iShares UK Equity Index Fund rate of change indicator
I read this post before I started investing in index funds.
This answer provides really good insights and analysis which I am thinking of following to increase my earnings.
I am currently investing in UK Equity Index Fund and I found out using Fidelity tools I can display a chart with Rate of Change set to 100 (or any other numerical Period value). The UI for it looks like this:
The above picture shows I am able to set Period, but it is not given if it is in days, weeks or months?
Shall I assume that these are days?
The author of the answer mentioned above sets the ROC indicator as follows:
"Using a simple Rate of Change indicator over the past 100 days and smoothed out with a 50 day Moving Average"
Given the screenshot above, shall I set Period to 50 days instead?
Also, I don't fully understand what "indicator over the past 100 days" means.
Using the Period set to 100, I was able to create the following chart:
It is clearly visible that the ROC indicator crosses 0 and goes into negatives on the 18th of August 2018.
Am I correct that given the answer mentioned, I should have sold all my shares in this index on that day?
Also, giving the ROC tool provided by Fidelity(UK) (my current broker) which has only one variable, am I able to create ROC indicator over the past 100 days and smoothed out with a 50 day?
If not, is there an online tool that I can use for that for free?
I know it's a very loaded post but would really appreciate the answers to all the questions.
Thanks!
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Period refers to the number of data points that you are looking at. If it is daily data then a period of 10 covers ten days. If it is one minute bars then a period of 10 covers 10 one minute bars. For this discussion, assume that it's daily data.
ROC is short for Rate of Change. It can be the ROC in percent or the ROC in points. Unless specified, it is the value of today's close minus the value of the close "X" days ago (if so inclined, you could evaluate the ROC of the Open or High or Low). Therefore, a 100 period ROC would be the ROC over the past 100 days (today's close minus the close from 100 days ago). This value is calculated for the range of data that you are looking at. Once you have the ROC values, you apply a 50 day moving average to it, which as indicated in your second link, is exponential (EMA). Though not as accurate, you can get a reasonable approximation of a 100 period ROC by looking at a 20 period ROC for weekly data (and then use a 10 day EMA for this indicator).
I don't know if there is an online tool that offers this calculation. I doubt that any traditional broker like Fidelity will. The broker Trade Station allows complex formula calculations. Any decent technical analysis software program will allow this since it is a very simple thing to write the two formulas for this or even one formula that encompasses both calculations. You just as easily set this up in Excel.
FWIW, the back test that you linked to is simplistic. Comparing investing k on one specific day with dribbling in k over 8 years is not very scientific. Had one plunked the k down on 3/09/09 - and done nothing - then the return would have been more than double what this "system" returned. This was tantamount to curve fitting.
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