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Trading the I-Unit S&P/TSE Gold Index

09/27/02 10:09:59 AM
by Koos van der Merwe

I-Units are exchange traded funds that are traded like stocks on the Toronto stock exchange. They mirror the underlying index.

Security:   XGD.T
Position:   Hold

In my previous article "Technical Simplicity" I showed you the JM technique of market direction using the QQQs as an example. In my analysis I used a moving average as a closing trigger. In this analysis of the I-Unit S&P/TSE Gold Index, I have left out the moving average trigger, relying instead on a stop-loss and basic JM strategy.

To recap, the JM strategy is a 15-period moving average offset by a positive and a negative percentage. I have found that 2% works in most instances, but in certain circumstances 3% and even 5% can be used. The object is to look for interim turning points within the bands without triggering too many buy or sell signals. With this chart, I found that 3% was the best percentage to use, and the moving average is therefore offset by 3% and -3%. Occasionally, the positive and negative percentages can vary, using 3% and -2% for example, but I have found this to be a rare occurrence.

The following chart is of the I-Unit Gold Index.

Figure 1: Gold S&P/TSE Canadian Gold Index. This chart shows entry and exit points for a shorting opportunity.
Graphic provided by: AdvancedGET.
I have placed trendlines on the chart so you can see how the JM strategy is inclined to act before a trendline is broken, even keeping you in the market when a resistance line becomes a support line as shown at the "BUY" signal.

At the moment, the chart is still positive, and any bounce off the lower moving average band can be considered a position to add stock to your holdings, as long as the RSI indicator is not in an overbought position.

I have looked at using the strategy with a bar chart or a candlestick chart, but found that it worked better with a line chart of the closing price only. It is a very conservative strategy. You will only enter the market in the direction of the trend. I have seen on more than one occasion, that a price will break the upper band then continue drifting down using the upper MA as a support level. Most times when this occurs, a stop-loss takes you out of the market for a small loss. On the whole however, the strategy is an excellent addition to your quiver of technical tools.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
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