Intermarket Trading Strategies

Intermarket Trading Strategies explains how markets interact and influence each other and how intermarket analysis can be used to forecast future equity and index price movements by introducing custom indicators and intermarket trading systems.

Single market technical analysis indicators were designed in the 80s for national markets, and are no longer sufficient for analyzing the global market dynamics. This book reveals how you can combine intermarket with classic technical techniques to develop profitable hybrid systems or improve on existing ones.

Divided into two parts, part one begins with a discussion of the basic principles of Intermarket analysis and the benefits of portfolio diversification by including uncorrelated assets such as commodities and foreign currencies. It goes on to explain the concept of correlation and the basic assumptions used before demonstrating the linear regression method used for predicting one security based on its correlation with related markets. A variety of custom intermarket indicators are presented and explanations are given as to how each one can be used within the framework of a trading system, including eight new custom Intermarket indicators published for the first time in this book.

Part two uses the concepts presented in part one to develop intermarket trading systems to trade popular markets like US and European stock Index futures, FOREX and Commodities. Techniques for developing a trading system and evaluating the test results are presented along with suggested methods of avoiding curve fitting and the illusion of excellence created by optimization. Stop-loss and other money management techniques are also discussed. Finally a brief introduction to neural network systems explains the basic principles of this alternative approach for designing trading systems.

A total of twenty nine conventional and five neural network trading systems, appropriate for long and short term and even day trading, are provided to trade Gold, the S&P ETF (SPY), S&P e-mini futures, DAX and FTSE futures, Gold and Oil stocks, Commodities, Sector and International ETF, the Yen and the Euro. Finally a dynamic asset allocation timing strategy which would systematically keep the portfolio moving into the strongest asset classes or sectors, enhancing the return characteristics while decreasing the overall volatility, is also included. The metastock code for all systems is provided in order to test and paper trade the system on more recent data before you move from the computer to the trading desk.

"When I started my research on intermarket analysis in the early 90s, there were only very few analysts active in this field. John Murphy was the first to introduce Intermarket relationships and I was the first to publish mechanical trading strategies using them. Others have followed up over the years but with very little original research. This is the first book I have seen in years with new material, ideas and trading systems that helps advance the field of Intermarket analysis. I have read many books and articles during my career and I think that this book is one of the best on the subject and it will become a great reference for applications of Intermarket analysis and especially trading system development in today's volatile markets."
—Murray Ruggiero, Vice President of Research and Development of TradersStudio software, contributing editor of Futures Magazine and author of several books on trading systems and Intermarket analysis

"It is clear from reading Intermarket Trading Strategies that Markos Katsanos has combined technical competence with common sense to bring a breath of fresh air to active investors. His examples are timely and well thought out, reflecting an awareness of our high-risk environment. He understands and explains the important principles underlying successful trading and offers his solutions. I can highly recommend it."
—Perry Kaufman, trader and author of The New Trading Systems and Methods

"Before designing a trading system, it is absolutely necessary to gain a deep understanding of the markets. Markos Katsanos does an excellent job of explaining the relationships between different markets through the use of statistical tools, which he does in clear and simple language. Readers of this notable book will be better able to create trading systems that can conquer any market."
—Jayanthi Gopalakrishnan, editor of Technical Analysis of Stocks & Commodities magazine