My Love of System Design and the Indicator That Keeps Helping Today By, D.R. Barton, Jr.

Barton TT1

Early in my work life, I was utterly smitten with a new beverage of choice—I discovered the wonders of wine. Before that, I was a die-hard beer aficionado and even brewed my own concoctions at home. That’s not much of a surprise, given my background in chemical engineering.

The transformation was anything but subtle. While employed at DuPont, I was presented with an opportunity to lead the start-up of a new carbon fiber composites manufacturing plant. The catch? I’d have to spend a considerable amount of time abroad, as a member of a technology transfer team.

The mission? Gain in-depth knowledge of the manufacturing process, monitor the construction of the new plant and then manage the start-up of the facility. The problem was that I’d have to spend a lot of time far away from home. Fortunately, that assignment was in Bordeaux, France so it wasn’t a very hard choice.

The cherry on top? Our French technology transfer team leader was on the board that classifies wines for the St. Emilion region of Bordeaux. Consequently, every chateau (vineyard) we visited treated us like royalty.

A rather delightful introduction to the enchanting world of wine, indeed.

To this day, my passion for wine endures. With the number of bottles we uncork at the Barton residence, having the perfect tool to remove those stubborn corks is of utmost importance. Thankfully, I’ve discovered the ultimate corkscrew style—lightning-fast, user-friendly and remarkably affordable. I’ll reveal the specifics at the end of this piece…

Using the right tool is so useful, especially in big market transitions like we may be in now. For traders and investors, there’s a tool that just keeps on showing up and being respected (more on that below) like it did eight weeks ago. And just like my trusty corkscrew, this trading tool is refreshingly straightforward. And it’s universally available. And we’ve looked at it twice in the last 10 months…

The “Line in the Sand” From Last July and This Past March

We talked about the 200-day simple moving average (200 SMA) as being important even though it’s just a mental construct—a relatively arbitrary calculation drawn on the chart. What, then, makes it so useful is all the people that actually look at such a long-term indicator on such a relatively frequent basis. Lots of eyeballs mean that the 200 SMA is often a reaction point on a chart in real time.

Here’s one of the important bottom-line charts from our investigation just a couple of months ago. The early 2023 break above the 200 SMA held for six+ weeks:

1150 DR Chart1 2

And then slid lower, to spend four days under and bounce back up:

1150 DR Chart2 3

And much like two months ago, I see this “Line in the Sand” over and over again in my chart scans now. Not only in the S&P 500, but in all the major U.S. indexes.

The 200 SMA has held since January for the suddenly strong Nasdaq:

1150 DR Chart3 2

And for the Small Cap Stocks, a dive below the “Line in the Sand” just days after our last review in these pages failed to recover on two tests of the line. This now represents strong resistance:

1150 DR Chart4 1

This “Line” has been so useful for so long that it’s part of my “price discipline”, which is what one of the best hedge fund analysts I got to work with called it. Or, how we see the markets at any given time.

As an investor and/or trader, where are you in developing your “price discipline”—your beliefs about markets and how you act on them at any given time? Indicators are actually just one small part of that bigger picture. A useful indicator is just one part of any good system design. R.J. Hixson will be teaching the Systems Development Workshop that is coming up in June. I hope to sit in for several of the sessions so I can upgrade my current systematic thinking as well.

I’d love to hear your thoughts and feedback on using systems and indicators, or about system design in general.

Send them to drbarton “at” vantharp.com .

Great trading and God bless you,

D. R. Barton, Jr.1150 DR Chart5 3

P.S. While I was waxing rhapsodic about my love for wine earlier in the article, I was recounting corkscrews that do a very unique task (removing a cork) well and efficiently. The first patented corkscrew was by English Reverend Samuel Henshall in 1795. And there are many kinds available today from the basic (wood handle) to the classic (Pulltap’s double-hinged waiter’s helper) to battery-operated reversing mechanical machines and those that use compressed gas to push the cork out.

But for minimum effort, simplicity, and yes – speed, I recommend a single lever style like this one by OXO.

Search for “vertical lever corkscrew” and you should find them from several manufacturers.

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