Free Friday 9 – Intermarket Signals
What is Intermarket Analysis?
Intermarket analysis is a method of analyzing one market based on another market or their intermarket relationship. Common intermarket analysis techniques include correlation, cointegration, and relative value. However, in its simplest form, one can also trade one market based on what another market is doing on its own.
Intermarket Analysis Trading Strategy Example
In this week’s Free Friday strategy (#9) I display a strategy built using inter-market signals. Inter-market signals/analysis is the ability to generate trading signals and filters for a primary market based on what another market may be doing.
For example, you may only want to buy the stock market when gold is trading lower or when bonds are below their 200 simple moving average.
Build Alpha now let’s you test these exact sort of scenarios and build strategies taking into account up to 3 markets (plus Vix). This specific strategy was built for SPY (S&P500 ETF) but takes into account Gold (GLD ETF) and holds for a maximum of 2 days.
There are no other exit rules or sophisticated risk management; all trades assume only a 100 share position for testing purposes.
1. $SPY’s 2-period RSI <= 90
2. Gold’s 50 period simple moving average is greater than Gold’s 200 period simple moving average
3. Gold closed below both its 10 period simple moving average and its 50 period simple moving average
Exit after holding for 2 days
Intermarket Analysis with Build Alpha
For a better explanation of inter-market signals and how to configure Build Alpha to generate strategies based on them please watch this short video I made: https://www.youtube.com/watch?v=CaFRO_gvR-8
There might even be TradeStation/MultiCharts code in the video?!?
Step 1 – Select Symbols
In the upper left, select the primary symbol in the Symbol dropdown. This is the primary market that the automated trading strategy will execute trades on. Next, select a symbol for market 2. This is the secondary market we can use to generate intermarket technical analysis signals.
Step 2 – Select Signals
Scroll down in the built-in signal library and notice signals prefixed with “market 2”. These signals are calculated on market 2 and can be used to generate signals to trade the primary symbols. If you have selected a symbol for market 3 you may also notice signals prefixed with “market 3”.
Step 3 – Run Simulation
After selecting your symbols and signals, hit simulation. Build Alpha will begin building the best automated trading strategies based on your inputs. If the strategy results do not use any market 2 (or market 3) signals that is because these signals did not improve or enhance performance.
Thanks and enjoy the weekend,
Thanks for reading,
4 thoughts on “Free Friday 9 – Intermarket Signals”
1. Do you exit on the close of the seconde day or on the open of the third?
For exampel if the entry signals occur on third of november and i buy on the open of the fourth. Do i sell on the close of the fifth of november or on the opening of sixth of november?
2. If the entry signal occur both third of mars and on the fourth do i enter to trades or is it maximum one trade at a time?
1. I believe for this strategy you would exit on close of the second day. I should note that Build Alpha does have the ability to create strategies with exits on either the close or the next open.
2. Nope, only one trade at a time.
Thanks for checking out the site,
Nice approach, I remember Larry Williams in one of his earliest books using Gold to filter his stocks trade! He used T-Bonds too, but I think with rising rates scenario these correlations need to be carefully monitored..