Jack Schwager Indicators Now Available on TradeShark

Eight videos explaining these indicators can be found at http://www.tradeshark.com/partner/jack-schwager/indicators

There are 4 indicators:

  1. Trend Weight
  2. Overbought/Oversold
  3. Directional Weight
  4. Dual Trend

The Trend Weight (TW) indicator is designed to capture major trends in the market. The value of the indicator reflects the strength of the trend and can range between -100 (most bearish) to +100 (most bullish). TW threshold levels specified by the user can be used to generate buy and sell signals. Based on the empirical evidence, the TW can also be used as a filter to determine which side of a market to trade from. (Based on the performance analysis of a broadly diversified futures portfolio across 25 years, on balance, positions in line with the TW had substantial positive performance, while positions in conflict with the TW would have experienced the exact opposite outcome.)

The Overbought/Oversold (OBOS) indicator is a counter-trend measure, which becomes increasingly positive (overbought) as an uptrend progresses and increasingly negative (oversold) as a downtrend progresses. The indicator has a range between -100 and +100. Extreme values in the OBOS can be viewed as an indication that the trend may be overextended and prone to reversal. Such extreme readings in the OBOS can be used as signals to employ a sensitive exit condition (e.g., using a relatively close sell stop if long and indicator is at very high positive values). The OBOS can also be used as a trend signal in that shifts from negative to low positive readings tend to lead to upside extensions, and shifts from positive to low negative readings tend to lead to downside extensions.

The Directional Weight (DW) combines the TW and OBOS into a single composite indicator, which can range between -100 and +100. The DW is equal to the TW minus the OBOS. The typical pattern for a major uptrend will be that, initially, the DW will increase as the trend develops, reflecting an increasing TW and a little changed OBOS. Subsequently, as the trend extends further, the DW will begin to decline, as the TW will be near maximum readings, while the OBOS increases with the extension of the uptrend. It is not uncommon for the DW to retrace back to near zero by the time the market is at a top. The pattern for a major downtrend would be analogous. Similar to the TW, user-specified threshold levels for the DW can be used to generate buy and sell signals, and the DW can also be used as a filter to determine which side of a market to trade from.

The Dual Trend (DT) indicator combines the Trend Weight (TW) with the TradeShark Long Trend Difference (LTD) indicator. The DT is inherently diversified, as the TW is a long-term indicator, while the LTD is a much shorter-term indicator. The DT can be set in one of two modes:

  • Single Condition—A bullish reading in one indicator (with the other neutral) is sufficient for a trade signal.
  • Dual Condition—Both indicators need to be in a bullish mode to signal a long position, and both need to be in bearish mode to signal a short position.