ES Intermarket System 2016
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The History of Intermarket Divergence by Murray Ruggiero
Intermarket analysis is an incredibly powerful concept that traders can use to get an edge on the market. In fact, when intermarket analysis is done correctly it is considered to be a form of statistical arbitrage that can have excellent results.
I developed the concept of intermarket divergence approximately 20 years ago. It has proved to be a robust and reliable concept since then. Reflecting back to 1995, that intermarket analysis could give a big edge, but most futures based systems are developed on continuous contracts. Individual contracts are not active long enough to do proper backtests.
The method used for stringing futures contracts together subtracts out the price gaps from each boundary. This destroys the relative price relationship but keeps the dollar change in tack. This makes them useless for ratio analysis which during the 1990’s was how intermarket analysis was done. Ratio was a way to detect mispricing when the ratio finds extremes. So I developed the concept of intermarket divergence as a way around this. I wanted to find a way to accurately judge that the relationship had reached an extreme level. The rules for intermarket divergence are as follows:
For positively correlated markets:
If intermarket is in an up trend and the traded market is in a down trend, then buy
If intermarket is in a down trend and the traded market is in an up trend, then sell
We have similarly worded but conceptually different, rules for negatively correlated markets, so:
For negatively correlated markets:
If intermarket is in an up trend and the traded market is in an up trend, then sell
If intermarket is in a down trend and the traded market is in a down trend, then buy
You can use various well-known concepts to define an up or down trend. In most of my work, I used price relative to a moving average. That is, consider a function called Price-Average (Price, X) that we use to define a trend. When it is above zero we call it an uptrend and when it is below zero we call it a down trend. We can also use a simple difference Price-Price (X) function as another method for defining a trend.
My NEW E-mini S&P 500 System
This system, the E-mini S&P 500 trading system, uses two intermarkets which confirms each other to create a robust and reliable trading system. One of the intermarkets is one I used since the mid-1990s when I worked for Larry Williams and has been reliable for predicting the S&P500 for the past 20 years. The other is a newer market which has only been available since the mid-2000s.
This system has great hypothetical backtested results. Below is a list detailing those results:
Summary Report for Session ES_Intermarket2015Ver2 ES_REV.CSV 4/11/2007 to 11/27/2015. System is ES_INTERMARKET2015VER3 Performance Summary: All Trades Total Net Profit $135,200.00 Open Position P/L ($625.00) GrossProfit $181,525.00 Gross Loss ($46,325.00) Total # of trades 133 Percent Profitable 75.94% Number winning trades 101 Number Losing Trades 32 Largest winning trade $7,775.00 Largest Losing Trade ($3,037.50) Average winning trade $1,797.28 Average Losing Trade ($1,447.66) Ratio avg win/avg loss 1.24 Avg Trade (win & loss) $1,016.54 Max consec. winners 11 Max consec. losers 2 Avg # bars in winners 12 Avg # bars in losers 9 Max intraday drawdown ($6,275.00) Max # contracts held 1 Profit Factor 3.92 Yearly return on account 249.67% Account size required $6,275.00 Performance Summary: Long Trades Total Net Profit $77,175.00 Open Position P/L $0.00 GrossProfit $96,250.00 Gross Loss ($19,075.00) Total # of trades 56 Percent Profitable 82.14% Number winning trades 46 Number Losing Trades 10 Largest winning trade $6,925.00 Largest Losing Trade ($3,037.50) Average winning trade $2,092.39 Average Losing Trade ($1,907.50) Ratio avg win/avg loss 1 Avg Trade (win & loss) $1,378.13 Max consec. winners 11 Max consec. losers 2 Avg # bars in winners 18 Avg # bars in losers 9 Max intraday drawdown ($3,650.00) Max # contracts held 1 Profit Factor 5.05 Yearly return on account 245.01% Account size required $3,650.00 Performance Summary: Short Trades Total Net Profit $58,025.00 Open Position P/L ($625.00) GrossProfit $85,275.00 Gross Loss ($27,250.00) Total # of trades 77 Percent Profitable 71.43% Number winning trades 55 Number Losing Trades 22 Largest winning trade $7,775.00 Largest Losing Trade ($3,037.50) Average winning trade $1,550.45 Average Losing Trade ($1,238.64) Ratio avg win/avg loss 1 Avg Trade (win & loss) $753.57 Max consec. winners 8 Max consec. losers 2 Avg # bars in winners 7 Avg # bars in losers 9 Max intraday drawdown ($4,487.50) Max # contracts held 1 Profit Factor 3.13 Yearly return on account 149.84% Account size required $4,487.50
Put the POWER of Intermarket Divergence to Work For You!
These results above are incredible backtested results. They show a robust trading system that has done well in both adverse and good economic circumstances. The drawdown is exceptionally low which means that it can be traded with a $15,000 account!
We only have 12 of these systems left for $499. After that we will be increasing the price or making it available on a lease-only basis. This means not only don’t you see the logic but you have to pay a fee per contract. This can be as much as $100.00 per contract per month which would $2400.00 if you trade a 2 lot for a year. Pick up your copy today and start trading Murray’s best intermarket system to date!
Plus you will receive a TradeStation copy of this system absolutely free with your purchase!