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Spectrum Trading System

The Spectrum System enters positions using the classic concepts of follow through and range expansion. A self adaptive pattern recognition routine defines the probability of an intraday trend continuing into the next several trading sessions. Breakouts of the early range in the direction of the anticipated follow-through trend are used to enter market positions.

System Purchase Form

Testing Results

Dow e mini Futures Contract

Individual Contract Testing


Total Net Profit Winning Trades Losing Trades Percent Profitable Avg. Trade Net Profit Profit Factor
June-02 $3,375.00 24 19 55.81% $86.86 1.75
Sept-02 $1,215.00 34 28 54.19% $19.60 1.07
Dec-02 ($200.00) 28 27 50.91% ($3.64) .98
March-03 $1,665.00 31 28 52.54% $28.05 1.19
June-03 $5,900.00 31 24 56.36% $107.27 2.04
Sept-03** $1,990.00 20 17 54.05% $53.78 1.52


$13,945.00 168 143 54.01% $44.83 1.42

** Through August 15, 2003

System Theory

The SPECTRUM portfolio trading method utilizes two basic theories of short term trend analysis - follow through and range expansion.

Follow Through

Follow through can best be described as a tendency of a market, when in a short-term trend, to stay in the trend into the next day of trading. A market which has a weak close is expected to follow through to the downside at least for part of the next day; a market exhibiting a stronger close should show some strength early tomorrow.

For our purposes, we'll define the strength or weakness of a daily trend by the relative position of the close with respect to the high and the low of the day.

If the close is relatively near the high of the day the market is exhibiting a strong close - one which should follow through to the upside in early trading for the next day.

If the close is nearer the lowest price of that market for the day, it is defined to be a weak close which should lead to lower prices during at least the early part of the trade tomorrow.

In the image to the left, note examples of market follow through.


Bar #1 shows a weak close with the close of the day much closer to the low than the high. Observe how the market, in this case, respects the follow through pressure of the preceding day by trading considerably lower in bar #2 before rallying to close near the high of the day.


Again the market respects the follow through tendency in bar #3 as the market continues to trade higher and close again near the high of the day.


Is every follow through signal effective? Of course not, but the percentage is great enough, when combined with range expansion, to give us a definite edge in the market.

Range Expansion

Range expansion is another rather basic concept, which by itself, has some trading merit. Its effectiveness is expanded considerably when combined with follow through.

Think about the first few minutes of trading posted for the day.  What is the likelihood of this range being the range for the entire day? I think you would agree that it is reasonably small. Since we are fairly certain that the range will expand from this point, it would be extremely helpful if we were able to determine, with some degree of certainty, on which side of the early range this expansion was most likely to occur.


The spectrum approach to trading combines both the follow through and range expansion tendencies into one trading theory. Although the concept is simple and straightforward, the calculations are not.

The SPECTRUM System program calculates the relative strength or weakness of the market over the past several days using the follow through strategy outlined above. This calculation gives the system a long or short bias for the next trading day.

It then calculates the probability of the market, with respect to expected follow through, to move higher or lower from the open based on historical behavior of the market in question.

The SPECTRUM Daily System is a true reversal system, or one which is always in the market. A buy signal reverses the position from short to long; a sell signal reverses the position from long to short.

If the system is in a short position a buy stop is placed above the daily open which will reverse the position from short to long if the market moves through our buy stop.

If the system is in a long position a sell stop is placed below the daily open which will reverse the position from long to short if our stop is hit.

No other stops are active in the system as it has been programmed and tested other than the end of day exit for the intra-day system.

Users should feel free to add additional money management, target, or trailing stops to the by adding the signals provided within the TradeStation Platform.



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By John F. Clayburg

New York  Chichester Weinheim Brisbane  Singapore Toronto
ISBN: 0-471-41482-4
June 2001
320 Pages
Hard Cover
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