MONEY FLOW AND OPEN INTEREST WEIGHTED PRICES: MAJOR TREND INDICATORS FOR USE IN MULTIPLE HEDGING WITH MOVING AVERAGES (FUTURES).

摘要

Scope of Study. Multiple hedging requires employment of some method or system that signals futures market entry and exit. Moving average systems are the most common mechanism employed to determine position entry and exit timing. The hypotheses presented herein explore the value of the use of open interest in conjunction with simple two moving average crossover market signal systems. Positions in the futures market will be profitable only if the position coincides with the prevailing trend in the market. The prevailing trend of the market is proposed to be measured by the trend in open interest weighted prices. This weighted price reflects both price and open interest in all contract months. The trend in open interest weighted prices is identified by employing three separate two moving average crossover models. The trend in open interest weighted prices is used as a pre-filter along with an open interest filter for 100 combinations of simple moving averages.;Findings and Conclusions. The money flow and open interest weighted price employed as pre-filters for simple moving averages improved trading profits from 1977 through 1982 on all contract months. Post-sample 1983 results employing the optimal filtered crossover models were also more profitable than unfiltered moving average systems. The two hypothesized filters proved to be of substantial value in reducing whip-saw trades thereby increasing profits to the multiple hedge market entry signals generated by a simple two average crossover signal.;A second pre-filter for simple two moving average crossover models, called money flow, was also analyzed. Previous theories indicate that total financial commitment to a market will trend in the direction of the price trend. Daily money flow is identified as the sum of the products of each contract month's closing price and open interest. Money flow trend is identified by three separate simple two crossover moving average models. Futures positions signaled by traditional moving average methods are entered only when the money flow trend is in agreement with the price trend.