The New High - New Low Index in the Australian stock market using Insight Trader

Transcription

1 The New High - New Low Index in the Australian stock market using Insight Trader Note: When I first created this document I included a 5-day new High-New Low index. This was experimental and I subsequently found it was not useful. Although it remains in the document, I have removed it from the spreadsheet and Insight Trader data file. Introduction My initial inspiration for this document was the work, written up in the ground-breaking e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn who have advanced our understanding of the importance of the New High New Low index. In my opinion, this is the best book I have come across on this indicator. I reviewed it on the free website. Here is a reproduction of my review: I have never come across a book that deals in detail with the New High New Low Index. Some years ago I tried to use the indicator, but gave it up because it did not seem to help me in my investment plan. However, I now suspect that the real problem was that I did not fully comprehend why I should use it and how it is best used. I had come across references to the New High New Low Index in books from time to time, but at best they mentioned it and little more. Up until now, the best explanation that I had come across had been by Dr Alexander Elder in his book Trading for a Living, who devoted seven pages to it, including three charts. Now Dr Alexander Elder and Kerry Lovvorn have devoted an entire e-book to the New High New Low Index. Its title is: The New High New Low Index: Stock Market s Best Leading Indicator. Although e-books do not have page numbers (it depends on the e-book reader you use, the print size settings you choose and the screen aspect) the PDF version is 62 A4 pages, so it is the most complete exposition that I have ever come across. However, it is even more than that. It explains in detail how to construct, chart and interpret the indicator. I had seen Alex Elder teaching it live and on webinars, but I still did not fully understand its implications and power as a trading and investing tool until I read this e-book. This new e-book The New High New Low Index: Stock Market s Best Leading Indicator has no less than 54 charts that illustrate the discussion. E-books have some limitations on how clearly charts can be reproduced. Dr Alexander Elder and Kerry Lovvorn have got around this by posting superb charts on their SpikeTrade website. If readers click on any chart in the book, provided they are online, they will be taken to the crystal-clear chart versions on the website (at least they are on my high resolution laptop). Here is the Table of Contents to give you an idea of the scope of the e-book: Copyright Colin Nicholson. For your own use only. Page 1

2 A Leading Indicator Basic Definitions The Weekly New High New Low Index How to Construct Bull Market Confirmations Divergences Spikes The Daily New High New Low Index Confirmations Divergences Taking a Short-Term View The 20-day NH-NL The 20/-500 Bounce Signal The 65-day NH-NL; Bounce Follow-Up An Alternative Method: The NH-NL Ratio Major Trends Intermediate Trends NH-NL in Worldwide Markets Databank I am sure that, having read this e-book, you will never look at this indicator the same way again. Many traders and investors will want to build it into their analysis routines. I intend to set up scans on my software to produce the data for the ASX. When I have collected enough daily history to be useful, I will post it monthly on the free website. This document is my attempt to explain how the ideas in Dr Alexander Elder and Kerry Lovvorn s e- book The New High New Low Index: Stock Market s Best Leading Indicator may be used in the Australian market using Insight Trader charting software. I have not set out to show anything beyond how to calculate and chart the data. It is not my intention to teach the New High New Low Index or how to analyse the charts. For that, please buy the e-book The New High New Low Index: Stock Market s Best Leading Indicator, which does that job far better than I could ever pretend to do. I am simply adding to it in terms of calculating and charting Australian data in Insight Trader charting software. To buy the e-book The New High New Low Index: Stock Market s Best Leading Indicator by Dr Alexander Elder and Kerry Lovvorn, please go to: where it may be bought for US$12.99 I originally wrote about how to calculate New High New Low data as part of the larger document on breath indicators what may be accessed on the members website at That document was written with an earlier version of Insight Trader in mind. Although little of significance has changed, this newsletter has revised the explanation to work with the latest version of Insight Trader (Version 17.1) and has been expanded to: 1. Show how to calculate all of the New High New Low data series in The New High New Low Index: Stock Market s Best Leading Indicator by Dr Alexander Elder and Kerry Lovvorn 2. Show additional screenshots that should help to follow the explanation Copyright Colin Nicholson. For your own use only. Page 2

3 3. Show how to update a spreadsheet that facilitates population of the Insight Trader data file with the New High New Low data 4. Show how to set up a saved chart arrangement in Insight Trader for the Basic New High New Low Screen in The New High New Low Index: Stock Market s Best Leading Indicator by Dr Alexander Elder and Kerry Lovvorn Definitions A New High is a stock which sold at a higher price today than at any time in the last n days. A New Low is a stock which sold at a lower price today than at any time in the last n days. Traditionally, the period (n days) for the calculation in Australia has been variously described as either: Yearly 52-weeks 260- days To set up the System Module scans in Insight Trader we need to be precise if we are to ensure accuracy and consistency. I will therefore refer to and use 260 days (52 weeks x 5 days) rather than 52-weeks or yearly. This precision of definition is also important because the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn explains how the indicator can usefully be calculated for varying periods. This document will also show how to calculate New High New Low data for those other time periods. The New High New Low Index is simply the number of new highs for a given time period less the number of new lows for that time period. Definition of a stock While the definitions of New High and New Low above seem to be straight-forward, there are two complications: 1. In Australia some stocks have more than one type of security on issue e.g. fully paid ordinary shares, preference shares, contributing shares, company-issued options and so on. Theoretically, all securities should move together, but there are technical reasons why sometimes they may not. In any case, to count them all would risk some stocks having multiple entries in the New High and/or New Low data. The method of creating a Reference file described later in this document will have only one entry in the Reference file for any one company, no matter how many different types of shares or other securities it has listed on the market. In essence, this means we only count the securities with a three-letter ASX code. This method of constructing the Reference file will omit a very small number of stocks that do not trade as a three- letter code (mostly contributing and preference shares). This solution is not technically pure but the few exceptions are immaterial and therefore not worth making continual manual adjustments. Copyright Colin Nicholson. For your own use only. Page 3

4 2. Some of the securities listed on the Australian Stock market and included in the Reference file in Insight Trader are not stocks. i.e. shares in a company. The main types of security that are not companies are: AREITS (Australian Real Estate Trusts) Stapled Securities (a share, stapled to one or more trust units) Trusts Investment & Index Funds ETFs (Exchange Traded Funds) AREITS, Stapled Securities and Trusts, while not stocks/pure stocks, are not in my opinion a problem for the calculation of the number of New Highs and New Lows. However, ETFs and Investment & Index Funds are a problem conceptually. A Fund will be a proxy for the whole market, or a sector of the market. However, the Insight Trader software does not provide an easy method of excluding them other than by a laborious on-going manual process. At the present time there are not a very large number of funds listed in Australia, so their inclusion in the Reference file will not unduly distort the data. Should their number grow considerably, as they have in the US, to the point where they may distort the data, a solution to this issue may be necessary. Readers who have read the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn will have seen that in the US, the authors have a data source that excludes certain securities like ETFs, so they have an easy solution to that issue discussed above for Australia. Periods for New Highs and New Lows In the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn, New Highs and New lows are calculated for several periods: 20 days (a month) 65 days (a quarter) 260 days (a year) Since we do not have an existing service for our data in Australia and have to calculate it ourselves, I decided to start with a clean slate and both add to and slightly adapt these time series. The time series that I have defined and calculated are as follows: 5 days (a week) 22 days [260 days 12 = 21.67, rounded to 22] (a month) 65 days [260 days 4] (a quarter) 260 days [52 weeks 5 days] (a year) The things to note here are: My month data may give very slightly different numbers than the US method. I do not consider that this is in any way material and may be put down to my perfectionist streak. My week data is additional to the time series in the e-book for the US market. I have calculated it as the number of New Highs and New Lows for the last week. This is a quite Copyright Colin Nicholson. For your own use only. Page 4

5 different concept to the 5-day running total in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn and is presented as an additional series to be evaluated over time, as and when some history accumulates. I have included a preliminary discussion in Appendix A. The e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn has a Weekly New High New Low index which is a running 5-day total of the 260-day New High New Low index. I have set up my spreadsheet (see later) to calculate this for the ASX. I have also shown that this line may be plotted in Insight Trader using a simple moving average of the 260-day New High New Low index, obviating the need to calculate the 5- day running total. This will be discussed in detail later. The important thing for the moment is to note that my spreadsheet and data file will have the series from the e-book in it for those who prefer to stick exactly to their method, but has an additional time series which may prove useful once it has been investigated. Creating the Reference file Insight Trader software has a Systems Module that allows us to scan the market on various criteria. Before we define the criteria for the scan, we must ensure that we have a clean reference list. The first necessity is that our database is up-to-date. To have an up-to-date data base requires: 1. We have downloaded and distributed to the database the data files for ALL of the trading days in the last year. If any single day of data is missing, it will compromise the data obtained from a system scan. 2. We must have the Insight Trader Database Manager (separate subscription). Ideally, it should be run after downloading and distributing each day s data and prior to running the Systems Module scan to calculate the New High and New Low data. This is to adjust the database for any corporate actions such as splits, reconstructions, rights issues etc. The second necessity is to have a complete and correct Reference file. The Database Manager is updated weekly (often late on Monday, but usually by late Tuesday each week). Each week, the Database Manager must be updated and a new reference list created. In Insight Trader this is called a List File. This is how to create it: On the main menu bar, click File: On the drop-down menu, click Generate Ref List from Sectors: Copyright Colin Nicholson. For your own use only. Page 5

6 This will bring up the screen below. Click the Select All button: In the resulting dialog box, SELECTED will already be there and highlighted: Type ALL We have now created a Reference file for scanning in the Systems Module that contains all stocks listed on the ASX. Every time this is done it over-writes the previous ALL Reference file. Copyright Colin Nicholson. For your own use only. Page 6

7 Readers may wish to use a name for the Reference file other than ALL. In this, case just type that name instead of ALL in the last step above. If a name other than ALL is used in the last step above, then it is very important that in the later steps when the Reference file name ALL is typed into a dialog box, that the alternative Reference file name is substituted. Creating the Systems The next thing we need to do is to create the Insight Trader System Module systems to calculate the New High and New Low data in the various time frames. I will show them all below. However, all readers may not require all of them, depending on their level of interest, whether they are investors or traders and the time frame of their market activities. Having said that, I would strongly endorse the multiple timeframe methodology which is described in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn and further described elsewhere in Dr Alexander Elder s books and teaching. To create the first system, the 22-day new lows, on the main toolbar, click Systems: On the drop-down menu, click New System: the System as shown on the screenshot below: Copyright Colin Nicholson. For your own use only. Page 7

8 There are three things to do here: 1. the system Conditions for Buy Alert (highlighted in the rounded red rectangle in the screenshot above). See detailed instructions on the next page for how this is entered. 2. a System Description Title (highlighted in the red rectangle near the bottom left of the screenshot above). 3. Click the Save as New System button (highlighted in the rounded green rectangle in the screenshot above). Note on System Description Title I have found it convenient to organise the scans that I use all the time so that they are at or near the top of my list of systems and that they are forced into the order in which I want to run them. This speeds up the process a bit and also cuts down errors. At the right is the top of my system list: In this screenshot, I have my weekly market scans at the top of the list. These are the ones in the red rectangle in the screenshot. I have preceded their description with the number 01 through 04, which forces them into the order I want to run them (the automatic ordering is numerical first, then alphabetical). In the green rectangle in the screenshot are my new high new low scans. Their descriptions are preceded by a number from 05 through 12, which forces them into the order in which these scans appear on the spreadsheet on which I record the results. Readers should feel free to change the wording of the System Description titles, to suit their existing set-up. However, this will mean that adjustments will need to be made to these instructions from here on, because I am going to use my set-up to demonstrate the methods that I use. Note on how to enter the Conditions for Buy Alert Insight Trader makes it easy to insert the Conditions for Buy Alert line. These are the steps using the 5D New High system as an example. The steps are the same for each of the other systems. Click Systems on the main menu: Click New System on the drop-down menu: Copyright Colin Nicholson. For your own use only. Page 8

9 This will open the System Filter Specifications dialog box: Note that the cursor is automatically positioned in the Conditions for Buy Alert box (red rectangle in the above screenshot). Immediately above the red rectangle in the above screenshot is the Functions menu box. Click the arrow at the right of the box to reveal the drop-down menu, which will look as shown in the screenshot below: Click High price, which is in the red rectangle in the above screenshot. This will insert H(D) into the Conditions for Buy Alert box: Copyright Colin Nicholson. For your own use only. Page 9

10 Click the arrow to the right of the Logical Operators box to reveal the drop-down menu. Click Greater than, which is highlighted in the red rectangle: This will insert :>: into the Conditions for Buy Alert box: When creating the New Low systems, choose the Less than function instead. Now click the arrow at the right of the Functions box to reveal the drop-down menu again: Scroll down to, and click the Maximum price function (in the SPECIAL section), shown in the red rectangle: This will insert MAX(,D) into the Conditions for Buy Alert box: Copyright Colin Nicholson. For your own use only. Page 10

11 When creating the New Low systems, choose the Minimum price instead. The final step is to edit the (,D) function to read (5,D-1), so that the complete Conditions for Buy Alert looks as shown: It is also possible to create any of the systems by simply typing the Conditions for Buy Alert into the box, if that is preferred. However, using the method shown above is a bit safer, as it avoids common errors. Following are the rest of the systems to create for the full set of new high and new low systems in the order that I have them in my Select System dialog box and in my spreadsheet, which will be explained below: Copyright Colin Nicholson. For your own use only. Page 11

12 Copyright Colin Nicholson. For your own use only. Page 12

13 Running the scans There are four time periods for the New High New Low indicator: 5-day New High New Low 22-day New High New Low Copyright Colin Nicholson. For your own use only. Page 13

14 65-day New High New Low 260-day New High New Low Since each New High and each New Low number has to be calculated by running a separate system, this means that to calculate the full set, eight systems must be run each day. Depending on the speed of the computer, it should only take a few minutes to run them all. The first system will be relatively slow to run, but subsequent systems will run much faster because all the data files required will have been loaded into memory when running the first system. After each of the daily New High and New Low numbers is calculated by running its system scan, the results would ideally be entered (manually it cannot be automated) directly into the Insight Trader data file. However, it is not possible have the Insight Trader System Module open at the same time as the relevant Insight Trader data file is open, allowing rapid switching between them to make the input. There is a possible workaround by creating an entirely new separate database and then running two instances of Insight Trader at the same time. This would still involve some switching back and forth and does not seem to be superior to the method described below using an intermediate spreadsheet. I have found that an easy enough method is to have an Excel spreadsheet open at the time that the systems are run and to transfer the result of each system scan into the spreadsheet. It is then possible to open the Insight Trader data file in turn and type the numbers into it from the spreadsheet. It means typing each number twice, but is fast enough. The advantage of using the spreadsheet is that it allows the automatic calculation of the (NH-NL) numbers for each time series, the New High/New Low Ratio and the e-book s 5-day running total of the 260-day New High New Low. The New High/New Low Ratio must be entered into the data file manually, because it is not possible to plot it from the data file used for the New High New low line. The e-book s 5-day running total may however, be simulated from the 260-day New High-New Low as I will discuss later. However, I have it in the spreadsheet and data file for those who want to use the method in The New High New Low Index: Stock Market s Best Leading Indicator exactly. As mentioned above, the spreadsheet also automatically calculates the (New High New Low) number for each time series each day. If this is also entered into the data file, it allows us to use Insight Trader to calculate and plot a moving average of New High New Low if required. If that field is in the data file, it also slightly simplifies the way the Chart Arrangement is created. I have created the spreadsheet in Office 2010 as shown below: Copyright Colin Nicholson. For your own use only. Page 14

15 Note 1: In Office 2010, the ndnh-nl columns calculate automatically as the ndnh and ndnl numbers are entered. Likewise, the 260DNHRAT (260-day NH-NL Ratio) column, but the 5DRT column does not, so the cell formula must be copied down the column in advance. Earlier (and later) versions of Office may behave differently in these respects and the spreadsheet will need to be configured accordingly). Note 2: The Date column can be pre-filled by selecting the last two weeks and then dragging that selection down using the handle in the lower right of the last selected cell in the normal way. This will eliminate weekends. Public holidays, if the ASX does not trade, need to be removed by hand, but there are only a few in a year. I will upload the spreadsheet to the Data Files page on the free website at the end of each month in Office 2010 format. Note 3: If readers are using an earlier version of Office, it is still possible to download my spreadsheet from the website by first installing the free Microsoft Compatibility Pack from C6BB74CD1466&displaylang=en I have found that by arranging my windows in the way shown on the next page, I can easily run the systems, switching between Insight Trader and the spreadsheet and entering the data entirely using hot keys and the number keys, which is very fast: Copyright Colin Nicholson. For your own use only. Page 15

16 As is obvious from this screenshot, I have a widescreen monitor and it has a high resolution. Depending on readers PC and display/external monitor, it may or may not be possible to reproduce this set-up exactly. In the bottom left corner of the above screenshot is a desktop shortcut (red rectangle) for my spreadsheet file. By editing the shortcut properties (right click, Properties) as shown in the red rectangle in the screenshot at the right, I can use the hot key combination Ctrl Alt N to open the spreadsheet quickly at any time, even if the desktop is not visible. The actual letter (I use N) can be varied as required if it conflicts with an existing shortcut key being used for another file. Below is the hot key sequence to run the scan (done 30 August 2012) assuming: 1. The screen is set up as shown in the penultimate screenshot above. Alt Y 2. The Insight Trader window is the active one (it will be on top of the spreadsheet window). I have inserted screenshots below for what should be seen after each step where I think may be helpful (mostly early in what later becomes a repetitive process). This will bring up the Select System dialog box: Copyright Colin Nicholson. For your own use only. Page 16

17 05 Down Arrow (In my set-up, 05 5D New Highs will now be highlighted): Copyright Colin Nicholson. For your own use only. Page 17

18 Type the date for which the scan is to be run in ddmmyy format Tab Type ALL Tab Type 0 (zero) (Wait for scan to complete and the Filter Report to appear): Alt Tab Type the number of hits found near the top left of the Filter Report (129 in the above screenshot) Right Arrow Alt Tab Esc (Removes the Filter Report, leaving Insight Trader with a blank screen). Copyright Colin Nicholson. For your own use only. Page 18

19 Alt Y Down Arrow (Wait for scan to complete and the Filter Report to appear) Alt Tab Type the number of hits Right Arrow Right Arrow Alt Tab Esc Alt Y Down Arrow (Wait for scan to complete and the Filter Report to appear) Alt Tab Type the number of hits Right Arrow Alt Tab Esc Alt Y Down Arrow Copyright Colin Nicholson. For your own use only. Page 19

20 (Wait for scan to complete and the Filter Report to appear) Alt Tab Type the number of hits Right Arrow Right Arrow Alt Tab Esc Alt Y Down Arrow (Wait for scan to complete and the Filter Report to appear) Alt Tab Type the number of hits Right Arrow Alt Tab Esc Alt Y Down Arrow (Wait for scan to complete and the Filter Report to appear) Alt Tab Type the number of hits Right Arrow Copyright Colin Nicholson. For your own use only. Page 20

21 Right Arrow Alt Tab Esc Alt Y Down Arrow (Wait for scan to complete and the Filter Report to appear) Alt Tab Type the number of hits Right Arrow Alt Tab Esc Alt Y Down Arrow (Wait for scan to complete and the Filter Report to appear) Alt Tab Type the number of hits Right Arrow Down Arrow Left Arrow back to Column B Ctrl S What is done next depends on what we wish to do next: Copyright Colin Nicholson. For your own use only. Page 21

22 First alternative To close everything and enter the data for that day from the spreadsheet to the Insight Trader data file at a later time: Alt F4 Alt F4 Alt F4 Second alternative To immediately enter the data for that day(s) from the spreadsheet to the Insight Trader data file (or to the data file(s) in other charting software: Alt Tab Esc There are many ways that the data in the spreadsheet might be transferred to an Insight Trader data file, or indeed more than one file. Instead of creating data files for each of the time series, I have chosen to have everything in one data file, called ASXNHNL, which I set up as shown below: Some things to note: The different time series are in order from the shortest to the longest. I have made the 260-day NH-NL field as my default field (the one that is plotted automatically). The 260DNHRAT field is the 260-Day New High-New Low Ratio. The 5DRT field is the weekly series used in the e-book a 5-day running total of the 260-Day New High New Low field. It is not necessary to create and populate this data file with historical data because an up to date data file may be downloaded from the website at the end of each month. Copyright Colin Nicholson. For your own use only. Page 22

23 If readers wish to have some of the data in separate data files, it will be necessary to split the data files for the purpose. It will then be necessary to adapt the instructions for creating the Saved Chart Arrangement later in the document accordingly. My experience is that it is most convenient to have all the data for all of the time series in the one data file. At this point, readers should download the spreadsheet and the Insight Trader data file ASXNHNL from the free website on the Free Resources/Data and Other Files page to continue to follow these instructions. Updating the data file When we finished calculating the New High New Low data earlier, we finished with this our screen showing the two windows arranged as shown below: The next step is to open the data file: Alt C (this will create a chart of the last stock in the last system scan. Ignore it) N ASXNHNL This will throw up a chart of all the 260-day New High New Low data back to 1993: Copyright Colin Nicholson. For your own use only. Page 23

24 260DNH-NL D I used to collect this data and publish it on the website for many years. However, I dropped it until the e-book gave me a new insight into the possible utility of this data. I calculated the missing couple of years data bringing the file up to date. This took many hours. Likewise to calculate some back data for the other time series. However, in the case of the other time series, I did not go back more than a couple of years because: 1. It would have been a huge task. 2. The quality of the data on which the New High New Low is based degrades over time with delisting of stocks, not to mention mergers, takeovers, demergers and other corporate actions. The long term chart above is useful for setting parameters for some of the ideas in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn as they may be applied in Australia where the New High New Low numbers are quite different in magnitude to those for the much larger US market illustrated in the e-book. Alt I Alt A Now enter the data for the latest day(s) into the Insight Trader data file. If entering more than one day of data, when the last number has been entered start a new record with Alt A When all the fields for all the days in the data file are populated: Alt A Alt S OK Yes Copyright Colin Nicholson. For your own use only. Page 24

25 Exit Edit This will have saved the file and closed the View/Edit records dialog box. Creating saved charts arrangements One of the most powerful productivity enhancements in Insight Trader is the ability to create Saved Chart Arrangements that are automatically updated and may be reviewed daily. It is not possible to exactly recreate the charts in the e-book because they are, in part, artifacts of the software being used by the authors. What follows is my attempt to create a useful Saved Chart Arrangement corresponding to the key figure in the e-book as a starting point. Readers who are dissatisfied with it for any reason should feel free to make adjustments to meet their needs. I decided to start with Figure 01 in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn, which is the Basic New High New Low screen. First, the weekly bar chart of the index window: Open Insight Trader. Alt C If XAO is not the default stock that has been charted: N XAO V (removes volume sub-chart): The weekly chart at the left on the e-book seems to be about 28 months (28 x 30.4 = 851 days). So we will set a rolling time window of 850 days: X S -850 (to leave some white space at the right edge of the chart) The e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn has a weekly bar chart and a 26-week EMA, so we need to change the compression of the file to weekly: Shift W To draw the 26-week EMA: A E Tab Copyright Colin Nicholson. For your own use only. Page 25

26 26 Tab 0 (zero) The e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn uses a linear chart, so if the chart displayed is semi-log (as mine is), to switch it to linear: F The chart should now look as shown below: XAO - ALL ORDINARIES INDEX > -0.5% to EXP MOV AVS 26(0) week W Next, the daily bar chart of the index window: To create a new window and bring up the Load New Security dialog box: Press the += key XAO The e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn seems to show a six month period for the display, so we will set a running time window of (6 x 30.4 = 182), say 200 days. X S M J J A S O N D 2010 J F M A M J J A S O N 2011 D J F M A M J J A S O 2012 Copyright Colin Nicholson. For your own use only. Page 26

27 -200 Change the compression to daily: Shift D Change the moving average to a 22-day EMA: A Tab 22 The chart should now look like this: XAO - ALL ORDINARIES INDEX > -0.5% to EXP MOV AVS 22(0) day D MAR APR MAY JUN JUL AUG SEP This chart only has the 22-day EMA on the bar chart. It does not have the other faster moving average which could be drawn using multiple moving averages. Nor does it have the channel lines. The channel lines could be added by creating two charts and overlaying them. However, Insight Trader does not have a facility for having an overlaid chart in a Saved Chart Arrangement, so it would have to be a separate Saved Chart Arrangement. Next, the Daily New High New Low window: Press the += key Copyright Colin Nicholson. For your own use only. Page 27

28 Overwrite XAO by typing ASXNH NL Remove the moving average: Alt C The chart will look like this: 260DNH-NL D MAR APR MAY JUN JUL AUG SEP Figure 01 in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn shows a sub-chart with both the 260-day New High line and the 260-day New Low line. This cannot be done in Insight Trader except by creating two separate charts and overlaying them. However, then they cannot be part of a Saved Chart Arrangement and would have to be created as a separate Saved Chart Arrangement. A reasonable workaround would seem to be to be to have these two lines in separate windows one above the other so that the e- book layout is approximated within the limits of Insight Trader. That is the way I have implemented it below. Next, the daily New Highs window: Press the += key ASXNHNL will be active, so: Ctrl Alt F Copyright Colin Nicholson. For your own use only. Page 28

29 Edit the Y-axis field from 13 to 11 The resulting chart will look like this: 260DNH - ASXNHNL D MAR APR MAY JUN JUL AUG SEP Next, the daily New Lows window: Press the += key ASXNHNL will be active, so: Ctrl Alt F Edit the Y-axis field from 13 to 12 The resulting chart will look like this: Copyright Colin Nicholson. For your own use only. Page 29

30 260DNL - ASXNHNL D MAR APR MAY JUN JUL AUG SEP In the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn, the sub-chart under the weekly bar chart of the market plots the 5-day running total of the 260-day new High New Low. This is the last column in the spreadsheet, which has been provided for readers who want to plot exactly what is in the e- book. However, the weekly New High New Low line may be plotted from the default field (260-day New High New Low) in the data file. This is the method that I will demonstrate here. Later I will show how to create the e-book line. I will also show that it seems to be unnecessary and how it may save time and avoid errors to use the method shown below and not bother transcribing the 5-day running total numbers to the data file. Finally, the weekly New High New Low window: Press the += key ASXNHNL will be active, so: Ctrl Alt F Tick the Suppress connect line box A S Tab 5 Copyright Colin Nicholson. For your own use only. Page 30

31 X S -850 We will now have this chart: 260DNH-NL MOV AVS 5(0) day 3. D M J J A S O N D 2010 J F M A M J J A S O N 2011 D J F M A M J J A S O 2012 At the time this chart was created, the Y-axis range is giving too much space in the negative range. To set the y-axis: Y S -300 Tab Over time, the line may well move outside the y-axis range of -300 to In that case, it will need to be adjusted so all of the line is visible and then resaved. 100 The chart will now look like this: Copyright Colin Nicholson. For your own use only. Page 31

32 260DNH-NL MOV AVS 5(0) day 3. D M J J A S O N D 2010 J F M A M J J A S O N 2011 D J F M A M J J A S O 2012 Next we need to bring all of the windows into view: Click the Horizontal Tile icon on the main toolbar: The Chart Arrangement will look like this: We now need to bring the windows into the places corresponding to Figure 01 in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn: Click the title bars of the windows in this order: Copyright Colin Nicholson. For your own use only. Page 32

33 260DNL 260DNH 260DNH-NL (daily) XAO (daily) 260DNH-NL (weekly) XAO (weekly) The Chart arrangement will now look like this: We now have to reduce the height of the three windows on the right and drag the AXO (daily) window to the top right. Then we have to resize the windows in the two columns so that their proportions approximate Figure 01 in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn and/or are pleasing to work with. This is how I arranged my windows: Copyright Colin Nicholson. For your own use only. Page 33

34 Notice that I have dragged the charts over the title bars of the windows to give more space for the charts. Finally, save the Chart Arrangement: Ctrl S N Type: Basic New High New Low Screen Of course, it is open to readers to change the name of the Saved Chart Arrangement to suit their needs. The Chart Arrangement can also be moved to a different Saved Chart Category as required. Discussion: the weekly New High New Low line As mentioned earlier, the last window created above was not exactly what is shown in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn. The e- book shows a line that is a 5-day running total of the 260-day New High-New Low. What the lower left window in the Chart Arrangement above shows is a 5-day moving average of the 260-day New High New Low. Now, a 5-day moving average of the 260-day New High New Low is simply a 5-day running total of the 260-day New High New low divided by 5. In other words, the e- book line will be the same except its value for every point on the chart will be five times the value of the moving average. For readers who want to have the line shown in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn notwithstanding: Press the += key ASXNHNL Ctrl Alt F Alter the Y-axis field from 13 to 15 Depending what was done beforehand, the resulting chart may be compressed to weekly. To bring the compression back to daily: Shift D Copyright Colin Nicholson. For your own use only. Page 34

35 This is the sub-chart using the 5-day running total for the weekly New High New Low as shown in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn: 5DRT - ASXNHNL D J J A S O N D 2010 J F M A M J J A S O N 2011 D J F M A M J J A S O 2012 For comparison, I created a Chart Arrangement with the 5-day moving average of 260-day New High New Low at the top and the e-book 5-day running total of the 260-day New High New Low at the bottom. So that they are directly comparable, I set the Y-axis range for the top chart at -300 to 100 as before and the bottom chart at to 400: As can be seen, the lines are essentially identical (see the text box below for the reason for the slight difference). Copyright Colin Nicholson. For your own use only. Page 35

36 To make the two charts absolutely identical, the Y-axis range of the lower chart would be to 500 (both values 5 times the moving average), but Insight Trader allowed me only a choice of either to 400 or to 600. Had I been able to set the Y-axis range at to 500, the two charts would have been identical except for the values of the y-axis plots. Why have I bothered to do this? The reason is that it means that the last column of the spreadsheet (that is calculated automatically) does not have to be entered by hand each day into the data file. That means 260 numbers that do not have to be entered every year, with the possibility of the odd typing error. Not much saving or risk you say. OK it is your choice. I will post my data files on the Data Files page on the free website at the end of every month. This is an easy way for readers to get started at any time. I will post at the end of every month on the Data Files page on the free website my data files in both Insight Trader format and also in ASCII format for readers who use other charting software. As mentioned above, I will also post my spreadsheet at the end of every month on the Data Files page on the free website, which will be useful for readers who wish to do their own daily updating. It will also be possible for readers without charting software to chart the New High New Low indicators in their spreadsheet software. I will also publish my charts for the New High New Low indicator on the Interesting Charts page on the members website at the end of every month in a new PDF file. I have considered whether to publish my charts and the data files at the end of each week rather than just at the end of each month. I think that the end of each month will be sufficient for investors, who are my main readership. Readers who wish to track the data more often will need to calculate their own data and maintain their own chart arrangements. This is always open to reconsideration, but my strong feeling is that the time involved in weekly publication will preclude me doing other things that may be of more use to members. I will not be around forever, so my philosophy is that it is better to teach readers to be self-sufficient rather than rely on me. Key levels Australia Some of the analysis methods in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn depend on key levels on the New High New Low charts. As previously mentioned, these levels will be different in Australia than for the US because we have far fewer stocks listed on our market. Initial study of the data by my friend Glenn Curry, who has done a lot of work on New High New Low following publication of the e-book, suggests that a starting point is to use one tenth of the US numbers for the key levels. Copyright Colin Nicholson. For your own use only. Page 36

37 Please be aware that this is a very preliminary view and that each reader should make their own analysis to confirm or to alter this guideline for making their own decisions. Glenn Curry and I are merely suggesting it as a starting point and no more. One other key level is somewhat different: the 10-day EMA of the NH-NL Ratio. Glenn Curry s suggested starting point would be to try setting overbought at 80 and oversold at 20. Again, this is a very preliminary view. We are merely suggesting it as a starting point and no more. With key levels, every reader must take responsibility for researching and testing the key levels for their own use. Precision of data Readers may not obtain exactly the same numbers that I have in the data file and/or spreadsheet that I will publish monthly on the free website. There are many reasons why this may be so including: The System is being run some time later (there are always a small number of adjustments for corporate actions, details for which are not available until later updates for the Database Manager). The Database Manager version being used is not up to date. The latest Database Manager has not been run after it was downloaded. The Database Manager has not been run again after downloading and distributing the last day s data. The Reference file was not recreated after downloading and distributing the last day s data and then running the Database Manager. Data is missing for some days in the look-back period of the system. Some data has been deleted manually from one or more data files within the look-back period of the system. One or more data files have been the subject of manual adjustment for corporate action within the look-back period of the system. Small variations are always possible and are unlikely to affect the integrity of the system results and therefore the New High New Low indicator. If the number obtained is only one or two different to mine, I would advise not worrying about it. However, the 260-day series has the smallest numbers and therefore is the more sensitive to errors. The items highest in the above list are the more likely reasons. If numbers significantly different to mine are obtained from recent system scans, use the above list of possible causes for troubleshooting. If a reader thinks that my data is incorrect (ignoring differences of one or two), I will appreciate an advice. Everyone can make a mistake. If I can verify the error, I will correct my file and spreadsheet, which will be to the benefit of all readers who use them. Copyright Colin Nicholson. For your own use only. Page 37

38 Errors in the document This document is very detailed. I have been as careful as I can be and have checked and re-checked things. However, I know that errors can sneak past. I greatly appreciate s pointing out any errors. I will confirm them and post a revision to the document on the members website. Likewise, I am happy to clarify things that I may not have fully explained. Where to from here In this very long document, I have shown how to calculate New High New Low data for the ASX. I have shown how to create the Basic New High New Low Screen in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn (Figure 01). This should enable all readers who want to analyse this data to get started. The other charts in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn should be able to be created using similar methods to that described in this document. I have not decided how many of them I intend to create/analyse myself, or how much time I have to devote to it. I will post my data files on the Data Files page on the free website now and at the end of every month. This is an easy way for readers to get started at any time. The data files will be posted in both Insight Trader format and also in ASCII format for readers who use other charting software. As mentioned above, I will also post my spreadsheet now and at the end of every month on the Data Files page on the free website, which will be useful for readers who wish to do their own daily updating. It will also be possible for readers without charting software to chart the New High New Low indicators in their spreadsheet software. I will also publish my charts for the New High New Low indicator, starting with the Basic New High New Low Screen created above on the Interesting Charts page on the members website at the end of every month in a new PDF file. As I have time to create other charts for Australia matching the format in the e-book The New High New Low Index: Stock Market s Best Leading Indicator, by Dr Alexander Elder and Kerry Lovvorn as closely as possible, I will add them to the monthly posting to the Interesting Charts page on the members website. I will describe how to create those charts either in documents or by additions to the How I Use Insight Trader page on the members website. Of course, all I have done in this document is to give readers the tools to calculate the New High New Low Index for the Australian Stock Market and to chart it in Insight Trader. As I said at the start, I am not setting out to even attempt to explain the indicator or how to analyse it. That job has already been done for us in the e-book The New High New Low Index: Stock Market s Best Leading Indicator by Dr Alexander Elder and Kerry Lovvorn. What I advocate now is that readers: 1. Buy and read the e-book The New High New Low Index: Stock Copyright Colin Nicholson. For your own use only. Page 38

39 Market s Best Leading Indicator by Dr Alexander Elder and Kerry Lovvorn from: where it may be bought for US$ Even if you use NH-NL in Australian markets, it would make sense to take a 2-week trial membership in SpikeTrade: and see how Alex Elder and Kerry Lovvorn analyse NH-NL on a daily basis: Appendix: The 5-day New High - New Low When I was working out how to implement the e-book ideas on the New High New Low Index, something interested me as a possibility to slightly improve on what was there. This appendix takes a preliminary view of the time series that I added to the spreadsheet and data file in addition to what is in the e-book The New High New Low Index: Stock Market s Best Leading Indicator by Dr Alexander Elder and Kerry Lovvorn. The e-book looks at multiple timeframes. For the New High-New Low these time frames are defined like this: 260-dayNH-NH: This uses New Highs and New Lows made today with a look-back period of a year. 65-dayNH-NL: This uses New Highs and New Lows made today with a look-back period of a quarter. 20-dayNH-NL: This uses New Highs and New Lows made today with a look-back period of a month. 5-day running total of 260-dayNH-NL: which in the e-book is called a weekly NH-NL, but is really just a smoothed yearly NH-NL. I wondered whether there may be any utility in maintaining the logic of the first three lines above and calculating a true weekly NH-NL: Copyright Colin Nicholson. For your own use only. Page 39