|
PureBytes Links
Trading Reference Links
|
Hello Anthony,
I find this post very interesting, it seems that the attached
pictures are not stored with the post, is there a way to view them?
Thanks,
Eitan
--- In amibroker@xxxxxxxxxxxxxxx, "Anthony Faragasso" <ajf1111@xxx>
wrote:
>
> Alpha-Beta Trading System (Part I): Trading With A Stock's Alpha
>
> Relative strength trading can be one of the ways to trade the
market for
> short-term gains. Basically, the concept of relative strength
trading
> involves picking stocks that will perform better than the general
market as
> represented by some Index. Technically a market Index is just a
basket of
> component stocks, but in reality it is more than the sum of its
parts. For
> market players, it is a psychological reference, and therefore has a
> feedback effect. i.e. while prices affect the Index, the Index also
affects
> prices. This enhances the value of relative strength trading. The
two main
> calculations required for trading the relative strength of a stock
are its
> Beta and Alpha.
> The Beta of a stock is defined as the slope of a regression line in
a
> scatter graph of paired data points representing percentage changes
of an
> Index and the corresponding change in the price of a stock (See
Fig. 1). The
> Alpha is the point where this regression line cuts the Y-axis. A
stock's
> Beta can be described as that part of a stock's movement that is
influenced
> by the Index. And a stock's Alpha can be regarded as that part of a
stock's
> movement that is independent of the Index's movement. In practical
terms,
> examples of stocks increasing in Alpha could be those with take-over
> rumours, under strong syndicate manipulation, or having strong
expectations
> of good results, i.e. factors which make them move more and more
> independently off the Index.
>
>
>
> Fig. 1. The Alpha and Beta of a stock, where Alpha is the vertical
intercept
> and Beta is the slope of the best fit line.
>
> Using the Beta to trade is quite common, but not so common is using
the
> Alpha. Actually stock picking by Alpha is a much more rewarding and
less
> dangerous task than stock picking by Beta.
>
> In our method, we design Alpha for trading very short term i.e. 5
days,
> screening with volatility and volume condition indicators. The
number of
> data points used to calculate Alpha is first aggregated in clusters
to
> produce points for percentage changes over a certain number of
days. This
> results in a very sparse data set, and the regression line
is "forced" to
> fit these few number of points. The under-fitting is deliberate
although
> unconventional by statistical theory standards.
>
> To narrow down the choice, step-by-step filtering is next applied.
You could
> first filter by volatility which can be represented by Average True
Range or
> some other volatility indicator of your choice. The second filter
could be
> some sort of Buy*Volume condition, for example:
>
> H>HY1*V>VY1*L>LY1=1
>
> which means: High of today>High of Yesterday AND Low of Today>Low of
> Yesterday AND Volume of Today>Volume of Yesterday. A third filter
condition
> could be that today's Close should be greater than yesterday's
Close, i.e.,
>
> C>CY1
>
> It is quite up to the individual to specify the conditions
according to his
> risk profile and his trading style. A totally mechanical approach
would not
> be successful. For example on days that the market was down,
filtering with
> a Buy*Volume condition may not be appropriate. On days that the
market was
> up, C>CY1 should be part of your filter, the stocks to be selected
should
> have moved up with the market with the majority of stocks. And after
> filtering you could discard any stocks with negligible Volume from
your
> list.
>
> Some guidelines for the use of Alpha and Beta in trading are given
below:
>
> 1 For very short-term trading, stocks with Beta >1.5 can be
regarded as high
> Beta stocks.
>
> 2.Absolute values of Alpha depend on time span of data, and period
over
> which the change is recorded. What is more relevant is the change
in Alpha.
>
> 3. A stock with high Beta moves up fast when the Index goes up, but
also
> moves down fast with the Index, unless it has a high Alpha value in
which
> case, the Alpha value acts as a support.
>
> 4. A stock with high Alpha, but not necessarily high Beta, can move
up fast
> when the Index moves up, if the circumstances for the high Alpha
are still
> present or have increased in influence. This can be depicted as a
moving up
> of the whole regression line, resulting in a higher point of
intercept with
> the Y-axis.
>
> 5. Therefore the way to select stocks is to look for changes in
Alpha or
> Beta rather than values of Alpha and Beta. The absolute Alpha and
Beta
> values only show the status quo. To add an element of prediction,
the change
> in Alpha would be more useful.
>
> 6. It is better to choose stocks with increasing Alpha rather than
> increasing Beta. High Beta stocks with low Alpha values require
great
> alertness and usually intra-day trading strategies.
>
> 7. The most potentially rewarding stocks are those that have a high
Beta as
> well as a high Alpha; with the added conditions that these values
have not
> peaked,or are already on the way down. This can be confirmed by
graphing the
> Alpha and Beta values.
>
> 8. When Alpha and Beta values are graphed, and put on a split screen
> together with the stock's price line chart, they are seen to be in
waves
> each having a span of between 3-5 days. These waves reflect the
inevitable
> profit taking. But trends and patterns in the waves can also be
seen, and
> these can be analysed using traditional technical analysis concepts
of
> trend, support, resistance and divergence. (See Fig. 2)
>
>
>
> Fig. 2. The Alpha and Beta values with price charts of a stock and
an index.
> The thicker line is the Alpha.
>
> 9. Generally, a stock is "in play" when the amplitude of its alpha
waves are
> getting bigger while its alpha value is also trending up.
>
> 10. Trading short-term with Alpha assumes a trending and reasonably
volatile
> market. In a sideway market, Alpha would not be useful. The
determination of
> market direction and whether it is in a trending stage can be by
means of
> indicators like the ADX and Moving Averages.
>
> 11. In a down-trending market, you could either buy stocks with
consistently
> high Alphas for the market's rebound, or,if short-selling is
allowed, choose
> stocks with high Beta and low Alpha.
>
> 12. By scanning several markets and seeing which have more stocks
with Alpha
> values at the higher end of the market range, it is possible to
select which
> market to participate in.(A frequency histogram of markets will
show which
> side the values of Alpha are skewed towards).
>
>
> ---
> Outgoing mail is certified Virus Free.
> Checked by AVG anti-virus system (http://www.grisoft.com).
> Version: 6.0.520 / Virus Database: 318 - Release Date: 9/18/2003
>
Please note that this group is for discussion between users only.
To get support from AmiBroker please send an e-mail directly to
SUPPORT {at} amibroker.com
For NEW RELEASE ANNOUNCEMENTS and other news always check DEVLOG:
http://www.amibroker.com/devlog/
For other support material please check also:
http://www.amibroker.com/support.html
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/amibroker/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/amibroker/join
(Yahoo! ID required)
<*> To change settings via email:
mailto:amibroker-digest@xxxxxxxxxxxxxxx
mailto:amibroker-fullfeatured@xxxxxxxxxxxxxxx
<*> To unsubscribe from this group, send an email to:
amibroker-unsubscribe@xxxxxxxxxxxxxxx
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
|