Black swan identified

At long last, traders may now identify a black swan event using charting analysis.

Yummy soybean meal

Daily chart of soybean meal going back to 1969 with some exponential lags laid over top. This is a backwards-adjusted continuous contract and notice how the price goes negative. This is creating some ugly glitches in my system that I can't seem to figure out yet. Thus, I take a break to post this.

This is the first time I've ever actually looked at the chart for a price series I have tested. I need to program some chart functionality into my system for sure.

On another note, thinking about the drawdowns incurred from trading this crossover system on soybean meal evokes many feelings, including intense fear and elation.

Yikes!

Also, here's a screenshot of all the markets I have purchased. Ready to do some testing, but acquiring data has raised some other issues first, including accounting for foreign exchange when calculating PnL in foreign futures markets. Still this is a big step.


Back to work. Cya!

D-D-Data!

Finally bought some data today! 70+ markets going back as far as 1969. $99. It was WAY too cheap it seemed. I also wrote a data scanner and an initial screening of the data highlighted only one anomaly. So far so good. The guys at the Trading Blox forum vouched for the provider, Pinnacle, as a low-cost, less frills option, which certainly works for me now. Norgate and CSI seem to be other healthy options that I will need to dip into to test data reliability.

Now to prepare the feast....!

Drawdown curve

Coming along now in various facets in designing the backtesting software. This past week completed adding equity and margin limits to both systems as well as wrote a piece to run market correlation studies. I've included many more performance statistics, including robust statistics mentioned in Curtis Faith's Way of the Turtle, which I recommend for anyone designing systems. And, finally, I can now generate drawdown curves which is a nice complement to the equity curves I have been spitting out. Please enjoy as I do!

Moving ahead, I need to account for contract rollovers in my simulation as well as formally verify the Support and Resistance system output in Excel. I also am ready to buy some data -- finally! I will buy data from two vendors for about 70 markets, domestic and foreign. It runs between $100 for $250 from what I have seen, although I do not know how reliable these vendors' collections are. I'll have to write a data scanner to test the data for inconsistencies before I can employ them.

Also, here is what my system output is looking like at the moment:

Exponential Crossover System Backtest

Side = Both

Slow Lag = 325

Fast Lag = 85

ATR Lag = 20

ATR Multi = 5

WarmUp = 20

Starting Equity = 1000000

Heat = 0.1

Start date = 12/31/1974

End date = 9/27/2005

Ending Equity = 110550027.500

ICAGR = 0.1531

RAR = 0.1328

Max. Drawdown = 0.6037

Longest Drawdown = 91 mos.

Seykota Bliss = 0.2535

R-cubed = 0.1105

-----------------------------------

# of Trades = 29

Avg. Trade Length = 22.5 mos.

Max. Trade Length = 49 mos.

Win Percentage = 0.5517

Max. Losing Streak = 4

Avg. Trade = 3777893

Avg. Profit = 7170253

Avg. Loss = 397319

Avg. Profit / Avg. Loss = 18.05

Expectancy = 3777892.84

T-test = 11.87

Optimal F = 1305581

-----------------------------------

Max % of Account Employed = 1.0005

# Margin Calls = 14

# Forced-liquidations = 2

# Pared-backed Positions = 8

# Insufficent Funds for Entry = 0

Total commissions = 49365.00

************************************ Be well!!

Whiling away time or not?

Since I don't really want to get a "real job", I have been forgoing the job search in lieu of programming, which, truthfully, could be a lot of work for nuthin'. There are really robust software packages like Trading Blox, that, if I had a job, I could purchase and do a great deal of the testing I would need to do. But, instead, I am spending 6 1/2 hours a day adding functionality to two buttons because I am treading in new programming territory. I don't know if it's worth it.

So I have feeling a little lost. But all I want to do is program, build a system, get my capital, and trade the system. I really don't want to do anything else if I can help it. A Wharton MBA degree could help provide some cachet and a safety net if I blow out and I wouldn't mind having that. But I find it hard to believe that I will get in there, especially if I do not take a semi-prestigious job now.

Maybe if I just do what I want to do--what I REALLY want to do in pursuit of my goal--then everything will fall in place. Maybe the Trading Tribe posse are right when they say:

INTENTION = RESULTS

Creating a monster

Just wanted to share an equity curve with y'all.

• This is from an Exponential Crossover system, trading S&P 500 futures and Gold futures both long and short between 1975 and 2005.
  
• Starting capital = $1,000,000
• Ending equity = $124,036,093
  
• Annual growth rate = 15.7%
• Largest drawdown = 60.4%
• Bliss (Growth rate/Lgst. drawdown) = .26

Looking forward to more testing, especially on more markets at once. Because, as of now, these system characteristics aren't too sexy, cf. the Bliss ratio. Looking for a Bliss ratio of 1.0 or better.

The end is the beginning

Last month and a half has found me forgoing short-term trading altogether and instead focusing on finding a salaried position and working on my long-term trend-following backtesting system, a project with code-name "Sunyata." Yes, I name my babies after myself.

I have finally acknowledged that short-term trading 1) does not accentuate my strengths and 2) does not appeal to my imagination: my strengths being careful intellectual analysis and creative plasticity and my true-love the "Long Pull" (or the "Short Push", whichever). This is fine with me. Self-discovery is fine with me.

Consequently, I have been putting some hours into Sunyata and have completed verification for the Support and Resistance code for multi-market testing as well as--and this I consider quite a personal triumph--coding a steamroll function that incorporates multi-market testing. So now I can push a single button and and the system will spit out every combination that I specify in a range, so that I can easily locate optimal parameters. Eureka!

Will keep you updated.

Peace!

FTM Entry Time Study

Haven't written for a week because 1) I attended SXSW from last Thu - Sun (go Japanther go!) and 2) I have been in the midst of a 4-day drawdown and did not feel like writing. I gave back about 33% during this time period. Why was the strategy performing so poorly as compared to before? Good question!


I MAY have identified the reason why I was having so many consecutive losers: my entry time was whack. If you take a gander at the table above, you will find that, given the present sample, the FTM's winning % when playing individual stocks seems to drop precipitously when the first entry is at made 10:50am or later. The market has been so strong recently that stocks were not pulling back as early in the morning as they were before. When they did, that is, after 10:50am, they had more or less blew their loads for the morning and had no steam left. This phenomenon does not seem to be isolated to the last four days however: looking back I found that many of my losers occur on first entries after 10:50am. So we will see going forward if avoiding first entries after 10:50am will also help me evade a rapid drawdown such as the one I recently experienced. Most likely I will need to collect more data until I can be assured that this phenomenon persists.

Peace & love.

And for you metalheads out there!

Present Trading Plan

Since I have had trouble the last few days with entering positions that do not fit my criteria to the tee, I wanted to explicitly note my current trading plan, so that I know from now on exactly what plan I will follow until repetitive experience teaches me otherwise. The current state of the plan--as I commit to following it--is:

MY TRADING PLAN

• I run screens on Yahoo! Finance between 9:50 and 10AM to find very weak/strong stocks, i.e. > 3% off open.
• I trade from 10:10 - 11:45AM.
• I place trades off 5-min charts.
• I take only Floor Trader Method setups, such that:
  

1. Pullback pierces Bollinger Band
2. I enter on a break of the piercing bar
3. Pullback is on decreasing or constant volatility
4. At least one of the EMAs is rising

An example of a Floor Trader Method setup.

• I move my stop to breakeven when price advances 2X entry setup.
• I exit my entire position on breaks of levels formed on 2-minute chart if stop has been moved to breakeven (Home Run exit). See an example.
  
• I risk a fixed amount of equity per trade.

FTM Equity Curve and some trades

Above is the equity curve by trade for the FTM over one month. The first two weeks I spent getting used to the setup and then I kind of fell into a groove. I wonder over the long-run what the performance characteristics of this setup are, i.e. win%, avg. winning R, expectancy, etc...

Went 2-0-0 today with avg. win. R of 2.50. Being really selective, thus am not in some winning trades, and not in some losing ones as well. The ones I do pick though, I feel have a good chance of generating many Rs, cf. BG trade below. I chose not to take the ITW, STT, or second FE setup because either there was an increase in volatility, the stock was not coming off a new high, or the MAs went negative prior to the entry. Although a stock coming off a new high shows strength, I do not know if it is necessary criteria for a long setup. I will have to further investigate that because I do not want to be passing on good trades.

Best to you!

Fresh equity curve & FTM performance update

So I have verified that my code for the Exponential Crossover system is entirely correct and have begun to experiment with the system's variables a little, just to get used to how they generally affect system performance. Above is an equity curve generated for Comex Gold between 1975 and 2005. The system was always in the market, long or short, and parameters were as follows:

SlowLag = 260
FastLag = 50
Heat = 4% (percentage of closed balance risked on each trade)
ATR Multiplier = 2

The max. drawdown during the run was a rough 75% with an ICAGR (i.e. compounded return) of 12%. That's not a very good ratio. Over 30 years, the system turned $1M into about $30M.

Yesterday, I lost money trading. My record was 2-4-0 and I lost 1R, which isn't too bad. My record probably should have been 2-2-2, but I did not move my stop to breakeven on two trades that came within 1 cent of 2x the initial setup. Had I done that, I would have been up 1R yesterday. Notwithstanding yesterday's small loss, I started today feeling pressure to make money, which for me is not as profitable of a mental state. I got angry a few times, especially when I missed a good JPM trade, because I was afraid to lose money, to fail. My emotions were in vain because although it wasn't a huge day, I did just fine, even without the JPM trade. My record was 3-1-2, but my average winning R was only 1.51. That higher win% helps! Today I made 4.86R.

Looking at my weeks I am well on my way to my second profitable week in a row. Woohoo!

Still truckin' Mach II

Despite being up 20 handles by 10am, could not find many decent setups. My record was 2-0-0 with avg. R of 2.65. My two winners are below: you'll notice that the HOT kept going higher. After he consolidated and then stopped me out on the downside, there was another buy signal, which I did not take, simply because it was the afternoon. The market is very strong today, so maybe trading all day would be okay. However, I would like to work on my programming.

There were some winners that did not quite meet my setup criteria; but, then there were also several losers that did not as well.

Peace!

Still truckin'

Record today 5-5-0 with an average winning R of 2.42. Had five straight losers in the morning, but made up for everything and much more with one--well, actually two--trades in WFC. (See below.) Observation for today being that obviously, losers are an inevitable part of of this game, but why not try to eliminate as many was you can? So far, this strategy produces about 50 - 60% winners. Don't know if I can break that 60% barrier or not. Regardless, with big 4R & 5R winners, and sometimes much more, the 1R losers don't matter that much.


Also, completed the Exponential Crossover project (see previous post) and am now pretty much finished with the Support and Resistance project. My backtesting software is coming along and I am enjoying programming immensely! I trade from about 10am - 12pm and try to work on programming the remainder of the day.

Peace!

using System.FloorTraderMethod;

private void CalculateATR()
{
decimal atr1;
decimal atr2;
decimal atr3;
decimal maxATR;
for (int i = 0; i <= Date.Count; i++) { if (i == 0) ATR.Add(High[i] - Low[i]); else { atr1 = Math.Abs(Close[i - 1] - High[i]); atr2 = Math.Abs(Close[i - 1] - Low[i]); atr3 = High[i] - Low[i]; maxATR = Math.Max(atr1, atr2); maxATR = Math.Max(maxATR, atr3); ATR.Add(maxATR); } } }

Last night, after much delay and excuse-making, I finally began programming the Exponential Crossover project on the Trading Tribe website! I am working in C#. I am amazed how foreign programming language used to seem to me, but now I am certainly becoming handy with it. I'll post some of the project: it's so apparently technical, but in actuality very organic. I like that paradoxical element about it.

I quit trading today around 12:00pm because I did not get enough sleep last night and I caught some great trades during my sweet spot from 10:30 - 11:30pm. I will have to figure out how to trade the afternoon because my present strategy of playing the strongest/weakest names for the day do not seem to work nearly as well after 2pm. Also, institutions usually put their orders in around 3:30pm, which does not give much time for a pullback I need for an entry.

Did well today: 6-4-1 with an average winning R of 2.10. Hit a home run in CAT with a 4R trade and should have had a monster in WFC (probably 6.5Rs) but put my stop too close and only made 3R. I will look into giving stocks a buffer above/below the pullback level on the 2-min chart, so that I do not get shaken out. Also, have found that more "orderly" pullbacks generate winners more often and often BIGGER winners. If you take a look at some of the lackluster trades below, such as MDR, MEE, and VLY, the pullback directly prior to the entry is pretty "messy" whereas the great trades, such as CMC, CAT, and to some extent WFC, are more or less streamlined. I'll start to keep an eye out for that.




Also, wanted to show how I am booking profits with the home-run exit strategy. CAT below is an example. I use a binary exit and move my stop up/down based on levels developed on a lower timeframe, which is a 2-min chart in this case. The ascending red lines show the movement of the stop.


Best to you all!

Still refining...

Record today was 3-3-0 with an average winning R of 1.61. Not too sexy, but did finish positive. Two positive days in a row! Yippee! I did not book any for 2R today but instead went for home runs, i.e. moving stop to breakeven after 2R target is breached and using a lower timeframe to determine levels to move stop down to. I will be trying this method out while paper trading to see if the frequency of outsize winners makes that exit more profitable than an R-based, singles-and-doubles exit strategy.

Also, if the signal bar (BB-piercing bar) has a greater range than previous bar, that MAY decrease the odds of winning. This makes sense though in light of the nature of increasing volatility and its effect on the odds of winning. It seems that any abnormal increase in volatility makes a play suspect. Also, increasing volume in the direction of the pullback may also decrease the odds of winning. I will be investigating these further.

Here are some of today's highlights.

Refining the Floor Trader Method

Slowly increasing my percentage winners. Today my win percentage was 40% with an average R of 2.90. I would like to be 60 - 70% correct on average, if possible. Since I have included the Bollinger Bands in my method, I have neglected the nature of the pullbacks, i.e. how many bars are included and changes in volatility. Looking back at my losers from today, I see that they most often occur on increasing volatility or on pullbacks with large numbers of bars. This is not new information, but I need to be reminded after including the Bollinger Bands for entries.

Straightforward Bollinger Band entries seem to work much better than categorizing entries in relation to the EMAs, e.g. Level 1, Level 2 & Level 3: BBs get me into more low-risk trades in the direction of the trend. After the BBs generated a number of false signals on the 3-min chart, I am only entering on the 5-min chart, which seems to be more reliable.

As for exits, today was a very bearish trending day and moving stops down would have been exponentially more profitable than booking at multiples of R. (See the WGOV trade below.) I am considering trying to hit home runs all the time, that is, once I am in the money 2R, moving my stop to breakeven and then just letting the stock work for me. I do not know if I can handle the subsequent gyrations in my P&L curve or not, nor is it apparent if this exit strategy is more profitable in the long-run. I will have to see if > 2R winners occur with enough frequency to justify trying to hit home runs all the time.

Here are some winners & losers from the day. You can probably figure out which is which.

More BB-Floor Trader Hybrid Examples and Comments on Instinct

I see so many examples of the BB extension to the Floor Trader Method. It really helps get me in spots where the 18EMA is never touched. However, I wonder if it is as effective overall as the Level I setup. There certainly are more trades, but there may be more losers as well.

A loser.

A breakeven trade.
A winner.
Another winner.

Also, I would like to touch on another topic: instinct. I swear I find myself in the crappiest examples of these trades and I think it is because I have not fully developed a winning instinct, i.e. the instinct to know which stocks to play and which ones are most likely duds. This may be because I am use to losing and identify as a "loser." I am most comfortable losing, so I lose and lose with great dramatic flourish. From now on, I am going to consciously try to gravitate towards stocks that would seem to offer the most reward. Perhaps, this will help shift my self-perception from "loser" to "winner" and I can eliminate the intra-day drama of "Oh, amazing, ANOTHER LOSER!"

Peace to y'all.

Hail zee Bollinger Band! And sundry.

After checking out NQoos' Jimmer BB entries for the Floor Trader Method, as opposed to pure price action entries, I wanted to see if I could include Bollinger Bands in my style as well, particularly because I felt I was still missing out on some great moves where there were no Level 1 entries along the way.

After some preliminary testing, the best setup so far seems to be:

• 3-min charts. They seem to offer a good tradeoff between risk and false entries;
• Bollinger Band parameters per Jimmer's setup, i.e. 1.8STDEV and 8-pd MA;
• Trending 9EMA and 18EMA, whose periods are based on 5-MIN CHART (so roughly 15EMA and 30EMA on 3-min chart); and
  
• A candle that has pierced the Lower BB, if EMAs are uptrending, or Upper BB if EMAs downtrending.

Entry is on the break of the high of candle that has broken Lower BB or low of candle that has pierced Upper BB.

Here is a great example of this setup working splendidly in NEM, but this just may be the creme de la creme. There will probably need to be some tweaking.


Also, I offer some other trades based on my Level 1 entry off the 5-min chart.

A loser. Don't really know except 18EMA barely up and pullback was really hard.

A winner. Looked good to begin with. Decreasing volatility with "rounding off" effect.

Breakeven. Hit 2x the setup so moved my stop to breakeven.

A winner. First test of 18EMA usually the most reliable. 9EMA pointing upward in this case. The losing OSK trade above was the next pullback to the 18EMA.

A loser. Don't really know why, except that I have been noticing that when you have a bar or two with shrunken ranges in an otherwise constant volatility pullback, the odds of winning seem to decrease.

Peazout bruthaz.

And now for the failures (mostly)

Still trying to sort out what makes a winner and what makes a loser when trading the Floor Trader Method. Here are some losers for comparison to yesterday's winners.

This SPY loser grazed the 18ema which I am finding exceedingly important for minimizing losers. However, upon inspection as SPY pulled back it did so on increasing volatility, demonstrating that the pullback had more force in it than can simply be generated by "profit-taking" or a short break in the buying. I checked the ranges of the bars on the pullback and in order they were: 41 cents, 50 cents, 42 cents, and 39 cents. I interpreted these ranges to be constant, but from just a glance at the chart, that down move on the 2nd bar (which had a 50 cent range), just LOOKS like an increase in volatility. Sometimes what's called for is not specificity, but just a quick impression.


The other loser I want to highlight was in AEM. This trade occurred with 10 min to spare in the session. Sometimes I have seen institutions complete their orders in just the nick of time, so I feel this was not a major factor contributing to this trade as a loser. Instead, I question the number of bars in the pullback, i.e. two. I don't know how valuable these spikes are in comparison to a gradual 3 -5 bar pullback that leads to a continued trend. More Experience Required.

And now, so as to be TOO one-sided, voila!, some winners!



Both 3 - 5 bar pullbacks on decreasing volatility with a pierced 18ema. Niiiiiice.

Have a great weekend!