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E-Zone System Refresh

Before I get into the E-Zones I want to introduce users of TradingStockAlerts to the Trade-Radar blog. This blog has been in existence for over 10 years but, having experienced "blogger burnout", it has been quite a while since I added any new content.

In any case, since Trade-Radar LLC owns and operates and I wanted to tell users about improvements to the E-Zone System, I thought I would bring back to life the old blog and tie it to TradingStockAlerts. So, welcome, readers, I hope you find new posts (or old ones) useful.

Now, on to the E-Zones. The E-Zone System was first devised some years ago, prior to the financial crisis of 2007-2008. Since its inception, markets have become ever more fast moving and volatile, with high-speed algorithm-driven trading, ETFs, etc.  It was time to revisit the E-Zone System and ensure that is was still effective in today's environment.

To that end, we undertook a rigorous back-testing effort to identify potential areas of improvement. This led us to two areas of enhancement.

The first area of enhancement was, of course, the E-Zone algorithm itself. What we found is that we needed it to become more responsive to changes in price. We also found that we needed to make the algorithm adaptive to price ranges and volatility. For example, a stock like Amazon (AMZN) that is currently trading at $1862 a share as I write this, will definitely not trade with the same characteristics as a small-cap stock that trades for under $10 per share. And a conservative utility stock will not trade with the same level of volatility as a tech stock.

So we have made the algorithm more aware of price changes, price ranges and volatility when calculating the Entry Zone and Exit Zone.

The second area of enhancement is related to trading rules. Once the Entry Zone and Exit Zone have been calculated, there are many options available as to how to use the zones for trading.

We have developed two new trading rules for when price is inside the E-Zones:

  • BUY when price is in the Entry Zone and the bottom of the Entry Zone is slanting upward and the Open is above the previous Low; otherwise, take no action.
  • SELL when price is in the Exit Zone and the top of Exit Zone is slanting downward and the Open is below the previous High; otherwise, take no action.

We have also developed some new rules for when price is outside the E-Zones. In this case, we have identified conditions under which you may either buy or sell depending on previous price action the direction of the E-Zones. Here is a description of the Special Conditions that are required for out-of-zone signals and how to use them to buy or sell:

  • Condition #1: If Zone is sloping Up - previous day closed above its open, today's open is above yesterday's low, yesterday's close was above the day before yesterday close and the day before yesterday closed above its open
  • Condition #2: If Zone is sloping Down - previous day closed below its open, today's open is below yesterday's high, yesterday's close was below the day before yesterday close and the day before yesterday closed below its open

If price is above top of Exit Zone:

  • Exit Zone slanting UP and Condition #1 is true => Buy but keep tight stops
  • Exit Zone slanting DOWN and Condition #2 is true => Sell
If price is below bottom of Entry Zone

  • Entry Zone slanting UP and Condition #1 is true => Buy but keep tight stops
  • Entry Zone slanting DOWN and Condition #2 is true => Sell or Short with tight stops

All these rules sound complicated?

Don't worry. It is explained more fully on our How to trade stocks and ETFs using the E-Zone System page. Also, detailed guidance is always displayed right next to the chart on the E-Zone Quick Quote page whenever you are looking for the latest trading signals. The same guidance is also provided when you receive the emailed E-Zone Alerts.

Finally, I would encourage users to click on that "View Trade History" button that appears after running a Quick-Quote. This will provide a calculation of gains and losses from both long and short trades made using the E-Zone System over the previous 12 months. It also shows maximum loss and volatility of returns. It will also provide a comparison to equivalent results that would have been obtained if using a buy-and-hold strategy over the previous 12 months. It lists in a table format each day's prices and E-Zone values and whether a Buy or Sell signal was generated and the associated profit/loss for each signal. For example, when a Buy signal is listed, on the same row of the table it will show the gain/loss from a Short trade that would have been initiated when an earlier Sell signal was registered. Similarly, when a Sell signal is generated, on the same row it shows the gain/loss of the associated Long trade. Note that all trades are assumed done at the Open price for the day so actual results could vary slightly. This feature can be very helpful for determining whether the E-Zone System works to your satisfaction for the specific stock or ETF in which you are interested as the system may not be ideal for every single investment out there (just being honest and transparent here).

For those of you who have tried the E-Zones in the past but were not satisfied, I would invite you to give them another try. I think you will be pleased with the enhanced functionality and the improvement in signal accuracy.


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