Wednesday, April 9, 2008

HAI-O Enterprise Bhd Case Study

Moving average can be used to identify change in trend.

One of the methods is to use the order of 3 moving average to detect change in trends.

Assuming that you use the following 3 moving averages:
1. 10 day simple moving average
2. 20 day exponential moving average
3. 30 day exponential moving average

When the trend is up, the 10 day simple moving average is greater than the 20 day exponential moving average, the 20 day exponential moving average is greater than the 30 day exponential moving average. This is the proper order of the moving averages for an up trend move.

Similarly when the trend is down, the 10 day simple moving average is less than 20 day exponential moving average, the 20 day exponential moving average is less than the 30 day exponential moving average. This is the proper order of the moving averages for a down trend move.

Let’s do a case study. I have chosen HAI-O ENTERPRISE BHD as an example.

Entry rules
1. Today the 10 day simple moving average is less than 20 day exponential moving average and the 20 day exponential moving average is greater than 30 day exponential moving average.


2. For the past 3 days, there is at least one day in which the 10 day simple average is less than the 20 day exponential moving average and 20 day exponential moving average is less than the 30 day moving average.


3. If condition 1 and 2 are true, buy at the opening price of the next trading day.

Exit rules
1. If the closing price today is less than the 30 day exponential moving average, sell the long position at the opening price of the next trading day.

The chart with the moving average is given below:


The "Red" line represents the 10 day simple moving average, the "Green" line is the 20 day exponential moving average and the "Blue" line is the 30 day exponential moving average.

Based on the above rules, we have the following trades.

Entry DateEntry PriceExit DateExit Price% Change
10/16/20031.1611/18/20031.15-0.86
9/2/20040.989/7/20040.95-3.06
1/9/20061.062/24/20061.125.66
10/9/20061.3812/13/20061.519.42
3/23/20072.018/7/20072.9546.77
10/11/20073.112/3/20073.120.65
3/31/20083.12OpenOpen3.21

The simulation data is from Jan 2003 to 8 Apr 2008. There are a total of 7 trades with 5 being profitable. The average profit is 13.14% whereas the average loss is 1.96%. The lastest trade is a buy signal on 31 Mar 08. The position is not closed yet and it is showing a gain of 3.21% as of 8 Apr 08.

1 comment:

dave said...

Interesting!
Reminds me of my Bowtie Pattern

http://www.traderslog.com/bowtie.htm
www.davelandry.com

Dave