AAPL: Using TSI to decide when to buy into strength

Following up David Varadi’s post on TSI (Trend Strength Index) i want to further elaborate how TSI can help to identify when to buy into strength using Apple stock (AAPL) as an example.

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Let’s start with a picture

This chart shows AAPL over many years including TSI in the bottom part.  Before the time of the all desired iGadgets Apple has traded sideways for most of its time. So buying into strength during that time wouldn’t be a profitable strategy. You might have noticed the red line in the bottom part. The red line marks the value of 1.7. Which is a critical value that often separates trending vs. non-trending NASDAQ stocks.

What about the facts?

I created a simple system that goes long only when the rate of change of past 200 days is above zero and RSI(2) is greater 80 (= remember we wanted to buy into strength). The trade will be exited when RSI(2) is bellow the entry level.

The table has 3 columns: the first one represents results of the raw system as described above. The second one is applying TSI > 1.7 as an additional filter. The last column is using the raw system + ADX(14) > 30.

The results speak for themselves: risk adjusted metrics have all improved while absolute returns stay about the same. That’s what we want from an additional filter! In case you want to have some more background on the KPI’s I’m using then please read here.

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In case you’ve got any questions or comments don’t hesitate to contact me via chat (at the right side of your screen).

Background: the trades are close / close without commission or slippage. First trade no earlier than 1998.

Further posts on TSI

In case you are interested in TSI and further related posts I’ve created a central place within this blog  (please read here).

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Comments

  1. Hi Frank, it has been nice having you visit our trading room from time to time. I have added your TSI as alternative trend measure in the ETF Rewind for over 200-ETFs nightly. Thank you and keep up the good work. Sincerely, Jeff

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  1. [...] have had several discussions with in recent times is Frank Hassler of the blog Engineering Returns http://engineering-returns.com/2010/06/28/aapl-ts/ Frank is a very intelligent and also very diligent researcher that likes to research any and all [...]

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