THE TRADERS’ MAGAZINE SINCE 1982 www.traders.

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LAGUERRE FILTERS
A tool for trend trading 8

SYSTEMATIC HEDGING OF
AN EQUITY PORTFOLIO
Short-selling strategies based
on the VIX 14

POLARIZATION OF
MARKET DATA
Replacing price with a
polarized rise/decline factor 18

EXPLORING RECURRING
MARKET BEHAVIORS
The CME bitcoin futures
market: analysis and
strategies 22

THE VIPAR OPTION

STRATEGY
Trading market declines 28

QQQ RELATIVES
Copycat ETFs targeting the
Nasdaq-100 34
JULY 2025
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 CONTENTS JULY 2025, VOLUME 43 NUMBER 8

6 Futures For You 26 Explore Your Options

by Carley Garner by Jay Kaeppel
The Traders’ MagazineTM Here’s how the futures market Got a question about options? This
really works. This month: Reserve month: Using Option Collars To
EDITORIAL Status (Part 1). Help Limit Risk.
[email protected]
FEATURE ARTICLE TIPS
Editor in Chief Jack K. Hutson
Production Manager Karen E. Wasserman
8 Laguerre Filters
Graphic Designer Wayne Shaw
by John F. Ehlers
Webmaster Han J. Kim
Here, we’ll demonstrate a filter for
Contributing Editors John Ehlers,
trend trading that doesn’t suffer the
Anthony W. Warren, PhD. lag that conventional filters with
Contributing Writers Thomas Bulkowski, Martin equivalent smoothing have. 28 The ViPar Option Strategy For
Pring, Barbara Star, Markos Katsanos, Leslie N.
Masonson
Trading Market Declines
by John A. Sarkett
This put-buying option strategy
OFFICE OF THE PUBLISHER
involves purchasing VXX put
options while purchasing an SPX
Publisher Jack K. Hutson
Industrial Engineer Jason K. Hutson
put debit spread. Find out how it’s
Project Engineer Sean M. Moore used.
14 Systematic Hedging Of An Equity
ADVERTISING SALES Portfolio With Short-Selling 32 The Savvy Technician
4757 California Ave. S.W.
Seattle, WA 98116-4499
Strategies Based On The VIX by Stella Osoba, CMT, Esq.
206 660-8577 Fax 206 938-1307 by Domenico D’Errico Recognizing and applying technical
[email protected] The VIX—often referred to as the chart patterns to trading. This
National Sales Manager Edward W. Schramm “fear index”—can be harnessed for month: Recessions And Stock
[email protected] a defensive strategy. You may be Market Performance.
CIRCULATION able to hedge your portfolio using
short-selling signals based on the 34 QQQ Relatives
Subscription & Order Service 1 800 832-4642
1 206 938-0570 Fax 1 206 938-1307 VIX. Here’s how. by Leslie N. Masonson, MBA
[email protected] There are over three dozen ETFs
Subscription Manager Sean M. Moore based on the Nasdaq-100 index,
each with its own objectives. Is
WEBSITE there a QQQ lookalike that could
http://www.traders.com offer better returns with less risk
Staff members may be emailed using first initial than the QQQ itself? We’ll take a
plus last name plus @traders.com look.
18 Polarization Of Market Data 50 Algo Q&A
Author­i­za­tion to pho­to­copy items for inter­nal or per­sonal
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by Tech­ni­cal Anal­y­sis, Inc. for users reg­is­tered with the Cop­y­ Consider the dimensions of price, Got a question about system or algo
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charting technique you can use to Matter?
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42 Traders’ Tips
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22 Exploring Recurring Market
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Technical Analysis of Stocks & Commodities™, The Futures Market: Analysis And
Traders’ Magazine™, is prepared from information believed 53 Futures Liquidity
to be reliable but not guaranteed by us with­out further Strategies
54 Classified Advertising
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expressed are subject to revision without notification. We
Here, we explore the behavior of the
54 Traders’ Resource
are not offer­ing to buy or sell securities or commodities
discussed. Technical Anal­ysis Inc., one or more of its officers, bitcoin futures contract in the daily
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and weekly trading sessions and
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to allow you to take it further and n Cover: artyway/Shutterstock
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4 • July 2025 • Technical Analysis of Stocks & Commodities

 Trade US Stocks and ETFs,
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01-IB25-1719CH1717
 Futures For You
INSIDE THE FUTURES WORLD
Want to find out how the futures markets really work? Carley Garner is
the senior strategist for DeCarley Trading, a division of Zaner, where she
also works as a broker. She has written five books on futures and options
trading, with the latest being Trading Commodity Options...With Creativ-
ity (July 2020), as well as A Trader’s First Book On Commodities (third
edition, October 2017) and Higher Probability Commodity Trading (July
2016). Garner also authors widely distributed e-newsletters; for a free
subscription, visit www.DeCarleyTrading.com. To submit a question, email
her at [email protected] or via www.DeCarleyTrading.com.
Selected questions will appear in a future issue of S&C.
Carley Garner
RESERVE STATUS (PART 1) influence to the issuing country, suries because trading partners need a
Is the U.S. dollar in danger of losing but there are significant economic place to park those dollars). However,
its reserve currency status? drawbacks that are often overlooked. we have squandered these advantages
We are being led to believe that In fact, one could argue that this by employing all bark and no bite
the world is turning against America system has significantly contributed sanctions, which have reorganized
and the dollar. While this might be to the decimation of the U.S. middle global trade with sanctioned nations
true in sentiment, the money flows class. but not thwarted it. Further, we have
will likely say something completely The world benefits from a reserve allowed our leaders to get drunk on
different. I am not an economist, and currency policy (regardless of the cheap financing to the point that we
I don’t have letters after my title. I chosen currency) because it standard- have abandoned all fiscal discipline
tend to have a simplistic view of the izes global trade terms to encour- and dug a hole we might be unable
world. That said, I’ve experienced age market liquidity. Like futures to escape.
multiple market cycles and have contracts, which are standardized to As insiders, we don’t recognize
concluded that the most intelligent allow for simple buying and selling this, but our foreign trading partners
people in the room often overlook the without negotiating terms, having perpetually accept political and U.S.
obvious because they get caught up destabilization risks. Historically,
in academic arguments and theories this risk has been deemed very low,
that often lead them astray. This
A reserve currency which is precisely why the dollar
is my humble take on the reserve is expected to be is the currency of choice for global
currency debate and the fate of the relatively stable in trade. Due to the resulting currency
U.S. dollar. value and backed fluctuations, those transacting in the
A global reserve currency is by a trustworthy dollar are also at the mercy of U.S.
one that is widely accepted for monetary and fiscal policy. Thus, it
international trade, debt repayment,
government and a should be no surprise that the new
and as a store of value. Nearly 90% healthy economy. administration’s uncertainty has
of global transactions via SWIFT triggered a moderate exodus from the
(Society for Worldwide Interbank a single currency for pricing and dollar to gold and the euro. Similarly,
Financial Telecommunication) wires transacting in commodities, such there has been a liquidation of U.S.
involve the dollar. Because of this as crude oil, enhances efficiency by Treasuries as cash is repatriated to
role, central banks and governments reducing currency risk and simplify- other nations. However, in the big
hold significant stores of dollars. ing logistics. picture, we suspect governments,
For this reason, a reserve currency The U.S. enjoys some benefits of central bankers, and foreign inves-
is expected to be relatively stable in being the world’s primary currency, tors participating in this knee-jerk
value and backed by a trustworthy such as currency stability, compli- reaction will eventually realize the
government and a healthy economy. ments of widespread use and liquidity. grass wasn’t greener on the other
Before the dollar, the British pound Economic influence and sanction le- side. The U.S. dollar is still the most
and gold acted as the world’s reserve verage (we control SWIFT) and lower stable and liquid currency, while
currency. Having a reserve currency borrowing costs (ideally, the demand Treasuries are the most secure asset
status brings a level of prestige and for dollars means a demand for Trea- to hold, with the highest yield per
6 • July 2025 • Technical Analysis of Stocks & Commodities
 Futures
ABLETREND
unit of risk to boot. Spot Trends Early, Stay with the Move
Being a reserve currency isn’t all
ginger and spice. The high demand Trusted Reliable Signals, Since 1994
for dollars by trading partners keeps
the dollar well bid, which has played
a significant role in the gutting of Buy on Blue Sell on Red
the U.S. middle class. A higher
dollar makes U.S. exports appear
more expensive, making it more Blue Bars & Blue Dots +$5,010
difficult for U.S. farmers, ranchers, Indicate Uptrend
and Key Support
and producers to compete globally.
The strong dollar also makes goods Red Bars and Red Dots
-$360
Signal Trend Downtrend
imported into the United States more and Key Resistance
attractive, encouraging Americans +$635
to purchase foreign-made products.
In short, a higher dollar balloons the
NVDA Buy Signal INTC Sell Signal
trade deficit. Further, it abolishes our
independence from shocks occurring
Before 600% Rally Before 50% Decline
in other parts of the world.
As mentioned, the U.S. has turned a
positive into a negative regarding the
privilege of cheap money. The U.S. Updated Daily
reserve currency status enables cheap Intraday & Swing Trading
borrowing and encourages the U.S.
government to get drunk on debt.
Lastly, the demand for Treasuries Traders Rave Over AbleTrend
by overseas investors looking for an
attractive place to park dollar reserves
can be a double-edged sword. When
things are good, the U.S. can borrow SINCE 1994
ABLETREND 8.0 COLLECTED BY
at low rates and offers a stable and
confident interest rate market. But
when the tide turns on U.S. sentiment,
as we have seen in recent months, the
Treasury market can be weaponized.
In other words, governments and
central banks holding large amounts
of US Treasuries might aggressively
liquidate their holdings to cause a
spiteful spike in interest rates. From
my view, this is akin to shooting
themselves in the foot, but for a short
time, it is a compelling warning
shot. TEST DRIVE THE LATEST SIGNALS
In next month’s column, we will
continue this discussion by adding
BRICS and historical context. THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS
SHOWN IN AN ACTUAL PERFORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUAL-
LY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF
LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT
OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE BEING
SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE OF FUTURE
PERFORMANCE OR SUCCESS. TECHNICAL ANALYSIS OF STOCKS & COMMODITIES LOGO AND AWARD ARE TRADEMARKS OF TECHNICAL ANALYSIS, INC.

July 2025 • Technical Analysis of Stocks & Commodities • 7

 DIGITAL SIGNAL PROCESSING

A Tool For Trend Trading

Laguerre Filters
Here, we’ll demonstrate a filter for trend trading that coefficient (weight) to adjust its contribution to the
doesn’t suffer the lag that conventional filters with output, and the weighted signals are summed to form
equivalent smoothing have. the filter output. A simple moving average (SMA) is

L
one example of a transversal filter where the weight-
aguerre filters have an exceptional capability ing is uniform. A finite impulse response (FIR) filter
for smoothing long wavelength components is a more general example, where the coefficients are
in the data spectrum. This makes them an established by windowing.
ideal candidate as a tool for trend trading. Actually, an EMA is not a very good filter. With
I first described Laguerre filters in my book Cyber- a goal of improving filtering results by reducing lag,
netic Analysis For Stocks and Futures. In this article, I will modify the Laguerre polynomial by replacing
I will briefly describe Laguerre polynomials, show the EMA with an UltimateSmoother. (See my April
advanced trend filters, describe an advanced oscilla- 2024 article, “The Ultimate Smoother,” for more on
tor indicator, and suggest how to make a profitable this indicator.)
trading strategy.
Computing the Laguerre filter
Laguerre background The computation of the Laguerre filter is coded in the
Laguerre polynomials are solutions to a differential sidebar, “Laguerre Filter Example, In EasyLanguage
equation solved by Edmond Laguerre (1834–1886). Code.” Code for the UltimateSmoother function is
For a discrete system, the nth coefficient of the poly- shown in the sidebar, “$UltimateSmoother Function,
nomial is: In EasyLanguage Code,” for your convenience.
The zeroth-order term is computed by calling the
UltimateSmoother function using the input param-
eters. Then, sequentially, each term of the Laguerre
I recognized that the first term (zeroth-order term) is polynomial is computed as the allpass filter delay of
the Z transform expression for an exponential moving the previous term. I chose a fifth-order filter, but the
average (EMA), and the square-bracketed term is the filter can be as long or as short as desired. I chose
Z transform expression for an allpass filter. An allpass binomial weighting of the coefficients in the summa-
filter passes the input to the output with no change tion, but weighting is not necessary. Perhaps the filter
in amplitude but with a nonlinear phase relationship performance could be improved if Hann windowing
that depends on gamma. This structure makes the were employed, but this increases the complexity of the
Laguerre polynomial an ideal candidate for use in a code. Two plot lines are provided so you can compare
transversal filter. the Laguerre filter to the UltimateSmoother.
A transversal filter consists of three main compo- The example Laguerre filter (in blue), using a
ARTYWAY/SHUTTERSTOCK/WIKIPEDIA

nents: delay elements, multipliers, and an adder. The gamma of 0.8 and a period of 30, is compared to the
input signal is passed through a series of delay ele- UltimateSmoother (in red) in Figure 1. It is obvious
ments, creating multiple delayed versions of the signal. that the Laguerre filter is a much better trend filter
The delayed signals are tapped at various points along than the responsive UltimateSmoother. The filtering
the delay line. Each tapped signal is multiplied by a characteristics can be changed rather dramatically

by John F. Ehlers
July 2025 • Technical Analysis of Stocks & Commodities • 9
 TRADESTATION
FIGURE 1: LAGUERRE FILTER VS. ULTIMATESMOOTHER FOR TRENDS. The Laguerre filter (blue) is a much better trend filter than the more responsive Ulti-
mateSmoother (red).

FIGURE 2: LENGTH AND GAMMA. Changing the length and gamma parameters suggests that the Laguerre filter can be used to create a profitable crossover
strategy.

by changing the input parameters, length, and gamma. effectively as buy and sell signals in a trading strategy.
For example, Figure 2 suggests that the crossovers of I used a gamma of 0.2 and a period of 60 in creating
the UltimateSmoother and Laguerre filter can be used Figure 2. Crossovers of different orders of the Laguerre
polynomial may be a better selection for use in a trading
strategy than the crossovers of the UltimateSmoother and
the Laguerre filter.
Laguerre filters have an
exceptional capability for Creating an oscillator based on the
smoothing long wavelength Laguerre filter
components in the data spectrum. Since the Laguerre coefficients are nonlinear delay func-
tions, it is a trivial matter to create a smooth and timely
oscillator as the difference between the zeroth-order and
10 • July 2025 • Technical Analysis of Stocks & Commodities
FIGURE 3: LAGUERRE OSCILLATOR. A timely, smooth oscillator indicator is generated by the difference of the zeroth order and first-order Laguerre coefficients.
The display is scaled in standard deviations to guide swing trading.

first-order Laguerre coefficients. This Laguerre oscillator the RMS function is given in the sidebar, “$RMS Func-
is shown in Figure 3, using a gamma of 0.8 and a period tion, In EasyLanguage Code.”
of 20. The indicator is scaled in standard deviations to A smoother oscillator, but having more lag, can be cre-
assist in swing trading decisions. ated by taking the difference of the zeroth-order Laguerre
Code for the Laguerre oscillator is given in the sidebar, term and the second-order term.
“Laguerre Oscillator, In EasyLanguage Code.” Code for

LAGUERRE FILTER EXAMPLE, IN EASYLANGUAGE CODE $ULTIMATESMOOTHER FUNCTION, IN EASYLANGUAGE CODE

{ {
Laguerre Filter UltimateSmoother Function
(C) 2002-2025 John F. Ehlers (C) 2004-2024 John F. Ehlers
} }

Inputs: Inputs:
gama(.8), Price(numericseries),
Length(40); Period(numericsimple);

Vars: Vars:
L0(0), a1(0),
L1(0), b1(0),
L2(0), c1(0),
L3(0), c2(0),
L4(0), c3(0),
Laguerre(0); US(0);

L0 = $UltimateSmoother(Close, Length); a1 = expvalue(-1.414*3.14159 / Period);

b1 = 2*a1*Cosine(1.414*180 / Period);
L1 = -gama*L0[1] + L0[1] + gama*L1[1]; c2 = b1;
L2 = -gama*L1[1] + L1[1] + gama*L2[1]; c3 = -a1*a1;
L3 = -gama*L2[1] + L2[1] + gama*L3[1]; c1 = (1 + c2 - c3) / 4;
L4 = -gama*L3[1] + L3[1] + gama*L4[1];
If CurrentBar >= 4 Then US = (1 - c1)*Price + (2*c1 -
Laguerre = (L0 + 4*L1 + 6*L2 + 4*L3 + L4) / 16; c2)*Price[1] - (c1 + c3)*Price[2] + c2*US[1] + c3*US[2];
If CurrentBar < 4 Then US = Price;
Plot1(Laguerre);
Plot2(L0); $UltimateSmoother = US;

July 2025 • Technical Analysis of Stocks & Commodities • 11

Conclusions wavelengths. This nonlinear phase response results in a
The coefficients of a Laguerre polynomial suggest that filter characteristic that is helpful for trend trading without
an allpass filter is an ideal candidate for the delay ele- the additional lag that would result by using conventional
ments of a transversal filter. The allpass filter does not filters with equivalent smoothing.
change the data amplitude across the entire spectrum,
but has a nonlinear phase response that favors the longer John Ehlers is a retired electrical engineer and a retired
technical analyst, specializing in the application of DSP
LAGUERRE OSCILLATOR, IN EASYLANGUAGE CODE
(digital signal processing) to trading. For more informa-
{
Laguerre Oscillator tion, see www.mesasoftware.com.
(C) 2002-2025 John F. Ehlers
} Further reading
Ehlers, John [2004]. Cybernetic Analysis For Stocks And
Inputs:
gama(.5), Futures, John Wiley & Sons.
Length(30); [2013]. Cycle Analytics For Traders, John Wiley
& Sons.
Vars: [2021]. “A Technical Description of Market Data
L0(0),
L1(0), for Traders,” Technical Analysis of Stocks & Com-
RMS(0), modities, Volume 39: May.
LaguerreOsc(0); [2024]. “The Ultimate Smoother,” Technical Analy-
sis of Stocks & Commodities, Volume 42: April.
L0 = $UltimateSmoother(Close, Length);
L1 = -gama*L0[1] + L0[1] + gama*L1[1]; ‡TradeStation
‡See Editorial Resource Index
RMS = $RMS(L0 - L1, 100);
If RMS <> 0 Then LaguerreOsc = (L0 - L1) / RMS;
The code given in this article is available in the Article
Plot1(LaguerreOsc); Code section of our website, Traders.com.
Plot2(0);
See the Traders’ Tips section of the magazine beginning
$RMS FUNCTION, IN EASYLANGUAGE CODE on page 42 for implementation of John Ehlers’ technique
{ in various technical analysis programs and trading plat-
RMS Function forms. Code found in the Traders’ Tips section is also
(C) 2015-2022 John F. Ehlers
} posted to Traders.com.

Inputs:
Price(numericseries),
Length(numericsimple);

Vars: With a goal of improving filtering

SumSq(0),
count(0);
results by reducing lag, I will
modify the Laguerre polynomial
SumSq = 0;
for count = 0 to Length - 1 Begin
by replacing the EMA with an
SumSq = SumSq + Price[count]*Price[count]; UltimateSmoother.
End;
If SumSq <> 0 Then $RMS = SquareRoot(SumSq / Length);

12 • July 2025 • Technical Analysis of Stocks & Commodities

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 Cues From VIX

Systematic Hedging Of An
Equity Portfolio With
Short-Selling Strategies Based
On The VIX
The VIX—often referred to as the “fear index”—can be particularly useful both as a direct asset for hedging and
harnessed for a defensive strategy. You may be able to as a signal for implementing reactive and disciplined
hedge your portfolio using short-selling signals based short-selling strategies.
on the VIX. Here’s how.
What is the VIX?
by Domenico D’Errico The VIX, which stands for the CBOE Volatility Index,

In
measures the implied volatility of options on the S&P
a market environment characterized by 500 index with a 30-day expiration. In other words, it
increasingly rapid volatility cycles, un- represents the market’s expectation of the magnitude of
stable asset correlations, and frequent ex- future movements in the S&P 500. The value is annual-
ogenous shocks, systematic protection of ized, but it can be easily converted to a lower weekly
an equity portfolio becomes a priority for scale using the formula:
SHUTTERSTOCK AI

risk-conscious investors. Among the most

effective tools available, the VIX—often IV = VIX × √(T / 252)
referred to as the “fear index”—proves
14 • July 2025 • Technical Analysis of Stocks & Commodities
 TRADING STRATEGIES

where: VIX
Monthly Weekly Daily FIGURE1:IMPLIEDVOLATILITY
IV % IV % IV % BY VIX LEVEL IN THREE TIME
T = number of trading days in the time horizon 10 2.89 1.39 0.63 HORIZONS. The VIX represents
VIX is expressed as a decimal (e.g., 20% = 0.20) 20 5.77 2.77 1.26 the market’s expectation of the
magnitude of future movements
252 is the typical number of trading days in a year 30 8.66 4.16 1.89
40 11.55 5.55 2.52 in the S&P 500. The annualized
IV value can be converted to a
In Figure 1 you can find the implied volatility by VIX 50 14.43 6.93 3.15
monthly, weekly, or daily scale, by
level. This simple conversion makes the VIX less “mysti- 60 17.32 8.32 3.78
using a formula, for traders using
cal” and more interpretable when, as a trader or an asset 70 20.21 9.71 4.41
shorter outlooks.
manager, you need to manage hard times by taking quick 80 23.09 11.09 5.04
and rational decisions.
the demand for protection through call and put options
The VIX and markets: An inverse rela- increases, driving up the price of options and, conse-
tionship quently, the VIX. This dynamic, often driven by fear,
Historically, as you can see in Figure 2, the VIX moves makes the VIX a natural tool for defensive timing and
inversely to major equity indexes. During market crashes, the development of reactive hedging strategies.

TRADESTATION
FIGURE 2: VIX INVERSE RELATIONSHIP TO MARKETS. Historically, the VIX moves inversely to major equity indexes. This dynamic makes the VIX a natural tool
for defensive timing and the development of reactive hedging strategies.

FIGURE 3: STRATEGY PERFORMANCE DURING THE 2008 FINANCIAL CRISIS. Here you see an example of how the short-selling strategy performed during
the 2008 financial crisis. The VIX exceeded the 50 threshold on four occasions, triggering short positions that were held for 10 days each.
July 2025 • Technical Analysis of Stocks & Commodities • 15
 Strategy performance during the 2008
financial crisis
Figure 3 illustrates an example of how the strategy
performed during the 2008 financial crisis. The VIX
exceeded the 50 threshold on four occasions, triggering
short positions that were held for 10 days each. A VIX
reading above 50 implies an expected weekly volatility
greater than 6.9%, which justified the activation of the
hedge.

Benchmark: Buy & hold on the S&P 500

To assess the strategy’s validity, we will use a buy-
FIGURE 4: BUY & HOLD BENCHMARK, S&P 500. To help assess the trading and-hold approach on the S&P 500 as a benchmark. A
strategy, we will use the buy-and-hold approach on the S&P 500 as a benchmark. A simulation with an initial investment of $1 million on
B&H simulation with an initial investment of $1 million from 1/1/2004–4/11/2025
January 1, 2004, held until April 11, 2025, will serve as
is represented here with an equity line and portfolio drawdown (in both dollar
and percentage amount).
a reference (Figure 4).
Figure 5 lists four key market drawdowns over the
Event Period
Max
Drawdown
Context past 20 years. The purpose of a portfolio hedging strat-
Global Financial Oct 2007– Lehman collapse, egy is to mitigate such drawdowns without costing too
−57%
Crisis Mar 2009 banking system failure much during positive uptrend periods. A well-designed
COVID Crash
Feb 2020–
Mar 2020
−34% Global pandemic shock hedging strategy aims to reduce losses when the market
Inflation Jan 2022– Inflation, monetary experiences a downturn—those painful periods when
−25%
Repricing Oct 2022 tightening, tech sell-off equity portfolios suffer drawdowns due to falling asset
prices. These drawdowns, if left unmanaged, can not
Mar–Apr Return of protectionism
Tariff War −20%
2025–? and trade tensions
FIGURE 5: MARKET DRAWDOWNS. The market experienced four notable only hurt performance but also lead to poor investor
market drawdowns during the 20-year period under study (2004–first part behavior, such as panic selling or deviating from long-
of 2025 as this article is written). Those market drawdowns are listed here. A term investment plans.
hedging strategy seeks to mitigate such drawdowns. However, while protection during turbulent times is
essential, it’s equally important that the hedge doesn’t
Systematic short-selling strategy based become a drag on performance during periods of market
on VIX signals growth. In bullish phases, when equity prices are rising
We propose a quantitative portfolio protection strategy and portfolios are generally performing well, an overly
based on signals derived from the VIX, with the follow- aggressive hedge can unnecessarily cap gains, reducing
ing operational rules: the overall return of the investment strategy. Therefore,
the core challenge of any effective hedging approach lies
1. Activation trigger: Open a short position on the in finding the right balance: it must be responsive enough
S&P 500, when the VIX exceeds a predetermined to provide meaningful protection during drawdowns, yet
threshold. light enough not to erode returns during calm or rising
2. Holding period: Maintain the short position for a markets.
fixed number of days (e.g., 10, 20, 30…). From January 1, 2004, to April 2, 2025, the benchmark
3. Hedge size: Select a percentage of the portfolio to portfolio, starting with $1 million, achieved a return of
be hedged, ranging from 0% to 100%. $3.7 million with a maximum drawdown of $1.18 mil-
lion. So we will evaluate our hedging strategy against
the benchmark’s return / max drawdown ratio of 3.13
(3.7 / 1.18).
We propose a quantitative
portfolio protection Backtesting and sensitivity analysis
strategy based on signals The strategy was backtested on SPY, an ETF tracking
derived from the VIX. the S&P 500, over the period January 2004 to April 2025
under the following conditions: full-size purchase of SPY
at inception, and short-selling triggered by VIX threshold
16 • July 2025 • Technical Analysis of Stocks & Commodities
signals. The parameters tested include
VIX thresholds ranging from 10 to 80
(in steps of 10), holding periods from
10 to 50 days (in steps of 10), and hedge
sizes from 0% to 100% of the portfolio.
Performance was evaluated based on
outperformance or underperformance
relative to the benchmark, measured
by return/max DD.
The combined analysis of param-
eters (Figure 6) reveals the following
insights:

• The most effective VIX thresh-

olds for opening short positions
on the S&P 500 are between 40
and 60. In contrast, the com- FIGURE6:BACKTESTINGANDSENSITIVITYANALY- FIGURE 7: TEST FOR BEST PARAMETER
monly used “fear level” of 30 SIS. The strategy was backtested on SPY on the period SETTINGS. The number of trades and reward/
results in the worst performance January 2004–April 2025, with short-selling triggered risk ratios are observed in a test on various
by VIX threshold signals. Various parameters were combinations of VIX threshold levels and
compared to the buy & hold
tested including VIX threshold, holding period, and holding periods. The test is used to suggest
benchmark—suggesting that this hedge size (percentage portion of portfolio). the parameter settings that most effectively
level may be too widely followed outperform the benchmark.
to be effective.
• The optimal holding period is the shortest one
tested: 10 days. The charts indicate that extending
the holding period tends to worsen performance
relative to the benchmark.
• The sensitivity analysis offers no clear guidance
on the ideal hedge size. In fact, the results suggest
that larger hedge sizes lead to poorer performance,
indicating that further investigation in this area
could be worthwhile.

Figure 7 presents the number of short trades and

the reward/risk ratios for various combinations of
VIX threshold levels and holding periods. The results FIGURE 8: LIST OF TRADES. Here you see the list of trades signaled by the
strategy during the backtest period.
confirm the findings discussed above, highlighting the
parameter settings that most effectively outperform the
benchmark.
Let’s have a look at Figure 8, which presents the list
of trades executed by the strategy during the backtesting
period, and at Figure 9, which shows those trades in red

An overly aggressive hedge FIGURE 9: TRADING SIGNALS. This displays the trades from Figure 8 graphi-
can unnecessarily cap gains, cally on a chart of the SPY. The trades are shown in red. The strategy successfully
reducing the overall return captured short movements during several periods of significant downturns in
the market but missed the downturn of 2022.
of the investment strategy.
Continued on page 21
July 2025 • Technical Analysis of Stocks & Commodities • 17
 Replacing Price With A Polarized Rise/Decline Factor

Polarization Of Market Data

Consider the dimensions of price, time, and … polarity. is easy to construct. Then determine if the current mean
Here’s a charting technique you can use to streamline is higher or lower than the previous mean. If the current
and summarize price movement for a new perspective. mean is higher, post current high[?], if lower, post current
low. That is the MSP displayed.
by Richard J. Johnson

An
Some examples
old trading adage is that if one knows Figure 1 is a chart of daily spot silver with standard high/
price, one will know time; and if one low/close. Figure 2 is a chart of daily spot silver with the
knows time, one will know price. I MSP in blue overlaid with the mean in black for the first
propose that polarity is a third cat- months of 2025.
egory for examining markets. I find this useful for a first look at wave patterns,
I find it very useful to determine cycles, and rhythms, because some of the complexity
for a given period a trading vehicle’s most significant has been mitigated.
point (MSP), which I define as either its high or low. Figure 3 is a daily chart showing MSP for the Dow
This is first determined by using a mediator such as Jones Industrial Average (DJIA) for the same period,
the close; combinations of open, high, low, close; or the with the MSP in magenta and the mean in black.
median price. The latter is difficult to use unless the Figure 4 is a weekly DJIA chart showing a year of data
PICKBIZ/SHUTTERSTOCK

lower scale data is readily available such as intraday for with the MSP in green and the mean in black.
daily data, etc. But if you look at the MSP differently by charting
However, the mean price, which is the midpoint between just the high/low swings (Figure 5), wave counting can
a period’s high and low ((high+low)/2), works well and be facilitated.
18 • July 2025 • Technical Analysis of Stocks & Commodities
 CHARTING
METASTOCK

FIGURE 3: MOST SIGNIFICANT POINTS (MSPS), DJIA DAILY. The most sig-
FIGURE 1: STANDARD PRICE DISPLAY (HIGH/LOW/CLOSE) , SILVER DAILY. nificant points of data are plotted as a time series based on daily DJIA data for the
This shows an example of a standard high/low/close chart of daily spot silver first part of 2025. The MSP plot is in magenta and the mean price is in black.
during the first months of 2025.

FIGURE 4: MOST SIGNIFICANT POINTS (MSPS), DJIA WEEKLY. The most

FIGURE 2: MOST SIGNIFICANT POINTS (MSPS), SILVER DAILY. Here, the significant points of data are plotted here as a time series based on a year’s worth
most significant points of data are plotted as a time series based on the same of weekly DJIA data. The MSP plot is in green and the mean price is in black.
daily spot silver data as in Figure 1 for comparison. The MSP plot is in blue,
overlaid with the mean price in black. The mean price is the midpoint between
a period’s high and low price.

A variation: Summing the highs and lows

Another variation is summing the highs and lows (+1s and
−1s). The price amplitudes are not displayed nor summed,
just the incidence of positive and negative action.
The chart in Figure 6 is a summation running back to
the major inflection point for the weekly DJIA in March
2009 with a 52-week period moving average. You can
see when a trend is being carried.
FIGURE 5: HIGH/LOW SWINGS ONLY, DJIA WEEKLY. Charting only the high/
And notice the support line drawn in Figure 7. low swings allows you to get a different perspective on the MSP chart and also
Compare these to the DJIA standard price display facilitates wave counting.
(H,L,C) in the chart in Figure 8.

Summary
Using the MSP, we have substituted a polarized rise/
I find this useful for a first look
decline factor for pure price. Because we have simu- at wave patterns, cycles, and
lated positivity and negativity with the MSP, polarity rhythms, because some of the
can be assumed. In effect, we have created a polarized complexity has been mitigated.
time sequence. And since the MSP summation reached
a net peak of 173 positive at an 833-period summation,
July 2025 • Technical Analysis of Stocks & Commodities • 19
 FIGURE 6: SUMMING THE HIGHS AND LOWS TO CREATE A POLARIZED FIGURE 7: SUPPORT LEVEL. Here, a support line is added to the summation
TIME SEQUENCE. A variation on the MSP charting technique is summing MSP chart of the weekly DJIA in Figure 6. It’s an example of applying a standard
the highs and lows (+1s and -1s). The price amplitudes are not displayed nor technical indicator or tool to an MSP chart.
summed, just the incidence of positive and negative action. This chart shows a
summation using weekly DJIA data running back to the major inflection point
in March 2009. A 52-week period moving average is in red.

we can compute the net positive polarity ratio at 20.8%,

which is the difference between the positive and nega-
tive sums. This is very close to the difference between
the Fibonacci ratios of 0.618 and 0.382, which is 0.236.
Perhaps a true tick median mediator would narrow the
difference, or perhaps a further rally to new highs may
also lower the difference, staying with the mean. Now
the question is whether a barrier at the Fibonnacci ratios
FIGURE 8: STANDARD PRICE DISPLAY (HIGH/LOW/CLOSE) CHART. Here,
exist to blunt the force of market moves. Remember, all
we return to a standard H-L-C chart of the DJIA so you can compare a standard
market instrument prices ultimately return to zero. price display with the MSP chart styles shown in earlier figures. On an MSP chart,
Summations of polarization of market action enable positivity and negativity is simulated, creating a polarized time sequence. Us-
new reads using standard technical indicators and meth- ing summations of the polarization of market action enables new reads using
odologies. Price amplitude is ignored but polarization standard technical indicators and methodologies.
over time offers new perspectives.

Richard J. Johnson has been interested in trading and [2019]. “An Updated Market Outlook,” Technical
technical analysis since the 1970s and began devising Analysis of Stocks & Commodities, Volume 37:
his own indicators and methodologies at the advent of September.
personal computing. He is the author of Finding Waves: [2014]. “The Roots Of Periodicity,” Technical
Objectively Identifying Wave Patterns In Financial Mar- Analysis of Stocks & Commodities, Volume 32:
ket Data. He may be reached at [email protected]. September.
[2013]. “The Future Of The Financial Markets,”
Further reading Technical Analysis of Stocks & Commodities,
Johnson, Richard J. [2011]. Finding Waves: Objectively Volume 31: February.
Identifying Wave Patterns In Financial Market Data, [2012]. “Charting True Internals & Peripherals,”
CreateSpace. Technical Analysis of Stocks & Commodities,
Volume 30: September.
[2009]. “Spherical Wave Filters by Richard John-
son,” Technical Analysis of Stocks & Commodities,
The price amplitudes are not Volume 27: September.
displayed nor summed, just ‡MetaStock
the incidence of positive and ‡See Editorial Resource Index
negative action.

20 • July 2025 • Technical Analysis of Stocks & Commodities

D’ERRICO/SYSTEMATIC HEDGING However, one of the model’s inherent weaknesses lies
Continued from page 17 in its reliance on a highly volatile indicator to generate
entry signals. While the VIX is effective in flagging sys-
temic stress, its rapid fluctuations can occasionally lead
on the SPY chart. When compared with the four key to false positives or delayed responses. This limitation
drawdowns in the S&P 500 that were shown in Figure 5, underscores the need for more stable or complementary
it is evident that the strategy successfully captured short hedging triggers.
movements during the 2008 financial crisis, the COVID In my next article, I will analyze strategies based on
phase, and the tariff war period. However, it missed the short overlays that activate progressively as volatility
big short market move (blue square) during the infla- rises, rather than abruptly at predefined thresholds. This
tion repricing period of 2022. It seems that during the approach aims to enhance the robustness and responsive-
period from January to October 2022, the VIX index ness of systematic hedging models.
exhibited some distinct behavior compared to typical
market trends. This period saw high volatility, driven Domenico D’Errico is a quant developer for profes-
largely by inflation concerns, interest rate hikes by the sional investors and small hedge funds. His new book
Federal Reserve, and global economic uncertainties, the is TradeStation EasyLanguage for Algorithmic Trading,
VIX spiked at times but did not follow its usual pattern a guide for both beginning and advanced traders who
of extreme spikes during market downturns. Instead, it want to develop algorithmic tools on the TradeStation
remained elevated for extended periods, reflecting the platform, with insights into advanced machine learn-
prolonged uncertainty and volatility in the markets. ing techniques integrated within the platform. D’Errico
is an EasyLanguage specialist and a two-time winner
Operational conclusions of the TradeStation developers contest. He launched
Systematically using the VIX as a trigger for short-selling TradingAlgo.it, an algorithmic trading school that
strategies is an effective approach to mitigating the most aims to equip participants with the knowledge, skills,
severe drawdowns in an equity portfolio. The analysis and practical experience necessary to understand,
highlights several key insights: develop, and implement algorithmic trading strategies
in financial markets with the help of machine learning
• VIX thresholds between 40 and 50 are the most techniques. He is part of the Gandalf Project R&D
robust for anticipating turbulent market phases. Team, an Italy-based AI initiative focused on finance.
• An ideal hedging horizon of 30 to 40 days provides D’Errico can be reached at [email protected] or
optimal protection during stress periods. through TradingAlgo.it.
• Partial, risk-adjusted hedging proves to be the
most efficient configuration, balancing cost and Further reading
protection. D’Errico, Domenico [2024]. TradeStation EasyLanguage
for Algorithmic Trading.
The systematic nature of the strategy minimizes [2024]. “Artificial Intelligence Applied To Techni-
emotional bias and ensures a disciplined, rules-based cal Trading,” Technical Analysis of Stocks & Com-
response during times of stress. The VIX—commonly modities, Volume 42: January.
known as a fear gauge—demonstrates strong potential [2024]. “Enhanced Technical Indicator Analysis
as a tactical tool for constructing defensive, data-driven Using Machine Learning,” Technical Analysis of
strategies. Stocks & Commodities, Volume 42: Bonus Issue.
Trombetta, Giovanni [2020]. Trading Strategies With
Python.
D’Errico, Domenico, and Giovanni Trombetta [2017].
The VIX—commonly known as “System Development Using Artificial Intelligence,”
a fear gauge—demonstrates Technical Analysis of Stocks & Commodities,
strong potential as a tactical Volume 35: August.
tool for constructing defensive, ‡TradeStation

data-driven strategies. ‡See Editorial Resource Index

July 2025 • Technical Analysis of Stocks & Commodities • 21

 A Daily And Weekly Strategy For Crypto

Exploring Recurring Market

Behaviors In The CME Bitcoin
Futures Market: Analysis And
Strategies
Here, we explore the behavior of the bitcoin futures and volatile nature, there has been less attention paid to
contract in the daily and weekly trading sessions and the presence (or absence) of recurring market behav-
develop a trading system. Included are examples, reports, iors. Traditionally, traders have tended to rely on classic
and code to allow you to take it further and develop breakout and trend-following strategies, which align well
your own system. with this instrument’s characteristics. Here, however,
our goal is to determine whether there are specific time
by Andrea Unger windows during the trading session, or particular days

In
of the week, when it might be more advantageous to buy
this article, we will examine a market that or sell this futures contract.
VALERY EVLAKHOV/SHUTTERSTOCK

has gained considerable fame in recent

years: bitcoin, the world’s leading cryp- Recurring market behaviors (bias) in
tocurrency. Specifically, we will focus on bitcoin @BTC futures
the bitcoin @BTC futures contract listed To conduct our study, we used our proprietary Bias Finder
on the Chicago CME. analysis software. Inevitably, the data at our disposal is
While most of us are familiar with bitcoin’s bullish somewhat limited, given that this contract only entered
22 • July 2025 • Technical Analysis of Stocks & Commodities
 TRADING SYSTEM DEVELOPMENT

BIAS FINDER BY UNGER ADADEMY WITH MULTICHARTS

FIGURE 1: LOOKING FOR RECURRING MARKET BEHAVIORS. The Bias Finder software is used to help discover recurring market behaviors (biases) that might
be exploited in a trading system. Here, bitcoin futures (@BTC) are examined in both the intraday and weekly timeframe.

regulated financial markets in December 2017. We sitions between them. Of course, this observed pattern
therefore considered historical data from January 2018 is based on an average and does not guarantee that the
to December 2024, performing a two-part analysis of bitcoin @BTC futures will move this way every single
the behavior of this futures contract, focusing on both day. Nevertheless, the sum of intraday price movements
intraday and weekly patterns. does point to these interesting results.
Upon examining the results (Figure 1), we observe Referring again to Figure 1, we can see the same bias
some rather clear patterns, both intraday and through- mapped out over various years. Setting aside the first
out the trading week. Recall that the standard bitcoin two years of trading (2018 and 2019), when the market
@BTC future session aligns with that of U.S. stock was still in its early stages and had low volume, and
indexes, starting at 5:00 p.m. and closing at 4:00 p.m. concentrating instead on subsequent years, we can say
(Chicago time). the bias appears to hold. Naturally, individual curves
may show more or less pronounced movement because
Intraday analysis: Time windows when of the underlying asset’s significant price swings over
prices tend to rise or fall time—some years were strongly bullish (for example,
When it comes to intraday patterns, the futures contract 2020 and 2021), while others were strongly bearish (for
shows a distinctly bullish tendency from midnight until example, 2022).
around 8:30/9:00 a.m., followed by a more pronounced
bearish trend that persists until the daily session closes at Weekly analysis: Recurring bitcoin
4:00 p.m.. An hour later (at 5:00 p.m.), when the market trends over the week
reopens for the afternoon and overnight session, this Turning to the weekly bias, we again find a pronounced
bearish trend continues until roughly midnight, when pattern, with a weekly low near midnight on Sunday
the bullish phase appears to resume. Essentially, it’s and a weekly high around the Wednesday session close
as though the trading day is divided into three clearly (4:00 p.m.). Following this, the market typically declines
defined segments, with relatively swift and decisive tran- until about 2:00 a.m. on Friday, after which a new bull-
July 2025 • Technical Analysis of Stocks & Commodities • 23
 ish phase begins and lasts until the first hour of trading Trading strategies based on bitcoin
after Sunday’s reopening—highlighted by a substantial futures recurring price patterns
bullish gap on the chart. This gap is most likely amplified It’s important to acknowledge that 6–7 years of analysis
by the fact that the underlying spot market (BTCUSD), may not be enough to make a definitive judgment on
unlike the bitcoin @BTC futures contract, continues to bias-driven behavior. Bias strategies can carry more
trade over the weekend. As a non-regulated instrument uncertainties than classic approaches like trend follow-
listed on exchanges that remain open every day, the spot ing, particularly in a market as young and volatile as
market follows through on the bullish move initiated on this one. However, the data is indeed compelling and
Friday. suggests there may be a statistical edge, both intraday
and weekly.

TESTING A BITCOIN FUTURES INTRADAY AND WEEKLY TRADING STRATEGY, IN POWERLANGUAGE CODE
This script in PowerLanguage (similar to EasyLanguage) setstopcontract;
for the MultiCharts platform allows you to test whether
//BIAS WEEKLY @BTC
a particular observed bias (a recurring pattern) in bitcoin
futures serve as the basis of a successful trading strategy input: Stoploss(3000), Breakeven(0), Takeprofit(0);
on the intraday and weekly timescale. input: entry_time_short(1800),exit_time_short(200),entry_
time_long(0),exit_time_long(1545);
//BIAS INTRADAY @BTC input: entry_time_long_WE(200),exit_time_long_
WE(1800);
input: Stoploss(2000), Breakeven(0), Takeprofit(0); input: Bias_Short(0),Bias_Long(0),Bias_Long_WE(0);
input: entry_time_long(0),exit_time_long(815),entry_
time_short(1715),exit_time_short(2345); // BUY & HOLD WEEKLY
input: entry_time_short_daily_session(845),exit_time_ if Bias_Long=0 and Bias_Long_WE=0 and Bias_Short=0
short_daily_session(1545); then begin
input: Bias_Short_NS(0),Bias_Short_DS(0),Bias_Long(0); if dayofweek(d)=0 and time=1715 then buy next bar at
market;
//BUY & HOLD INTRADAY if dayofweek(d)=5 then setexitonclose;
if Bias_Long=0 and Bias_Short_DS=0 and Bias_Short_ end;
NS=0 and time=1715 then
buy next bar at market; //BIAS SHORT
setexitonclose; if Bias_Short=1 then begin
if dayofweek(d)=3 and time=entry_time_short then
//BIAS LONG sellshort next bar at market;
if Bias_Long=1 then begin if dayofweek(d)=5 and time=exit_time_short then
if time=entry_time_long then buy next bar at market; buy to cover next bar at market;
if time=exit_time_long then sell next bar at market;
end; end;

//BIAS SHORT //BIAS LONG

if Bias_Short_NS=1 then begin if Bias_Long=1 then begin
if time=entry_time_short then sellshort next bar at if dayofweek(d)=1 and time=entry_time_long then
market; buy next bar at market;
if time=exit_time_short then buy to cover next bar at if dayofweek(d)=3 then setexitonclose;
market; end;
end;
if Bias_Long_WE=1 then begin
if Bias_Short_DS=1 then begin if dayofweek(d)=5 and time=entry_time_long_WE
if time=entry_time_short_daily_session then sellshort then buy next bar at market;
next bar at market; if dayofweek(d)=0 and time=exit_time_long_WE then
if time=exit_time_short_daily_session then buy to sell next bar at market;
cover next bar at market; end;
end;
if Stoploss>0 then setstoploss(Stoploss);
if Stoploss>0 then setstoploss(Stoploss); if Breakeven>0 then setbreakeven(Breakeven);
if Breakeven>0 then setbreakeven(Breakeven); if Takeprofit>0 then setprofittarget(Takeprofit);
if Takeprofit>0 then setprofittarget(Takeprofit);
setstopcontract;

24 • July 2025 • Technical Analysis of Stocks & Commodities

FIGURE 2: EQUITY CURVE, @BTC FUTURES STRAT- Trading System Net Profit Avg Trade No. of Trades Max Drawdown
EGY. This demonstrates equity curves and system results
Complete intraday bias
for both the intraday and weekly bias trading systems system
$892,125.00 $164.84 5,412 −$53,325.00
on bitcoin @BTC futures. Complete weekly bias
$635,950.00 $602.80 1,055 −$79,700.00
system

Below is a summary of our findings, and in the side- system profitability.

bar “Testing A Bitcoin Futures Intraday And Weekly Regarding the intraday bias, it immediately stands
Trading Strategy, In PowerLanguage Code,” you will out that short trades account for the majority of the sys-
find the corresponding PowerLanguage code to test tem’s profits. Approximately two-thirds of the net profit
how effectively these biases can be turned into reliable ($640,000 out of $892,125) come from short trades,
trading systems. primarily those executed during the daily session from
9:00 a.m. to 4:00 p.m. Looking at maximum drawdown,
Intraday bias however, we see a reversal of this pattern. Long entries
• long: from midnight to 8:30 a.m. the following turn out to be less risky—likely because they align
morning more closely with the instrument’s nature during certain
• short night_session: from 5:00/5:30 p.m. to mid- periods—resulting in a much lower drawdown than short
night entries, particularly those executed during the daily ses-
• short daily_session: from 9:00 a.m. to 4:00 p.m. sion ($48,600 versus $78,425).
All average trades, across the board, remain rather
Weekly bias small given that the bitcoin @BTC futures contract has
• long intraweek: from midnight on Sunday to 4:00 a significant notional size (it represents five bitcoins,
p.m. on Wednesday with a tick value of $25). As a result, these strategies
• long overweekend: from 2:00 a.m. on Friday to need a higher average trade value to be truly viable. At
6:00 p.m. on Sunday this stage, our base system lacks any additional filters to
• short intraweek: from 6:00 p.m. on Wednesday to reduce the large number of trades generated (over 5,000),
2:00 a.m. On friday
Continued on page 31
Backtest results: Equity curves and
key metrics for evaluating strategy
performance
In Figure 2, we can see the equity lines produced by
Our goal is to determine whether
applying the previously gathered data to bitcoin @BTC there are specific time windows or
futures on a 15-minute timeframe. The tables in Figures days of the week when it might be
3 and 4 present the overall metrics of the two systems, more advantageous to buy or sell
comparing them with a buy & hold approach and with this futures contract.
various long and short components of the systems, to
identify each component’s contribution to total trading
July 2025 • Technical Analysis of Stocks & Commodities • 25
 Explore Your Options
GOT A QUESTION ABOUT OPTIONS?
Jay Kaeppel has over three decades of experience in the options markets. He
was a head trader for a CTA firm, an options trading software developer,
and was a portfolio manager for an investment management firm. He is
presently Senior Research Analyst for Sentimentrader.com. He is the author
of several books, including The Four Biggest Mistakes In Option Trading;
The Option Trader’s Guide To Probability, Volatility, And Timing; and
Seasonal Stock Market Trends. Send your questions or topic suggestions
to Jay Kaeppel at [email protected]. Selected questions will appear
in a future issue of S&C.
Jay Kaeppel

USING OPTION COLLARS rationale for adding the collar is to but may also wish to protect against
TO HELP LIMIT RISK protect against shorter-term concerns an anticipated short-term pullback.
I recently read about an option regarding potential pullback in the At that point, selling a call to pay for
strategy called a “collar.” Can you underlying stock. For example, after all or some part of a long put position
describe what this strategy entails a stock has had what the shareholder can be a very cost-effective way to
and when and why it might make considers a sharp advance, the inves- hedge a long stock position.
sense to use it? tor may not want to sell their shares On the other hand, anytime a trader
A long collar generally involves
three transactions:

1. Buying 100 shares of stock

2. Buying 1 protective put option

WWW.OPTIONSANALYSIS.COM
3. Selling 1 out-of-the-money call
option

The first two elements alone amount

to a strategy known as a “married
FIGURE 1: TRADE PARTICULARS, LONG COLLAR STRATEGY. Here you see an example collar trade in
put.” With that strategy, buying a put
PayPal Holdings (PYPL). A long collar generally involves buying or owning 100 shares of stock, buying a
option limits the downside risk. The
protective put option, and selling an out-of-the-money call option. A collar option strategy is often used
“collar” strategy adds a short call to protect against possible shorter-term pullbacks in the underlying stock.
option to the mix. Selling the call
option typically reduces the cost of
the protective put.
The three transactions referred to
earlier (buying stock shares, selling
a call, and buying a put) can all be
done simultaneously. However, the
collar (selling a call and buying a
put) is typically added to an exist-
ing long stock position. The usual

When a trader is
looking for a lower-risk
alternative to buying
FIGURE 2: RISK CURVES, LONG COLLAR STRATEGY. This demonstrates the risk curves for the example
shares of stock, a long collar option position from Figure 1. Risk curves show the expected dollar gain or loss based on the price of
collar can be a viable the underlying stock as of four dates leading up to option expiration. The option expiration date is shown
alternative. here as a black line. The cyan horizontal line shows the breakeven price at expiration. The breakeven price
in this trade would be the cost of the stock plus the cost of the collar divided by 100 shares, or $71.89.
26 • July 2025 • Technical Analysis of Stocks & Commodities
 Explore Your Options
is looking for a lower-risk alternative
to buying shares of stock, a long collar
can be a viable alternative.

A PayPal (PYPL) long

collar
Let’s illustrate the strategy with
an example. PayPal Holdings Corp
(PYPL) recently rallied 27% off
FIGURE 3: TRADE PARTICULARS, ALTERNATIVE COLLAR STRATEGY. A trader may choose to substitute
a recent low in less than a month. a long call for long stock shares in a collar trade. This collar strategy generally involves buying an in-the-
Suppose a trader is concerned that money call, selling an out-of-the-money call option, and buying a protective put option. Compare to the
the stock may experience a pullback trade particulars in Figure 1.
between May and July. A collar
entered on May 9th might involve:

• Holding 100 shares of PYPL

(trading at $70.26)
• Selling 1 July 80 strike price call
@ $0.77
• Buying 1 July 67.5 strike price
put @$2.40

The particulars for this position

appear in Figure 1, and the risk curves
in Figure 2.
Key things to note: FIGURE 4: RISK CURVES, ALTERNATIVE COLLAR STRATEGY. This demonstrates the risk curves for the
example collar option trade from Figure 3. A potential advantage of this collar strategy, which substitutes
• To add the collar to an existing a long call for the long stock position, is unlimited profit potential on the downside, as can be seen in the
long 100 shares position would risk curves graph here.
cost $163 (paid $240 for the put,
took in $77 for the short call) • A breakeven price of $71.89 following transactions occur on
• If we assume for illustrative May 9th:
purposes that all three legs were The key attraction of this collar
entered at once (i.e., including position is the ability to limit • Buy 1 July 60 strike price call
buying 100 shares at the current maximum risk to just $411. @ $11.65
price of $70.26), the cost to enter As attractive as this may (or may • Sell 1 July 80 strike price call
the position would be $7,189 not) be (depending on a given trader’s @ $0.77
($7,026 to buy 100 shares of PYPL perceptions), there may be a lower- • Buy 1 July 67.5 strike price put
and $163 for the collar) cost alternative. @ $2.40
• The breakeven price is the cost of
the stock plus the cost of the collar, Using an ITM call instead The particulars for this position
or $7,026 + $163, or $7,189 divided of stock shares appear in Figure 3, and the risk curves
by 100 shares equals $71.89 A similar position can be entered in Figure 4.
without buying stock shares. The Key things to note:
Through July option expiration, advantages of doing so can be a
the trade has: much lower cost and the potential • The long 100 shares position is
to make money on the downside. replaced with the long 60 strike
• A maximum profit potential of The drawback is that you have no price call (the call costs $1,165
$811 (or 11.28% of the $7,189 underlying stock position once the versus $7,026 to buy 100 shares
position value) options expire.
• A maximum risk of $439 For example, we will assume the Continued on page 30
July 2025 • Technical Analysis of Stocks & Commodities • 27
 The S&P 500 Index And Volatility In A Pair Trade

The ViPar Option Strategy For

Trading Market Declines
This put-buying option strategy involves purchasing VXX SPX put debit spread and VXX puts—are purchased at
put options while purchasing an SPX put debit spread. the same time.
Find out how it’s used. While the two sides are inverse, meaning one goes up
while the other goes down, the expectation is that one
by John A. Sarkett side will outpace the other and generate the expected

E
profit.
ver wonder what to do during a rapid market
decline? Some traders: 1. go short (although Core components of the ViPar strategy
it may be too late) 2. fish for “bargains” (al- The ViPar option strategy involves two primary com-
though it may be too early, since things could ponents:
get much cheaper) 3. panic, or 4. do nothing.
But I think there is another, better way: the VXX put options: During periods of elevated volatility,
“ViPar” strategy. This option strategy is a ideally after a market crash, a trader purchases VXX
pair trade. It looks for either a rebound move up or a put options. The rationale: volatility is regressive, that is,
continued down market. heightened volatility is expected to be transient, and as
Developed by Scott Ruble of StratagemTrade, “ViPar” market conditions stabilize, the VXX typically declines,
VINTAGE TONE/SHUTTERSTOCK

stands for volatility pair. The ViPar strategy seeks rendering these put options profitable.
to leverage the inverse relationship between the S&P
500 index (SPX) and a volatility index, specifically the However, in case the market continues to plunge, the
VXX, which is an exchange-traded note (ETN) that second part of the strategy provides a downside market
tracks short-term volatility. Both sides of the pair—an hedge:
28 • July 2025 • Technical Analysis of Stocks & Commodities
 OPTIONS TRADING

SPX put debit spreads: To hedge against potential surges

in volatility or sustained market downturns, traders con-
currently purchase a put debit spread on the SPX. This
involves buying a higher strike put and selling a lower
strike put. This offsets some costs and provides a buffer
against adverse movements. FIGURE 1: EXAMPLE VIPAR SETUP. The green boxes show the initial capital
outlays for the example ViPar option trade shown here: 11.10 ($1,110) for the
By integrating these positions as a pair, the ViPar SPX 5500/5465 long put debit spread and $1.81 for 10 VXX 52 puts ($1,810)
for a total of $2,920. The inclusion of a SPX put debit spread helps with risk
model seeks to balance potential profits from decreasing
mitigation because it could potentially offset losses from VXX positions during
volatility with protective measures against unexpected unforeseen volatility spikes.
market declines.
As for the timeframe, the ViPar usually looks out three SPX VXX
to eight weeks. Max Risk 1110 1810
Does the strategy work? Ruble says that in his experi-
ence, ViPar earns profits 90% of the time. “There can be
losses; however, adjustments can be made during the life Max Reward
2390 ?
of the trade to mitigate much of the loss,” he says. (3500–1110)
FIGURE 2: MAX RISK & REWARD ON EXAMPLE VIPAR TRADE. The SPX
Strategic advantages long put spread, serving as the hedge in this pair trade, could potentially make
The ViPar approach offers several notable benefits: $2,390 ($3,500 − $1,110 cost). The VXX long puts, bought at a cost of $1,810,
would generate a profit if VXX falls but would expire worthless if VXX rises
sharply. In the latter case, there would still be a net gain of $580 on the pair
Risk mitigation: The inclusion of a SPX put debit spread trade ($2,390 – $1,810).
serves as a safeguard, potentially offsetting losses from
VXX positions during unforeseen volatility spikes. strategy on hand for when they do occur. This is
also an ideal strategy to use ahead of large events
Profit harvesting: As markets fluctuate, traders can that involve an unknown outcome (such as elections,
“harvest” profits by adjusting positions, capitalizing Fed meetings, and so on) where volatility levels
on short-term movements while maintaining overall jump due to the fear over uncertainty.
strategy integrity.
Example
Adaptability: The ViPar model’s flexibility allows See Figure 1 for an example ViPar trade setup with trade
traders to tailor it based on individual risk tolerance particulars. Figure 2 illustrates the concept.
and market outlook, making it versatile across various
market conditions. SPX risk
The green boxes in Figure 1 show the initial capital
Considerations and risks outlays: 11.10 ($1,110) for the SPX 5500/5465 long put
While the ViPar strategy presents opportunities, traders debit spread and $1.81 for 10 VXX 52 puts ($1,810).
should be mindful of: Total: $2,920.
In this case, which is a trade setup created on March 13,
• Complexity: Managing positions across different 2025, the market rose within one day of entry, volatility
instruments requires a deep understanding of option declined, and a profit was generated. The long VXX put
mechanics and vigilant monitoring.
• Market assumptions: The strategy hinges on the
expectation that elevated volatility will revert to By integrating these positions
mean levels. Prolonged periods of high volatility
can challenge this premise and make the ViPar as a pair, the ViPar model seeks
less profitable, or unprofitable. Under these circum- to balance potential profits
stances, rolling the position further out in time can from decreasing volatility with
usually salvage the trade. protective measures.
• Setup: Market crashes are (thankfully) infrequent,
but it’s very useful (and reassuring) to have this
July 2025 • Technical Analysis of Stocks & Commodities • 29
 went from $1.81 to $2.85 (gain of $1.04 × 10 × $100 per perhaps some 20 different option models, including ones
point multiplier = $1,040). The hedge lost, but lost less, with names such as the unbalanced condor, short butterfly
as hoped: the $1,110 initial value of the SPX long put on the close, razzle dazzle, rolling thunder, and others.
spread now stood at $785 (a drop of $325). The commonality in them is risk mitigation. Ruble aims
So, the net gain was $1,040 on the long VXX puts, at selling short somewhere on the risk curve to reduce
minus the $325 loss on the long SPX put debit spread, capital outlay and risk. Among his many models, he cites
for a total of $715 profit on this example ViPar trade. ViPar as his favorite.
Ruble comments: “You can see from the green box
that the max risk on the put spread bought for 11.10 is John A. Sarkett has written for Technical Analysis of
$1,110, so the VXX puts have only to make that amount Stocks & Commodities since 1995. He is the author
(in a market bounce) to make back the SPX put spread of Option Wizards: Real Life Success Stories From The
cost. We did very nearly that on that Friday with the Financial Markets, and Market Mentors.
VXX put closing at 2.85 (profit of $1,040). I could sell Scott Ruble is founder of options education at Strata-
the VXX out at that point and have on the SPX put spread gem Trading, stratagemtrade.com.
for nearly free.”
Further reading
VXX risk Ruble, Scott. One Strategy For All Markets, Random-
The cost of the VXX puts was $1,810. Ruble says: walktrading.com.
“These long puts will only go out worthless if the market Sarkett, John A. [2018]. “The Options Risk Curve, part
falls hard and the VXX rises sharply, which means the 1,” Technical Analysis of Stocks & Commodities,
$35 wide SPX put spread can make a potential $2,390 Volume 36: November.
($3,500 − $1,110 cost). The net gain, in that case, would [2018]. “The Options Risk Curve, part 2,” Tech-
be: $2,390 gain on SPX minus $1,810 loss on VXX = nical Analysis of Stocks & Commodities, Volume
$580, net profit. On $2,920 capital, that computes to a 36: December.
19.86% gain.

Conclusion

Explore Your Options

A former SPX pit trader, Ruble says he regularly trades

KAEPPEL • A maximum risk of $678 stock position or create a limited

Continued from page 27 • Breakeven prices of $73.28 and risk situation. Likewise, a trader can
$54.22 substitute a long call for long stock
shares and potentially reduce the
of PYPL) The key advantage of this approach capital commitment by a substantial
• If all three legs were entered at is reduced cost to enter. Another amount. The key considerations are:
once, the cost to enter the position potential advantage of this position 1) how long do you expect to hold the
would be $1,328 (versus $7,189 versus the earlier one is that it enjoys position, and 2) what type of tradeoff
in the long 100 shares of PYPL unlimited profit potential on the between potential reward and risk
example) downside, as seen in the risk curves are you looking for? In most cases,
• The upside breakeven price graph in Figure 4. The primary risk less potential risk also equates to less
is $73.28, and the downside in this position is that PYPL falls profit potential.
breakeven price is $54.22 into the $54 to $74 range and stays ‡Optionsanalysis.com
there. Should this occur, losses would ‡See Editorial Resource Index
Through July option expiration, accrue (but still cannot exceed a
the trade has: maximum of $578).

• On the upside, a maximum profit summary

potential of $672 (or 50.6% of the A collar can be used in various
$1,328 position cost) ways, whether to hedge an existing
30 • July 2025 • Technical Analysis of Stocks & Commodities
UNGER/RECURRING MARKET BEHAVIORS Trading System Net Profit Avg Trade Max drawdown
Continued from page 25
Buy & Hold (intraday) $94,375.00 $52.11 −$162,325.00

so there is considerable room to improve. Complete intraday bias

$892,125.00 $164.84 −$53,325.00
system
Turning to the weekly bias, the situation is the op- Bias Short NS (Night ses-
posite: long trades are the primary profit driver, which
$280,750.00 $155.02 −$55,875.00
sion)
makes sense given their broader time window compared Bias Short DS (Daily ses-
sion)
$368,275.00 $201.13 −$78,425.00
to short trades. We also note a substantial contribution
Bias Long $271,050.00 $152.28 −$48,600.00
from the Friday afternoon long entry, which remains
open over the weekend. This indicates that the market Bias Short NS + Bias Long $526,150.00 $146.52 −$57,300.00
continues to move decisively in one direction during Bias Short DS + Bias Long $639,325.00 $177.05 −$45,025.00
off-market hours.
From an average trade perspective, these weekly bias
Bias short NS + DS $640,750.00 $178.04 −$73,050.00

values are promising and could be appropriate for a more FIGURE 3: INTRADAY BIAS SYSTEM RESUTLS. Here you see backtest results
complete system. On the other hand, the drawback is the for the intraday bias strategy (January 2018–December 2024) compared with
comparatively higher risk the strategy takes on, as shown buy & hold and with various long and short components of the systems to help
identify each component’s contribution to total trading system profitability.
by a fairly large maximum drawdown, which would
Short trades account for the majority of the system’s profits.
definitely need to be limited in real-money trading.
Trading System Net Profit Avg Trade Max drawdown
Conclusions on intraday and weekly bias
for the bitcoin @BTC futures contract
Buy & Hold (weekly) $115,200.00 $320.89 −$150,900.00
Complete weekly bias
In this article, we explored the behavior of the bitcoin system
$635,950.00 $602.80 −$79,700.00
@BTC futures contract throughout both the daily trad- Bias Short $97,250.00 $283.53 −$67,950.00
ing session and the weekly cycle. We found that certain
recurring biases seem to exist in both. It is certainly Bias Long $239,250.00 $668.30 −$95,775.00

surprising that an instrument generally thought of as Bias Long WE (Weekend) $260,875.00 $745.36 −$72,175.00
bullish can also deliver strong returns on the short side, Bias Short + Bias Long $363,975.00 $514.82 −$77,800.00
especially during intraday sessions. Nevertheless, given
the underlying nature of the contract and the fact that Bias Short + Bias Long WE $366,150.00 $524.57 −$72,100.00

it is relatively new in the financial markets, one should Bias Long + Bias Long WE $512,350.00 $726.74 −$76,400.00
exercise caution. Even so, this research provides a foun- FIGURE 4: WEEKLY BIAS SYSTEM RESULTS. Here you see backtest results
dation for some promising strategies. It is now up to you for the weekly bias strategy (January 2018–December 2024) compared with
to turn them into fully fledged trading systems. buy & hold and with various long and short components of the systems to help
Until next time, good trading. identify each component’s contribution to total trading system profitability.
Long trades account for the majority of the system’s profits.
Andrea Unger is a full-time professional trader, president
of The Unger Academy, and author of The Unger Method. [2021]. The Unger Method: The Winning Strategy
He is a four-time World Trading Champion (2008, 2009, Of The 4-Time World Trading Champion, The Boss
2010, and 2012), an honorary member of SIAT (Italian Books.
Society of Technical Analysis, a branch of IFTA), and ‡MultiCharts
‡See Editorial Resource Index
speaks throughout Europe, America, Australia, and
Asia. He may be reached at Andrea@UngerAcademy.
com. The Unger Academy provides services to traders,
including individuals, to help them improve their ap-
proach to trading (more information can be found at It is surprising that an instrument
https://autc.pro/tasc). generally thought of as bullish
can also deliver strong returns on
Further reading
Unger, Andrea [2021]. The Successful Trader’s Guide To
the short side, especially during
Money Management: Proven Strategies, Applications, intraday sessions.
And Management Techniques, Wiley Trading.
July 2025 • Technical Analysis of Stocks & Commodities • 31
 The Savvy Technician
CHARTING THE MARKETS
Stella Osoba, CMT, Esq., is an attorney, trader, and financial writer in New York,
NY, and is also the Senior Editor, Trading and Investing, for Investopedia.com. Her
work in financial litigation involving regulatory bodies and large multinational
corporations led to an interest in the financial markets, then technical analysis
and the psychological aspects of market behavior. She earned a CMT charter
in 2013 and was a director-at-large on the board of the CMT Association for
four years. This column will focus on recognizing and applying technical chart
patterns to trading with flexibility and astuteness for better decision-making in
trading. She can be reached at [email protected]. Stella Osoba

RECESSIONS AND STOCK MARKET PERFORMANCE contraction and expansion of economic activity. Periods
At the time this article was being written in early May of expansion are interrupted every so often by shorter
2025, the Bureau of Economic Affairs released real GDP periods of contraction, which is a normal part of the
for the first quarter of 2025. It showed a contraction of business cycle. These periods of contraction are roughly
0.3%. A recession is generally defined as two quarters marked by declines in the stock market. Figure 1 is a
of negative growth. So by the time this article is pub- long-term monthly chart of the DJIA showing the deep
lished it is likely that we will know if we are actually inversions of these declines when contractions happen
in a recession. and interrupt an upward-trending stock market.
Recessions are periods of economic contraction. They
are a normal part of the business cycle which is com- 2001 recession and the dot-com bubble burst
posed of periods of contraction and expansion. A period Because the reason for the 2001 recession is commonly
of expansion occurs between a trough and a peak and is ascribed to the dot-com bubble bursting, the Nasdaq
the usual state of the economy. A period of contraction Composite index is used to illustrate it. The 2001 reces-
occurs between a peak and a trough and is often shorter sion lasted from March 2001 to November 2001. Prior
than the periods of expansion. Since the stock market is to March 2001, the economy had been in a period of
a barometer of the economy as a whole and recessions expansion for ten years. In early March 2000, the Nasdaq
are periods of broad economic decline, it is therefore to
be expected that the impact of such recessions will be
seen in the performance of the stock indexes.
Here, we’ll study the charts of three indexes during
periods of economic contraction in the 21st century. The
five charts are as follows:

• a monthly chart of the Dow Jones Industrial Average

(DJIA) showing 25 years of price history
• a daily chart of the Nasdaq showing the 2001 recession
triggered by the deflation of the dot-com bubble
• a daily chart of the S&P 500 showing the 2008/9 re-
cession triggered by the subprime mortgage crisis
• a daily chart of the DJIA showing the 2020 recession
triggered by the pandemic
• a daily chart of the DJIA showing the likely 2025
recession
STOCKCHARTS.COM

To put everything in perspective before we drill down,

it is important to remember that the natural state for the
economy is growth. For much of the time, the stock market FIGURE 1: DJIA. A monthly chart of the Dow Jones Industrial Average is shown
rises, as we can see from the price chart in Figure 1, rising here over a 25-year period from 2000 through the first part of 2025. Periods of
from left to right. The business cycle marks periods of economic contraction are roughly marked by declines in the stock market.
32 • July 2025 • Technical Analysis of Stocks & Commodities
 The Savvy Technician

FIGURE 2: NASDAQ. A daily chart of the Nasdaq-100 index shows the 2001 FIGURE 3: S&P 500. A daily chart of the S&P 500 shows the 2008–2009 reces-
recession, which was triggered by deflation following the dot-com bubble sion, which was triggered by the subprime mortgage crisis. The index began
burst. Prior to March 2001, the economy had been in a period of expansion for moving sideways in July 2007 after marking its highs. It completed a head &
ten years. In this case, the decline in the index both preceded and outlasted shoulders pattern in December 2007 and then plunged. The index bottomed
the recession. at 666 in early March 2009, but economic recession did not end until after the
index had begun its recovery.
reached a high of 5,132, then the dot-com bubble burst
and a long painful slide in the index began (Figure 2),
eventually falling to a low of 1,109 in early October 2002.
The recession began in March 2001, by which time the
index was already clearly in a well-defined downtrend.
The recession ended in November of that same year
(2001) but the decline in the index did not, continuing
to decline until October 2002. By the time the decline in
the Nasdaq was over, the index had fallen by over 78%.
So in this case, the decline in the index both preceded
and outlasted the recession.

2008/9 recession and the housing bubble burst

The S&P 500 index is used to illustrate the Great Reces-
sion, which lasted from December 2007 to June 2009.
This recession was often blamed on subprime mortgages
but it was really caused by the securitization of those

Continued on page 41

A period of contraction occurs FIGURE 4: DJIA. A daily chart of the DJIA shows the effects of the 2020 reces-
between a peak and a trough and sion on the stock market, a recession that was triggered by the Covid pandemic.
is often shorter than the periods The V-shaped reversal shows the unusual speed of this plunge and recovery. As
of expansion. with other recessions, the stock market decline and recovery led the economic
indications.
July 2025 • Technical Analysis of Stocks & Commodities • 33
 Copycat ETFs Targeting The Nasdaq-100

QQQ Relatives
There are over three dozen ETFs based on the Nas- $294.2 billion. The four largest ETFs, all based on the
daq-100 index, each with its own objectives. Is there a S&P 500 index, include VOO, SPY, IVV, and VTI, with
QQQ lookalike that could offer better returns with less AUM ranging from $595.8 billion for VOO down to
risk than the QQQ itself? We’ll take a look. $437.0 billion for VTI.
Given QQQ’s significant success, several ETF sponsor-
by Leslie N. Masonson, MBA ship firms have introduced various versions of QQQ to

T
the market in recent years. Today, there are more than
he Invesco QQQ Trust ETF (QQQ) has three dozen cousins to QQQ. It’s surprising that it took
established itself as a top choice for both so long for others to create similar ETFs that could
traders and investors, including large benefit from QQQ’s popularity. In the last five years,
institutions. Since its launch on March there has been a surge of competition in this category,
10, 1999, QQQ has seen an astounding though it may be too late for many newcomers to reach
989.2% gain, compared to SPY (SPDR the minimum AUM needed to survive, typically around
S&P 500 ETF), which has increased by 577.8% as of $100 million.
April 25, 2025. This impressive performance is largely
due to its “Magnificent Seven” (Mag 7) holdings: Apple QQQ relatives review
(AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta In this article, I’ll focus on nine equity-based ETFs related
Platforms (META), Nvidia (NVDA), Microsoft (MSFT), to QQQ, rather than those with different objectives like
and Tesla (TSLA). Currently, these seven companies make leverage, fixed income, options, or other synthetically
SYNTHEX/SHUTTERSTOCK

up 45% of QQQ’s market-cap weight, while accounting created ETFs. I will compare ETFs that have similar goals
for 30% of SPY. and exclude QQQ-focused mutual funds (such as IVNQX,
As of April 25, 2025, QQQ ranks as the fifth-largest PNQI, USAA, and USNQX) from this review.
ETF by assets under management (AUM), boasting Figure 1, sorted by AUM, from www.ETF.com, lists
34 • July 2025 • Technical Analysis of Stocks & Commodities
 WHY TRADE ETFS?

nine equity ETFs based on QQQ. Invesco

not only offers the original QQQ but
also four other passively managed ETFs:
QQQM, QQQJ, QBIG, and QQQS. Other
sponsors include First Trust (QQEW),
Pacer (QQQG), ProShares (QQQA), and
Howard Capital Management (QQH).
Additional data mentioned in this article,
including inception dates, risk statistics,
and portfolio holdings, comes from www.
ETFAction.com.
Direxion, known for its leveraged ETFs,
sponsors QQQE, an equal-weight version.
They also manage QQQD and QQQU, but
these are not included in this list since
they do not share the same focus as the
traditional QQQ. QQQD, an inverse ETF
targeting the Mag 7, has a low AUM of $8
million and a 0.50% annual expense ratio,
with nearly 95,000 shares traded daily.
Similarly, QQQU, which offers 2× lever-
age, has an AUM of $78.2 million and a
one-year total return of 24.7%, along with

ETF.COM
an annual expense ratio of 0.98%.
As Figure 1 illustrates, none of the com- FIGURE 1: QQQ RELATIVES, BY ASSETS UNDER MANAGEMENT. Here you see a list of nine equity
peting ETFs have made a significant impact ETFs based on QQQ, sorted by AUM, as of April 28, 2025, that are the focus of this article. Invesco
owns the category with 99% of the AUM. Two equal-weighted ETFs have not outperformed QQQ
on QQQ’s stronghold in terms of AUM,
or QQQM.
cash inflows, and daily trading volume.
And QQQ continues to grow, attracting
$39.5 billion in cash inflows over the past three years, mirrors QQQ in almost every way, but it offers a slightly
according to ETFAction.com. lower expense ratio of 0.15%, which is five basis points
Overall, the U.S. has almost 4,000 ETFs, with Invesco less. While this difference might seem minor, over de-
in fourth position overall at $605 billion in AUM. Their cades, buy-and-hold investors can benefit from enhanced
one-year inflows of $76.3 billion also place them fourth in returns due to the power of compounding.
the industry in terms of inflows. BlackRock and Vanguard Amazingly, it has amassed $41.5 billion in AUM, sec-
are the giants of the ETF world, having AUM of $10.4 ond only to its big brother. Among Invesco’s 231 ETFs,
trillion and $3.2 trillion, respectively, while State Street QQQ ranks first in AUM at $296.3 billion, followed by
ranks third with $3 trillion. Invesco offers 231 different RSP (Invesco S&P 500 Equal Weight ETF) at $69.7 bil-
ETFs, only behind Vanguard’s 462. lion, according to ETFAction.com. Surprisingly, QQQM
To capitalize on QQQ’s success, Invesco wisely ranks third. All of the other ETFs in Invesco’s top 35 by
developed and marketed a total of six QQQ offshoots AUM had much earlier start dates averaging 17 years.
(including QQQJ, QQQM, QQQS, QBIG, QQMG, and Examining QQQM’s performance reveals an 8-basis-
QQJG), creating a steady stream of revenue. However,
the last two ETFs aren’t covered here due to their focus
on different areas. Together, QQQ, QQQM, and QQQJ
represent 99.3% of this category’s AUM, explaining why Given QQQ’s significant success,
their competitors struggle to gather assets. several ETF sponsorship firms have
introduced various versions of QQQ
Invesco NASDAQ-100 ETF (QQQM) to the market in recent years.
Invesco QQQM made its debut on October 13, 2020, more
than two decades after Invesco launched QQQ. This ETF
July 2025 • Technical Analysis of Stocks & Commodities • 35
 ETFACTION.COM
FIGURE 2: QQQJ ONE-YEAR PERFORMANCE HEATMAP. The performance of Invesco NASDAQ Next Gen 100 ETF (QQQJ) was mixed over this period. Here you
see the portions of the portfolio allocated to different sectors. Healthcare stocks had some of the largest gains and losses. Information technology encompassed
the largest number of stocks.

point advantage over QQQ, thanks to its lower expense at 35%, compared to QQQ’s 50%. QQQJ holds 10% in
ratio. However, QQQ displays a daily trading volume healthcare versus QQQ’s 6% allocation. It also allocates
of 50.2 million shares, which is 16 times higher than 16% to consumer discretionary and 12.5% to industrials,
QQQM’s 3.2 million shares. In terms of liquidity, trad- significantly more than QQQ’s 4.5%. The remaining
ers generally prefer QQQ, enjoying a bid-to-ask spread seven sectors each make up less than 1.5% of the ETF.
of between $0.01 and $0.03. Over the past three years, The performance of each stock in its portfolio over the
both ETFs have attracted significant assets, with QQQ past year is displayed by sector.
pulling in nearly $39.5 billion and QQQM generating Though launched on the same date as QQQM, QQQJ’s
$31.1 billion, leaving smaller competitors in the dust. For performance has lagged significantly, trailing by 5.2
instance, QQQE only managed to amass $413.2 million percentage points over one year and 10 percentage
in AUM, a stark contrast to the impressive figures of points over three years. Currently, it holds $570 million
QQQ and QQQM. in AUM but has faced cash outflows of $123.6 million
in the past year, raising potential concerns about investor
Invesco NASDAQ Next Gen 100 ETF (QQQJ) dissatisfaction. With a three-year total return of 3.30%,
QQQJ presents investors with a strategy focused on QQQJ currently sports the lowest performance in its
next-generation growth companies. Its unique weighting category. Its average trading volume has seen modest
method combines equal and market-cap components, growth, rising to 125,000 shares per day from 105,000
capping each stock’s weight at 4%. The index rebalances in September 2024. If this ETF continues to lose assets,
quarterly and undergoes an annual reconstitution at the its future may be at risk.
year’s end, similar to QQQ and QQQE. QQQJ invests at
least 90% of its assets in equity securities ranked from HCM Defender 100 Index ETF (QQH)
the 101st to the 200th largest companies in the Nasdaq QQH is not an exact replica of QQQ, as its stated ob-
Composite, resulting in a portfolio rich in midcap stocks. jective is to outperform the Nasdaq-100 index, using
This approach keeps its top 10 holdings below 20%, a proprietary methodology. In October 2019, Howard
while QQQ’s top 10 account for 49.1% of its portfolio Capital Management launched this passive ETF. So far,
weight. Currently, QQQJ’s top holdings represent 17.1% its AUM stands at $477.6 million, a reasonable showing
of AUM. for 5-year-old ETF in a competitive space. Its objective
Sector allocation (Figure 2) shows that QQQJ is is to surpass its benchmark, the Solactive Technology
heavily tilted toward the information technology sector 100 Index.
36 • July 2025 • Technical Analysis of Stocks & Commodities
 QQH employs a switching strategy, toggling between other concern lies in its up-capture ratio, which is only
full exposure to U.S. large-cap technology stocks or to 1-3 92.3%, while its down-capture ratio is a high 127.5%.
month Treasury bills or a 50%/50% mix. This computer This means it captures more negative performance than
model automatically adjusts exposure based on market positive, contradicting its goal. Despite its strategy, which
movements. One downside is that QQH has the highest should have thrived over the past four years, the ETF has
expense ratio in this group at 1.02%, well above QQQ’s underperformed, especially compared to QQQ. Given its
0.20%. With a low daily trading volume of 36,000 shares low AUM and lackluster performance, its future looks
and a negative annualized alpha of 1.09%, QQH lacks uncertain.
appeal to many traders. Its volatility stands at 20.8%,
slightly below QQQ’s 21.9%. The top-10 holdings in Invesco Top QQQ ETF (QBIG)
QQH include all the “Magnificent Seven” stocks plus Invesco’s QBIG stands out as the only actively managed
Broadcom (AVGO) and Netflix (NFLX), which together ETF in this group. Its aim is to reflect the performance
account for 27.6% of its portfolio weighting, with the of the top 45% of Nasdaq-100 components. To achieve
remainder spread across 82 other stocks. this, it employs total return swaps alongside the selection
QQH captured a meager $80.8 million in cash inflows of individual stocks for the portfolio. Market conditions
over the past three years and only $46.2 million in the can prompt the portfolio managers to adjust holdings.
past year. It has a Sharpe ratio of 0.34 that lags behind One important rule is that no single stock can exceed a
the QQQ’s ratio of 0.42. On another negative note, its weighting of 35%.
one-year performance of 6.7% underperformed QQQ’s Introducing QBIG on December 4, 2024, Invesco
10.3%, while its three-year performance of 10.40% has attracted $22.8 million in AUM. Its expense ratio
falls 3.3 percentage points (330 basis points) below that of 0.29% is among the fourth lowest for this category.
of QQQ. In summary, QQH offers no advantage over However, the average daily share volume of 16,000 is
QQQ. still quite small. Currently, the portfolio comprises 34.5%
in treasuries, with minor stakes under 5% in major tech
ProShares Nasdaq-100 Dorsey Wright Momentum stocks like AAPL, MSFT, NVDA, AMZN, AVGO,
ETF (QQQA) META, TSLA, and GOOGL. Most of the inflows into
Dorsey Wright & Associates, LLC (DWA), founded by this ETF occurred in December 2024, and there has been
Tom Dorsey and his partner, sold the firm to Nasdaq in little activity since then.
the first quarter of 2015. DWA specializes in data ana- In terms of performance, QBIG’s lifespan is just 100
lytics, passive indexing, and smart beta strategies. They days. From December 4, 2024, through April 30, 2025,
utilize relative strength alongside point & figure charts its price declined by 13%, while QQQ fell by 8.9% and
to display their data and make informed buy and sell the Nasdaq Composite dropped by 11.6%. Overall, QBIG
decisions. QQQA is a momentum-based ETF that invests has not held up well. Its low AUM, daily trading volume,
in 21 equally weighted securities from the Nasdaq-100 lack of new inflows, and disappointing early results are
index. The ETF undergoes reconstitution quarterly in not encouraging signs for its future. Invesco seems to
January, April, July, and October. Over the years, the have made a misstep by introducing a fourth QQQ op-
DWA name has appeared in more than 30 ETFs. tion into an already saturated category, as they already
Launched on May 18, 2021, QQQA has managed to held significant market share without it.
generate only $10.7 million in AUM in four years. With
an expense ratio of 0.58%, it ranks as the third highest Pacer Metaurus Nasdaq 100 Dividend Multiplier 600
among its peers, making it less competitive. An average ETF (QSIX)
daily share volume of just 3,600 indicates almost nonex- Pacer launched two ETFs in this category in September
istent trading activity. This trend aligns with its negative 2024—QQQG and QSIX. While QQQG is included in
one-year outflows of $800,000 and a disappointing one- Figure 1, it has only captured $3.6 million in AUM, so
year performance of −0.50%, the lowest in its category.
Furthermore, its three-year performance at 3.80% also
ranks as the second lowest.
According to ETFAction.com, its Sharpe ratio stands Today, there are more than
at −0.01, and its annualized alpha is a negative 0.45%. three dozen cousins to QQQ.
These figures signify poor risk-adjusted returns. With a
beta of 1.02, one would expect better performance. An-
July 2025 • Technical Analysis of Stocks & Commodities • 37
 it won’t be discussed any further due to its small size. ally, it falls 45% short of the three-year returns of QQQ
QSIX, however, deserves a bit of attention. It launched and QQQM, which sit at 7.6%. This weak performance
with $6 million in AUM and has remained stagnant likely explains its diminishing AUM growth.
since then. With an annual expense ratio of 0.60%, it Daily trading volume for QQQE hovers around 278,000
struggles with a minimal daily volume of under 5,000 shares, which is enough for traders and investors aiming
shares. QSIX’s goal is to deliver six times the ordinary to buy or sell with decent liquidity. Though this figure
quarterly dividend yield of the Nasdaq-100 index with ranks as the fourth highest in its category, it still trails
minimal risk. Unfortunately, from its inception through significantly behind the first three AUM leaders, with
April 30, 2025, it has declined by 4.7%, while QQQ volumes of 50.2 million, 3.2 million, and 763.2 million
gained 1.6%. shares, respectively.
QQQE holds respectable AUM, but it cannot compare
QQQ equal-weight ETFs to the figures of QQQ and QQQM. Its expense ratio of
Currently, two equal-weight alternatives to QQQ are 0.39% is double that of QQQ and 24 basis points higher
available to investors. At this moment, Invesco does than QQQM. On the plus side, QQQE has a slight edge
not provide a QQQ equal-weight option, and it appears with a dividend yield of 0.70%. Its three-year beta stands
they don’t plan to offer one in the future, according to a at 0.89, while its annualized alpha is an unfavorable
spokesperson. This may stem from concerns that a new negative 3.53%, according to ETFAction.com. These
product would siphon funds from their existing QQQ figures compare poorly to QQQ’s beta of 1.05 and a
ETFs while also struggling to attract a significant amount negative 0.51% annualized alpha, underscoring QQQE’s
of assets. Additionally, with two competing equal-weight competitive disadvantages.
products already underperforming, Invesco’s decision
not to enter this space seems prudent. First Trust Nasdaq-100 Equal Weighted Index
(QQEW)
Direxion Nasdaq-100 Equal Weighted Index Shares QQEW, another equally weighted ETF launched in March
(QQQE) 2006, seven years earlier than its rival QQQE. It cur-
QQQE is Direxion’s equal-weight ETF, where each stock rently holds $1.72 billion in AUM, surpassing QQQE’s
constituting about 1% of the portfolio, differing from $1.19 billion as of October 3, 2024. Compared to QQQE,
QQQ’s market-cap weighting. In QQQ, the top seven QQEW features:
stocks account for 41.2% of its asset weighting, contrib-
uting to its recent significant outperformance. • A higher expense ratio of 0.57% vs. 0.35%
With its equal weighting strategy, the smaller companies • A slightly lower 3-year annualized performance of
within QQQE influence price performance equally. This 7.4% versus 7.6%
approach provides a buffer during market corrections, • One-year outflows totaling $416 million, contrasting
making it an appealing option for investors seeking with QQQE’s inflows of $150,000
diversified exposure without being overly reliant on a • An average daily trading volume of 121,000 shares
handful of large-cap stocks. versus QQQE’s 78,000 shares
In its 13-year lifespan, QQQE has garnered a solid $1.2
billion in AUM. However, this growth has slowed signifi- All in all, QQEW is largely inferior to QQQE. None-
cantly over the past one and three years. In the last year, theless, both are underperformers when set against QQQ
inflows amounted to a mere $150,000, while outflows over and QQQM. While they exhibit lower volatility than these
three years reached a hefty $416.1 million. This is not a two, their performance has suffered due to the positive
promising trend. As of April 28, 2025, QQQE’s one-year impact of the “Mag 7” on QQQ and QQQM.
total return stands at just 2.5%, which is only a quarter of Two other passively managed ETFs listed in Figure 1
the one-year total return of QQQ and QQQM. Addition- merit mention but will not be reviewed in detail as they
have relatively low AUM of $7 million or less, along with
minimal flows. These are Invesco NASDAQ Future Gen
Invesco’s QBIG stands out as (QQQS), which launched on October 13, 2022, and Pacer
the only actively managed Nasdaq 100 Top 50 Cash Cows Growth Leaders ETF
(QQQG), which launched on August 19, 2024. QQQG
ETF in this group. has declined by −1.9% since its inception on August
19, 2024, in contrast to a 0.80% gain for QQQ. QQQS,
38 • July 2025 • Technical Analysis of Stocks & Commodities
 STOCKCHARTS.COM
FIGURE 3: QQQ RELATIVES PRICE PERFORMANCE. None of the ETFs based on or related to the QQQ have outperformed QQQ and its clone, QQQM. Both equally-
weighted ETFs had similar performance but were no match for the leaders.

FIGURE 4: QQQ RELATIVES PRICE PERFORMANCE. Here you see the same information as in Figure 3, this time in bar chart format.

on the other hand, has also declined by −1.9% since its achieving the next best result at 34.46%.
inception on October 13, 2022, compared to the same The two equal-weight ETFs, QQEW and QQQE, had
0.80% gain for QQQ. similar performance levels. QQEW recorded a gain of
20.43%, while QQQE followed closely with 19.22%.
Price performance comparison QQQA lagged behind at just 4.04%. Figure 4 presents
When comparing price performance, especially from the same data in a bar chart format, making it easier to
May 2021 through April 29, 2025, we see how various digest.
ETFs stack up against QQQ as the benchmark (Figure In summary, aside from the QQQM copycat, none of
3). QQQM and QQQ recorded almost identical perfor- these other ETFs outperformed QQQ, despite differ-
mances at 51.57% and 51.17%, respectively. This outcome ent strategies. They simply could not surpass the QQQ
was expected since QQQM is essentially a perfect clone benchmark.
of QQQ. QQQM’s slight advantage of 40 basis points Let’s examine the performance during a recent market
stems from its 50-basis-point-lower annual expense ratio decline, which lasted from the peak on February 19, 2025
compared to QQQ. The other ETFs in the group did not through April 29, 2025. This period came shortly after
come close to matching this performance, with HCM the market reached a low on April 7. The situation would
July 2025 • Technical Analysis of Stocks & Commodities • 39
 FIGURE 5: QQQ RELATIVES PRICE PERFORMANCE DURING 2025 MARKET CORRECTION. Here you see the price performance of some QQQ relatives dur-
ing the market correction that started on February 19, 2025. Surprisingly, QQQ and QQQM performed nearly as well as QQQE and QQEW, even with their big tech
holdings and their market-cap weighting. They rebounded faster after the April 7th bottom.

have looked much worse if we had stopped our analysis 2024, especially since they already had three other similar
on April 7, as the Nasdaq Composite, Nasdaq-100, and ETFs in this category. So far, QBIG has not performed
QQQ all found themselves in bear market territory, los- well and may turn into a disappointment within a year or
ing over 20%. two unless its performance and AUM improve—which
What stood out was the similar performance of QQQ, seems unlikely at this stage.
QQQM, QQEW, and QQQE. One might have expected QQQM ranks second among these ETFs across various
QQQ and QQQM to perform worse due to their market- metrics. It offers a slight edge with its very low 0.15%
cap weighted stocks, which include the Magnificent annual expense ratio and outperforms QQQ by a few
Seven. However, 22 days after the market bottom, these basis points. Its AUM sits at an impressive $41.5 billion,
stocks rallied significantly, boosting the performance of making it a solid alternative to QQQ for conservative
both QQQ and QQQM. During the analyzed period, they long-term investors. Meanwhile, QQQ remains the go-to
declined by 11.7%, while QQEW and QQQE fell around choice for traders in this group.
10.4%. The clear underperformers were QQQA and QQH, For buy-and-hold and conservative investors, QQQE
which dropped by 19.9% and 18.3%, respectively. could be appealing. It surpasses its rival QQEW in terms
of assets, returns, dividend yield, and trading volume. It
Conclusions also has a lower annual expense ratio. However, QQQE’s
A handful of ETF sponsors have launched QQQ rela- performance falls short compared to QQQ. That’s the crux
tives, yet they struggle to attract AUM, trading volume, of the issue. Furthermore, QQQM and QQQ have much
inflows, and interest from both investors and traders. lower expense ratios and significantly higher AUM.
Invesco stands out with the original QQQ and six other QQQA, QQQG, QQQS, and QBIG, with their low
QQQ-based ETFs. This review focuses on four of those, AUM, trading volume, and weak performance may need
as I concentrated on straightforward equity ETFs. It was to exit the market within a year or two at this rate. They
surprising to see Invesco introduce QBIG in December likely aren’t profitable for their sponsors to maintain.
Also, any new sponsor attempting to enter this segment
will face a tough challenge, given Invesco controls over
99% of the AUM in this space. In conclusion, QQQ and
For buy-and-hold and its QQQM brother are the indisputable winners in this
conservative investors, category.
QQQE could be appealing. S&C contributing writer and ETF columnist Leslie N.
Masonson is president of Cash Management Resources,
40 • July 2025 • Technical Analysis of Stocks & Commodities
a firm focusing on ETF trading strategies. He is an
active NASDAQ futures day trader and the author of
seven books. His latest book is The QQQ & TQQQ ETF None of these other ETFs outperformed
Profit Machine: A Roadmap For Trading And Investing QQQ, despite different strategies.
In Cutting-Edge AI-Focused Tech Titans. Contact him
at [email protected] or 845 323-7276.
ing In Cutting-Edge AI-Focused Tech Titans, Notion
• www.direxion.com • www.ftportfolios.com Press Media Pvt Ltd.
• www.howardcm.com • www.invesco.com [2020]. “The World Of Technology: QQQ Powering
• www.paceretfs.com • www.proshares.com Ahead,” Technical Analysis of Stocks & Commodi-
ties, Volume 38: March.
Further reading
Masonson, Leslie N. [2025]. The QQQ & TQQQ ETF

The Savvy Technician

Profit Machine: A Roadmap For Trading And Invest-

OSOBA
Continued from page 33

mortgages and the reckless way they were packaged,

diced up, sold and resold. The SPY began moving side-
ways in July 2007 after marking its highs. It completed
a head & shoulders pattern in December 2007 and then
plunged. The index bottomed at 666 in early March
2009, but the economy was not out of recession until
June of that year, by which time the index had begun its
recovery (Figure 3).

2020 recession and the Covid pandemic

The economic contraction following societal shutdowns
to curb the spread of the global pandemic known as
COVID-19 began in February 2020 and lasted until April
2020. By any measure, it was a short-lived recession. The
DJIA is used here to show the effects of the recession on
the stock market (see Figure 4). The V-shaped reversal
shows the unusual speed of the plunge and recovery in FIGURE 5: DJIA. A daily chart of the DJIA hints of a possible upcoming eco-
this case. nomic contraction (recession) in 2025. We can see here that the stock market
But as we have seen in the examples of other reces- has formed a peak, with a double top and then a downtrend. Will an economic
sions, both the start of the stock market decline and its recession follow?
recovery were underway before the economic indicators
gave their signals.
has already formed a peak, showing a double top. The
2025 reCeSSiOn and truMP’S trade death cross and the series of lower highs and lower lows
tariFFS? show that we are in a downtrend. What we cannot know is
As of May 2, 2025, a recession has not technically been how deep and damaging the downtrend will be, whether
called, but that could change when the reading for the a technical recession is confirmed or not.
next economic quarter comes in. We already have one ‡StockCharts.com
contraction on record; confirmation will come with a ‡See Editorial Resource Index
second consecutive contraction. But if we look at a chart
of the DJIA (Figure 5), we can see that the stock market
July 2025 • Technical Analysis of Stocks & Commodities • 41
 The focus of Traders’ • Traders.com → S&C Magazine → Traders’ Tips
Tips this month is John
Ehlers’ article in this is- At Traders.com you can also right-click on any chart
sue, “Laguerre Filters.” to open it in a new tab or window and view the chart
Here, we present the at a much larger size.
July 2025 Traders’ Tips
code with possible im- The Traders’ Tips section is provided to help readers im-
plementations in various plement a selected technique from an article in this issue
software. or another recent issue. The entries here are contributed
by software developers or programmers for software
The code for the following Traders’ Tips selections is that is capable of customization.
posted here:

L0 = $UltimateSmoother(Close, Length);
L1 = -Gama * L0[1] + L0[1] + Gama * L1[1];
F TRADESTATION: JULY 2025 TRADERS’ TIPS CODE L2 = -Gama * L1[1] + L1[1] + Gama * L2[1];
In “Laguerre Filters” in this issue, John Ehlers presents a trend- L3 = -Gama * L2[1] + L2[1] + Gama * L3[1];
L4 = -Gama * L3[1] + L3[1] + Gama * L4[1];
trading technique using the Laguerre filter. Since Laguerre
filters excel at smoothing long-wavelength components in a Laguerre = (L0 + 4*L1 + 6*L2 + 4*L3 + L4) / 16;
data set, this makes them particularly well-suited for identify-
ing trading trends. Plot1( Laguerre );
Plot2( L0 );
Function: Laguerre Filter
{
TASC JUL 2025 Indicator: Laguerre Oscillator
Laguerre Filter {
(C) 2002-2025 John F. Ehlers TASC JUL 2025
} Laguerre Oscillator
(C) 2002-2025 John F. Ehlers
inputs: }
Gama( .8 ),
Length( 40 ); inputs:
Gama( .5 ),
variables: Length( 30 );
L0( 0 ),
L1( 0 ), variables:
L2( 0 ), L0( 0 ),
L3( 0 ), L1( 0 ),
L4( 0 ), RMS( 0 ),
Laguerre( 0 ); LaguerreOsc( 0 );

L0 = $UltimateSmoother(Close, Length);
L1 = -Gama * L0 + L0[1] + Gama * L1[1];
RMS = $RMS(L0 - L1, 100);

if RMS <> 0 then

LaguerreOsc = (L0 - L1) / RMS;

Plot1( LaguerreOsc, "Laguerre Osc" );

Plot2( 0, "Zero Line" );

Function: $RMS
{
RMS Function
(C) 2015-2025 John F. Ehlers
}

inputs:
Price( numericseries ),
Length( numericsimple );

variables:
SumSq( 0 ),
count( 0 );

FIGURE 1: TRADESTATION. This demonstrates a daily chart of SPY showing a portion of 2024 and SumSq = 0;
2025 with the indicators applied.
42 • July 2025 • Technical Analysis of Stocks & Commodities
for count = 0 to Length - 1 {Laguerre calculation}
begin L1:= -gama*Ref(L0,-1) + Ref(L0,-1) + gama*Prev;
SumSq = SumSq + Price[count] * Price[count]; L2:= -gama*Ref(L1,-1) + Ref(L1,-1) + gama*Prev;
end; L3:= -gama*Ref(L2,-1) + Ref(L2,-1) + gama*Prev;
L4:= -gama*Ref(L3,-1) + Ref(L3,-1) + gama*Prev;
If SumSq <> 0 then
$RMS = SquareRoot(SumSq / Length); Laguerre:= (L0 + 4*L1 + 6*L2 + 4*L3 + L4)/16;

Function: $SuperSmoother if(BarsSince(cum(1)>=len+5)=0, Laguerre, C);

{ if(BarsSince(cum(1)>=len+5)=0, L0, C)
UltimateSmoother Function
(C) 2004-2025 John F. Ehlers
}
THE LAGUERRE OSCILLATOR
inputs:
Price( numericseries ), {Laguerre Oscillator}
Period( numericsimple ); {by John Ehlers}
gama:= 0.5;
variables: len:= 30;
a1( 0 ),
b1( 0 ), {Ultimate Smoother}
c1( 0 ), a1:= exp(-1.414*3.14159 / len);
c2( 0 ), b1:= 2*a1*Cos(1.414*180 / len);{c2}
c3( 0 ), c1:= -a1*a1; {c3}
US( 0 ); x1:= (1 + b1 - c1) / 4; {c1}
L0:= (1-x1)*Close + (2*x1-b1)*Ref(Close,-1) -
a1 = ExpValue(-1.414*3.14159 / Period); (x1+c1)*Ref(Close,-2) + b1*Prev + c1*Ref(prev,-1);
b1 = 2 * a1 * Cosine(1.414*180 / Period);
c2 = b1; L1:= -gama* Ref(L0,-1) + Ref(L0,-1) + gama*Prev;
c3 = -a1 * a1; diff:= L0 - L1;
c1 = (1 + c2 - c3) / 4;
{RMS of diff }
if CurrentBar >= 4 then RMS:= SQRT(Sum(diff * diff, 100) / 100);
US = (1 - c1)*Price + (2 * c1 - c2) * Price[1]
- (c1 + c3) * Price[2] + c2*US[1] + c3 * US[2]; {divide by zero trap}
denom:= if(RMS = 0, -1, RMS);
if CurrentBar < 4 then LaguerreOsc:= If(denom = -1, 0, diff/denom);
US = Price;
LaguerreOsc;
$UltimateSmoother = US; 0

A sample chart is shown in Figure 1. —William Golson

This article is for informational purposes. No type of MetaStock Technical Support
trading or investment recommendation, advice, or strategy MetaStock.com
is being made, given, or in any manner provided by TradeS-
tation Securities or its affiliates.
—John Robinson
TradeStation Securities, Inc.
www.TradeStation.com F WEALTH-LAB: JULY 2025 TRADERS’ TIPS CODE
You’ll find the Laguerre indicator and the LaguerreOsc indica-
tor in WealthLab’s TASC Indicator library to drag and drop
into charts or block strategies.
As suggested at the end of John Ehlers’ article in this is-
F METASTOCK: JULY 2025 TRADERS’ TIPS CODE
sue, “Laguerre Filters,” a (long-only) UltimateSmoother/
John Ehlers’ article in this issue, “Laguerre Filters,” introduces
Laguerre crossover strategy is somewhat profitable, even
two indicators, the Laguerre filter and Laguerre oscillator. Here
without optimizing. However, we goosed the profit signifi-
are the formulas to add those indicators to MetaStock.
cantly in the backtest period by entering long before a cross-
THE LAGUERRE FILTER over when LaguerreOsc turns up from between -2 and -3
{Laguerre Filter}
standard deviations. This entry required adding a stop-loss,
{by John Ehlers} which we fixed at -3%. The first two entries in Figure 2 are
gama:= 0.8; examples of how timely this bonus signal can be!
len:= 40;
using WealthLab.TASC;
{Ultimate Smoother} using System;
a1:= exp(-1.414*3.14159 / len); using WealthLab.Backtest;
b1:= 2*a1*Cos(1.414*180 / len);{c2} using WealthLab.Core;
c1:= -a1*a1; {c3} using WealthLab.Indicators;
x1:= (1 + b1 - c1) / 4; {c1}
L0:= (1-x1)*Close + (2*x1-b1)*Ref(Close,-1) - namespace WealthScript
(x1+c1)*Ref(Close,-2) + b1*Prev + c1*Ref(prev,-1); {

July 2025 • Technical Analysis of Stocks & Commodities • 43

 public class LaguerreX : UserStrategyBase
{
public LaguerreX()
{
_period = AddParameter("Period", Parameter-
Type.Int32, 60, 20, 80, 10);
_gamma = AddParameter("Gamma", Param-
eterType.Double, 0.2, 0.1, 0.5, 0.1);
}

public override void Initialize(BarHistory bars)

{
PlotStopsAndLimits(3);
_laguerre = new Laguerre(bars.Close, _period.
AsInt, _gamma.AsDouble);
_ultsmooth = new UltimateSmoother(bars.
Close, _period.AsInt);
_lagOsc = new LaguerreOsc(bars.Close, _pe-
riod.AsInt, _gamma.AsDouble);

PlotIndicatorLine(_laguerre, WLColor.Aqua);
PlotIndicatorLine(_ultsmooth, WLColor.Red);
PlotIndicatorLine(_lagOsc, WLColor.Gold);
DrawHorzLine(-2, WLColor.White, 2, LineStyle.
Dashed, _lagOsc.PaneTag);
StartIndex = Math.Max(100, _period.AsInt); FIGURE 2: WEALTH-LAB. This demonstrates using the Laguerre oscillator and smoothing filter on
} a daily chart of the emini S&P 500 contract. In this example you see the modified crossover strategy
public override void Execute(BarHistory bars, with two entries triggered by LaguerreOsc.
int idx)
{ NinjaTrader 8: ninjatrader.com/SC/July2025SCNT8.zip
if (!HasOpenPosition(bars, PositionType.Long))
{
if (_ultsmooth.CrossesOver(_laguerre, idx)) Once the file is downloaded, you can import the indicators
PlaceTrade(bars, TransactionType.Buy, OrderType.Market, into NinjaTrader 8 from within the control center by select-
0, 1);
if (_lagOsc.TurnsUp(idx) && _lagOsc[idx - 1] < -2 &&
ing Tools → Import → NinjaScript Add-On and then select-
_lagOsc[idx - 1] > -3) ing the downloaded file for NinjaTrader 8.
PlaceTrade(bars, TransactionType.Buy, OrderType.Market, You can review the indicator source code in NinjaTrader
0, 2);
} 8 by selecting the menu New → NinjaScript Editor → In-
else dicators folder from within the control center window and
{
Position p = LastPosition;
selecting the file.
ClosePosition(p, OrderType.Stop, p.EntryPrice * 0.97, "SL"); A sample chart is shown in Figure 3.
if (_ultsmooth.CrossesUnder(_laguerre, idx)) NinjaScript uses compiled DLLs that run native, not in-
ClosePosition(p, OrderType.Market, 0, "XU");
}
}

Parameter _period;
Parameter _gamma;
IndicatorBase _laguerre;
IndicatorBase _ultsmooth;
IndicatorBase _lagOsc;
}
}

—Robert Sucher
Wealth-Lab team
www.wealth-lab.com

FN
 INJATRADER: JULY 2025 TRADERS’ TIPS
CODE
In his article “Laguerre Filters” in this is-
sue, John Ehlers presents two indicators, the
Laguerre filter and the Laguerre oscillator.
The indicators are available for download at
the following link for NinjaTrader 8:
FIGURE 3: NINJATRADER. The indicators are demonstrated on a daily chart of ES.
44 • July 2025 • Technical Analysis of Stocks & Commodities
terpreted, to provide you with the highest performance pos-
// USC: USC
sible.
—Eduardo // Laguerre: Laguerre
NinjaTrader, LLC LaguerreOsc: LaguerreOsc {|}
www.ninjatrader.com
—Marsten Parker
MHP Trading
[email protected]
F REALTEST: JULY 2025 TRADERS’ TIPS CODE
Provided here is a RealTest script for the RealTest
platform to implement the indicators described in
John Ehlers’ article in this issue, “Laguerre Filters.”
Figure 4 demonstrates the Laguerre filter on a daily chart F TRADINGVIEW: JULY 2025 TRADERS’ TIPS CODE
of the emini S&P 500 continuous futures contract (ES). Fig- The TradingView Pine Script code presented here implements
ure 5 demonstrates the Laguerre oscillator on a daily chart the Laguerre filter discussed by John Ehlers in his article in
of ES. this issue, “Laguerre Filters.”
Notes: // TASC Issue: July 2025
John Ehlers "Laguerre Filters", TASC July 2025. // Article: A Tool For Trend Trading
Implements and plots the indicators as in the article. // Laguerre Filters
// Article By: John F. Ehlers
Import: // Language: TradingView's Pine Script® v6
DataSource: Norgate // Provided By: PineCoders, for tradingview.com
IncludeList: &ES
StartDate: 2023-02-01
EndDate: Latest
SaveAs: es.rtd

Settings:
DataFile: es.rtd
BarSize: Daily

Parameters:
gama: 0.8
len: 20
RMSlen: 100

Data:

// Common constants

decay_factor:-1.414 * 3.14159
phase_angle: 1.414 * 180
two_pi: 6.28

// Ultimate Smoother of Close

a1: exp(decay_factor / len)

FIGURE 4: REALTEST. Here you see an example of the Laguerre filter applied to a daily chart of the
b1: 2 * a1 * Cosine(phase_angle / len) emini S&P 500 continuous futures contract (ES).
c2: b1
c3: -a1 * a1
c1: (1 + c2 - c3) / 4
USC: if(BarNum >= 4, (1 - c1) * Close + (2 * c1 - c2)
* Close[1] - (c1 + c3) * Close[2] + c2 * USC[1] + c3 *
USC[2], Close)

// Laguerre Filter of USC

L1: -gama * USC[1] + USC[1] +

gama*nonan(L1[1])
L2: -gama * L1[1] + L1[1] + gama*nonan(L2[1])
L3: -gama * L2[1] + L2[1] + gama*nonan(L3[1])
L4: -gama * L3[1] + L3[1] + gama*nonan(L4[1])
Laguerre: (USC + 4 * L1 + 6 * L2 + 4 * L3 + L4) / 16

// Laguerre Oscillator

LUSC: -gama * USC + USC[1] + gama *

nonan(LUSC[1])
RMS: Sqr(SumSQ(USC - LUSC, RMSlen) / RMSlen)
LaguerreOsc: (USC - LUSC) / RMS

Charts: FIGURE 5: REALTEST. This demonstrates the Laguerre oscillator on a daily chart of ES.
July 2025 • Technical Analysis of Stocks & Commodities • 45
 // @function Calculates the root mean square
(RMS) of a series.
// @param Source The series of values to process.
// @param Length The number of bars in the
calculation.
// @returns The RMS of the `Source` values over
`Length` bars.
RMS (float Source, int Length) =>
math.sqrt(ta.sma(Source * Source, Length))

// @function Laguerre Oscillator

// @param src Source series, default=`close`.
// @param gamma Weigth used in LO calculation,
default=0.5.
// @param length1 Period used in UltimateSmooth-
er, default=30.
// @param length2 Period used in RMS, default=100.
// @returns Laguerre Oscillator used on a sepa-
FIGURE 6: TRADINGVIEW. Here you an example of the Laguerre filter on a daily chart of the S&P rate pane.
LO (float src=close
500 index. , float gamma=0.5
, int length1=30
, int length2=100) =>
//@version=6 float L0 = UltimateSmoother(src, length1)
indicator("TASC 2025.07 Laguerre Filters", "", false) float L1 = 0.0
L1 := -gamma * L0 + nz(L0[1]) + gamma * nz(L1[1])
//#region Inputs: float RMS = RMS(L0 - L1, length2)
float LO = na
// @variable The Source series to process. if RMS != 0
float src = input.source(close, 'Source:') LO := (L0 - L1) / RMS
// @variable Weigth - Gamma. LO
float gamma = input.float(0.5, 'Gamma:')
// @variable The UltimateSmoother filter period. //#endregion
int length1 = input.int(30, 'L1:') //#region Laguerre Filter/Oscillator:
// @variable The number of bars in the RMS calculation.
int length2 = input.int(100, 'L2:') float lf = LF(src, gamma, length1)
float lo = LO(src, gamma, length1, length2)
//#endregion
//#region Functions: plot(lf
, 'Laguerre Filter'
// from: , force_overlay=true
// TASC Issue: April 2024, Article: The Ultimate Smoother , linewidth=2)
// plot(lo
// @function The UltimateSmoother is a filter created , 'Laguerre Oscillator'
// by subtracting the response of a high-pass , color=#f23645
// filter from that of an all-pass filter. , linewidth=2)
// @param src Source series. hline(0
// @param period The length of the filter's critical period. , "Zero-line"
// @returns Smoothed series. , chart.fg_color)
UltimateSmoother (float src, int period) =>
float a1 = math.exp(-1.414 * math.pi / period) //#endregion
float c2 = 2.0 * a1 * math.cos(1.414 * math.pi / period)
float c3 = -a1 * a1 The indicator is available on TradingView from the Pine-
float c1 = (1.0 + c2 - c3) / 4.0
float us = src
CodersTASC account: https://www.tradingview.com/u/
if bar_index >= 4 PineCodersTASC/#published-scripts.
us := (1.0 - c1) * src + An example chart is shown in Figure 6.
(2.0 * c1 - c2) * src[1] -
(c1 + c3) * src[2] + —PineCoders, for TradingView
c2 * nz(us[1]) + c3 * nz(us[2]) www.TradingView.com
us

// @function Laguerre Filter

// @param src Source series, default=`close`.
// @param gamma Weigth used in LF calculation, default=0.8. F NEUROSHELL TRADER: JULY 2025 TRADERS’
// @param length Period used in UltimateSmoother, default=40. TIPS CODE
// @returns Laguerre Filter used on chart.
LF (float src=close, float gamma=0.8, int length=40) =>
The Laguerre filter and oscillator introduced in
float L0 = UltimateSmoother(src, length) “Laguerre Filters” this issue by John Ehlers can be easily
float L1 = 0.0 , float L2 = 0.0 , float L3 = 0.0 implemented in NeuroShell Trader using NeuroShell Trader’s
float L4 = 0.0 , float L5 = 0.0
L1 := -gamma * nz(L0[1]) + nz(L0[1]) + gamma * nz(L1[1]) ability to call external dynamic linked libraries. Dynamic
L2 := -gamma * nz(L1[1]) + nz(L1[1]) + gamma * nz(L2[1]) linked libraries can be written in C, C++ and Power Basic.
L3 := -gamma * nz(L2[1]) + nz(L2[1]) + gamma * nz(L3[1])
L4 := -gamma * nz(L3[1]) + nz(L3[1]) + gamma * nz(L4[1])
After moving the code given in the article to your pre-
L5 := -gamma * nz(L4[1]) + nz(L4[1]) + gamma * nz(L5[1]) ferred compiler and creating a DLL, you can insert the re-
float LF = nz(L0 + 4 * L1 + 6 * L2 + 4 * L3 + L5) / 16 sulting indicator(s) as follows:
46 • July 2025 • Technical Analysis of Stocks & Commodities
 1. Select “New Indicator” from the
insert menu.
2. Choose the External Program &
Library Calls category.
3. Select the appropriate External DLL
Call indicator.
4. Setup the parameters to match your
DLL.
5. Select the finished button.

Users of NeuroShell Trader can go to the

Stocks & Commodities section of the Neu-
roShell Trader free technical support website
to download a copy of this or any previous
Traders’ Tips.
—Ward Systems Group, Inc.
[email protected]
www.neuroshell.com
FIGURE 7: NEUROSHELL TRADER. This NeuroShell Trader chart demonstrates the Laguerre filter
and Laguerre oscillator on a daily chart of the emini S&P 500 (ES).
F PYTHON: JULY 2025 TRADERS’ TIPS CODE
Here we present Python code to implement # in his article.
concepts in John Ehlers’ article in this issue, “Laguerre Filters.”
The code implements the Laguerre filter, the Laguerre oscil- def calc_ultimate_smoother(price, period):

lator, and the UltimateSmoother. The indicators are plotted a1 = np.exp(-1.414 * np.pi / period)
using the MatplotLib and MplFinance Python packages. b1 = 2*a1*np.cos(math.radians(1.414 * 180 / period))
c2 = b1
Figure 8 shows an example of the Laguerre filter and the c3 = -a1 * a1
UltimateSmoother overlaid on a chart of the S&P 500 index c1 = (1 + c2 - c3)/4
(GSPC). The indicator calculations used here are based on us_values = []
the length and gamma suggested in John Ehlers’ article in
this issue. for i in range(len(price)):
if i >= 4:
Figure 9 shows an example of the Laguerre oscillator ap- us_values.append(
plied to a chart of the S&P 500 index. The Laguerre oscilla- (1-c1)*price[i] + (2*c1 - c2)*price[i-1] - (c1 + c3)*price[i-2] +
c2*us_values[i-1] + c3*us_values[i-2]
tor is plotted in the subplot. In the main pane, crossovers of )
the Laguerre filter and the UltimateSmoother are overlaid on else:
the price candles. us_values.append(price[i])

# import required python libraries

%matplotlib inline

import pandas as pd
import numpy as np
import yfinance as yf
import math
import datetime as dt
import matplotlib.pyplot as plt
import mplfinance as mpf

print(yf.__version__)

# Use Yahoo Finance python package to obtain

OHLCV data
symbol = '^GSPC’
symbol = 'SPY’
ohlcv = yf.download(symbol, start="1995-01-01",
end="2025-04-18", group_by="Ticker", auto_
adjust=True)
ohlcv = ohlcv[symbol]

# Python code building block/routines used to FIGURE 8: PYTHON. This shows an example of both the Laguerre filter and the UltimateSmoother,
implement the Laguerre filter,
# the Laguerre oscillator, and the UltimateSmoother for comparison, overlaid on a chart of the S&P 500 stock index (GSPC). The indicator calculations used
as defined by John Ehlers here are based on the length and gamma suggested in John Ehlers’ article in this issue.
July 2025 • Technical Analysis of Stocks & Commodities • 47
 return us_values

def calc_rms(price):

length = len(price)
sum_sq = 0
for count in range(length):
sum_sq += price[count] * price[count]
return np.sqrt(sum_sq / length)

def laguerre_filter(prices, length=40, gama=0.8):

prices = pd.Series(prices)

# Apply the Ultimate Smoother to get L0

L0 = calc_ultimate_smoother(prices, length)

# Initialize lagged values

L1 = pd.Series(np.zeros_like(prices), index=prices.
index)
L2 = pd.Series(np.zeros_like(prices), index=prices.
index)
L3 = pd.Series(np.zeros_like(prices), index=prices.
index)
L4 = pd.Series(np.zeros_like(prices), index=prices.
index) FIGURE 9: PYTHON. This shows an example of the Laguerre oscillator applied to a chart of the
L5 = pd.Series(np.zeros_like(prices), index=prices. S&P 500 index in the subplot. In the main pane, crossovers of the Laguerre filter and the UltimateS-
index) moother are overlaid on price candles.
Laguerre = pd.Series(np.zeros_like(prices),
index=prices.index)

for i in range(1, len(prices)): length = 30

L1[i] = -gama * L0[i-1] + L0[i-1] + gama * L1[i-1] gama = 0.8
L2[i] = -gama * L1[i-1] + L1[i-1] + gama * L2[i-1]
L3[i] = -gama * L2[i-1] + L2[i-1] + gama * L3[i-1] df = ohlcv.copy()
L4[i] = -gama * L3[i-1] + L3[i-1] + gama * L4[i-1] df['US’] = calc_ultimate_smoother(df['Close’], period=length)
L5[i] = -gama * L4[i-1] + L4[i-1] + gama * L5[i-1] df['Laguerre’] = laguerre_filter(df['Close’], length=length,
Laguerre[i] = (L0[i] + 4 * L1[i] + 6 * L2[i] + 4 * L3[i] + L5[i]) / 16 gama=gama)
simple_plot1(df['2024-03’:’2025-02-10’])
return Laguerre
# Example usage to run the Laguerre Filter, Laguerre Oscillator, and
def laguerre_oscillator(prices, length=40, gama=0.8): # UltimateSmoother indicator calculations using the length and
prices = pd.Series(prices) gamma
# suggested in the article.
# Apply the Ultimate Smoother to get L0 #
L0 = calc_ultimate_smoother(prices, length) # The plot is created using MatplotLib and MplFinance python pack-
ages.
# Initialize lagged values # This plot presents all indicators on a single plot. Crossovers of the
if 1: # Laguerre Filter and UltimateSmoother are overlaid on the price
L1 = pd.Series(np.zeros_like(prices), index=prices.index) candles.
LaguerreOsc = pd.Series(np.zeros_like(prices), index=prices.index) # The Laguerre Oscillator is plotted as a 2nd subplot.
else:
L1 =[0] * len(prices) df = ohlcv.copy()
LaguerreOsc = [0] * len(prices) df['US’] = calc_ultimate_smoother(df['Close’], period=40)
df['Laguerre’] = laguerre_filter(df['Close’], length=40, gama=0.2)
for i in range(1, len(prices)): df['LaguerreOsc’] = 100/3*laguerre_oscillator(df['Close’], 20, 0.8)
L1[i] = -gama * L0[i] + L0[i-1] + gama * L1[i-1] df
mpf_plot1(df['2024-03’:’2025-02-10’])
rms = L1.rolling(100).apply(calc_rms)
LaguerreOsc = (L0 - L1)/rms —Rajeev Jain
return LaguerreOsc
[email protected]

def simple_plot1(df ): F EXCEL: JULY 2025 TRADERS’ TIPS CODE

cols = ['Close’, 'US’, 'Laguerre’] In his article in this issue, “Laguerre Filters,” John Ehlers
ax = df[cols].plot(marker=’.’, grid=True, figsize=(9,6), title=f’Laguerre makes a simple adjustment to the Laguerre calculation by
Filter vs UltimateSmoother, Ticker={symbol}’)
ax.set_xlabel('’)
applying his UltimateSmoother as the first layer of the calcula-
tion. Then he compares the resulting Laguerre filter with the
# Below is example usage to run the Laguerre filter and the UltimateS- UltimateSmoother (see Figure 10). That chart in his article
moother
# indicator calculations using the length and gamma suggested in shows the Laguerre filter to be the better trend follower.
John Ehlers’ article In his article, Ehlers proceeds to demonstrate the effec-
# with a simple plot presenting price overlaid with indicators.
tiveness of pairing two Laguerre filters with slightly differ-

48 • July 2025 • Technical Analysis of Stocks & Commodities

ent specifications to generate trend-following signals. (See in the Traders’ Tips area. To successfully download it, follow
Figure 11.) these steps:
As a last option, Ehlers shows how to turn parts of the
Laguerre calculation into a trend-following oscillator, where • Right-click on the link to the Excel file, then
values above zero generally correspond to upward move- • Select “save target as” to place a copy of the spread-
ment and values below zero to downward movement. (See sheet file on your hard drive.
Figure 12.) —Ron McAllister
Excel and VBA programmer
To download this spreadsheet: The spreadsheet file for [email protected]
this Traders’ Tip can be downloaded from www.traders.com

FIGURE 10: EXCEL. Here you see the Laguerre filter and the UltimateSmoother plotted on a chart of the emini S&P 500 index futures contract (ES) for comparison.
The Laguerre filter appears to be a better trend-follower.

FIGURE 11: EXCEL. Here is a demonstration of two Laguerre filters, each with different length and gamma specs, used to generate trend-following signals.

FIGURE 12: EXCEL. Here is a demonstration of the Laguerre oscillator, a low-lag trend indicator, applied to a chart of ES. Values above zero generally correspond
to upward movement and values below zero generally correspond to downward movement.
July 2025 • Technical Analysis of Stocks & Commodities • 49
 Algo Q&A
ALGORITHMIC TRADING
Have a question about system or algo trading? Kevin J. Davey has over 30
years of system trading experience. Davey is a full-time trader, and also
teaches and consults via his Strategy Factory online workshop (https://
kjtradingsystems.com), which was the winner of the 2024 Readers’ Choice
Award in this magazine for the category of “Trading Schools.” Davey is also
the author of five books on trading. Send your questions or topic suggestions
to Kevin Davey at [email protected]. Selected questions will
appear in a future issue of S&C.
Kevin J. Davey

DOES SIZE MATTER? active trading lose. Trading is hard! a small account, I’d focus more on
I have a smaller account (around It is emotionally draining—suffering percentage returns and drawdowns,
$20K), and wonder if algo trading through weeks and months of inevi- rather than small dollar amounts.
is even worth it, as opposed to buy table drawdowns takes a mental toll. Early in my trading adventure, I’d
& hold. Since simple algo strategies And the uncertainty and unpredict- start with a small $5,000 account,
usually have bigger drawdowns, do ability of future gains is psychologi- trading only a few futures markets.
I need a six-figure account? cally difficult to handle. Losing money was painful, even
Thanks for the question. There are Yet, even with the downsides though it was relatively a small
a couple of important points at play to trading, many people attempt amount. I considered it “market
here, and I will discuss them both. it because the potential upside is tuition” and the lessons I learned
First off, let’s talk about buy & hold. huge. 50%–100% annual returns with a small account carried over to
For most people, such an investing are certainly possible. Renaissance larger accounts—where I’d try not to
approach will mean hitting the aver- Technologies, run by legendary algo make the same mistakes!
age. That is not so bad! In fact, stud- trader Jim Simons, averaged 60% Algo trading with a small account is
ies of professionally managed funds scalable, which is a big plus. You can
show that many managers don’t even Algo trading with learn the ropes while actually trading
achieve average performance. And of with real money and at the same time
course, we’ve all heard the stories of
a small account is limit your downside. If things do not
low-wage workers who consistently scalable, which is work out—maybe you cannot handle
save and invest for decades and end a big plus. You can the mental stress, maybe trying to
up with a substantial nest egg. learn the ropes while solve the market “puzzle” is not for
Buy & hold can be a great way you, maybe you just do not have the
to build long-term wealth without
actually trading with time to commit to being successful at
spending a lot of time and mental real money and at the trading—you can walk away without
energy thinking about it. In fact, same time limit your too much financial damage.
I’d submit that it is the path most downside. Putting it all together, I’d say
investors should take. Keep it simple algo trading with a small account is
and let long-term compounding do returns over decades. But I guarantee indeed possible and possibly even
its job. you that Simons experienced some more desirable than trading a large
At the same time, there are those mind-numbing and soul-crushing account (due to the limited downside
who are not happy with average per- drawdowns along the way. with small accounts). But buy & hold
formance in the markets. They want So, back to the original question— definitely has its place, too. Most
to be much better than average. Those is algo trading a small account even traders are also investors, diversifying
people typically try trading, whether worth it? Well, I look at it this way: between active trading and long-term
it is algo trading, discretionary trad- everyone has to start somewhere. investing. I’d recommend a combined
ing, or some other form of trading. With a small account, your choices approach for most people.
The idea is they want to do better of markets will be limited, but you
than the crowd. can still algo trade. And since the
While this is an admirable goal, the account is small, your risk is limited
reality is most people who get into in absolute dollar amounts. With
50 • July 2025 • Technical Analysis of Stocks & Commodities
 Strategy Corner
GOT A QUESTION ABOUT USING TRADING STRATEGIES?
Dave Mabe has 25 years of experience in trading strategy development. With a
background as a computer engineer and chief technology officer for Trade-Ideas,
he is interested in the design of innovative algorithms for rules-based trading
systems as well as the intersection of artificial intelligence and finance. He
launched DaveMabe.com to help other traders learn how they can improve their
trading performance and consistency in results. Through his website he offers
a road map for trading strategy development and offers one-on-one coaching.
Send your questions or topic suggestions to Dave Mabe at [email protected].
Selected questions will appear in a future issue of S&C. Dave Mabe

HOW TO GET TO THE NEXT LEVEL there are to cook a cheeseburger. Do journal with metrics for when their
I’ve worked with many traders over you know how many ways there are trades do well and when they don’t.
the years who’ve had varying levels at McDonald’s? One, of course. If it’s not tracked closely, you can’t
of ability and experience. This article When you consider this, it’s no improve it. (See my column last
is targeted at traders who have had surprise that franchises are more month, “All Successful Traders Have
success and are looking to take their successful than average. One Thing In Common.”)
trading to the next level. The same is true for high-per-
Some traders have had good forming traders. They systematize They seek out other
success with a trading strategy, but their strategies. Their day-to-day traders and share ideas
then it goes into a drawdown, and they routines are scrutinized for inefficien- Many traders worry about “edge ero-
don’t know what to do next. cies. They look for ways to remove sion” or someone stealing their ideas,
Others have a strategy that’s themselves from processes. but successful traders realize the
working well that they want to scale And they automate their trading. opposite is true. When you seek out
up, but are running into roadblocks. Very often, when traders reach high other serious traders and share ideas,
When you’ve tasted trading success, levels of success, they look back and new ideas for strategies percolate, and
it’s very motivating to improve and it the entire group gets better.
seems like it should be easy. Seek out other traders and share
For traders who are able to make the
For traders who are your ideas with them. Most traders
leap from modest success to trading able to make the try this, but with an attitude of “how
for a living, there are some qualities leap from modest can the other trader help me?” But the
they have in common. success to trading for a most success in this area comes from
living, there are some having the opposite attitude: “What
They get systematic can I do to help the other trader?”
You might have heard the statistic that
qualities they have in There is an excellent book called
90% of small businesses fail within common. Give And Take by Adam Grant that’s
five years. You might not realize worth reading. As counterintuitive
there is there is a particular kind of point to automating their trades and as it sounds, being a default “giver”
business with a much higher success systematizing what they do as their will make you more successful in
rate: franchise businesses. turning point. life—and traders are no different. The
Why do you think that is? book chronicles many examples and
For franchises, the owner can’t be High-performing traders studies that show this is the case.
heavily involved in the day-to-day keep score Understanding how good traders
parts of the business. If they were, There is no sweeping poor results get great can help you improve your
nobody would buy the franchise. under the rug for great traders. They trading as well.
Because of this constraint, by want to (they have to) understand
definition, the owner must systematize and take sole responsibility for their
every part of their business. results, because they know that’s how
And doing so creates efficiencies they improve.
that pay off. Think of all the ways They religiously keep a trading
July 2025 • Technical Analysis of Stocks & Commodities • 51
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52 • July 2025 • Technical Analysis of Stocks & Commodities

 FUTURES LIQUIDITY

T
rading liquidity is often over- very high volumes. The greatest number three-year period. Thus, all numbers in
looked as a key technical of dots indicates the greatest activity; this column have an equal dollar value.
measurement in the analysis futures with one or no dots show little Columns indicating percent margin
and selection of commodity activity and are therefore less desirable and effective percent margin provide
futures. The following explains how to for speculators. a helpful comparison for traders who
read the futures liquidity chart pub- Courtesy of CBOT wish to place their margin money ef-
lished by Technical Analysis of Stocks ficiently. The effective percent margin
& Commodities every month. is determined by dividing the margin
value ($) by the three-year price range of
Commodity futures contract dollar value, and then multiply-
The futures liquidity chart shown be- ing by one hundred.
low is intended to rank publicly traded
futures contracts in order of liquidity. Stocks
Relative contract liquidity is indicated Trading liquidity has a significant ef-
by the number of dots on the right-hand fect on the change in price of a secu-
side of the chart. rity. Theoretically, trading activity can
This liquidity ranking is produced by serve as a proxy for trading liquidity
multiplying contract point value times All futures listed are weighted equally and equals the total volume for a given
the maximum conceivable price motion under “contracts to trade for equal dol- period expressed as a percentage of the
(based on the past three years’ historical lar profit.” This is done by multiplying total number of shares outstanding. This
data) times the contract’s open interest contract value times the maximum pos- value can be thought of as the turnover
times a factor (usually 1 to 4) for low or sible change in price observed in the last rate of a firm’s shares outstanding.

Trading Liquidity: Futures

Contracts to
Effective
Commodity Futures Symbol Exchange % Margin Trade for Equal Relative Contract Liquidity
% Margin Dollar Profit
S&P 500 E-Mini (Jun ’25) ESM25 CME 8.3 20.8 4 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •>>>>>
Ultra T-Bond (Jun ’25) UDM25 CBOT 5 11.8 10 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •>
Nasdaq 100 E-Mini (Jun ’25) NQM25 CME 8.3 16.7 2 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••>
10-Year T-Note (Jun ’25) ZNM25 CBOT 1.9 17.2 39 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •>
Ultra 10-Year T-Note (Jun ’25) TNM25 CBOT 2.5 13.5 23 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
30-Year T-Bond (Jun ’25) ZBM25 CBOT 3.6 11.9 14 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
5-Year T-Note (Jun ’25) ZFM25 CBOT 1.3 21 72 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Soybean Meal (Jul ’25) ZMN25 CBOT 1.2 1.5 3 ••••••••••••••••••••••••••••••••••••••••••••
2-Year T-Note (Jun ’25) ZTM25 CBOT 0.6 23.5 83 ••••••••••••••••••••••••••••••••••••
Crude Oil WTI (Jul ’25) CLN25 NYMEX 10.7 10.6 8 •••••••••••••••••••••••••••••••
Soybean (Jul ’25) ZSN25 CBOT 2.2 3.3 6 •••••••••••••••••••••••••••••••
Russell 2000 E-Mini (Jun ’25) QRM25 CME 5 22.3 10 ••••••••••••••••••••••••••••••
Euro FX (Jun ’25) E6M25 CME 2.6 16.4 21 ••••••••••••••••••••••••••
Natural Gas (Jul ’25) NGN25 NYMEX 9.6 5.7 7 •••••••••••••••••••
3-Month SOFR (Jun ’25) SQM25 CME 0.1 3.2 68 ••••••••••••••••
Corn (Jul ’25) ZCN25 CBOT 5 6.8 28 ••••••••••••••••
Gasoline RBOB (Jul ’25) RBN25 NYMEX 8.3 7.6 5 •••••••••••••••
ULSD NY Harbor (Jul ’25) HON25 NYMEX 8.6 6.8 4 ••••••••••••
Nasdaq 100 Micro (Jun ’25) NMM25 CME 8.3 16.7 22 ••••••••••
Silver (Jul ’25) SIN25 COMEX 9.8 20.3 6 •••••••••
Wheat (Jul ’25) ZWN25 CBOT 6.7 5.9 15 ••••••••
30-Day Fed Funds (May ’25) ZQK25 CBOT 0.1 1.7 35 •••••••
Dow Futures Mini (Jun ’25) YMM25 CBOT 7.2 23.1 7 ••••••
British Pound (Jun ’25) B6M25 CME 2.9 12.3 24 •••••
Hard Red Winter Wheat (Jul ’25) KEN25 CBOT 7.1 5.5 13 •••••
Bitcoin Futures (May ’25) BTK25 CME 27 31.3 1 ••••
Cotton #2 (Jul ’25) CTN25 ICE/US 5.4 4.3 12 ••••
Live Cattle (Aug ’25) LEQ25 CME 3.6 9.4 15 ••••
S&P 500 Micro (Jun ’25) ETM25 CME 8.3 20.8 41 ••••
S&P 500 VIX (Jun ’25) VIM25 CFE 46.2 46.3 21 ••••
Sugar #11 (Jul ’25) SBN25 ICE/US 6.3 10 39 ••••
Coffee (Jul ’25) KCN25 ICE/US 8.5 13.9 6 ••• CBOT Chicago Board of Trade, Division of CME
Australian Dollar (Jun ’25) A6M25 CME 3.7 30.8 60 •• CFE CBOE Futures Exchange
Canadian Dollar (Jun ’25) D6M25 CME 2 21.5 68 •• CME Chicago Mercantile Exchange
Cocoa (Jul ’25) CCN25 ICE/US 14.7 19 6 •• COMEX Commodity Exchange, Inc. CME Group
Crude Oil Brent (F) (Jul ’25) QAN25 NYMEX 9.3 9.9 8 •• ICE-EU Intercontinental Exchange-Futures—Europe
Feeder Cattle (Aug ’25) GFQ25 CME 3 6.7 7 •• ICE-US Intercontinental Exchange-Futures—US
S&P Midcap E-Mini (Jun ’25) EWM25 CME 8.2 30.5 6 •• KCBT Kansas City Board of Trade
Swiss Franc (Jun ’25) S6M25 CME 3.9 20.5 16 •• MGEX Minneapolis Grain Exchange
Canola (Jul ’25) RSN25 ICE/CA 5.7 8.7 50 • NYMEX New York Mercantile Exchange
Ether Futures (May ’25) ERK25 CME 36.2 53 5 •
Lean Hogs (Jul ’25) HEN25 CME 5 13.8 32 • 2507
Trading Liquidity: Futures is a reference chart for speculators. It compares markets “Relative Contract Liquidity” places commodities in descending order according to
according to their per-contract potential for profit and how easily contracts can be bought how easily all of their contracts can be traded. Commodities at the top of the list are easi-
or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only est to buy and sell; commodities at the bottom of the list are the most difficult. “Relative
when compared to others in the same column. Contract Liquidity” is the number of contracts to trade times total open interest times a
The number in the “Contracts to Trade for Equal Dollar Profit” column shows how volume factor, which is the greater of:
many contracts of one commodity must be traded to obtain the same potential return In volume
as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price 1 or exp –2
In 5000
Excursion).

July 2025 • Technical Analysis of Stocks & Commodities • 53

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The information in Traders’ Resource is the most accurate at the time of posting and is subject to change. Because the vendors posting to Traders’ Resource are responsible for their own listing, Technical Analysis, Inc. declines any and all
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54 • July 2025 • Technical Analysis of Stocks & Commodities

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