Uncle Steve Presents:

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Uncle Steve Presents
Momentum Oscillators and Mechanical
Trading Systems
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You dont need a weatherman to know which way
the wind blows.
Bob Dylan
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Tonights Program

• Review
• Trading concepts
• Structuring a mechanical approach
• Uncle Steves favorite system tests
• Question and answer period

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What a long strange trip its been

• 1975 US tests first momentum oscillators
• 1979 US purchases first computer (Model I
  Tandy)
• 1982 US responsible for first momentum
  oscillators fed to subscribers in real-time
• 1984 US ascends to Executive Vice President
  with First Financial Futures and designs the
  Founders Fund I (picks John Henry as CTA)
• 1988 US purchases MetaStock
• 1996 US begins retesting momentum oscillators
  as part of an MBA project
• 1997 US begins lecturing at University of
  Idaho, Washington State University and the
  University Centre (Bern, Switzerland)
• 1998 US conducts a series of sales and
  educational for Equis International, Data
  Broadcasting and Paritech, International

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Since the beginning of the millennium

• 2002 US speaks to the Denver Market Technicians
  association Active Trading SystemsSystematic
  Trading with Momentum Oscillators (sandwiched
  between appearances by John Murphy and John
  Bollinger)
• 2002 US conducts an eight-hour seminar for the
  Denver Trading Group Design, Testing and
  Optimization of Mechanical Trading Systems
• 2002 US gives 85 members of the DTG a six-hour
  presentation entitled The Building Blocks of
  Successful Mechanical Trading
• 2003 US starts Teach-Talk-Trade (Pal Talk)
• 2004 US moves Teach-Talk-Trade to Hotcomm
• 2004 US starts Trade Assist programs with Mirus
  Futures
• 2005 US continues lectures on mechanical
  trading to DTG
• 2005 US design and implements Over/Undera
  daytrading approach using Tim Tillsons T3s (a
  mean-reversion mechanical system)

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Review of trading concepts

• The primary force behind his or her drive to
  succeed is a passionate pursuit of excellence,
  not profit
• There is no best indicator or mechanical
  systemthere are many acceptable methods
• Real awareness will come only when you find
  truth for yourself directly, through your own
  eyes, from your own experiences

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Addition thoughts on trading

• Never, ever underestimate the danger of trading.
• A passion for the truth is the essential element
  of a sound approach to trading.
• A good attitude for trading is one free of fear.
• The past is knowable.
• The present is observable.
• The future is intelligently guessable.
• Trading can be a simple business betting on the
  future direction of constantly moving numbers.

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With the fall of one leaf, we know that autumn
has come to the world.
Japanese saying
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Pick a trend indicator and never, ever trade
against its direction?

• 20-day simple moving average
• 50-day simple moving average
• 200-day simple moving average
• or
• 34-day simple moving average

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Go with the flow
Uncle Steve
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Stochastic RSI (StoRSI)

• Formula Mov((RSI(8)-LLV(RSI(8),8))/
• (HHV(RSI(8),8)- LLV(RSI(8),8)),3,E)100
• Setup and Logic The range of the StoRSI is
  bound by zero and 100.
• If you are optimizing for trigger levels, select
  trigger levels that are symmetrical 10/90
  work well as default settings.
• The triggers between 10-30 70-90 produce the
  most consistent results.
• As the StoRsi travels back and forth through its
  range, trades are initiated when the StoRsi
  closes below its trigger level and the 34 sma is
  positive.

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Rules for trading the StoRSI(Buy signals)

• Buy Order
• Cross(10,(Mov((RSI(8)-LLV(RSI(8),8))/
• (HHV(RSI(8),8)- (LLV(RSI(8),8))),3,E)100))
  AND MOV(C,34,S)Ref(MOV(C,34,S),-1)
• The system signals a buy order when the close
  is below a designated, trigger level.
• CCT will not enter a trade (buy signal) unless
  the trend is positive. The same rules apply for
  short sales (trend must be negative). Trend is
  defined by a 34 period sma.

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Rules for trading the StoRSI(Sell signals)

• Sell Short Order
• Cross((Mov((RSI(8)-LLV(RSI(8),8))/
• (HHV(RSI(8),8)(LLV(RSI(8),8))),3,E)100),90)
• AND MOV(C,34,S)Ref(MOV(C,34,S),-1)
• The system signals a sell order when the close
  is above a designated, trigger level.
• CCT will not enter a short trade (sell signal)
  unless the trend is negative. Trend is defined
  by a 34 period sma.

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HPQ StoRSI Equity Curve
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CMO(3)

• Formula Cross(-90,CMO(c,3))AND Mov(C,34,S)
• Ref(Mov(C,34,S),-1)
• Setup and Logic The range of the CMO(3) is
  bound by 100 and -100
• If you are optimizing for trigger levels, select
  trigger levels that are symmetrical 90/-90
  work well as default settings.
• The triggers between minus 20-99 plus 20-99
  produce the most consistent results.
• As the CMO(3) travels back and forth through its
  range, trades are initiated when the CMO(3)
  closes below its trigger level and the 34 sma is
  positive or above its trigger level and the 34
  sma is negative.

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Rules for trading the CMO(3)(Buy Sell signals)

• Initiate trades only if the 34 sma confirms the
  direction of the signal (the trend is your
  friend)
• Buy the opening after the CMO3 closes below the
  trigger of -90
• Cover the long position if the CMO3 closes above
  the 90
• Sell short the opening after CMO3 closes above
  the trigger of 90
• Cover the short position if the CMO3 closes below
  -90

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GENZ CMO(3) Equity Curve
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CMO(5)

• Formula Cross(-55,CMO(c,5))AND Mov(C,34,S)
• Ref(Mov(C,34,S),-1)
• Setup and Logic The range of the CMO(5) is
  bound by 100 and -100
• If you are optimizing for trigger levels, select
  trigger levels that are symmetrical 55/-55
  work well as default settings.
• The triggers between minus 13-55 plus 13-55
  produce the most consistent results.
• As the CMO(5) travels back and forth through its
  range, trades are initiated when the CMO(5)
  closes below its trigger level and the 34 sma is
  positive or above its trigger level and the
  34sma is negative.

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Rules for trading the CMO(5)(Buy Sell signals)

• Initiate trades only if the 34 sma confirms the
  direction of the signal (the trend is your
  friend)
• Buy the opening after the CMO5 closes below the
  trigger of -55 and the trend is positive
• Cover the long position if the CMO5 closes above
  the 55
• Sell short the opening after CMO5 closes above
  the trigger of 55 and the trend is negative
• Cover the short position if the CMO5 closes below
  -55

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BBY CMO(5) Equity Curve
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FibCMO

• Formula Cross(-34,fml(FibCMO))AND
  Mov(C,34,S)Ref(Mov(C,34,S),-1)
• Setup and Logic The range of the FibCMO is
  bound by 100 and -100
• If you are optimizing for trigger levels, select
  trigger levels that are symmetrical 34/-34
  work well as default settings.
• The triggers between minus 13-55 plus 13-55
  produce the most consistent results.
• As the FibCMO travels back and forth through its
  range, trades are initiated when the FibCMO
  closes below its trigger level and the 34 sma is
  positive or above its trigger level and the 34
  sma is negative.

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Rules for trading the FibCMO (Buy Sell signals)

• Initiate trades only if the 34 sma confirms the
  direction of the signal (the trend is your
  friend)
• Buy the opening after the FibCMO closes below the
  trigger of -34 and the trend is positive
• Cover the long position if the CMO3 closes above
  the 34
• Sell short the opening after CMO3 closes above
  the trigger of 34 and the trend is negative
• Cover the short position if the CMO3 closes below
  -34

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YHOO FibCMO Equity Curve
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Bollinger Band Oscillator Test Results
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Important System Points

• Always use a trend identifier and never, ever
  trade against the trend (pick a trend, any trend)
• Seek issues that consistently produce a winning
  percentage of 67 or higher
• Seek issues that the average winning trade is
  larger than the average losing trade
• Eyeball the equity curve

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Cedar Creek TradingSteve Karnish,
Principalwww.cedarcreektrading.com
Uncle Steve hard at work..
email cedarcreek_at_comcast.net