33, 269–77, 298, 305–7, 327–9,331–2, 359–60divergences 7–8, 123–38, 176–87, 190–9,201–13, 218–33, 240–2, 245–6,269–77, 295, 297–9, 300, 303–5,314–16, 373double LRS divergence 132–3, 178,184–7, 240–2, 299–300, 316–20LRS divergence 127–8, 132–3, 176–87,190–9, 240–2, 298, 299–300, 307–10,316–20MetaStock code 175–87, 198, 297–301momentum oscillator 122–3, 126–7,128–30, 140, 148–9, 177–87, 190–9,204–13, 218–33, 242, 246, 253–60,272–7, 299multiple intermarket divergence 131–3multiple regression divergence 133–8,178, 181–3, 215–33, 300, 314–16,334regression divergence indicators 128,177–87, 190–9, 245–6, 269–77,298–9, 302–3relative strength 121–3, 140, 179–80,183–7, 236–44, 247–60, 297, 303–5,341–7, 377stochastics oscillator 140, 179, 192,196–9, 203–13, 218–33, 242, 253–60,378, 381Z-score divergence 130–1, 177, 184–7,312–14intermarket momentum oscillator (IMO)see momentum oscillator
401
intermarket relationsconcepts 9–10, 20–7, 168–71, 278–85,295, 357–65nonlinear relationships 20–7Intermarket Relative Strength 122–3see also relative strengthintermarket systems 78, 109, 147–73,235–46, 293–5, 355conclusions 293–5fourteen comparisons 78, 175–87trading stocks 235–46, 295,337–9international indicesconcepts 41–67, 69–76, 85–92symbols 46–50trading hours 42–50, 76–7volatility 46–50Internaxx 246, 248Internet bubble 44Internet-based trading, forex 262intraday correlationssee also correlation; time factorsconcepts 90–2, 111–19, 189–99DAX 90–2, 111–19intermarket regression 112–13leading/lagging analysis 116–19Investor’s Business Daily 121iShares . . . 251–2, 258–9Jakarta Composite 5see also emerging marketsJapan 4–5, 9–10, 23–7, 36–8, 45–6, 47–51,55–6, 58, 95–9, 134–8, 249, 262–92,348–55see also Nikkei; yenAUD/JPY 288–90JP Bonds 269–77Tankan quarterly survey 267USD/JPY 4–5, 95–9, 249, 262–92,348–55Jefferson, Thomas 121jewellery industry, gold 98–9Journal of the Market TechniciansAssociation 166–7J