Posted By: Jmont42   Date: Sun Apr 20, 2008

Title: support and resistance

Message:
  Do you include support and resistance entry points in your model? I'm a new subscriber and I have been using the SPY trading range of 126 to 139 along with stochastics and MACD to make profitable spy trades all year. I respectfully think you should consider adding this to your model, i.e. go short spy above 139 instead of at the close on a specific day. Doing this enabled me to go long on Monday and short on Friday. Let me know what you think. Thank you.

Response:
  I don't explicitly add resistance levels to the model. The nets are created with an evolutionary algorithm that could create levels if it would improve accuracy. There may be levels already in the model. It is just too difficult to say for sure as the equations developed with this algorithm are somewhat complex which makes a detailed analysis almost impossible. The trading return has been quite good up to the end of last week when some positive earnings surprises were announced and we were short. As often stated, the model predicts the forward slope 15 days ahead so we shouldn't expect the model to predict day-to-day price swings. I am looking at making a change to the trading model that will prevent it going long when the market is overbought or going short when the market is oversold. Initial testing looks promising. This change would have delayed our short signal last week and reduced the drawdown that occurred.