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--- In amibroker@xxxxxxxxxxxxxxx, "eitan_kle" <eitankle@xxx> wrote:
>
> 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
>
Hello Eitan,
In the short term you can pick them up at:
http://www.purebytes.com/archives/amibroker/
There is delay before the current posts are filed there.
They can be hard to find.
The attachments go to people who receice the forum as mail.
I don't use desktop mail (I use Yahoo webmail for extra security) so
in the end I elected to receive messages from this group to my Yahoo
box (just to get the attachments and keep the few that I want to
follow up on).
Select the receive as mail from the options at this messageboard.
brian_z
> --- In amibroker@xxxxxxxxxxxxxxx, "Anthony Faragasso" <ajf1111@>
> 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
> >
>
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