Momentum strategies for SentiTrade
Since last week the DAX lost about 700 points, same with the DJIA. Could SentiTrade predict that this was about to happen? Our commentary over the last weeks gave plenty of clues and we’re pleased to note that our fully automated momentum strategies followed through. They apply a combination of the concept previously discussed, namely high/low marks from the SentiTrade indicator (trigger points) and momentum calculations of how quickly the sentiment is changing.
The conditions for entry/exit points are slightly different for short and long positions. Our research show that momentum in sentiment has dissimilar effects on bull/bear markets. Accordingly, in our strategy for the DAX future, short signals are set to be more sensitive for changes in sentiment momentum (panic reflex), than for the long signals. In addition, whatever the sentiment is doing is always compared to market movements. A high DAX moving average, combined with a high sentiment trigger point and momentum, is a big red flag.
Speaking of red flags, following the U.S. debt deal, focus is now quickly returning to Europe. Whereas one emergency summit has followed the other, there is still no solution in sight for the underlying problems facing the Euro zone; 17 different economies, all with different public spending plans, using one currency at one interest rate… red flag indeed. Unless the member states can agree on central control of public spending (quickly), we won’t see a common European bond. Thus the game of musical chairs among the PIIGS will continue and in that case there’ll be more “selective defaults” to come.
In the meantime, SentiTrade’s bond strategy applies a slightly different momentum strategy than for the FDAX. We then compare the U.S. T-note momentum with market sentiment momentum and work with fast/slow moving averages for the instrument itself. This is a long strategy only and does not use sentiment trigger points at all.
Please note that neither of these strategies have been optimized, smoothened, or adjusted for any type of profit / stop loss setting. Our strategies are based on simple concepts, are easy to understand and all apply a decisive ingredient, namely the SentiTrade indicator.
Send us a message at firstname.lastname@example.org when you’re ready to integrate SentiTrade in your investment strategy.