Trading with Charts for Absolute Return

TRADING A DIVERSIFIED STOCK PORTFOLIO WITH THE DAX FUTURES INDEX AS A TREND INDICATOR

Managing a stock portfolio means that the portfolio manager has the best information available about every single stock in the portfolio in order to decide at any given time when to buy or sell the respective stocks

The previous section presented an overview on simulations indicating that absolute return results can be achieved in a stock portfolio when each single stock is analyzed based on the trend channel concept in combination with trend lines.

The approach to be discussed now is what happens, if the analysis for each single stock is ignored and timing decisions are concentrated on the DAX Futures Index as an overreaching trend indicator. The DAX Futures Index was analyzed in Chapter 5 (see Table 5.2 for a recap on the DAX Futures Index performance regarding PHI-ellipse simulated trading).

This trading approach can be outlined by considering the portfolio of 20 stocks from the previous section. Whenever there is a buy signal in the DAX Futures Index, all 20 stocks are bought at the same time. Whenever there is a sell signal short in the DAX Futures Index, all 20 stocks are sold at the same time flat.

If this strategy holds true, there is no further need to analyze the single stocks in the portfolio. The analysis concentrates on market entries long only solely with regard to trend changes in the DAX Futures Index.

The long signals in order to buy all 20 stocks in the portfolio in this approach ...